MSAs are savings accounts that can be used to pay for medical expenses during the course of a year. Money in that account would be tax deductible and would be allowed to accumulate. The idea is really quite simple according to the plan's backers.
In the assumptions made at the Cato Institute, the average company would set aside an average of $5400 per worker per year to cover potential and probable medical expenses. Of that total, a MSA account would be created for the employee with a deposit of $3000 for miscellaneous expenses that might be incurred throughout the year. The remaining moneys would be used by the company to purchase a catastrophic policy for the worker. This first time you may have bumped into a policy such as this was during your child's little league sign-ups. School sponsored sports teams use it as a means of protection, with the hope that regular care is covered by the parents. For the employer, the policy would be a low cost alternative to providing full coverage.
There are additional side benefits as well. Supporters of MSAs believe that this would make health coverage a consumer driven encounter with care, whether they are sick or not. This means that they believe we are a nation of shoppers who will go for the best deal. This thinking, which is fostered by the belief that prices determine whether the consumer has been treated fairly comes courtesy of the Chicago School of Economics.
You are in charge
In a MSA, the employee is able to make the best decision for themselves because money is at stake. Although the employee may use it as they see fit, the money is not liquid as it might be in a savings account. That cash is set aside and any unspent money is rolled over year after year. This would allow for long-term growth of the money in the account, growing it for those later years when your illness might be more than a sprained knee. Sounds good so far, doesn't it.
There is a belief that because you are using your own savings to pay for medical costs that you will search out the best care at the cheapest cost. As a result competition for your dollar will increase in the form of lower prices for health care.
At the core of these lowered prices lies the consumer. Supporters of MSAs give the consumer a lot of credit. But much of the argument is based on the fact that even those with sicknesses are capable of making the same informed decisions about medical care as those who are healthy.
Backers of these plans also ask us to assume that you, the informed consumer is someone with a sudden medical malady that should be able to have the ability to compare doctors, practices, and cost while juggling the discomfort of your illness. From personal experience I can tell you that I can be waylaid by a simple cold to the point of incoherence.
Critics of MSAs have suggested that people would be inclined to forego care in the event of illness , even necessary care with the misguided notion that they might need to "save" for more costly problems in the future.
The benefits don't end there.
This system would lower medical costs across the board all without bankrupting the health care system while not becoming regressive or create adverse selection. In layman's terms, regressiveness simply means "favor the rich" while adverse selection is a particularly tough one to model largely because current enrollees in MSA plans of this nature are not large enough to provide a good cross section of the nation.
Now throw in a tax deduction for good measure. MSAs would get you get you up to a $3,000 deduction on your income taxes, that, unlike an IRA, cannot be withdrawn as cash in the future, but instead will be used to finance the assumption that you will be in need of higher cost coverage when you are older.
With an estimated 47 million Americans (albeit a arguable estimate if closer to 30 million which excludes folks who have some access to public services) who have no access to affordable insurance, plans such as MSA do little to address the problem. BUt they might provide a unique look at how folks who need to make economic choices with cash shop for the services they need.
Many of these people are fully employed at companies that offer no insurance, catastrophic or otherwise that is paid in whole or part by their employer while some simply cannot afford the coverage for their whole family. These folks have been making medical decisions for quite sometime, choosing the best care for the least amount of money. They have found the shopping experience to be complicated and costly.
In many instances, going without is the best option. Many of these people are highly educated and some are well paid, but the cost of insurance is prohibitively high. Cost cutting becomes all-inclusive once the decision has been made either by the employee or the company to keep medical costs down by not getting or offering care.
In recent years, companies that offer policies have raised the co-pay to the point that, should they want to adopt a policy that uses the tandem of MSA and catastrophic insurance as an option, it may be too expensive to offer.
Where they go wrong
MSAs are wrong on three accounts. Dangling a tax deduction for contributions to such a plan not only is counterintuitive to the current thinking (spend don't save) but will force far too many people to chose between putting money away for retirement and using the cash for health savings accounts. It will be the rare breed indeed that will be capable of doing both. Once investment firms get into the mix offering plans to invest those savings, the costs saved will quickly be offset, sometimes even negated by fees as yet levied.
The second disagreement I have with these plans, aside from the fact that I would be disinclined to shop for medical help when I need it most, is the possibility that you will take the first, closest relief possible. This is the regressive nature of the plans themselves. These plans would favor the upper income participants at the possible detriment of the those who are unable to squirrel away the needed funds for care. Attracting a healthy client base, insurers would turn costlier and potentially sicker patients away.
And lastly, we have no real empirical proof on how folks will react given these options. And we need proof before the law. I mention Wal-Mart economics several times in this article. The company's idea that we are driven by price alone is probably true, a tenet that has spilled over into the thinking of Washington policy makers. But when it comes to medical care, there is not enough evidence that we will seek a discount doctor or hospital if our lives depend on it.
What are HSAs?
