Medical Savings Accounts: Progress and Problems under HIPAA

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Medical savings accounts (MSAs) have shownthat they can help health care consumers controlcosts, exercise greater choice in and control oftheir own health care, improve access to medicalcare, and increase personal savings. Early experimentswith MSAs achieved modest success bythe mid-1990s. The Health Insurance Portabilityand Accountability Act of 1996 established afive-year MSA demonstration project for a selectgroup of individuals--employees of small firmswith 50 or fewer workers and self-employed individuals.MSAs under HIPAA provided federal taxdeductions for contributions to multiyear savingsaccounts established for medical purposes.

HIPAA MSAs were handicapped by rules thatlimited their availability and growth over the lastfour years. HIPAA imposed unnecessary complexity,restricted the scope of the MSA project, andcreated a number of MSA design problems. LastDecember the HIPAA MSA project was about tosunset when Congress renewed it for another twoyears, until December 31, 2002. However,Congress failed to fix any of the underlying problemsplaguing HIPAA MSAs. It simply renamedthem "Archer MSAs" in recognition of the role ofRep. Bill Archer (R-Tex.) in enacting them.

On February 28 President George W. Bush proposedthat MSAs be made permanent and liberalized.The Bush administration's budget plan for fiscalyear 2002 would remove HIPAA's cap on thenumber of MSAs and the restriction related toemployer size. All employees and individuals coveredby a high-deductible health plan would be eligiblefor MSAs. The Bush MSA reforms wouldlower the minimum annual deductible amount eligiblefor tax advantages as a high-deductible healthplan, allow annual MSA contributions up to 100percent of the applicable maximum deductible,and permit employees and employers to combinetheir MSA contributions to reach that annual limit.

To provide a fairer test of MSAs for allAmericans, Congress should peel away theremaining legislative and regulatory restrictionson federally qualified MSAs. Expanding the availabilityof tax-advantaged MSA plans with high-deductibleinsurance could allow manyAmericans to economize on insurance costs, savefor future medical and long-term-care expenses,and still remain protected against the risks of catastrophicillness. Potential MSA customers cer-tainlywill be interested in purchasing more-flexibleand better-structured MSA plans.

Victoria Craig Bunce

Victoria Craig Bunce is director of research and policy at the Council for Affordable Health Insurance in Alexandria, Virginia.