Welcome to the Blue Money Report

Folks who favor medical savings accounts, henceforth referred to as MSA will take great offense to the notion that there are any cons or perhaps a better word would be downside at all to an idea whose time they feel has come. A notion that will fix the embattled health care system of this country and provides the perfect solution would for most, seems like something to rally behind, even fully embrace. Over the years, in fact, several sites have come online that go to great length to explain, and as a result, debunk the naysayers portraying their concerns as unscientific and because of that, wrong. But I don't see these kinds of plans as a cause for celebration. In fact, I see quite the opposite.

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. Assume - a feat that you will need to be quite proficient at - that your company is setting aside X amount of dollars. In the assumptions made at the Cato Institute, a right leaning group whose main function seems to be explaining the policies of this administration, the average company sets aside an average of $5400 per worker per year in potential and probable medical expenses. Furthering the assumption along presents little difficulty for Michael Tanner whose policy analysis dated May 25, 1995 seems to be the cornerstone of their argument. 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. In a MSA, the employee is able to make the best decision for themselves because money is at stake. Not withdrawalable money, mind you, but cash set aside, rolled over year after year, unspent money accumulating, growing 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 among conservatives 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. Mr. Tanner makes some excellent arguments in favor of this idea, all points that were championed by former House speaker, Newt Gingrich in getting this piece of policy buried deep within the the new Medicare law.

Along with the benefits of the lower prices we are asked to assume that competition will foster. At the core of these lowered prices lies the consumer. Supporters of MSAs give the consumer a lot of credit. I'm one myself. 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 their 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.

This 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 only a few exceptions, there doesn't seem to be many downsides to the plan, does there?

There are 43 million exceptions and these plans do little to address this extraordinary number of Americans who are currently without insurance. 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 . 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. The President threw his mathematical abilities at the problem and suggested that these types of accounts would "save between 10 and 35 percent on any costs covered by money in your account". As usual, I am not quite certain what that means, but I think Mr. Bush is saying that the plan will defer medical costs into the future. Perhaps I am assuming too much.

Mr. Gingrich makes no bones about his pursuit of breaking traditional health plans favored by unions. Health care is at the heart of the grocery strike in southern California. Offering a plan such as this in a union contract would sway new union members with the opportunity of accumulating large amounts of cash for their retirement years while older members risk future contracts and/or no benefits except for Medicare. Discontinuing any and all coverage will become a viable option for many companies forcing employees into that growing group of the uninsured.

Supporters do not feel this will threaten the health care system in the least. And in the short term, it might not. Initially, with insurance companies as the only player in the field, this pool of assets could attract other institutions outside the industry. That would, and I am making a broad based assumption here, shrink profits at the insurers which as a knee jerk reaction would result in increased costs. Just a guess but it is what I would do. Shortfalls in a highly competitive market would allow a Darwinism effect to take hold with Wal-Mart economics. To that end Mr. Tanner is correct in his assumption that we are not all stupid when it comes to medical care and the costs, we would simply seek out the cheapest, which we would naturally assume, once again using Wal-Mart economics, would be only a temporary fix to the problem.

In all fairness I should point out that a small portion of the insured pool of workers uses the lion's share of the coverage, but that is hardly reason to believe that those with good health insurance are always seeking medical attention. In many cases, the insured are less likely to seek care.

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 retirement moneys and health savings. 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 the plans, aside from the fact that I would be disinclined to shop for medical help when I need it most, taking the first closest relief possible 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, read sicklier, 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.