JUNE 6, 1996
House Republicans called for the creation of medical savings accounts [MSAs] in recently-passed health insurance reform legislation, saying that these tax-exempt accounts to help Americans help pay for health care. Elizabeth Farnsworth leads a discussion about MSAs with with Dr. Daniel Johnson, Jr., the president-elect of the American Medical Association, and Gail Shearer, the director of health policy analysis for Consumers Union.
ELIZABETH FARNSWORTH: This spring the House of Representatives and the Senate passed different versions of health insurance reform legislation. Both versions aimed broadly to limit the ability of insurance companies to deny coverage to workers with preexisting conditions or to workers laid off of their jobs. But both Houses also added other provisions to their bills. One of those provisions, Medical Savings Accounts, which was added in the House, has become a major point of contention.
MARCH 4: The NewsHour covers the Senate's passage of the the Kennedy-
Kassabaum Bill. The House version of this health insurance reform bill calls for medical savings accounts; the Senate version doesn't.
MARCH 8 - MARCH 11: Explore a week of special NewsHour reports on health care issues.
Under a Medical Savings Account or MSA plan, an individual's employer would pay for a catastrophic care policy covering all or most costs above a specified amount each year, $1500 per individual in the House's bill and $3,000 per family. Medical Savings Accounts would be used to pay for those expenses. Under the House plan, the employer or individual could place up to $2,000 a year in a private tax-free health account or $4,000 per family. Routine medical costs such as check-ups would be paid from that account. Individuals and families could spend the money as they wish as long as it's for medical expenses. The House version of the Health Insurance Reform Bill contains this MSA provision; the Senate's does not. Now we debate the issue with Dr. Daniel Johnson, Jr., the president-elect of the American Medical Association, and Gail Shearer, the director of health policy analysis for Consumers Union, a consumer advocacy group. Thank you both for being with us. Dr. Johnson, the American Medical Association is in favor of MSA's. Why?
DR. DANIEL JOHNSON, JR., American Medical Association: (New Orleans) Elizabeth, we think that the issue is not whether or not to have Medical Savings Accounts. They exist now. The issue is whether or not to remove the discrimination against the person who chooses a Medical Savings Account. So we support legislation that will treat that option the same as other options are treated under the tax law by the federal government.
ELIZABETH FARNSWORTH: What do you mean?
DR. JOHNSON: Well, currently if someone picks, for example, a traditional insurance policy or an HMO, the premium that is paid for that individual by his or her employer is tax free to the individual. But if someone chooses a plan such as the one you described where part of the money goes into a catastrophic insurance policy and the balance goes into the savings account, that part that goes into the savings account is taxable income for that individual. In other words, it's not treated the same way. So one of the two major reasons to enact legislation is to fix that discrimination, the other reason being to allow the money to accumulate so that it can be used for future medical expenses.
ELIZABETH FARNSWORTH: Well, and you think MSA's are a good approach to insurance, right?
DR. JOHNSON: We do, but it's--I want to emphasize that from the American Medical Association's point of view, this should be an option. It should only be an option, and it shouldn't be the only option, but we think it's time to give the little guy a break and allow him or her to have that option without being discriminated against for taking the option.
ELIZABETH FARNSWORTH: Ms. Shearer, time to give the little guy a break?
GAIL SHEARER, Consumers Union: Well, we disagree. We think that Medical Savings Accounts turn the whole notion of insurance on its head. Most people, they pay in their premiums for insurance, or their employer pays in their premiums each month, and they can count then on coverage when they get sick. What Medical Savings Accounts do is they let people who are healthy build up money in accounts and not necessarily use the money, and what it does is it, it drains money from the pot of money available to take care of people when they are sick, and the end result could be premiums that are much higher for people who want to stick with health insurance that pays after $250 has been spent.
ELIZABETH FARNSWORTH: How would that work? Why would--I mean, wouldn't somebody who has adequate money in the bank and is also, also has problems, wouldn't they like these programs? How can you be sure that it will upset the balance in the--between, you know, in the way you just described it?
