Fiducitation: Developments in US Medical
Savings Accounts
Author: Fiducite Staff
Insurance Team
Date: February,
2002 © 2002 Fiducite.com, Inc.
Fiducitation: A
synthesis of public Internet resources on the topic, with a synopsis and
summary by one or more Fiducité research analysts.
Instructions: Use the Table of Contents to navigate the document. Each citation has up to four distinct parts: Annotation, Clip, Source, and Cached File. Our Annotation and Clip (text or graphic from source document) help you decide whether to view the document. The source document may be viewed by clicking on the Source URL or by opening the embedded Cached File. All information is attributed to its source.
This Fiducitation was prepared in response to a client
request. Specifically, this Fiducitation is intended to answer the following
questions as posed by the client:
(1) How likely are plans to move to capitalise US health insurance?
(2) How this should work?
(3) Potential size of capitalisation (1Y; 5Y; 10Y)?
(4) Requirements to serve this market?
What we have found is that there is current “pilot”
legislation in force in the US enabling what are called Medical Savings
Accounts (MSAs). These MSAs and their derivatives, CIMAs and HCRAs (explained
later) are much like pension funds in
that they are essentially tax-deferred or tax-free savings accounts, but they
are used primarily to pay medical expenses which are not covered by the
“high-deductible” health insurance indemnity policies which participants are
also required to have. These MSA accounts can be funded by the employee or the
employer or a combination of both, but the funding option does have tax
consequences.
The 1996 act under which MSAs were authorized initially
called for a pilot covering no more than 750,000 persons and limited to small
businesses of no more than 50 employees.
The results were to be monitored and evaluated by the General Accounting
Office, with the results helping to formulate more comprehensive and lasting
legislation. However, due to poor initial participation (perhaps influenced by
strong objections from some consumer groups who felt the presences of MSAs
would drive conventional health insurance premiums higher and/or become a tax
shelter for wealthier taxpayers), the GAO evaluation process was deferred and
the pilot extended to 2002. At this point, it is not clear whether MSAs will
become a permanent fixture in the larger US health insurance market or just
disappear.
There is a
distinct possibility that the pilot will not extended and no further tax relief
for SA accounts will be offered, effectively killing off the MSA concept.
However, what seems most likely is that a bill (S.284) now before the Senate
will be enacted. The details of this bill are discussed in detail in subsequent
citations but the net is that the bill calls for a two year continuation of the
pilot, with a slight expansion in the number of participants (from 750K to 1
million participants, and in the size of business for which MSAs will be made
available (from 50 to a proposed 100
employees). Essentially, this provides
a bit more time to see if the MSA concept is really workable.
If S.284 passes the US Senate sometime this year, the MSA concept will bear serious watching and further investigation. If the GAO then subsequently weighs in favorably on the extended pilot in 2003, subsequent legislation in the 2004-2005 timeframe may create a much more popular new forms of the investment/savings vehicles that are currently limited only to pilot participants. According to the US Bureau of Economic Analysis, over 3.5% of the US GDP is spent on employer-contributed group health and life plans – and MSAs will surely claim a large chunk of this if they survive, even if they are limited only to smaller employers as in the pilot. According to the US SBA, small firms of less than 500 employees (higher than the current pilot limit but no further breakdowns were available) account for 56% of all US private sector employees. At present, however, it is a bit premature to speculate on future market size and market requirements for MSAs until (and if) at least the final version of S.284 is passed. Until then, investing in the current US Medical Savings Account market is investing in a business that could literally disappear overnight.
Medical
Savings Accounts – What are They?
Author:
MSA Frequently Asked Questions
Annotation: This web page
from a for-profit company which sets up MSA accounts provides a brief list of
some frequently asked questions and
their answers.
Clip: What is an MSA? A Medical Savings
Account (MSA) is a savings account created for the purpose of paying medical
expenses. An MSA works in conjunction with qualified major medical
insurance. The MSA money can be used to help pay the major medical
deductible and expenses not covered by the major medical. Who
Qualifies? The program is open to the self-employed, employees of a
company with 50 or fewer employees, and employers with 50 or fewer employees.
Other Criteria…
Source:
http://www.medsavings.com/question.htm
Cached File:
Health E Benefits – MSA options
Annotation: This web site
explains some of the MSA variation health options available to small businesses.
