[NOTE: This material was originally prepared in 1996.  Since then, MSAs have become more and more a topic of discussion, especially among some critics of managed care.  Although I believe we need to reform our health-care system (including managed care, of which I have been very critical), I don't believe that MSAs are the answer for people with disabilities or others who may have significant health-care needs — at least not in the way that most backers of MSAs have proposed and promoted the idea.  I continue to have the concerns noted below.]

Impact on poor, low-income and/or moderate-income people who are basically healthy.

• Would this group have the resources and/or interest to establish an MSA, especially in view of competing financial needs (e.g., for food, housing)?
• To what extent would good, affordable "catastrophic" policies be available to this group to supplement MSA payments for basic care (and would this group buy such plans or have them provided through employers and/or government programs like Medicaid)?
• If MSA tax benefits are based on deductions, as opposed to credits (especially, refundable credits), how would MSAs help taxpayers who don't earn enough or have enough deductions to itemize?
• It seems to me that MSAs wouldn't improve anything for this group. They simply would have to pay out of pocket for basic care — as they do now if they are uninsured  or if they have HMO coverage and need something they can't get through their HMO.
• If a taxpayer in this category does set up an MSA, would he/she be inclined to use it for preventive care or let things go until the perceived health need is greater (e.g., in an effort to carry over MSA funds to the following year or otherwise build up the MSA account in case of even higher expenses they may encounter in the future)?
• Would lack of actual timely preventive care lead to higher costs to the "catastrophic" plan, thereby pushing up premiums for such plans?
• Assuming that government policy and/or employer health-coverage options created MSA accounts on behalf of low- to moderate-income people (in combination with "catastrophic" policies), would such accounts come to be viewed as "welfare" or some other poverty program that would attract the budget cutter's ax?

• Would the plan include insurance market reforms to make catastrophic policies available (and affordable) to those with pre-existing conditions? (If not, the MSA would be the only funds available for health care. That is likely to prove inadequate for those with high-cost health problems.)
• Initial availability (including affordability) of "catastrophic" plans for expenses exceeding MSA account and the potential impact of adverse selection on such availability now and in future.

 

• Deductions vs. credits
• Deductions would provide the greatest benefits to those in the highest income tax brackets (i.e., the wealthy).
• A credit approach (especially one using a refundable credit) could be structured so as to treat all income levels equally or even to provide bigger benefits to lower-income individuals.

• If deductions, which primarily benefit those in upper income categories, reduce availability of revenue for publicly funded health programs (like Medicare and Medicaid), then one effect of MSAs will be to restribute health-care resources from the poor to the affluent in a kind of reverse Robin Hood "reform."  The impact of MSAs using tax credits would depend in part on how the credits are structured.

 

If the MSA/catastrophic approach meets the demand for choice from most Americans, there will be little if any pressure to do more, even if that approach fails to work for people with disabilities (especially low-income people with disabilities). Once again, the concerns of people with disabilities will be relegated to afterthought status.

I know that some proposals include the idea of giving everybody a voucher to use as an MSA, but if everyone gets such a voucher, the cost probably would be overwhelming and enough to kill it politically. On the other hand, giving a voucher only to those who are "poor" would turn the voucher into a poverty program (making it very vulnerable in lean budget years), and could become another work disincentive/penalty for people with disabilities who are trying to get off of public welfare programs.

Failure by MSA plans to assure that good, affordable "catastrophic" coverage will really be available to people with disabilities and other pre-existing conditions.

(Promises to enact market reforms later as part of "incremental" reform are worthless. Here in California, we've seen what happens when the first step of "incremental reform" get enacted — often with the help of powerful interest groups — only to have the later "increments" defeated by the opposition of some of those same groups. The result in some cases has been to leave people with disabilities and other pre-existing health problems in worse shape than before!)

The fact that deduction-based MSAs will have the effect of reducing tax dollars that otherwise could be spent on health services for those with lower incomes (people with disabilities tend to be over-represented in the lower income groups) while increasing tax benefits to higher-income people who already have access to such services.

Most MSA plans I've seen are based on tax deductions for those who establish such accounts. Because the actual savings from deductions vary directly with your tax bracket, the greatest financial benefit from MSA deductions will go to those in the highest income categories. If MSAs are going to be used at all, I strongly recommend a tax credit approach. Credits could be structured much more fairly — for example, by giving everyone a credit equal to a flat dollar amount or a flat percentage, up to a certain maximum. (A refundable credit would be even fairer, but would cost more in lost tax revenue.)
 

Copyright  1996, 1998 by Laura Remson Mitchell

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