MS. SHEARER: Right, right. Well, the one thing--the key to all this is that the premium for the high deductible policy will be lower but not much lower than what the employer would be paying today, so what that means is it leaves the employer only a little bit of money to fund a Medical Savings Account, leaving consumers at risk of having costs that are not covered by either the MSA or the high deductible policy. So what that means is it'll sound good to healthy people because they will not face terrible out-of-pocket costs, but it will not sound so good to people who have chronic illnesses and can expect to have costs in the range of $2,000 per year. So what it does is it drives healthy people into Medical Savings Accounts, leaving the unhealthy people behind and leaving premiums increasing as much as 60 percent, even more, for people who want to have the traditional type of coverage that they're used to.
ELIZABETH FARNSWORTH: Dr. Johnson, what about that? It is true, isn't it, that healthy people might want these savings accounts because they can roll them over, they can use them with a small penalty for anything they want if they haven't used them at the end of a year?
DR. JOHNSON: Let me give you the example of the United Mine Workers. The United Mine Workers have a plan that says that they have a $1,000 deductible plan and the employer puts in $1,000 to cover that deductible. So it is fully covered, not that that is an ideal plan design, but those mine workers who are hardly among the healthiest and wealthiest of our society are discriminated against by the federal law for the tax program that they--I'm sorry, for the insurance program that they have. They're discriminated against by the tax laws. Now what, what Ms. Shearer points out is in terms of trying to, to alter the insurance pool simply is not the case. If one looks at the savings, they are substantial from buying the high deductible insurance, and then one doesn't have to fully fund the deductible in one year. One can allow that balance to build up if the law is passed to enable it to build up, so that over time, first dollar coverage is available. But the reason it works is that the person is spending his or her own money. The advantage to the little guy is that if the cost-effective use of the system results from the patient being careful about how he or she uses the system, it is the patient who realizes the benefits and not the insurance company.
ELIZABETH FARNSWORTH: Are you saying, Dr. Johnson, that healthy people won't use these and that premiums won't be driven up for people who are not healthy?
DR. JOHNSON: There's a study in the current issue of the "Journal of the American Medical Association," the June 5th issue, which discusses these very issues. It's done by the Rand Institute, and they've demonstrated that, in fact, these issues are not of great concern, that plans can be designed in such a way that they do not benefit either healthy or unhealthy or wealthy or unwealthy, that there can be balance in the plans and that these can be effective choices.
ELIZABETH FARNSWORTH: What about that?
MS. SHEARER: Well, it's more complicated than that because what the study actually showed is that depending on what assumptions you make about what the catastrophic plan looks like, there could actually be a problem of attracting the unhealthy. And not only that, several other studies are out there that show, show very clearly that there's a very real risk of healthy people being attracted in a Medical Savings Account. One of these studies estimates that if an employer wants to keep its contribution the same and not spend more or less on health care that that employer would contribute about $250 to a Medical Savings Account for an individual. Well, as you know, that does not go very far in terms of paying the bills of a chronically ill person, and just in terms of, of being able to build up money over the years, if somebody has $2,000 of health expenses year in and year out because of a chronic illness, that approach is not going to be very healthy for that person.
ELIZABETH FARNSWORTH: Let's say that I have this program, and I get sick, and I use the $2,000 deductible. Then if I--I have to pay for everything, all the medical expenses I have after that. Will I also have co-pays? Has that been decided?
MS. SHEARER: Once you meet the deductible in the high deductible policy, which could be $2,000, $4,000, $6,000, then we really don't know what the situation will be because the bill offers no consumer protections. There's no limit on the co-insurance that you might have to pay once you meet that deductible.
ELIZABETH FARNSWORTH: I meant to say insurance will kick in, and will I also have a co-pay?
MS. SHEARER: Yes, yes, you could well have a co-pay. The policy would be free to cap your benefits, so if you should have a catastrophic illness, such as the one recently suffered by Christopher Reeve, you could find that your benefits run out. There's nothing building any consumer protections into this bill, and so the consumers could be the net loser.
ELIZABETH FARNSWORTH: Do you think that this is so important that the health reform, the healthy insurance reform bill that's currently in the House and Senate, should be defeated, rather than have a provision allowing for MSA's in them?