Clip: Medical
Savings Accounts (MSAs) are currently authorized under a four-year pilot study
initiated by the Health Insurance Portability and Accountability Act of
1996. [now terminates in 2002] This pilot limits MSAs to: individuals at
firms with under 50 employees; the self-employed; and the uninsured. It
also limits annual MSA contributions to no more than 65% of the accompanying
insurance deductible for individual coverage and 75% for family coverage.
The scope and flexibility of MSA design may expand or shrink in the coming
years, depending on what legislation follows the pilot.
….
A Health Care Reimbursement Account (HCRA) is
a second form of individualized health care benefit account which is relatively
well defined. Each employee funds their own HCRA with tax-free
contributions from their earnings and then uses the account to be reimbursed
for allowable medical expenses that are not paid by their primary insurance
(such as co-pays or non-covered health-related services). HCRAs have been
used for many years in a secondary role -- supplementing an employee's
traditional, low-deductible health insurance policy. With an
HCRA, employees determine how much they want to put into the account, but money
left unspent in the HCRA at the end of the year is lost to the employee.
Each year, the employee must "use it or lose it." Also, HCRA
funds can not be withdrawn for non-health-care purposes. The inability of
consumers to save unspent funds for future years or to withdraw funds for
non-health-care purposes differentiate a HCRA from an MSA.
…
A
Comprehensive Individual Medical Account (CIMA) is a variation on an MSA or a
HCRA in which an employee purchases health insurance through the account,
instead of having an insurance policy provided separately by their
employer. A CIMA is called "comprehensive" because, unlike the
situation with traditional MSAs or HCRAs, all health care benefits are
purchased through the account. If a CIMA qualifies as an MSA
under current federal legislation, including employer size and deductible
criteria, then it is a variation on an MSA; multi-year saving and cash
withdrawals (after penalty) are possible. If a CIMA does not quality as
an MSA, then it is a variation on a HCRA; unspent funds are lost at the end of
the year.
….
Many
employers are investigating new defined contribution options to provide their
employees with health care benefits. These options include: Medical
Savings Accounts (MSAs), Health Care Reimbursement Accounts (HCRAs) and
Comprehensive Individual Medical Accounts (CIMAs). MSAs and CIMAs
are relatively new and their results are not well documented yet. Will
they cause risk selection in insurance markets and leave the chronically ill
paying higher insurance premiums? Can negative effects may be avoided
through balanced plan design? Will these accounts provide cost
containment, greater employee choice, and improved service -- a win-win
situation for employers and employees? As the results of pilot programs
and early innovation become known and these benefit arrangements are refined,
then we will learn whether they live up to their promise to improve employee
choice and satisfaction with health care.
Source: http://healtheben.com/
Cached File:
Author:
January 2002 Washington Report
Annotation: This slide from the GFOA Washington Report
summarizes the current issues facing Congress regarding MSAs..
Clip:
Source:
http://www.gfoa.org/flc/PowerPoint.final.revision.pdf
Cached
File:
MEDICAL SAVINGS AMENDMENT COULD DRIVE UP THE PRICE OF HEALTH INSURANCE PREMIUMS
Annotation:
This
article discusses some of the concerns raised by proposed changes in the MSA
legislation, but support the modest MSA Expansions proposed by Senate Bill 284.
Clip: Senators McCain, Kennedy, Edwards and other sponsors of the Patients' Bill of Rights legislation coming to the Senate floor (S. 283, S. 872) also support legislation (S. 284) that includes modest MSA expansions. Because these provisions do not make MSAs available to anyone who wants one and do not eliminate safeguards that discourage the use of MSAs as tax shelters, S. 284 does not engender the same risks of higher health insurance premiums and extensive tax shelter benefits for higher-income taxpayers as the Administration's proposal does. S. 284 would:
- Extend the MSA demonstration from 2002 to 2004.
- Increase the limit on the number of MSA policies from 750,000 to 1 million.
- Expand the definition of small businesses whose employees can use MSAs from firms employing 50 or fewer workers to firms employing 100 or fewer workers.
- Require a new GAO study to determine the impact of MSAs on the cost of conventional insurance, on adverse selection, and on health care costs generally.
It should be noted, however, that S. 284 also contains various other tax and spending provisions unrelated to MSAs, some of which may have significant costs and budgetary impacts.
