It was quite a spectacle. There on the Senate floor, Ted Kennedy wasfilibustering against his own legislation (the Kennedy-Kassebaum bill)because medical savings accounts (MSAs) had been included. The date wasJune 10, 1996.
The whole idea of MSAs left the senator apoplectic. "MSAs are likely toraise health insurance premiums through the roof," he said. "They willdestroy the insurance pool!" The next day, June 11, he raged, "Medicalsavings accounts have become the Trojan horse that could destroy healthinsurance reform. . . . [They] will raise premiums for the vast majority ofAmericans!" And on June 14, he said, "The small business sector . . . isthe most vulnerable to the disruptions that medical savings accounts wouldcause!"
Three years later, MSAs have proven to be a nice little product in thehealth insurance portfolio. They haven't set the world on fire, butneitherhave they caused the catastrophes predicted by Mr. Kennedy. Somewherebetween 50,000 and 100,000 self-employed individuals and small employershave chosen them, and more than one-third of the people who now have MSAswere previously uninsured. The most typical purchasers seem to bemiddle-aged empty-nesters who are running home businesses. Those folksaren't making a lot of money, and they are getting worried about saving fortheir retirement. They may have some assets to protect -- a home, car,furnishings -- so they want protection against the cost of a seriousillness.
More people would surely have enrolled by now, but Congress was so jitteryabout Mr. Kennedy's dire warnings that it severely restricted theavailability of the program to only the self-employed and employers with 50or fewer employees. It also included many provisions that complicated theproduct beyond understanding for most people. Individuals could choose adeductible between $1,500 and $2,250, families between $3,000 and $4,500(inJanuary 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 65percent of their chosen deductible into a tax-free account. Families maycontribute 75 percent of their deductible. Only the employer or theemployee, but not both, may make the contribution in a single year. For aconcept so simple, Congress seemed to go out of its way to saddle it with aridiculously complex set of rules.
The basic concept is still very simple. Instead of paying unlimitedtax-free dollars for an insurance plan that covers everything andencouragesoveruse of health care services, why not reallocate that money so that someof it pays for high-deductible health insurance and the rest goes into asavings account? The high-deductible health plan will cover seriousillness, but routine, low-cost services can be paid for from the money inthe savings account. Whatever's not spent will be available later to payfor future needs such as long-term care or coverage during periods ofunemployment. People will tend to think twice about unnecessary use ofservices when they have the opportunity to benefit from the saving. Andadministrative costs should be reduced when people pay for low-costservicesdirectly, rather than through an insurance claims mechanism.
Now that it's clear that MSAs work, and don't cause the problems that soterrified Ted Kennedy, Congress should make MSAs available to everyone.Andthis time, Congress should resist the temptation to make it morecomplicatedthan it needs to be. Let people decide for themselves what level ofdeductible they are comfortable with, and how much they can afford todeposit in the savings account. Traditional employer-provided health careplans can cost as much as the employer cares to spend, and it's alltax-free. Why should Congress care how much the deductible is, or how muchcost sharing is involved, or whether the worker is in a group of 25 or 75or2,000 people?
Americans really are pretty smart, and, Senator Kennedy's hysterianotwithstanding, we are capable of making sensible decisions about our ownhealth care needs and preferences. Medical savings accounts are nothingmore than a tool to help us do that, and they should be available to all ofus.