After two years, a savings account plan that
pays the medical expenses of people not covered by traditional
health insurance hasn't caught on.
Skeptics are still trying to figure out
the point of the Medical Savings Account. According to the
U.S. General Accounting Office, the accounts got off to a
slow start.
Insurers and health maintenance organizations
ended the first year with only 41,668 account sales -- far
less than the 750,000 the office anticipated.
Medical Savings Accounts, or MSAs for
short, were made available through a pilot program earmarked
in the Health Insurance Portability and Accountability Act
of 1996.
"It is time for Congress to recognize
MSAs for what they are -- a marketplace flop, a mechanism
that benefits the healthy (at the expense of the sick, who
pay higher premiums) and a drain on the federal Treasury,"
says Gail Shearer, director of health policy analysis at Consumers
Union, a Washington-based consumer rights group.
How
it's done
Here's how the accounts work:
The consumer buys health insurance with
a high deductible -- between $1,500 and $2,500 annually for
an individual, and $3,000 to $4,500 for a family -- from any
provider, and then opens an account at a bank or mutual fund
company.
Contributions can be a maximum of 65 percent
of the deductible for individuals, or 75 percent for families.
An employer or an employee can contribute, but not both. Payments
can be made in monthly installments or in a lump sum at the
beginning of each year.
Using checks drawn on those accounts,
policyholders pay medical bills and submit claims to insurers.
Once the deductible is met, plans often pay up to 100 percent
of medical expenses. At the end of the year, any money remaining
in the account is carried over to the next year.
All contributions are tax-deductible.
Interest accumulates tax-deferred up to age 65. After 65,
money can be withdrawn without penalty, although tax will
be due if it is not used for medical care. If the money is
withdrawn early for nonmedical expenses, there is a 15 percent
penalty and income taxes must be paid.
An individual pays a higher deductible
with the account, but in the long run, the overall insurance
costs will be cheaper than a traditional health insurance
plan.
No limit on
earnings
"There is no limit whatsoever on what you can accumulate"
in a MSA, and the account can continue for a surviving spouse,
says Marianne Miller, director of policy development at the
Health
Insurance Association of America, a Washington-based trade
group that represents insurers and managed-care companies.
Money from the account can be used at
any time to pay for qualified medical expenses that are not
covered by the high deductible insurance policy. Among these
are dental care, vision care, psychotherapy and home health
care. It can also be used to pay the premiums for long-term
health insurance or coverage between jobs.
As for eligibility, only self-employed
persons, their spouses and employees who work for a company
with fewer than 50 employees qualify for the medical account.
Seeking
expanded reach
Some health insurer groups, while proponents of the
account, question whether its reach is too limited.
"There are just too many barriers,"
says David Lack, president of the Council
for Affordable Health Insurance, a trade group representing
200 small and mid-sized insurance companies.
The main barrier, that the account is
only available to small business owners and the self-employed,
Lack says, may steer other insurers away from offering the
account unless consumer demand rises. The Council is trying
to push legislation through Congress that would make medical
savings accounts available to everyone and lower the deductible.
"Opening up the MSAs to all Americans
might be able to reverse a system that has overburdened our
nation's health-care system by those who are uninsured,"
agrees Allen Wishner, chief executive officer of Flexible
Benefit Services of Des Plaines, Ill., an account provider.
Wishner says the reason for the scarce
response to the accounts is "probably the fact that nobody
knows about them and people who do know about them don't know
how to get them."
He adds that the premiums on high-deductible
policies are far lower than for individual insurance, as well
as the commissions, giving agents less incentive to sell high-deductible
insurance.
Legislative solutions
Meanwhile, additional proposals are working their way through
Congress. Various changes being debated by the House Ways
and Means Committee and the Republican Health Care Task Force
would lower the deductible for both families and individuals,
allow both employer and employee to contribute tax-free dollars
and lift the restriction on the size of businesses that can
offer the plans.
As of last June, only a handful of companies
were actively selling the accounts, though 60 companies offer
them, according to the GAO. Golden
Rule Insurance Co., in Lawrenceville, Ill., has generated
more than half of all the account sales.
The Internal Revenue Service reports that
as of June, 54,702 taxpayers had opened accounts, including
17,688 who had no health insurance prior to opening an account.
Some consumer groups argue that the accounts
are for the elite and healthy, not the poor and uninsured,
who often rely on Medicare and Medicaid.
Shearer of Consumers Union says, among
other things, that the accounts "give a tax break to
bad health-care policies which offer no guarantee of comprehensive
benefits, pregnancy benefits or coverage for illnesses like
AIDS."
"A better way to spend limited health-care
dollars would be to put more kids who have no health care
insurance under the umbrella of the Medicaid program,"
Shearer says.
-- Posted: Feb. 9, 1999
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