MSAs Better than COBRA

Published June 1, 2002

The U.S. Senate may soon debate Trade Adjustment Assistance (TAA) legislation that would provide health coverage for workers who lose their jobs due to foreign competition.

The best thing Congress can do to preserve displaced workers’ health coverage is allow all workers to open a personal, tax-preferred Archer Medical Savings Account (MSA) that can meet their medical needs in the event they lose their job.

Majority Leader Tom Daschle and Senator Breaux made this point nearly a decade ago, in a September 8, 1992 letter seeking support for their MSA bill:

Once a Medical Care Savings Account [MSA] is established for an employee, it is fully portable. Money in the account can be used to continue insurance while an employee is between jobs or on strike. … Any money not spent out of a given year’s allowance could be kept by the employee in an account for future medical needs during times of unemployment or for long-term care.

Today, MSAs are available through a limited demonstration program , where they have proven popular. As Breaux and Daschle note, these MSA holders are already protected from a lapse in health coverage while between jobs. Congress should offer all Americans this protection by making MSAs more widely available.

At roughly the same cost, MSAs would offer displaced workers far more assistance than is offered by the leading Democrat proposal (contained in S 1209), which targets only workers who are TAA-eligible. Congressional Budget Office (CBO) estimates suggest the Democrat proposal would cover 75,000 otherwise-uninsured workers at a cost of $1.2 billion over five years.

By contrast, data from the Internal Revenue Service and Office of Management and Budget indicate MSAs could cover more than 380,000 otherwise-uninsured workers for the same amount of money, making MSAs five times more cost-effective. The CBO estimates expanding MSAs to all private-sector workers would cost $1.8 billion over five years.

COBRA Less Helpful

The Democrat plan would spend taxpayer dollars to help some TAA-eligible workers buy coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), and would encourage states to extend Medicaid coverage to other TAA-eligible workers.

COBRA allows certain workers to keep their coverage after they leave a job. COBRA coverage is expensive—both for workers (who must pay their own share of the premium, plus their employer’s share, plus a surcharge) and employers (because COBRA users still consume some 50 percent more than they contribute, a cost that is passed on to employers and remaining employees).

Encouraging more workers to opt for COBRA coverage would impose further costs on employers. Workers would not fare much better, because the Democrat plan helps COBRA-eligible workers only if they stay with their former employer’s health plan.

Democrats offer nothing but Medicaid to workers ineligible for COBRA, and absolutely nothing to workers ineligible for TAA.

If Congress is serious about helping displaced workers maintain health coverage, it should immediately make MSAs widely available to all private-sector workers. To choose the Democrat plan instead would be to deny health coverage to over 300,000 Americans.

Michael F. Cannon is domestic policy analyst and Larry E. Craig is chairman for the Republican Policy Committee of the United States Senate. They can be reached by mail at 347 Russell Senate Office Building, Washington, DC 20510; phone 202/224-3463; fax 202/224-1235; email [email protected]; Web