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MEDICAL SAVINGS ACCOUNTS

Because the Premiers Advisory Council on Health in Alberta has given such prominence to the concept of Medical Savings Accounts, it is useful to spend some time exploring what they are and why they are not a good idea.

Governments would take funds already earmarked for health care and deposit it into an MSA for every individual. The amount would be determined by using some form of average expenditure based on demographic experience. Canadians would then use the money to pay for health services until they exhausted their account. In some models the individual would be responsible for anything over the amount in their account to some predetermined maximum. This is often called a corridor. The government could then pick up the cost or a portion of the MSA could be used to purchase catastrophic insurance as protection against excessive costs for your health needs.

If an individual does not use the maximum in the account, it could be saved for future health care needs or used to purchase other services e.g., health fitness memberships, smoking cessation programs or, in some models, vacations. It all sounds good until the internal logic of MSAs is examined.

MSAs make no sense. Governments still pay for health services but now an additional administrative layer is added increasing the overall cost of health care. MSAs will need a very complex administrative structure. Each individual account will have to be monitored to determine the appropriate allotment and actual expenditures from the account,

There wont be enough money in individual MSAs to protect against even the most routine of health care needs (even less if surgeries are covered), never mind more complex ones. Individuals may be bankrupted if they do not have adequate insurance.

MSAs will benefit the insurance industry primarily because of the need for catastrophic insurance. Much as HMOs do in the United States, the insurance industry will begin to exercise considerable control over their payments to claimants in order to protect their profits. The result is that claimants will find their claims adjudicated excessively strictly and may find that their insurance does not cover large portions of their health care expenses.

Malik Hasan, M.D. and CEO, Foundation Health Systems in the US is quoted in the New England Journal of Medicine as saying:

We would make out like bandits, but as a physician I have very serious concern [that we would be] fragmenting the insurance pool. We are going into [MSAs] because these things are going to be a gold mine let there be no doubt. They are a scam and we will get our share of the scam.

If, on the other hand, the government takes on the role of insurer rather than private insurance companies, then there is no difference to what happens now i.e., government pays through the general tax revenues. Thus, there would be no need to change to MSAs.

There will be no savings from Medical Savings Accounts. Michael Mendelsohn of the Caledon Institute points out that if the government pays the allotment to individuals plus the cost of catastrophic insurance, and allows the excess in any individual account to be spent by that individual, not only will there be no savings, there will quite likely be additional costs. The math doesnt add up.

In some senses, Medical Savings Accounts will mimic user fees with the same results. Some individuals will not spend money on minor health matters fearing they will need the money for other major health needs in the future. Forgoing early treatments, or more minor treatments, may mean more significant health care needs in the long term at greater cost. The more zealous the adjudication of insurance for the catastrophic health needs, the more of a problem this will become. The elderly, the poor, women and children will be the ones most negatively affected.

The Advisory Council says that Medical Savings Accounts will dampen demand for health care services because MSAs will make individuals aware of how much their health services cost and they will be responsible for their own spending. Sadly, this is true. But the cost is great. Individuals will now have to make a choice to seek medical attention or not. And the primary factor in making the choice will be a monetary one rather than a health one. It demonstrates the perverse nature of economic theory when applied to social policy.

The international experience with MSAs demonstrates the shortcomings well. Singapore implemented an MSA program called Medisave in 1984. Since then, per capita health care costs have risen faster than previously, and the government introduced supply-side restrictions because the demand-side was not dampened sufficiently by MSAs. The Singapore government had to restrict technology, put price caps on services, restrict the number of beds, and tighten controls on physicians. And this was in spite of the fact that the Singapore population was relatively young and healthy and the system was not yet facing increased demand from an ageing population.

The Chinese government introduced two MSA pilot projects in 1994, expanded it to 50 cities later that year and to all urban areas by 1999. Again it was not enough to control costs. The government still had to limit diagnostic procedures, medications and control remuneration to health care providers.

MSAs are being used in the United States but have not yet undergone a rigorous assessment. They exist largely in individual workplaces and for self-employed workers, offered by insurance companies. Some studies have attempted to simulate the impact of MSAs on the American health care system. The conclusion to date is that MSAs will neither reduce health care expenditures nor ensure that more Americans are covered.

The conclusion we must come to is that MSAs do not achieve cost reductions as the Advisory Council suggests. If MSAs are introduced, they will be an ideological experiment with no justification in experience. To adopt them in Canada would be, as the title of Professor Shortts paper suggests, a policy misadventure.