The medical savings saga
- By Milt x_Zall
- Jun 26, 2000
Legislation in Congress would incorporate the concept of medical savings
accounts into the Federal Employees Health Benefits program. The jury is
still out as to whether this would be a positive development for feds.
Under existing law, individuals who are self-employed or work for a company
with fewer than 50 employees can elect to participate in a medical savings
account (MSA). Congress has approved a four-year pilot to apply the concept
in the federal government and make MSAs available to the first 750,000 people
MSAs work in conjunction with major medical insurance providers and
allow patients to choose their own doctors. Participants can use MSA money
to help pay deductibles and expenses not covered by a major medical policy.
Contributions to an MSA are made with pre-tax dollars. The tax treatment
is similar to money you elect to contribute to the Thrift Savings Plan.
Because three-fourths of Americans spend less than $500 a year on medical
care, proponents of MSAs say these account holders could accumulate large
sums over a lifetime. A study by the National Bureau of Economic Research
predicted that more than half of the workers would amass $50,000 in their
Little information exists about the impact of the MSA program so far,
but it appears to have been unsuccessful in the marketplace, with far fewer
people enrolling than the demonstration allowed.
By expanding MSA eligibility to feds, critics are concerned about dividing
the marketplace into healthy and sick categories. Consumers Union estimates
that under the current pilot program, it costs the federal government about
$3,600 to insure each previously uninsured person who purchases an MSA.
In contrast, it costs about $1,178 to cover each additional child enrolled
Imposing MSAs into FEHB could result in higher costs for federal employees
and annuitants who remain in traditional plans. MSAs tend to attract healthier
enrollees because they reward those who don't use much health care and have
cash balances. As a result, less healthy individuals left in other plans
could drive up costs and force insurers to raise premiums, cut benefits
or both. This is called "adverse selection."
According to the Congressional Budget Office, adverse selection will
result in increased costs of nearly $1 billion over five years if MSAs are
introduced into FEHB. When MSAs were offered to public employees in Ada
County, Idaho, and Jersey City, N.J., the National Association of Retired
Federal Employees said adverse selection occurred. Consequently, the two
stopped offering MSAs to their employees.
Although it's impossible at this point to determine if MSAs are a good
idea, if Congress wants to experiment with MSAs, it shouldn't use feds as
guinea pigs. Let Congress extend its current MSA trial and let the free
marketplace be the judge. Shoving MSAs down our throats isn't necessary
—Zall is a retired federal employee who since 1987 has written the Bureaucratus
column for Federal Computer Week. He can be reached at [email protected]