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ARTICLE
Free the MSA
by Twila Brase, R.N.
President, CCHC
The health insurance industry is a mess. Premiums are
skyrocketing, the number of people covered by insurance is
falling, and even those with insurance are not guaranteed access
to health care, as evidenced by HMO horror stories. Not
surprisingly, politicians and employers face public discontent.
The federal tax code is at the heart of our current health
care challenges: restraining cost inflation, insuring the
uninsured,
enhancing quality of care, and improving patient access. The
tax-free Medical Savings Account (MSA) is a powerful answer.Yet
advocates of single-payer plans, HMOs, and government officials,
fearing loss of either profit or control, have done their best to
discredit the idea.
The MSA is a relatively simple concept based on the idea of
saving for anticipated medical expenses. The employer purchases a
high-deductible catastrophic health insurance plan and an MSA for
the employee. The employer uses employee wages to pay for the
inexpensive insurance premium and contributes monthly to the
employee's MSA. The monies are used as needed by the employee.
Those who fear high deductibles under such an arrangement
should take heart. In any given year, few people find themselves
faced with expensive medical costs. By the time most people incur
a major health expense, they will have more than enough in their
MSA to pay the deductible.
Health economists Gail A Jensen and Robert J. Morlock in a
1989 survey of one million individuals in large (and typically
generous) self-insured plans found that 89 percent filed
claims for less than $2,000, 73 percent filed claims for less than
$500, and one-third filed no claims at all.
Who controls your money?
The one question consumers should be asking is, "Who should
control my health care money? Me or my health plan?" Many
employees have yet to realize that health care benefits are
income--wages they could receive in cold hard cash to use as
investments, and a means to take control over their health care
purchases.
A tax-sheltered medical fund is a golden opportunity to
prepare for short- and long-term health care expenses. A simple
$1,000 contribution held for 40 years at 9 percent interest will
grow to $30,000. HMOs despise these accounts, and it's no wonder.
They want for themselves the investment potential that rightly
belongs to the individual.
According to John C. Goodman and Gerald L. Musgrave, who
cowrote a National Center for Policy Analysis report, "The
Economic Case for Medical Savings Accounts, "[e]ach dollar of
premium an employer spends on third-party insurance for the
employee avoids a 28 percent income tax, a 15.3 percent FICA
(Social Security) tax and a 4, 5, or 6 percent state and local
income tax, depending on where the individual lives. This means
government is effectively 'paying' as much as one-half of the
premium.
"On the other hand, if the employer attempts to deposit that
same dollar in a savings account so that the employee can pay
medical bills directly, the tax authorities confiscate almost half
the money before it is deposited and tax any interest income the
deposit generates."
Medical Savings Accounts bring the tax-savings directly to the
employee, the self-employed, and eventually, even the
unemployed. Money in a Medical Savings Account is tax-free
going in, tax-free while compounding interest, and tax-free coming
out. The MSA is portable and owned by the individual, not the
employer.
Liberalization needed
MSAs have yet to catch on, in part due to financial and other
restrictions imposed by law. They are operating as a four-year
demonstration project with a limited market. At present, MSAs are
available only to the self-employed and employees of small
organizations, with a nationwide limit of 750,000 individuals or
groups. There is little incentive for insurance companies and
agents to offer or market a product to a small pool that can be
expanded only through a political decision.
Furthermore, the full amount of the deductible cannot be
contributed to the MSA, leaving a small out-of-pocket gap before
the deductible is reached, further reducing the MSA's
attractiveness. Some in Congress suggest permitting 100 percent of
the deductible to be contributed and making the tax-free accounts
permanent and available to everyone.
The underlying cause of our health care financing woes lies
primarily in the entrenchment of third-party payer involvement,
bureaucracy, and waste. The solution is a return to the individual
ownership, individual responsibility, and individual
decision-making embodied in the Medical Savings Account. Congress
cannot afford to look the other way any longer.
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Citizens' Council on Health Care
1954 University Avenue West, Suite 8, St. Paul, MN 55104
Phone: 651.646.8935 / Fax: 651.646.0100, e-mail
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