MSA for Canada
Medical
Savings Accounts—Universal, Accessible, Portable, and Comprehensive Health
Care For Canadians1
Cynthia
Ramsay
Most of our governments have realized the folly of spending more than their income, and both federal and provincial levels of government are trying to reduce their expenditures. Fiscal responsibility is a good thing. However, in health care, it has led to cost--cutting measures such as hospital closures, capping physician fees, and other measures that reduce patient access to the health care system. Indeed, health care rationing has been one of the most prevalent methods of affecting provider behaviour in Canada. Such cost containment measures are attractive to policy makers because the costs are not easily seen by patients. If a medication is not on a provincial formulary, it is less likely to be prescribed, but patients will not necessarily know if they are not receiving the best medication available. If a hospital bed is not available, an elective surgical procedure will be delayed, and patients may not know that their surgery could have taken place earlier had there been a bed available.
Since 1991, health expenditures as percent of GDP have been decreasing, and they are now at about 9.5 percent of GDP.2 Unfortunately though, little effort has been put into increasing the efficiency of the health care system, which is under increasing pressure. We see the effects of this in overcrowded emergency rooms and hospital waiting lists that refuse to decrease despite intermittent efforts on the part of governments to reduce them.3 As a result, Canadians are losing faith in the health care system: only 43 percent of Canadians believe that the system is very good or excellent, and 45 percent of Canadians feel that the care being delivered by the system is of a lower quality than that five years ago.4 Another survey revealed that 42 percent of Canadians are distrustful of the reforms that have been initiated by governments across Canada; they feel that health care reform is just another term for “spending cuts.”5
Health care is highly demand driven, and as our population ages and as our income levels increase, we will naturally be more demanding of health care services. Harsher measures that restrict patient access to care will be needed to curb this natural demand for health care. However, rather than further endangering people's health and restricting their freedom, governments should start examining how we can introduce cost savings without sacrificing the quality of care. Increased rationing of health care is not the solution.
Medical savings accounts
Table 1: Example of American employer-funded medical savings accounts
An alternative to rationing is to allot health care funds directly to potential health care consumers. Medical savings accounts (MSAs) are health accounts that are established in conjunction with high--deductible health insurance. They can be set up by individuals, employers, or by the government. The most common type is the American, employer--funded MSA. In this type of health plan, employers purchase a high deductible or catastrophic insurance policy for their employees, which is much cheaper than a traditional insurance package. Employers then deposit a portion of the saved funds into employee MSAs.
When faced with medical expenses, employees first use the money in their MSA, which can be used only for health--related expenses. Once these funds have been exhausted, the employees are responsible for paying their medical care up to the cap where the catastrophic insurance begins. At the end of the year, any funds remaining in a person's MSA may be withdrawn, left to accumulate in a separate account for future medical expenses, or rolled over into a retirement savings plan. The most important aspect of an MSA is that the money belongs to the employee; that employee is responsible for these funds and can reap the benefits of using the medical system more prudently.
Table 1 shows how a typical American employer--funded MSA can be seen as a combination of three different health insurance plans. First, individuals purchase medical services with funds made available by their employers (up to $857 in the individual coverage example). The first dollars of coverage are virtually free for the employee1 since they are paid by the employers and not directly by the individuals. However, individuals have an incentive to use medical services prudently because every dollar not spent will eventually come back to them. Second, when the employer's contribution has been exhausted, individuals are responsible for paying medical care up to the cap where the catastrophic insurance kicks in (the next $643 in the example). This can be seen as equivalent to the deductible outlined earlier, with one important distinction; unlike regular deductibles, it comes into effect only after $857 has been spent (i.e., after the employer's contribution has been exhausted). Finally, once the insurance threshold ($1,500) has been reached, health care is free at the point of service for the individual.
