Medical Savings Accounts: A fine idea unless you're sick
 
You'd think that economists, of all people, would recognize the impossibility of providing a free lunch. Nonetheless, economists at the Consumer Policy Institute (CPI) and the Fraser Institute have recently advocated importing medical savings accounts or MSAs to Canada (see Health Policy Forum, Required Reading, October/November issue 1998). Their plan sounds simple - get rid of all government spending for medical services and give the money to individual Canadians. Every Canadian would get $1800 to purchase any medical services they 'choose,' $800 of which would pay for mandatory catastrophic insurance covering major medical needs. If the account holder spent more than the remaining $1,000 in a year, the catastrophic coverage would kick in. If less than $1,000 were spent, the balance would carry over into the next year and be used to pay for uninsured alternative services. MSA proponents argue that this would be a "win-win" situation no one would lose anything, and the healthy would get more money. Sounds good? Too good.

The problem with MSAs arises from the fact that a small proportion of people in society who are sick account for the largest amount of health spending. In 1994, those over 65 accounted for almost 12% of the population but about 48% of public spending for health care. Seniors were getting about four times their  "share." Simple arithmetic suggests that we cannot allow the 88% of the population under 65 to almost double their spending (that is, move from 52% of spending to their "fair share" of 88%) without more than doubling total expenditures, or taking away 3/4 of what seniors spend.

This problem cannot be passed on to insurance companies because premiums available for catastrophic insurance will be insufficient to cover the full costs. No private company can afford to provide full catastrophic coverage for high risk populations, particularly if coverage is voluntary. The key problems are risk selection and limiting potential financial liabilities.

The CPI hold up as an ideal the Singapore model of MSAs, run via a government agency as a mandatory program that attempts to eliminate risk selection by consumers. But this 'universal' plan refuses to sell catastrophic coverage to the disabled, anyone over 75, or anyone with severe preexisting conditions. It also limits potential liability; the best of several plans limits coverage to $70,000 Singapore dollars annually, with a lifetime limit of $200,000. Anyone with a severe health problem  could see their lifetime coverage evaporate quickly.

In the United States, the Health Insurance Portability and Accountability Act of 1996 established a MSA federal demonstration project and ordered the General Accounting Office (GAO) to conduct an evaluation (p.3). Lack of interest in the plan, however, made it "impossible to conduct useful surveys of enrollees, employers, or financial institutions" (p.1). As well, risk selection was indeed occurring; insurers found MSA enrollees to have "relatively better health status and lower service utilization" (p. 14).
 
The impact of MSAs on preventive care is not clear. People faced with a fixed amount for health
expenditures might try to save for a rainy day. MSAs would operate like user fees, which unhelpfully discourage early detection, health education, and health promotion, especially for lower income and lower educated groups. Contrarily, MSAs could encourage wasteful year-end spending if the public believes they must "use it or lose it."

MSAs violate the entire idea of insurance. They do not represent risk sharing as much as a method of getting tax-sheltered income with which specified services can be purchased. We will no longer transfer resources from the healthy to the sick and "fairness" will become redefined as "actuarial fairness." Since most of the population is healthy, they'll benefit, unless they happen to get sick or injured.

The CPI proposal also begs the question of what taxpayer dollars should go for. Under the guise of empowering consumers, the CPI has suggested a model which would transfer resources from the sick to the well, raise expenditures, diminish appropriateness, and leave the sickest without insurance. It hardly seems a worthy tradeoff.

RAISA DEBER
Dept. of Health Economics
University of Toronto