MS. SHEARER: Well, we have reluctantly reached that, that position, and the reason is as initially drafted, the Kassebaum-Kennedy Bill would have been a modest step in the right direction and would have helped people keep their insurance. The whole thrust of it was to help make the insurance pool bigger and to help people keep their insurance when they changed jobs and keep their insurance if they have a preexisting condition. Well, this Medical Savings Account provision moves in exactly the opposite direction. It divides up the insurance pool into pots of healthy and sick people. So we, we would oppose the bill if it includes, includes Medical Savings Accounts.
ELIZABETH FARNSWORTH: Dr. Johnson, will the AMA oppose the bill if it does not include Medical Savings Accounts?
DR. JOHNSON: The time has come to enable Medical Savings Accounts to remove the discrimination against the, the individual who chooses a Medical Savings Account. It's important to realize that the--under the American Medical Association's view of health system reform, that the protection for the consumer comes from giving that individual both the opportunity and the responsibility to make choices. And those choices have to compete with one another to see which one can do the best job for the patient. And the person making that choice should be the patient. We believe that Medical Savings Accounts are a good fit in the Kassebaum-Kennedy Bill. They belong in there; they facilitate the issues dealing with the issue of portability. They are a very important adjunct, and we want to see them enabled, and we believe the time has come to do so.
ELIZABETH FARNSWORTH: So if the MSA's aren't in it, you would not be for the bill?
DR. JOHNSON: We have not made that determination. We don't believe that that really is the issue at the moment. We think the time has come to give the little guy a break, give the little guy an expanded array of choices which will make the system more cost-effective, will put the patient in the driver's seat, which is what we think should happen.
ELIZABETH FARNSWORTH: How about a demonstration project, Doctor? One of the suggestions for a compromise has been to have a large demonstration project that would last a certain number of years.
DR. JOHNSON: There are some 2,000 or more businesses. There are several municipalities that have Medical Savings Accounts to date which are functioning satisfactorily, despite the discrimination against the people who use them. It's time to remove the discrimination, enable these accounts to be used in the way in which they are designed, and let them function and--but only as a choice. We don't think anyone should be required to pick one.
ELIZABETH FARNSWORTH: Do you think that a compromise that would involve demonstration projects would be a good idea?
MS. SHEARER: Not at all. There's actually a proposal on the table today that would basically--they call it a demonstration but in reality, it's opening the door to Medical Savings Accounts for individuals and for small employers. What that would be is the beginning of walking down the plank, and it would be very difficult to turn back. And we fear it would actually lead to Medical Savings Accounts on a larger scale. So we don't think a demonstration works. On the other hand, there is--Medical Savings Accounts--we would like to see the Congress move in the direction of studying what's out there. This is very dangerous for consumers. Really what is at stake here is the whole nature of our health insurance system, and Dr. Johnson talks about increasing choice for consumers, but what we think that Medical Savings Accounts could do is decrease choice for consumers by driving the traditional type of insurance that many people value just out of the market altogether.
ELIZABETH FARNSWORTH: At this point what is your--what do you think will happen? How does it look?
MS. SHEARER: Well, it's, it's very difficult to call. What we hope will happen is that the Senate will return to the position it, it considered a month ago when it voted unanimously to support a bill that did not have Medical Savings Accounts.
ELIZABETH FARNSWORTH: The Kassebaum-Kennedy Bill.
MS. SHEARER: That's right.
DR. JOHNSON: The Kennedy-Kassebaum Bill.
MS. SHEARER: That's right. And, uh, we really hope the debate will move in that direction, possibly with a study of what's going on out there and simulations through computer models but not through draining money from the federal treasury to create a new tax break.
ELIZABETH FARNSWORTH: And Doctor, what's your prognosis at this point? What do you think will happen?
DR. JOHNSON: We believe that Medical Savings Accounts make sense. And we believe that the politicians are going to recognize that the time has come again to stop the discrimination, to give the little guy a break. Let the little guy benefit from using the system in a cost-effective way. Let those benefits flow to the individual, as opposed to their insurance company or their employer or the government or anyone else.
ELIZABETH FARNSWORTH: Well, Dr. Johnson and Ms. Shearer, thank you for being with us.
MS. SHEARER: Thank you.