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[Congressional Record Volume 141, Number 91 (Tuesday, June 6, 1995)]
[Extensions of Remarks]
[Pages E1160-E1161]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

  MEDICAL SAVINGS ACCOUNTS--DISABLED COMMUNITY EXPLAINS WHY THEY ARE A 
                          PROFOUNDLY BAD IDEA

                                 ______

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                          Tuesday, June 6, 1995
  Mr. STARK. Mr. Speaker, medical savings accounts are a brilliant 
scheme to skim the healthiest people out of the insurance pool--and 
leave the rest of us to face sky-rocketing insurance rates. MSA's are a 
bad idea that has spread like wildfire.
  Following is a portion of the testimony of the Consortium for 
Citizens With Disabilities before the Ways and Means Subcommittee on 
Health on May 25. I hope the CCD's insights will help stop this 
lemming-like pursuit of MSA legislation.

                        Medical Savings Accounts

       Many Members of Congress believe that Medical Savings 
     Accounts (MSAs) have the potential to reduce health care 
     costs and increase the number of Americans with insurance. 
     There have been suggestions that MSAs be implemented not only 
     in the private sector but in the Medicare program as well.
       The Consortium for Citizens with Disabilities Health Task 
     Force has major concerns with the emphasis presently being 
     placed on Medical Savings Accounts as a solution to our 
     health system's problems of access and affordability. The use 
     of MSAs is not only untested, but also has the very strong 
     potential for making comprehensive health insurance less 
     affordable for persons with disabilities and serious chronic 
     illnesses. Because of our many concerns, which are discussed 
     below, and in the absence of other reforms, the CCD Health 
     Task Force does not support the establishment of MSAs as 
     either an incremental reform or as a solution to the health 
     care problems facing millions of uninsured and underinsured 
     individuals in the U.S.
       Supporters of MSAs state that:
       MSAs will allow the marketplace, not the government to 
     address the cost and access issue. By giving responsibility 
     for paying for health care to consumers, it is assumed that 
     MSAs will reduce unnecessary health care expenditures because 
     individuals who are spending their own money will be more 
     prudent purchasers. It is also assumed that the lower cost of 
     catastrophic health insurance will lead more employers to 
     offer the health insurance.
       MSAs will lead to lower administrative costs because 
     insurance companies will only be involved with claims higher 
     than the deductible amount.
       However, MSAs are untested, and it is not clear that they 
     will either lower costs or improve access to services.
       What are MSAs and How do they Work?
       Medical Savings Accounts are tax-exempt savings accounts 
     modeled on Individual Retirement Accounts that employed 
     individuals can use to pay for health-related expenditures. 
     State MSA laws generally create incentives for people to set 
     up these accounts by exempting from state taxes the money 
     contributed to these accounts. MSAs work like this:
       Employers can purchase a standard health insurance plan 
     with a low deductible ($250-$500 annually per person) or a 
     catastrophic health insurance plan with a high deductible 
     ($3000-$5000 annually per person). Because most people will 
     not have health care costs higher than several thousand 
     dollars, the premiums for high deductible catastrophic health 
     insurance plans are much lower than for plans with low 
     deductibles.
       An employer sets up a MSA for employees who want to 
     participate in this type of plan and deposits, in pre-tax 
     dollars, an amount equal to the difference between the cost 
     of a standard low deductible plan and a catastrophic high 
     deductible plan. The self-employed can also set up a MSA.
       Employees can use the money in their individual account for 
     health care expenses. When the high deductible is met, the 
     insurance company then pays the bills. If money is left in 
     the account at the end of the year, it can be withdrawn and 
     used for other purposes or carried over with accrued interest 
     into the next year.
       The CCD has several major concerns about MSAs:
       The catastrophic health plans that are purchased in 
     conjunction with MSAs can impose pre-existing condition 
     limitations and can refuse to cover persons with certain 
     health conditions or disabilities.
       Catastrophic health plans with high deductibles often do 
     not provide the comprehensive coverage needed by persons with 
     serious illnesses or conditions. Some of these plans have 
     lifetime or per condition limits of only $100,000.
       The American Academy of Actuaries has estimated that 
     persons with high health expenses will experience major 
     increases in out-of-pocket costs with MSAs. MSAs may also 
     increase out-of-pocket costs if the amount employers 
     contribute to the MSA is not sufficient to cover the annual 
     catastrophic deductible. Additionally, the combined cost to 
     the employer of an MSA contribution and the catastrophic 
     health plan premium may not be less than the cost of a 
     standard health plan.
       If large numbers of individuals choose MSAs plus 
     catastrophic health plans, the health insurance market will 
     be further segmented, reducing the size of the population 
     pool needed to spread risk adequately.
       MSA will likely lead to adverse selection because they will 
     be utilized primarily by younger, healthier people who do not 
     anticipate a need for health care. Persons who anticipate 
     health care expenditures, those who need comprehensive 
     coverage, and those who are older and at higher risk for 
     needing health care are likely to remain in standard low 
     deductible health insurance plans. Individuals with MSAs 
     could also change to a low-deductible plan when they become 
     sick or anticipate medical bills (e.g., childbirth expenses), 
     thus exacerbating the problem of adverse selection.
       Adverse selection will lead to higher premiums for persons 
     in standard, low deductible health insurance plans. It has 
     been estimated that if MSAs are widely adopted, the cost of a 
     standard, low deductible health insurance policy would rise 
     by as much as 26%. Increases of this magnitude will make 
     comprehensive, low deductible insurance unaffordable both for 
     employers and individuals who want to purchase these 
     policies.
       There is no evidence that MSAs will make consumers more 
     cost conscious when they are seriously ill. Physicians--not 
     consumers--determine what treatment is needed. If surgery is 
     recommended, consumers don't look for the cheapest surgeon, 
     they look for the best surgeon.
       Some individuals may forgo preventive and early 
     intervention services if they are allowed to use money left 
     in their MSAs at the end of the year for personal expenses 
     other than health care. This concern also raises the question 
     of whether it is appropriate to allow pre-tax dollars to be 
     used for non-health expenses.
       It is likely that catastrophic health plans will restrict 
     the type of health care expenditures that will count towards 
     the deductible. For example, if an individual spends $3000 on 
     mental health services, there is no guarantee that all of 
     these expenses will be counted towards the deductible, 
     particularly if the insurance has limited coverage for these 
     services.
        A majority of Americans are enrolled in some form of 
     managed health care plan. It is unclear whether MSAs can be 
     coordinated with these plans. Those opposed to managed care 
     view MSAs as a means to maintain the market for indemnity 
     insurance and fee-for-service health care delivery.
       Experience with MSAs is very limited. It is not clear 
     whether they will result in savings. Some analysts predict 
     that any potential system cost savings will be eliminated by 
     the additional costs required to administer MSAs.
       Most importantly, the CCD Health Task Force believes that 
     allowing employers and the self-employed the option of 
     establishing tax deductible MSAs in conjunction with 
     [[Page E1161]] high deductible catastrophic insurance 
     coverage is not the solution to our nation's health system 
     problems because:
       MSAs do not address the need for insurance by millions of 
     working Americans whose employers will not contribute to the 
     cost of health insurance; and
       MSAs do not address the need for insurance by millions of 
     low-income individuals who are self-employed or unemployed 
     and who cannot afford to buy health insurance.
     

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