Medical Savings Accounts are being characterized as a common sense new funding method that will save Medicare. Nothing could be farther from the truth. In fact, when the internal logic of MSAs is exposed, the claims are myths rather than reality.
Medical Savings Accounts are merely a novel way to push responsibility for health care expenditures onto individuals. Individuals will find themselves having to make serious decisions about which health services they will seek and if the MSA doesn’t cover the cost, they will either have to pay for those services out-of-pocket, or purchase insurance to pay for services.
Medical Savings Accounts also create the conditions for opening up the public health care market to private providers by allowing individuals to decide where they wish to purchase health services. Private health care providers will promote themselves as the private sector alternative in a new competitive health services marketplace. Public health care will be undermined.
The insurance business and private for-profit health care providers stand to benefit most directly from the introduction of Medical Savings Accounts. Canadians stand to lose quality public health care.
Here are the Facts
What are Medical Savings Accounts?
Governments would take funds already earmarked for health care and deposit it into an MSA for every individual to purchase health care services. Amounts in individual accounts would be determined by using some estimation of average expenditure based on demographic experience. Canadians would then use the money to pay for health services until they exhausted their account.
In most 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 would then pick up the cost of the amount over the corridor, 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, proponents argue that 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 may sound appealing but an examination of the internal logic of MSAs tells a different story and the facts expose the myths.
Myth # 1: Medical Savings Accounts will reduce overall health care costs.
Despite the claims that MSAs would reduce health care expenditures, it is very difficult to see how that would happen.
Governments would still pay for health services but an additional complex administrative layer is added increasing the overall cost of health care. Each individual account will have to be monitored to determine the appropriate allotment and actual expenditures from the account. All aspects of medical services, from supplies, to x-rays, to check-ups to surgeries will now have a dollar tag. Consumers will be asked to determine the best ‘price’ that the market offers for all of the services they require. Furthermore, prices of health care services will go unregulated. Users of the system will be subject to costs based upon competing services offered by hospitals and clinics.
There can 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.1 Government expenditures on health care will have a fixed floor and will grow with inflation and population growth. The math just doesn’t add up to savings.
Not only do MSAs not reduce total health care expenditures they will place increasing pressure on individual and family incomes as they purchase health care services. There won’t 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.
Even if you do have insurance there is no guarantee that you will be covered for all your costs. Insurance companies typically do not like to pay out claims as this cuts into profits. Claims are routinely denied in other areas of insurance,(auto, house, fire, theft) and claimants often must go to court in order to receive their payments. The more zealous the adjudication of insurance claims for catastrophic health needs, the more of a problem this will become.
Myth # 2: Medical Savings Accounts will Promote Choice within a Publicly Funded System
MSAs will not promote choices for those individuals who have complex medical conditions, who require ongoing consultation and treatment over an extended period of time or for those whose low incomes will not allow them to supplement, or replace, the level of care provided for under MSAs.
Canadians already have a significant amount of choice in choosing their health care practitioners. They are free to choose and change their physicians based upon personal preferences and the expertise these individuals offer. They have access to a wide course of treatments.
Until now, individuals have never been asked to evaluate the cost of treatment as a factor in deciding what kind of care is best. Quantifying medical services in dollar terms usually limits rather than expands choice. Individuals become more reluctant to seek care if it is of a non-urgent nature for fear that they will spend too much. Persons with complex medical conditions are left to choose which aspects of their medical condition deserve the most attention so that they do not expend all of the credit in their Medical Savings Account at once.
In large part, 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 elderly, the poor, women and children will be the ones most negatively affected.
Myth # 3: Medical Savings Accounts will Keep Canada’s Health Care System Public
The real purpose of Medical Savings Accounts is to “liberate the supply side of the medicare system” i.e., to introduce a fundamental privatization of the system.
According to the Fraser Institute, strong supporters of MSAs, centralized fee schedules bargained by governments would be abolished and the provision of hospital services would be opened up to all qualified providers, whether for profit, not for profit, or public sector.
Consumers, equipped with their Medical Savings Accounts, would then have the incentive to seek the most “cost-effective” care possible in a competitive market place. Prices of services would be determined by supply and demand of competing hospitals, physicians and other health care suppliers - some public, many private. Medical Savings Accounts become one source of profit for private providers – profits that come from the public purse. In a public system these monies would go to direct care and remain in the system.
Private health facilities will thrive under such a system and public health care will wither.
Myth # 4: Medical Savings Accounts are a Good Start in the Reform of the Canadian Health Care System.
Canada’s health care system does need reform. But the reforms that Canadians are demanding are reforms to strengthen and expand public health care – not ones that threaten the public nature and universality of our health care system.