Extending the life of the demonstration in this manner may permit the collection of the data the GAO needs to evaluate MSAs and their impact on conventional insurance and health care costs. To date, lack of greater MSA utilization has prevented GAO from conducting the study mandated in the original demonstration project. The absence of such a study makes moving to universal availability of MSAs with weakened safeguards a particularly dangerous policy that poses serious risks to the availability of affordable health insurance coverage for those most in need of it.
Source: http://www.cbpp.org/6-12-01health.htm
Cached
File:
Consumers Union Letter to Senate Finance Committee re MSAs.
Annotation: This 1999 letter reflects early apprehension
and provides the rationale for stopping the MSA pilot.
Clip:
May 14, 1999
The Honorable William V. Roth
United State Senate
Washington, DC 20510
Dear Mr. Chairman:
We understand that on May 20, 1999, the Senate Finance Committee will mark-up various proposals that would expand Medical Savings Accounts (MSAs). We urge you to vote against any and all proposals that would have the effect of prematurely expanding MSAs beyond the demonstration program initiated in the Health Insurance Portability and Accountability Act. MSA expansion could come in a variety of forms - including building MSA options into the Federal Employee Health Benefits Plan, allowing all people under age 65 to be eligible for a tax-favored MSA plan, increasing the size of the allowed contribution to the MSA, and increasing the ceiling on the number of Medicare MSA enrollees.
While poor marketplace response to MSAs denied the General Accounting Office the ability to conduct the research called for in the Health Insurance Portability and Accountability Act, other research has confirmed fears of what MSAs will mean over time for the health care marketplace if readily available. Specifically, health economists have found that:
· When MSAs and low-deductible coverage are offered side-by-side, healthy people are drawn to MSA plans disproportionately, leading to premium spirals in the low-deductible plans.
· When employers offer both MSA plans and traditional coverage, eventually the MSA plans will "crowd-out" traditional low deductible coverage. This means that, in the long-term, consumers will have less, not more choice.
· The likely "losers" from MSA plans tend to be poorer, and in families with infant children.
It is important to understand that the splitting of the healthy from the sick can even occur if the minimum deductible for the catastrophic policy is $1,000. Research by the American Academy of Actuaries found that premiums could increase over 60 percent as a result of adverse selection with deductibles of this magnitude.
MSA plans should not be allowed in the Federal Employee Health Benefits Program. Ironically, in the long-term, including MSAs (and high deductible insurance) for federal employees could mean less choice of health plans for federal employees. Research suggests that, over time, premium spirals for traditional insurance will crowd out the low-deductible plans. Federal employees may, over time, have no choice but catastrophic coverage.
We believe that by splintering the healthy from the sick, expanded MSAs would move the nation's health care system in the wrong direction, and we urge you to oppose any expansions of MSAs.
Sincerely,
|
Gail Shearer |
Adrienne Hahn |
Consumers Union's Washington, DC Office
Source:
http://www.consumersunion.org/health/0513lettdc599.htm
Policy Changes for an Aging America
Annotation:
This
briefing, prepared in May, 1998, discusses the key issues driven by aging
American population, and some of the policy options to address these issues,
including MSAs – Medical Savings Accounts.
Clip: Medical
savings accounts (MSAs), backed up by catastrophic health insurance, have been
proposed to increase saving and pay for health insurance more efficiently.
Funds deposited in tax-favored accounts could be used to buy health insurance
and to pay deductibles and co-payments. Any surplus in the accounts could
eventually be used for other purposes. Presumably, health insurance companies
would compete to provide efficient health insurance to private buyers.
Source: http://www.urban.org/health/oldpol.pdf
Cached
File:
Full Text of the Health Insurance Portability Act of 1996
Annotation:
This
is the full text of the act enabling the MSA pilot as passed in 1996.
Source: http://www.hcfa.gov/medicare/mip/full-kk.htm
Cached
File:
Summary of Health Insurance Portability Act Regarding MSAs
Annotation:
This
document provides a much more readable version of the preceding act.
Clip: The MSA demonstration
project caps the number of participants to 750,000. Those eligible are
employees covered under a small employer-sponsored high deductible plan and
self employed individuals. Any individual who was uninsured during the previous
six months is eligible and won't be counted toward the cap.
Source: http://www.medsavings.com/msa3103.htm
Cached
File: 
Full Text of Senate Bill 284
Annotation: This is the
full text of the act before the Senate. Note that the highlights of this
proposed act are discussed in a previous citation.
Source: http://www.theorator.com/bills107/s284.html
Cached File: