The Most Promising Health Care Reform

Leading up to the unveiling of the Clinton administration's health care reform plan, proposals that would impose price controls, rationing, and huge tax increases have dominated the national dialogue.

That's unfortunate, because such intrusive methods have yet to produce satisfactory results in any country where they have been attempted. Moreover, there are many innovative and workable solutions to the problem that would not burden Americans with more government. The most promising is the concept of Medical Savings Accounts (MSAs), patterned after Individual Retirement Accounts (IRAs).

The idea behind Medical Savings Accounts is to empower individuals to pay their smaller medical bills from their own pockets, thereby avoiding third-party payers like insurance companies and the government, with all their expensive red tape and paperwork. If people could do that, low-cost insurance policies with high deductibles would take care of their more expensive health problems. High deductibles are a sure-fire way to sharply cut health insurance premiums.

Of course, there's nothing that prevents anyone now from drawing from personal savings to pay medical expenses. The problem is, current law discourages it immensely. The biggest obstacle is the U.S. tax code, which encourages health insurance premiums paid by an employer but taxes dollars destined for savings to pay for such things as medical expenses or insurance. If an employer buys a high-deductible policy and tries to pass the savings on in the form of higher wages, or to place the money directly into a savings account, up to half of the "saved" amount goes to taxes.

Current law thereby promotes low-deductible, employer-paid health insurance, even though that's the most expensive way of handling smaller medical bills. A $50 physician's fee typically becomes $100 in total costs when third-party payment is involved and all the administrative expenses are accounted for.

Employers now pay, on average, nearly $4,500 annually per worker for employee health plans. Here's how Medical Savings Accounts could change the current system for the better: The employer could put $3,000 annually into each employee's personal MSA, which the employee would use himself to pay the first $3,000 of his medical costs. For about $1,500, the employer could purchase an insurance policy that would take care of medical expenses above $3,000. Funds in the MSA would be allowed to grow tax-free, and employees could withdraw them to pay for any medical expense recognized by the IRS (preventive care, dental or eye care, annual physicals, minor surgery, etc.)

The MSA would be the private property of the account holder, so it would be portable if the individual changed jobs. At the end of each year, the individual could let any unspent money accumulate for future use including for long-term care. Or he could use it to purchase additional medical insurance for himself or his family, or roll it into his IRA or pension fund. He could also choose to take the money out, pay taxes on it and spend it as he wishes. MSAs could be established by self-employed individuals as well, and would work essentially the same way.

Other advantages are numerous: MSAs provide consumers with a built-in incentive to control health care spending because they benefit directly from their own thrift. The incentives to purchase preventive care to stay healthy and to become more prudent health care shoppers are strong too. Especially helped are the poor, who often forego preventive care when it is not covered by their insurance. Administrative costs are dramatically lower because small claims are paid directly by the individual instead of a third-party. Freedom to choose one's doctor is preserved, a feature which may be sacrificed in a government-imposed plan.

According to a Blue Cross/Blue Shield study, 70 percent of America's 37 million uninsured are without insurance for 12 months or less, often during the period when they are between jobs. Because MSAs are portable and provide tax-free money to continue health insurance coverage for such contingencies, they would reduce the number of uninsured Americans.

A September 1992 study from the Mackinac Center for Public Policy suggested that widespread application of the MSA idea could shave as much as $200 billion off America's $900 billion annual health bill.

Surely, a comprehensive formula for health care reform must contain policies to address a broad range of current problems, including malpractice liability, state mandated coverages, and pre-existing conditions, to name just three. Medical Savings Accounts do not by themselves address every problem, but they could go a great distance in resolving health care problems if given the chance.

Before we ask the same outfit that's already $4 trillion in debt to get more deeply involved in health care, why don't we consider promising private options like Medical Savings Accounts?