The Opposition to MSAs
Opponents of financial incentives—or some form of cost sharing—to encourage more prudent use of the health system argue that individuals may delay seeking care or forgo efficacious preventive care when faced with medical expenditures (i.e., when medical care is not free) or when allowed to retain any health care funds not spent, as is the case with MSAs. This may subsequently result in higher medical expenditures if, for example, the illness has reached a more advanced stage. However, studies have shown that, on the whole, cost sharing can reduce the use of health care services substantially with little or no net adverse effect on people's health status.2 And even if the use of certain important preventive services, such as large scale immunization, were negatively affected by the introduction of MSAs, these services can always be provided to all by provincial governments or their health regions.
Another argument against MSAs is that, due to consumer ignorance, physicians (suppliers) are able to induce demand. However, there is great uncertainty as to whether supplier--induced demand is a large problem in the health care sector.3 As well, “Patients are more likely to resist demand stimulation when their out--of--pocket costs are high.”4 In other words, providing individuals with financial incentives may make it harder for physicians to induce demand.
Finally, cost sharing may entail regressive redistribution of income from the poor and sick to the wealthy and healthy, or it may impose a barrier to care that potentially endangers individuals' health status. However, MSAs can be adapted to limit the cost sharing faced by the poor while retaining the incentives to use health care efficiently. The maximum deductible can be set as a function of income, with lower deductibles for those people with lower incomes. Another option is to directly subsidize the poor; that is, increase the government's contributions to less wealthy individuals. The cost sharing aspect of MSAs can also be revised for people who suffer from chronic illnesses. Cost sharing can be diminished or completely eliminated for individuals who suffer from specific chronic conditions or for individuals who repeatedly exceed the insurance threshold for health reasons.
A Canadian MSA pilot
The abundance of different possible arrangements is a strength of MSAs.1 Evidence from American firms that have adopted MSA plans show that MSAs are conducive to more prudent health spending, without compromising individuals' health. Where they have been adopted, MSAs have resulted in lower employer and employee costs, accumulated savings, and high degrees of employer and employee satisfaction.2 And the empirical literature in the United States indicates that MSAs or similar arrangements have the potential to reduce health expenditures by up to 20 percent.3
Canadian governments could easily provide individuals with catastrophic insurance and deposit the funds into MSAs. The size of the government contribution could be all, or a fraction, of the catastrophic insurance policy's deductible, depending on people's health status, age, and income level. When faced with medical expenses, individuals would first use the money in their MSA which would be restricted to health--related expenses. At the end of the year, any funds remaining in a person's MSA could be withdrawn, left to accumulate in a separate account for future medical expenses, or rolled over into a retirement savings plan.
MSAs
allow for increased competition
in the health care
sector while offering Canadians
universal, portable, accessible,
and more comprehensive health care
than they currently enjoy.
The latter two options allow for capitalization of the health care market. Any funds invested today gain interest and can be used in the future for the more expensive care most individuals will need when they are older. This is contrary to the current system in which today's tax dollars pay for people's health care today; because health care funds are spent immediately, there is no opportunity for them to be invested and to grow. The theory and empirical evidence indicate that MSAs have the potential to curb health expenditures, improve efficiency in the Canadian health care system, and increase the health care options available to Canadians. In addition, surveys have shown that a majority of Canadians are willing to consider the idea of medical savings accounts as a way to encourage responsible use of the system (72%), allow patients to choose services more suited to their needs (67%), and increase physician accountability (55%).4
As the magnitude of the many effects brought about by MSAs is uncertain, it would be beneficial to conduct a pilot experiment in one particular region of Canada. This sort of experiment would shed some light on various issues of concern such as how MSAs would influence the consumption of health care services, and individuals' health status. The introduction of MSAs holds great potential. MSAs allow for increased competition in the health care sector while offering Canadians universal, portable, accessible, and more comprehensive health care than they currently enjoy. MSAs offer incentives for government, providers, institutions, and patients to use the health care system more prudently. Most important, however, is that an MSA places the spending power squarely in the hands of the person who cares most about your health and that of your family—you.