MSA concept unproven in federal sector

Congress introduced in February the Federal Employees Health Care Freedom of Choice Act (H.R. 3116), which would amend provisions of the law that relate to the Federal Employees Health Benefits Program (FEHBP) and would provide medical savings accounts (MSAs) for federal workers. Employees who elect to participate in an MSA plan would be required to make regular payments into these accounts, and the Office of Personnel Management would be required to make contributions as well.

MSAs are linked to health insurance plans with deductibles of $1,500 to $2,250 for individuals and of $3,000 to $4,500 for families. Maximum out-of-pocket costs must not exceed $3,000 for single enrollments and $5,500 for family enrollments. Single participants can contribute 65 percent of their health insurance deductible into an MSA, and married participants can contribute 75 percent of the family deductible.

Participants pay their medical expenses with the money in their MSA until they reach their health insurance plan deductible. Then the health insurance plan takes over and pays all subsequent costs. The theory is that because individuals must pay for the first $1,500 or $2,000 (twice that amount for family enrollments) of their annual medical expenses out of their own pockets with money from their MSAs, individuals will shop carefully for their health care.

If things work as expected, health care costs will be held down because consumers will be shopping for the best deal.

It will be a while before theory meets up with reality. Thus far, not many eligible individuals in the private sector have elected to establish MSAs, so there is very little information upon which to draw any conclusions as to whether MSAs will have a positive impact on health care costs.

The National Association of Retired Federal Employees (NARFE) is opposed to this legislation. The association believes this bill represents a serious threat to the FEHBP and "could result in higher health care costs for older and chronically ill individuals who remain in traditional health plans." Their thinking is that MSAs would "tend to attract healthier enrollees because the new plans hold out the prospect of savings for low utilizers of health care."

NARFE's concern seems overblown to me. You can make that same argument with respect to Health Maintenance Organizations: HMOs do tend to attract healthier enrollees than do service benefit plans because healthier enrollees are less concerned about limitations on the providers they can use and are more concerned about saving on their premiums.

But there are legitimate concerns about MSAs. Even if they do bring down health care costs for participants who shop around for the best value, providers may turn around and charge non-MSA participants more in order to recoup their losses. Many physicians play that game with Medicare. They charge Medicare beneficiaries less because the law says they must, so they charge non-Medicare patients more to make up for it. And if only a tiny number of private-sector individuals join MSAs, as now seems to be the case, their impact on overall health care costs will be negligible. If this holds true, the MSA experiment will have proved nothing.

I doubt seriously that the MSA concept will take hold in the public sector. Federal employees want health insurance, not tax deductions.

In any event, it seems likely that this legislation will never even get out of committee.

Bureaucratus is a retired federal employee who contributes regularly to Federal Computer Week.


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