howardnlby Howard Stephenson
In case you hadn’t noticed, last week was “Cover the Uninsured Week.” All across the country community leaders and organizations have been involved in an effort to educate policy makers and the public about the problem of U.S. residents who have no health insurance. The organizers of Uninsured Week told us that nationally, there are 41 million persons who lack insurance. In Utah, it is estimated that there are about 335,000 individuals without any type of health insurance, of whom 71,000 are children. Of the Utahns without health care coverage, 90 percent are from “working” families.
A who’s who list of notables and a broad range of organizations supported the Uninsured Week which was initiated by the Robert Wood Johnson Foundation. Advocates called for health care reforms that would bring some type of coverage to all Americans.
The problem is, those advocating for health care reforms have often been unwilling to practice the same protocol that has worked so well in providing good health care: before prescribing a solution, first discover the cause of the problem. One of the causes of America’s health crisis stems from government regulations on wages in the middle of the last century which prompted employers to get into the health insurance business. Then, when wage controls were lifted, the unfair tax advantages given to employers to purchase health insurance for their employees with pre-tax dollars continued to keep individuals from controlling their own health insurance decisions.
This “third party payer” concept has shielded patients from their natural inclinations to be conscientious health care consumers. This arrangement has distorted normal market forces by confusing who the customer really is.
Additionally, health insurance plans have actually become costly and cumbersome pre-paid health care plans – covering first-dollar routine health care services – in contrast to less costly insurance against catastrophic medical needs. One means of remedying these problems is for Congress to incent citizens to opt into Medical Savings Accounts (MSAs) as an alternative to the pre-paid health care plans.
The problem is, according to Joe Moser, a health policy analyst at the Galen Institute, federal regulations and tax policies have been hostile to the success of MSAs by artificially limiting demand for MSA plans, resulting in fewer employers and individuals being able to purchase them.
As explained by Mr. Moser, MSAs allow consumers to save pretax dollars in an account for out-of-pocket medical expenses. The account must be combined with a qualified high-deductible (and therefore, low cost) health insurance plan for protection against catastrophic medical expenses. The general theory is that the premium savings realized by purchasing a less expensive, high-deductible insurance plan can be placed in the savings account and used for qualified medical expenses, or rolled over from year to year if the holder doesn’t use the funds. Moser argues that the best part of this arrangement is that the consumer owns the account. As the owner of the account, the consumer has an incentive to comparison-shop for medical services based on quality and price. The consumer is in control. MSAs are also more portable than most health insurance plans. Because the consumer owns the account, the account follows him or her from job to job. The money saved in the account stays there, earning interest. Account balances can be withdrawn tax-free at any time to pay routine medical expenses up to the plan deductible, co-payments and coinsurance after the deductible, or other qualified medical expenses like dental services and vision care. MSAs reward consumers who shop wisely for health care and encourage a more efficient allocation of resources in health spending. The consumer with an MSA knows insurance isn’t paying all or most of his medical bills, so he doesn’t have an incentive to over-spend on health services. While MSAs are ideal from an economist’s standpoint because they “get the incentives right,” they have been less than ideal in practice because of the heavy restrictions placed on them by Congress.
MSAs are a demonstration project begun in 1996 and originally set to expire in five years. In 2001, the expiration date was extended to December 31, 2003. Congress will decide again this year whether to kill the project, extend it again as a demonstration, or make the program permanent. It is during this reauthorization process that Congress can correct the problems with MSAs to make them a more viable option. According to Moser, the biggest problem with MSAs is that the population allowed to purchase them is extremely limited. Under current law, only the self-employed and small businesses with fewer than 50 employees are allowed to purchase tax-advantaged MSAs. More insurers would offer MSAs if the demonstration project were made permanent and all employers and individuals were allowed to purchase MSAs. The 750,000 cap on enrollment placed on MSAs at inception should also be removed. A demand exists for MSAs, if only all of the people who could benefit from them could gain access to them. A recent Zogby poll found 89 percent of those polled wanted the option of purchasing an MSA. Expanding MSAs to make them available to all employers and individuals would help millions of uninsured citizens. A recent Council for Affordable Health Insurance analysis of IRS data found 73 percent of those who had purchased MSAs to date were previously uninsured. Critics say the current MSA demonstration project has resulted in far fewer participants than anticipated, and that this is a reason to believe MSAs don’t work. But MSAs have been regulated to fail by those hoping for government-run healthcare. Once Congress liberates the MSA from its restrictions, individuals and employers will find it is a winning concept that encourages wise health care decisions by consumers and reduces health spending. If MSAs were allowed to be used by all citizens, they would re-instate the patient as the real consumer of health care services while preventing the pressure for single-payer universal health care provided by government. Widespread availability of MSAs would also remove much of the need for any more “Cover the Uninsured” weeks.