On the "Perfection" of the Medical Savings Account (MSA)
This discussion begins with an article in the National Post of Aug 7, 2002 entitled, "Medical Savings Accounts Live" By Lawrence Solomon, Executive Director of the Consumer Policy Institute.
Original statement on "Soundness" of MSA's from Lawrence Solomon
Comments from "Yes Perfect Except for
Not Treating the Seriously Ill", Don McCanne
"Meets Needs Three of Four Years",
Solomon
Even Worse than Leaving the Most Vulnerable 15%
Behind, EINO
Erecting Barriers to Care for Those Most in
Need, McCanne
Sound Medical Savings Accounts
In a sound publicly funded medical savings account system, Canadians would receive annual health allowances based on their age and sex as well as their medical condition. These allowances, which would exceed their expected medical needs, would in most years allow Canadians to save money, which they could then use to meet medical needs that they now often cannot afford, such as prescription drugs and home care. And the system would cost the government no more than the current medicare system.
The Milliman study conducted for Consumer Policy Institute provides an example of an actuarially sound methodology. The allowance increases every year, because health costs tend to increase with age, and it also differs by sex, because males and females have different health needs.
To date, no study has refuted the Milliman report, despite its central role in the medical savings plan debate. The best way to kill off a misguided concept would be to demonstrate its flaws. That none have yet been identified after four heated years in public policy circles speaks volumes.
Read Solomon's whole article at CLICK HERE
Yes Perfect Except for Treating the Seriously Ill,
Response by Don McCanne, President of PNHP
No flaws? Well, let's see.
In the simplest form, MSAs are funded with a specific defined contribution, the same amount for everyone. This fails to take into account the fact that young, healthy individuals will watch their funds grow since they have little need to spend them on health care. But older, less healthy individuals would rapidly spend down their accounts and would have to rely on some form of catastrophic coverage. (Not to be addressed here is the fact that current forms of backup catastrophic coverage in the United States fail to protect the financial security of many of our residents who have greater health care needs.)
The Milliman model recognizes these differences in medical needs and suggests that funding should be on a sliding scale based on age and sex. Although it is acknowledged that the medical condition is also important, that is difficult to factor into a standard table that stratifies age and sex. In the United States, where MSAs are not publicly funded, contributing a larger amount would pose problems for many individuals since, for example, disposable income is very limited for retired individuals. But in Canada, public funding is an accepted principle, so the government can establish a policy of varying the contributions to stratified accounts.
Solomon states that these allowances "would exceed medical needs," and accounts would grow. That may be true for the 85% or so without major health care needs. So public funds would be contributed to individuals that do not need the entire amount for their health care needs. And yet Solomon states that "the system would cost the government no more." A system that moves government funds into private surplus accounts can hardly be described as without cost to the government!
What about the 15% with significant medical needs? This is a very expensive sector, consuming a major portion of the health care budget. These are the individuals that require the financial protection of the publicly-funded program. But then, isn't this what insurance is all about? Isn't the idea that everyone should contribute their fair share into the risk pool, and then the pool is used to assure the financial security of those that have significant health care needs? Doesn't it seem more logical to use all of the funds for health care instead of increasing taxes even more in order to place funds into personal accounts of those individuals fortunate enough not to have major health care needs?
What should happen to the funds that accumulate in the MSAs of those that don't spend them down? Should they revert to the government when the estate is settled? If so, why waste resources in administrative costs to administer these funds since the concept of risk pooling is preserved in this instance? If not, should the government really be in the business of enhancing estates for the benefit of the heirs? Should the funds be allowed to be used for other expenses in retirement? If so, is it fair to provide more government "retirement" funds to those who are lucky enough to maintain good health than for those with unavoidable ill health? Shouldn't policies for retirement pensions be a totally separate consideration from policies to fund health care?
70% of health care expenses are publicly funded in Canada, and those funds are publicly administered. MSAs are one attempt to move the administration of public funds into the private sector. The experience in the United States should make all Canadians shudder at this prospect. Canadians agree that health care dollars should be spent on... guess what... health care.
In the United States, 60% of health care expenses are publicly funded. But our policies place much of the administrative function into the private sector. Our public funding alone provides greater per capita funding than the entire health care expenditures in Canada, public and private. Yet the allocation of our resources in the United States is a disaster primarily because our private administration is designed to advance the interests of the health care industry, whereas public administration as in Canada is designed to advance the interests of patients.
Mr. Solomon, have I demonstrated any flaws?
Lawrence Solomon responds to the critique of his comments on MSAs:
The allowances would exceed the medical needs of all Canadians, regardless of how severe their medical needs, in three years out of four. So all Canadians would have the opportunity for savings. Those with the largest allowances (ie, the sickest portion of the population) would have the most potential for savings.
Doesn't "all Canadians" suggest pooled funds, whereas "sickest portion" suggests a stratified sector? Individuals in that sector with the largest allowances, the sickest individuals, will have an opportunity for savings if they're not "too sick." But those that are very ill will greatly exceed their allowances. Public catastrophic coverage can meet the expenses of the very ill, but only at a great public cost that is superimposed on the public funding of the individual MSA accounts.
Breaking an insurance pool up into one individual account for each individual citizen, and then attempting to fudge the funding accounts based on relative risks, while neglecting the fact that individual expenditures within each stratified risk group do not land on the median but are distributed amongst a skewed curve, results in moving public funds, tax dollars, into the hands of those that fall on the lower portion of the curve. That is not health policy. That is tax policy, and very flawed tax policy at that.
EINO: Three out of four years is worse
still than failing to meet the needs of the 15% of residents with the most
serious ailments and health care needs. And though a minority of the
population these are the unfortunate who will need the greatest expenditures (in
any health care system). Its because we don't know whether we will
suddenly join that group that we need insurance at all!!
A second problem left unaddressed is that low-income workers will not be able to
afford MSA's even if they might theoretically be helpful. These folks who
are disproportionately uninsured in the USA cannot afford to put anything away
and such a program will not touch them at all, except that better off, healthy
individuals will be withdrawing from real insurance plans, leaving the risk-pool
and driving premiums up even further out of their reach.
"Misunderstanding How MSAs Work", Lawrence Solomon clarifies
You entirely misunderstand how MSAs would work in a publicly funded system. For an MSA plan to provide meaningful incentives, the recipient must have an opportunity to realize savings. In other words, it is in the plan's financial self-interest to make sure that the very sick have generous coverage. An MSA design that is irrelevant to those who are most needy would be self-defeating.
You should also realize that our MSA covers primary care. Canada's existing medicare system for catastrophic care would not be affected.
EINO: The fact that real
health care expenses are picked up by a different part of the system in
Canada doesn't affect a discussion of the effectiveness of MSAs at all.
Setting up a separate system that removes health care dollars from the main
system of insurance (which actually would function to cover the health needs of
the population no matter how sick or poor) and returning it in anyway to those
better off both financially and healthwise (in general) will always be a waste
of money that should be earmarked for the real need we all have - namely,
covering our needs should we join that sector most unfortunate.
In previous messages we have already adequately covered the issue of financially incentivized patients, incentives which have very limited impact on the over-utilization of services by the affluent, but which erect financial barriers to beneficial care for those of limited means.
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