Health-Care Flap Turns On Medical 'Piggy Banks'

As Congress is poised to enact the first broad health-insurance reforms in years, one issue threatens to knock the endeavor into a free fall: medical savings accounts.

The proposal, backed by Sen. Bob Dole (R) of Kansas, would allow employers to buy cheaper, high-deductible insurance policies that cover only large medical bills. For ordinary expenses, employees would pay into tax-free medical savings accounts (MSAs), which they could use at their discretion. What employees don't spend each year, they could pocket with interest.

Supporters say MSAs would save money and increase options. Opponents argue that MSAs would divert health-care dollars from those who need them most to those who make the fewest medical claims. They add that MSAs would also provide a tax shelter for affluent people.

Since the fracas erupted two weeks ago, MSAs have become the focus of intense scrutiny. Although 13 states and 2,000 businesses have implemented forms of these accounts, conclusions vary.

Yet experts agree on one point: MSAs would revolutionize the health-care industry. Of all Americans who buy medical insurance, 80 percent get it through employers.

The MSA controversy has postponed passage of a popular health-insurance reform bill that would allow Americans to keep their insurance when they switch jobs. Last week, Senate majority leader Dole attempted to insert MSAs in the Senate version of this bill.

Democrats defeated the amendment and have so far stymied Dole's attempts to stack the House-Senate conference committee in a way that will preserve MSAs in the final compromise bill. The House bill already includes MSAs, but Vice President Al Gore said President Clinton will veto any bill that contains MSAs.

The most exhaustive study of MSAs to date was prepared last year by the American Academy of Actuaries. While it draws no concrete conclusions, the study bolsters some concerns of opponents.

Researchers found that the 17 percent of American workers who do not make any claims on their health insurance could save as much as $600 a year, while the 8 percent with high medical expenses could wind up paying as much as $900 more.

Nevertheless, the study also concluded that MSAs could circumvent health maintenance organizations (HMOs) and preferred provider programs, cutting administrative costs of health insurance and providing employees with more options for medical care.

MSA advocates note that, under the current health-care system, those who stay away from doctors subsidize those who don't. With MSAs, they say, people would be far more aware of their expenditures.

"The medical industry is the only industry in which consumers don't look at the bill," says Kevin Berwald, spokesman for the Indiana-based Golden Rule Insurance Company, a chief advocate of MSAs. "There's no market force or factor to keep costs down."

But opponents such as Mark Peterson, a health-care policy specialist at the University of Pittsburgh, argue that MSAs would funnel health-care dollars to people who don't need them at a time when funds are already scarce. The basic principle of insurance, he says, has always been the creation of risk pools that everyone pays into equally, generating ample reserves for the small number who tap in.

By giving more resources to individuals, Mr. Peterson argues, insurance pools dry up. By attaching cost incentives to medical care, he says, "poorer people will be less likely to seek care when they should, while more affluent people will be less inhibited to seek it when they shouldn't."

He argues that the reason health-care costs have risen so much is that many new medical procedures are expensive. Although MSAs would allow people to control their small medical costs, he says, those enrollees who surpass the $2,000 or $4,000 deductible would be kicked into the traditional insurance pool, where there is no check on the number of expensive procedures.

Another problem, says Stanford University economist Alan Enthoven, is that some people will switch out of MSAs in years when they think they will rack up big bills, and then switch back when they don't. By nature, medical providers tend to gravitate toward procedures that are covered by insurance, he adds. "I'm all in favor of incentives and competition in health insurance," Dr. Enthoven says. "I just don't think this [idea] is a good one."

Yet MSA advocates hold fast. They contend that MSAs are a boon, even to those who seek extensive medical care, because they offer more choice of procedures and providers. They note that by driving down the prices employers pay for insurance, MSA programs could draw more uninsured Americans into the fold.

But their most potent arguments come from real-world examples. Dolores Gillies owns an auto-repair company in Lundington, Mich. Three years ago, before Michigan laws changed to allow MSAs, she says her employees came to her asking that they dump the company health-insurance policy, which few of them had ever used and that cost them between $10 and $60 a week. Since they switched to MSAs, she says, her employees have pocketed more of their paychecks and she has paid less for insurance.