Medical savings accounts can cut health-care costs

By Kallijah Paraska
Special to The Seattle Times


Everyone knows that health care, and consequently health-care insurance, is too expensive. Several "alphabet soup" ideas HMO, PPO, HRA have been tried but still haven't slowed the continually escalating costs. There is, however, one more set of initials that could solve about 75 percent of the problem MSA, or medical savings accounts.

If we can agree on three basic points, you'll reach that same conclusion:

Each of us needs to assume personal responsibility for how and when we access health care.

That includes not automatically running to the doctor's office or the emergency room. It means questioning the level of care that's really necessary. It also means checking the statements of the bills paid by the insurance company to understand how much your care is costing.

Until we change our attitudes and treat each dollar as though it were our own, the problem won't change and neither will the cost of health care.

We all need protection against disaster.

The original purpose of insurance, whether for health care or property, was to protect the insured against a catastrophic loss. It was assumed that the individual could cover routine costs or moderate losses but that outside help would be needed beyond a certain point.

That philosophy has been exchanged for one of entitlement to 100-percent coverage for all medical expenses, an unrealistic and expensive expectation.

Any new approach should be mutually beneficial to employee and employer.

For a plan to work, both the employee and the employer have to believe it is in their best interests. If one side feels they are paying more because the other is paying less, it won't work.

But if the benefit remains while the costs go down, both sides can profit from a new approach. Remember that the benefit is health-care coverage, not how many dollars you or your employer pays for it.

A solution already exists in medical savings accounts. The bad news is that they are not available to everyone.

Congress established MSAs in 1996 as part of the Health Insurance Portability and Accountability Act (HIPAA). They are often confused with, but are not the same as, health-care reimbursement accounts (HRAs) and flexible spending accounts, also called cafeteria plans.

MSAs are limited to individuals, or businesses with 50 or fewer employees.

Either the employer or the employee, not both, may use pre-tax dollars to establish a medical savings account to pay for routine medical costs as the need arises. The money may not be used to pay premiums.

In addition to the MSA, the employer buys a health-insurance policy on the employee, with a high deductible federal law currently specifies a $1,650 minimum deductible for this particular program.

The MSA contributor, either the employee or employer, can then claim a tax break. The contributor can put up to 65 percent of the amount of the individual deductible, in this case $1,072.50, annually in the tax-deferred MSA account. For a family of four, the minimum deductible now is $3,300, and the contributor would be allowed to invest 75 percent, or $2,475 in pre-tax dollars, annually.

It is possible to put more than the limit into the account but the additional dollars do not qualify for a tax benefit. These MSA accounts are invested and can grow through both interest and capital appreciation. If the employee does not withdraw all the money for medical bills, at age 65 they could actually use the account for retirement income. With a slight penalty, the money can even be withdrawn before then for other non-health-care emergencies.

The immediate problem is that the law permitting MSAs is due to expire at the end of next year. MSA legislation not only needs to be extended indefinitely, it needs to be expanded to cover even more people.

Recently, Dr. Mark McClelland, senior health-care economic advisor to Secretary of Health Tommy Thompson and President Bush, proposed changes to Congress that would open up MSAs to everyone with no restrictions. This proposal is awaiting acceptance.

Granted, expanding MSAs will not help everyone. For the unemployed and the working poor, MSAs are still out of reach for most. However, if we can slow or even reverse the ever-increasing cost of health care, they will certainly benefit.

If we ever are to lower the cost of health care, we need to get every employee to treat health-care dollars as though they were their own. MSAs are the best way to make that happen and they are definitely more suitable for the information age of today than entitlement programs that were developed years ago for an industrial economy.

With MSAs we can contain health-care costs and return our country to a consumer-driven health-care system. Contact your senator and representative about extending and expanding MSAs. And let State Insurance Commissioner Mike Kreidler know you would like to see greater use of MSAs in Washington state.

Kallijah Paraska is a senior vice president at Acordia in Washington state. Acordia is an insurance brokerage that sells MSAs to individuals and organizations.


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