Medical Savings Accounts are designed to increase the number of private players in the system using government subsidies that are distributed to individuals.
The premise and success of our public health care system is that governments regulate the price of most medical care limiting the opportunity for providers to inflate prices in order to generate a profit. Governments have also chosen to be the ‘single payer’ of services provided to Canadians under the Canada Health Act so that no one is left out. Medical Savings Accounts would change this. MSAs shift the responsibility for purchasing services to individuals. The ability for provincial governments to control health care costs and plan for anticipated ebbs and flows in the use of the health care system would be severely undermined.
The results of the National Forum on Health (1997) and the Fyke Report in Saskatchewan (2001) demonstrate that in order to improve health care systems, individuals need improved and more consistent access to services like home care and pharmaceutical programs. They did not recommend that health care recipients should have greater ‘choice’ in selecting a hospital or clinic based on the price of the services offered.
Medical Savings Accounts will not address how to provide for such an expansion in the system. Consequently, MSAs will serve as an additional barrier to accessing quality, effective and affordable care for all those that need it - regardless of the monetary value in their Medical Savings Accounts.
Myth # 5: Recipients of Health Care Stand to Benefit the Most from MSAs
Wrong! The insurance industry and for-profit health care providers stand to benefit the most.
MSAs will benefit the insurance industry primarily because of the need for catastrophic insurance. Almost everyone in Canada will have to purchase an insurance policy to cover health expenditures not covered by MSAs. While the insurance industry will be anxious to sell the policies, the inevitable end result will be to restrict care. 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.2”
It is no coincidence that the Senate Standing Committee on Social Affairs, Science and Technology, Chaired by Senator Michael Kirby and the Alberta Advisory Council on Health Care, Chaired by the Hon. Don Mazankowski, both highlight MSAs as good recommendations for reform. Senator Kirby is a Director of Extendicare, one of North America’s largest long term care and home care providers, and has strong links to the insurance industry. Mazankowski is a Director of Power Corporation and its subsidiaries, Great-West Lifeco, Investors Group, London Insurance Group and London Life. Great-West Lifeco is one of Canada’s largest providers of supplementary health benefits plans.3
The insurance industry will not be the only beneficiaries. MSAs create the opportunity for private for-profit health care providers to flourish. MSAs encourage individuals to make their own choices as to where to purchase health care services. They foster a climate in which it is acceptable for individuals to purchase all health services from private for-profit providers. If the federal government weakens under the pressure from several provincial governments to permit private health care, for-profit corporations will have virtually unrestricted access to all parts of the over $100 billion Canadian health care market. Corporate advertising campaigns to convince MSA holders to use private facilities will be ferocious and will draw support away from the public sector.
Myth # 6: Medical Savings Accounts Will Dampen Demand for Health Services
Proponents of MSAs, including the Fraser Institute, the Alberta Advisory Council on Health (Mazankowski) say 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.
Overall demand will not be dampened but sadly, it will be true for that portion of the population who can’t afford high insurance premiums or to pay for costs over the MSA maximum. And the real cost will be great. Individuals will now have to make a choice to seek medical attention or not. 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.
However, demand will not be dampened for those who can afford private health care. These are people who would be able to afford it even if they had no Medical Savings Account. Demand by those individuals will likely increase, because they can afford to access care at any cost. The result will be a strengthened private, parallel for-profit health care system and a weaker public system.
Myth # 7: Medical Savings Accounts are Successful in Reducing Health Care Costs in other Countries
The international experience with MSAs demonstrates the shortcomings well.4 Singapore implemented an MSA program called Medisave in 1984. Since then, per capita health care costs have risen faster than previously, and the government had to introduce 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.5 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.6
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.7 The government still had to limit diagnostic procedures and medications, and control remuneration to health care providers.8
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.9 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.
Any rigorous examination of the evidence must lead us to the conclusion that MSAs do not achieve cost reductions. 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 Shortt’s paper suggests, “a policy misadventure” which will erode public health care as a sustainable system.
1. Michael Fitz-James, “Here’s Your Allowance, Dear,” Canadian Healthcare Manager, October/November, 1998.
2. New England Journal of Medicine, 1997: 336: 1828.
3. Robert MacDermid, “Mazankowski handsomely paid by Power Corporation and Great-West Lifeco,” Straight Goods, February 26, 2002.
4.S.E.D. Shortt, “Borrowing Policy Misadventures from Abroad: Howe Not to Reform Canada’s Health System, Queen’s University Centre for Health Services and Policy Research, Policy Working Paper 01-01, November 2001. This paper outlines the experiences with MSAs in Singapore, China and the United States.
5. Ibid. p.6.