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This document was created by the Consumers Union Washington D.C. office.
Seventy percent (70%) of children who are presently uninsured come from families that earn $31,000 or less, and therefore will face financial barriers to care if they enroll in a high deductible health insurance policy. Few of these families will be able to pay $1,000 or more per child to fund an MSA. Most of these families will be hard pressed to pay medical bills before a $1,500 (or higher) deductible is met. What this means is that their children will be denied medical care because of the financial barrier faced by their parents.
MSAs for children will separate the healthy from the sick, appealing to the healthy, and leaving the sick with higher out-of-pocket costs. Health costs are not spread evenly across the children's population. They are spread very unevenly, with 5 percent of children accounting for more than 59 percent of expenditures.1 MSAs will appeal to the healthy 95 percent more than the unhealthiest 5 percent. They will also appeal to relatively wealthy families who can afford high deductibles. If introduced as an option for all, the migration of the healthy children to MSA plans will severely erode the premium dollars in the risk pool to pay the costs of health care for the unfortunate 5 percent of relatively unhealthy children. This is a double whammy for these families who must then deal not only with a very sick child, but also with the unwillingness of society to help share the cost of medical care.
Families of all income levels will face higher premiums for low deductible (e.g., $250 deductible) health insurance. It is important to look beyond the impact on the families who have MSAs. Analysts who have studied the total under-65 health insurance market have demonstrated that MSAs have a greater appeal to the healthy than they do to the sick. They have estimated that premiums for traditional health insurance (e.g., with deductibles of $250) will increase as much as 300 percent if MSAs are introduced on a large scale in the health insurance market.2 The same will be true for children's MSAs; premiums for traditional (low-deductible) health insurance will skyrocket if MSAs are an option.
In the long-run, MSAs would drive low-deductible policies out of the market. If premiums for health insurance with low deductibles (e.g., $250) increased between 60 percent and 300 percent (as predicted), these policies will be unaffordable for many. It is only a matter of time before insurers would decide to leave the traditional market in order to market high-deductible only policies. This means less choice of policies for families.
Families with a child with a chronic illness will face sizeable out-of-pocket costs if they have an MSA plan. Consider the case of a child with a serious disability such as cerebral palsy. While the average annual health care cost for an infant (under 1 year old) receiving Medicaid was $2,284 (in 1992), the average annual health care cost for a disabled child of this age was $16,227, seven times as much.3 If health care costs for a disabled child (who is not eligible for Medicaid) were $16,227, then this child's family would face sizeable out-of-pocket costs if they have a high-deductible health insurance policy: The deductible could be $2,000; coinsurance (at 20 percent) after meeting the deductible could be $2,845. The family's total out-of-pocket health care costs for this child (alone) would be $4,485. It is extremely unlikely that this family would have any balance in an MSA, since the baby is so young.
Children's MSA accounts are likely to be empty. The 1996 Kassebaum-Kennedy health bill did not require employers to put money into employees' MSAs. Since children don't have employers, it is even less likely that there would be any funding for MSAs outside the family. This is the case especially since fewer employers are providing health insurance coverage for employees' dependents, with the percent of children covered by their parents' employer-based plans decreasing from 67 percent in 1987 to 59 percent in 1995. Since most uninsured children live in families with modest incomes, it is very unlikely that their families could contribute money to a savings account for health care. Even if they could, they would find that tax benefits would be modest because of their low tax bracket.
Many children will not get preventive care. MSAs for children are likely to be packaged with health insurance policies with high deductibles of $1,500 to $4,500. Even if the health insurance policies covered preventive benefits, insurance will actually pay the preventive care costs for a small percent of children, since few have costs high enough to meet the deductible. Families with unfunded MSAs will have to pay the full cost of preventive care (e.g., check-ups and immunizations) out-of-pocket. Many will be unable to afford to do this.
2 - See, for example, "Medical Savings Accounts -- Cost Implications and Design Issues," American Academy of Actuaries, Washington DC, May 1995, p. 6; and Len M. Nichols, Marilyn Moon, & Susan Wall, "Tax-Preferred Medical Savings Accounts and Catastrophic Health Insurance Plans: A Numerical Analysis of Winners and Losers," The Urban Institute, Washington DC, April 1996, p. 12.
3 - Marsha Regenstein and Jack A. Meyer, "Low Income Children with Disabilities: How Will They Fare Under Health Care Reform?" The Economic and Social Research Institute, National Academy for State Health Policy, August 1994.
