It was quite a spectacle. There on the Senate floor, Ted Kennedy was filibustering against his own legislation (the Kennedy-Kassebaum bill) because medical savings accounts (MSAs) had been included. The date was June 10, 1996.
The whole idea of MSAs left the senator apoplectic. “MSAs are likely to raise health insurance premiums through the roof,” he said. “They will destroy the insurance pool!” The next day, June 11, he raged, “Medical savings accounts have become the Trojan horse that could destroy health insurance reform… . [They] will raise premiums for the vast majority of Americans!” And on June 14, he said, “The small business sector … is the most vulnerable to the disruptions that medical savings accounts would cause!”
Three years later, MSAs have proven to be a nice little product in the health insurance portfolio. They haven’t set the world on fire, but neither have they caused the catastrophes predicted by Mr. Kennedy. Somewhere between 50,000 and 100,000 self-employed individuals and small employers have chosen them, and more than one-third of the people who now have MSAs were previously uninsured. The most typical purchasers seem to be middle-aged empty-nesters who are running home businesses. Those folks aren’t making a lot of money, and they are getting worried about saving for their retirement. They may have some assets to protect — a home, car, furnishings — so they want protection against the cost of a serious illness.
More people would surely have enrolled by now, but Congress was so jittery about Mr. Kennedy’s dire warnings that it severely restricted the availability of the program to only the self-employed and employers with 50 or fewer employees. It also included many provisions that complicated the product beyond understanding for most people. Individuals could choose a deductible between $1,500 and $2,250, families between $3,000 and $4,500 (in January these numbers increased by $50 and $100 to account for inflation). Total cost sharing (deductibles, coinsurance and co-payments) is limited to $3,000 for individuals and $5,500 for families. Individuals may put 65 percent of their chosen deductible into a tax-free account. Families may contribute 75 percent of their deductible. Only the employer or the employee, but not both, may make the contribution in a single year. For a concept so simple, Congress seemed to go out of its way to saddle it with a ridiculously complex set of rules.
The basic concept is still very simple. Instead of paying unlimited tax-free dollars for an insurance plan that covers everything and encourages overuse of health care services, why not reallocate that money so that some of it pays for high-deductible health insurance and the rest goes into a savings account? The high-deductible health plan will cover serious illness, but routine, low-cost services can be paid for from the money in the savings account. Whatever’s not spent will be available later to pay for future needs such as long-term care or coverage during periods of unemployment. People will tend to think twice about unnecessary use of services when they have the opportunity to benefit from the saving. And administrative costs should be reduced when people pay for low-cost services directly, rather than through an insurance claims mechanism.
Now that it’s clear that MSAs work, and don’t cause the problems that so terrified Ted Kennedy, Congress should make MSAs available to everyone. And this time, Congress should resist the temptation to make it more complicated than it needs to be. Let people decide for themselves what level of deductible they are comfortable with, and how much they can afford to deposit in the savings account. Traditional employer-provided health care plans can cost as much as the employer cares to spend, and it’s all tax-free. Why should Congress care how much the deductible is, or how much cost sharing is involved, or whether the worker is in a group of 25 or 75 or 2,000 people?
Americans really are pretty smart, and, Senator Kennedy’s hysteria notwithstanding, we are capable of making sensible decisions about our own health care needs and preferences. Medical savings accounts are nothing more than a tool to help us do that, and they should be available to all of us.