Week of September 29, 1996

by F.R. Duplantier

Why have Medical Savings Accounts become so controversial? Is it because they make so much sense?

Medical Savings Accounts (MSAs) "give people the opportunity to move from a traditional low-deductible health insurance plan to one with a high deductible and to deposit the premium savings in a personal savings account," explains Merrill Matthews of the National Center for Policy Analysis. "They use the account to pay for routine and preventive medical care," says Matthews, "and the high-deductible policy pays for major expenses. If they have money left over in the MSA at the end of the year, they can withdraw it or roll it over to grow with interest."

Writing in the current issue of Intellectual Ammunition, a publication of the Heartland Institute, Matthews notes that there are several common criticisms of Medical Savings Accounts, and all of them are bogus. Opponents contend that "MSAs would attract only healthy people, leaving the sick in a separate pool." Not so, says Matthews. "Most companies," he explains, "offer their employees only one policy. 'Adverse selection' -- in which the healthy move into one plan while the sick remain in another -- is impossible because only one policy is available." Employers offering an MSA plan would be "free to structure and price their plan as they choose and to drop the plan if they find it unworkable."

Opponents also charge that "MSAs would attract only wealthy people looking for a tax break," despite the fact that proposed legislation "caps the annual tax-free deposit at $2,000 for an individual and $4,000 for a family." Matthews points out that "hundreds of companies have already switched to MSA plans in which the deposit is made with after-tax dollars. The MSA legislation," he observes, "would simply make those deposits tax free, giving individuals more money to cover routine care. This would primarily help lower-income workers."

Another criticism is that "MSAs will never provide enough money for people to pay their health care bills." This, too, runs counter to reality. "The vast majority of people spend little money on medical expenses in any given years," says Matthews, "so most would have a significant balance in their MSAs at year's end. Since the proposal before Congress imposes penalties for withdrawing those funds for non-health expenses, most people would roll over the balance. This makes MSAs a powerful mechanism for encouraging higher savings."

Yet another unfounded charge is that "Medical Savings Accounts will cost employers more money." Matthews contends that "MSAs save employers about as much as managed care does, and could save them much more." Where do all these criticisms come from? Merrill Matthews points out that "many managed care companies and insurers oppose MSAs," but they do so out of self-interest, not out of any tender concern for American workers. "Once people understand MSAs," says Matthews, "they realize that tax-free Medical Savings Accounts would reduce health care costs and expand choices in the health care marketplace."

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