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MEDICAL SAVINGS ACCOUNTS
July 22, 1998
Summary of Consumers Union Testimony
Medical Savings Accounts (MSA’s)
July 21, 1998
Both the House and the Senate managed care proposals unravel the careful MSA demonstration compromise that enabled the enactment of the Health Insurance Portability and Accountability Act of 1996. Consumers Union opposes expanded MSA’s for the following reasons:
It is time to recognize MSA’s for what they are -- a marketplace flop, a mechanism that benefits the healthy (at the expense of the sick), and a drain on the federal treasury. Expanded MSA’s do not belong in legislation designed to improve the quality of our health care system.
Introduction. Thank you for inviting Consumers Union to testify today on the issue of medical savings accounts (MSA’s). We strongly urge the Congress to remove poison pills such as expanded medical savings accounts from legislation that is designed to improve the quality of health care provided through managed care.
Both the House and the Senate GOP managed care proposals include major expansions of Medical Savings Accounts. We believe that expansion of medical savings accounts will be harmful to the health care system. MSA’s divide the rich from the poor, the healthy from the sick, the young from the old. It is time to recognize MSA’s for what they are – a marketplace flop, a mechanism that benefits the healthy (at the expense of the sick), and a drain on the federal treasury.
After intense negotiations, Congress enacted the Health Insurance Portability and Accountability Act of 1996, including a carefully crafted MSA demonstration program. The prospects of large scale MSA’s threatened the enactment of this legislation, and only after agreeing on a limited demonstration, with a number of consumer protections, did the bill get through both the House and the Senate and become law. Now, before the results of the demonstration are in, both the House and the Senate GOP managed care proposals would remove restrictions on their sale and pave the way to the realization of our worst fears about the ultimate impact of MSA’s – driving up premiums of low-deductible policies, increasing out-of-pocket costs for the sick, and eventually eliminating the important option of low-deductible policies.
Some of the important restrictions in the 1996 bill were:
Summary of House GOP MSA Provisions (H.R. 4250). H.R. 4250, the Patient Protection Act of 1998, released by Congressman Gingrich on July 17, 1998, removes restrictions on the sale of MSA’s with the following provisions. H.R. 4250:
Expanded MSA’s are Bad for Consumers. Consumers Union opposes expanded medical savings accounts. The Health Insurance Portability and Accountability Act of 1996 included a time-limited and carefully designed MSA demonstration. By drastically expanding MSA’s, the demonstration would be jettisoned, the information that would have been gained about the impact of MSA’s will be lost, and we can anticipate all of the problems that large-scale MSA’s would mean for the health care marketplace.
The MSA expansion does not target funds to help working families or presently uninsured families. Consumers Union estimates that under the current demonstration program, it costs the federal government about $3,600 to insure each previously uninsured person who purchases an MSA. In contrast it costs about $1,278 to cover each additional child enrolled in Medicaid. The MSA expansion has been estimated to cost $4 billion over 10 years, averaging $400 million each year. If this amount of money were used instead to expand Medicaid coverage of children, an additional 340,000 children could be covered.
The key to making health care affordable – even to people with pre-existing health conditions such as high blood pressure, heart disease, and cancer – is to spread the costs as broadly as possible. MSA’s do the opposite. By appealing disproportionately to people who are healthy (who expect to be able to build up large unspent balances in their MSA), they siphon off premium dollars that would have been used to pay health care costs of the sick. There is no assurance that MSA’s will even be available to high-risk consumers, since the proposal does not include guaranteed acceptance (i.e., these policies need not be made available to all consumers ) or fair pricing (e.g., community rating, which insurance costs across all policies sold).
If people who enroll in MSA’s get sick, they are likely to face high out-of-pocket costs because of unfunded MSA’s and high deductibles. Research published prior to enactment of the MSA demonstration projected that if 25 percent of healthy people enrolled in MSA’s, premiums for traditional (low-deductible) coverage would increase by 63 percent. If the percentage of healthy choosing an MSA increased to 100 percent, premiums for traditional policies would increase by 335 percent. An expanded MSA program could mean that MSA’s gain broad acceptance, and these fears of dramatically higher premiums for those seeking low-deductible coverage could well become a reality. Recent research confirms these concerns about higher out-of-pocket costs and higher premiums for the sick:
[S]elf-selection by low-risk families into the MSA/CHP [catastrophic health plan] leaves high-risk families with choosing between paying higher premiums for their comprehensive plans or enrolling in the MSA/CHP. In both cases high-risk families are worse off compared to their pre-reform well being, facing higher expected out-of-pocket medical expenses along with greater exposure to risk if they enroll in the MSA/CHP.
Higher income people benefit more from MSA’s than do lower income people for several reasons. Higher income people are more likely to be able to afford high deductibles than are low income people. Higher income people are more likely to benefit from employer-paid premiums and MSA contributions than are lower income people. Higher income people receive larger tax benefits than lower income people (since marginal tax rates range from 15 percent at the lowest taxed income level to 39.6 percent at the highest). Concern about the poor losing out under MSA’s is confirmed by recent research:
Many of these effects [gains and losses associated with MSA] raise important concerns regarding equity, because our simulations suggest that the families losing the most from reform tend to be poorer as well as those families with children born during the year.
Now is the time for careful debate about what could be a major change in the nation’s health insurance – away from a system in which deductibles of $250 are the norm and toward a system in which family deductibles of $2,000 to $4,000 are the norm. Widespread MSA’s will lead to premium spirals that could drive traditional policies out of the market. While MSA’s are marketed as "increasing consumer choice," they could, in the long-run, eliminate the important choice of low-deductible policies.
There is no guarantee that high-deductible insurance policies that are linked with MSA’s will have comprehensive benefits. Nor is there a guarantee that they will cover all medically necessary care, including conditions such as pregnancy and illnesses such as AIDS. Congress should not give favorable tax treatment to flawed policies.
We urge you to leave expanded MSA’s out of managed care legislation that is to be considered by Congress this year.
