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Questions/Concerns on Medical Savings Accounts (MSAs)
Laura Remson Mitchell

[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.]

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

Check markImpact on poor, low-income and/or  moderate-income people with health problems.
All of above concerns apply, as well as the following: Check markImpact on government revenues available for publicly funded health programs. Check markImpact of MSAs on the cost and/or availability of various other forms of health coverage (possible adverse selection).

Additional Concerns About MSAs

Check markEfforts by some to use the MSA approach as a substitute for more comprehensive, disability-sensitive health-care reform.
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.
Check markFailure by MSA plans to adequately address differences in the financial ability of various people to establish/maintain MSAs.
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.
Check markFailure by many MSA advocates to recognize the potential for reduced utilization of preventive care services and early medical intervention by MSA/catastrophic plan users, along with resulting spillover costs for the rest of the health-care system.

Check markFailure 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!)
Check markFailure to address any potential for adverse selection that could push up the cost of catastrophic coverage in the future and thereby price people with serious health problems out of the market again.

Check markThe 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.)

For further information, contact:

Laura Remson Mitchell
Health-Care and Disability Policy Consultant


Copyright Copyright symbol 1996, 1998 by Laura Remson Mitchell
February 19, 1996; rev February 27, 1996; HTML version Aug. 15, 1998.

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