Medical Savings Accounts in Publicly Financed Health Care Systems: What Do We Know?

Medical Savings Accounts (MSAs) are a method of financing health care that includes two essential features: an individual (or household)-specific account whose balances are earmarked for health care expenses; a high-deductible, catastrophic insurance plan that covers expenses above the deductible. An individual uses MSA funds, and personal resources if the MSA funds are not adequate, to pay for health care expenses for which she is personally liable (expenses below the deductible; cost sharing above the deductible if required). The catastrophic policy insures extraordinary, high-cost care. Advocates argue that MSAs can be integrated into Canada’s system of health care financing without compromising universal access to medically necessary services while generating substantial benefits, including: increased consumer choice, better access to many services, greater cost control, improved system efficiency, and increased personal responsibility and accountability. Surprisingly little high-quality evidence exists documenting the effects of financing health care through MSAs. Analysts’ differ sharply on the effects of MSAs in Singapore, the only country that has fully integrated MSAs into its system of health care finance US studies consist mainly of reports of the experiences of private firms that have limited scientific validity and generalizability, and hypothetical predictions based on simulation models. A recent US-based pilot project of MSAs within its publicly financed Medicare program failed to produce meaningful results due to lack of demand for MSA policies among Medicare beneficiaries and an unwillingness of private insurers to develop and market the required MSA-based catastrophic insurance policies. A review of direct MSA experiences of other jurisdictions and the broader research literature on demand-side cost sharing and the dynamics of insurance markets suggests the following effects. 1. Will MSAs Control Costs and Increase System Efficiency? Both the evidence on MSAs to date and the broader experience with demand-side, competition-based approaches to health care financing suggest that MSAs will not reduce costs or improve system efficiency. MSAs will likely lead to reductions in the utilization of health care. But, reductions in utilization associated with MSA financing will not occur selectively among unnecessary services reduced utilization by individuals will not necessarily translate into costs savings to the public sector. MSA-induced demand-side competition has not been associated with reduced costs or improved efficiency: The rate of increase in health expenditures per capita in Singapore actually increased following the introduction of MSAs in 1984. Singapore’s ability to control costs has resulted not from MSA financing, but rather from a series of supply-side regulatory initiatives that control the introduction of technologies, physician supply, physician fees, and the number of hospital beds. Evidence indicates that, unlike standard markets, consumer-based demand-side competition among health care providers is associated with increased costs and wasteful utilization. 2. Will MSAs Expand Consumer Choice and Increase Access to Health Care Services? MSAs can offer individuals greater flexibility in the range of health care services they can purchase at public subsidy. Unless new resources are injected into the financing scheme or efficiencies arise, MSAs cannot increase real choice for everyone. Those who will benefit most by allowing MSA funds to be used to purchase services not currently insured are healthy individuals whose expenditures on insured services are less than the deductible and who purchase large amounts of services not currently publicly insured. 3. Will MSAs Preserve the Equity Principles Underlying the Canadian System? The economics of insurance make it difficult to implement MSAs in a fiscally neutral manner for the public sector, unless individuals are liable for some out-of-pocket payments from personal (not MSA) funds. MSAs redistribute (and re-privatize) revenue raised through the general tax system, financially benefitting those who have less-than-expected health needs. This is particularly so if accumulated MSA balances can be used to purchase goods and services beyond health care. The poor face a trade-off between health care and necessities such as housing and food, while upper-income individuals trade-off health care against “luxuries.” 4. Can MSAs be Easily Integrated into the Canadian Health Care Financing System? A recent voluntary MSA pilot program in the US Medicare system failed when consumers showed little interest in MSAs and private insurers refrained from developing the required new insurance plans, which they judged to be complicated and difficult to sell to beneficiaries. Risk selection compromises any voluntary MSA scheme. Publicly financed MSAs that allow MSA funds to be used to purchase services not currently insured puts the existing role for private insurance in Canada a risk, and hence would be opposed by the private insurance industry. 5. Conclusions MSA design embodies an inherent tension between features necessary to generate the promised benefits (e.g., cost control, improved efficiency, greater choice) and their likely effects on equity and access. Under a number of plausible scenarios, MSAs could lead to higher public costs, reduced efficiency, reduced equity and compromised access. The demand-side emphasis of MSAs conflicts with the predominance in the 1990s of supply-side approaches to health reform (e.g., internal markets in the UK and NZ, managed care in the US), developed because of the limitations of demand-side approaches. MSA financing and the implied organizational arrangements of the delivery system as well as the relationship between providers and patients, may also hinder efforts to better integrate and coordinate care, particularly at the primary care level Careful design may temper some of the deleterious effects noted above, but critical analysis suggests that MSAs have little to offer within publicly financed health care systems and they put much at risk.