MEDICAL SAVINGS ACCOUNTS: Not As Popular As Anticipated
Investor's Business Daily reports that consumers are not flocking to buy medical savings accounts, which were made available last year under a demonstration project approved as part of the 1996 Kassebaum-Kennedy health insurance portability law. MSA supporters charge that the lack of sales can be blamed on "red tape and a market limited by the '96 law." During the Kassebaum-Kennedy debate, Democrats expressed reservations that MSAs "might endanger the health insurance market," as young, healthy workers would "flock to MSAs, figuring they could build up big account balances," while older or sicker workers would stay in traditional plans, where their premiums would skyrocket. Republicans responded that the idea would be attractive to all workers "and could help reduce health-cost inflation." Ultimately, the GOP was forced to make "a host of concessions," including a mandated range of deductibles and a stipulation that the program would only be given a trial status, with MSAs offered only to "small firms and the self-employed," and to no more than a total of 750,000 consumers.
Not A Fad
Internal Revenue Service figures from last year indicate that only 22,000 MSA policies were issued in the first six months of eligibility (Litvan, 9/24). The Sacramento Bee reports a major study shows that 100,000 MSA policies are currently being used, "well below the 600,000 accounts that were expected to be in place by now." According to the Bee, several factors are to blame. First, "MSAs are confusing to some consumers," both from an insurance and a tax perspective. Second, MSAs are not necessarily a good deal for consumers or employers (Young, 9/24). Insurers reap lower premium revenue from MSAs, and employers may have to bear a higher burden of an employees' insurance costs. Gail Shearer, director of health policy at Consumers Union, said "many people don't like the idea of having a high deductible on their health insurance." Colin Saxton, a broker in Grand Rapids, MI, said, "An MSA is not an inexpensive program for an employer." Large firms also see MSAs in contrast "with the shift toward managed care" and its cost-saving attributes. In fact, only 3% of all insurers currently offer the MSAs, a statistic that lends credence to the notion that the 750,000 cap "limits the market too much for some insurers to bother" (Investor's Business Daily, 9/24). A third barrier is the fact that "MSAs lack a major marketing campaign. Word of the policies has spread largely from person to person," according to brokers.
Stay The Course
Despite the underwhelming enrollment, MSA supporters are still hooked on the idea and are confident that policies will grow in acceptance. "MSAs are the only plan that can actually reduce the cost of health care because you are eliminating a lot of the middle men," said Jack Strayer, vice president of the National Center for Policy Analysis. Louis Landt, a California insurance broker who has seen his sales of MSAs pick up, said the policies give consumers "freedom of choice so they can go to any doctor they want." Republicans still want to expand the program in order to make it available to anyone who is interested (Sacramento Bee, 9/24). But, as the Investor's Business Daily reports, "the idea is tough to learn and IRS rules are so rigorous that it will take years before MSAs become a mainstay of employee benefits." Said John Neslage, Merrill Lynch's benefits chief, "Right now, you've got to be pretty sophisticated to figure this thing out -- or to even know about it."
Investor's Business Daily notes that Blue Cross-Blue Shield of Michigan has only sold 300 MSA policies since it began offering the option in January 1997. But Golden Rule Insurance Co. of Lawrenceville, IL, says it has sold 95,000 MSAs so far.