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Medical Savings Accounts
By Tenna Merchent
Diane Thatcher is a self-employed, family business
owner. For several years, she struggled to pay the high monthly
premiums of traditional health insurance, with no tax breaks. She
needed an affordable option that would provide her family with solid
insurance protection.
Today, Thatcher is covered by a Medical Savings Account
(MSA). She is able to select the health providers she wants, and
she pays a lower monthly premium. Operating like an IRA for health
insurance, MSAs create tax-deferred health accounts for policy owners.
The accounts are used to pay for medical expenses. "Being self-employed,
we've had to 'buy' our own insurance for several years," said 39-year-old
Thatcher. "We've always had to pay large deductibles and large premiums.
Therefore, we had a great deal of out-of-pocket expense and very
little actual benefit coverage. With the MSA, I know that I always
have money readily available to pay the medical bills when they
arrive in the mail! In addition, the total amount we pay out of
our personal budget for our insurance premium plus our MSA is considerably
less than what we used to pay for our premium alone! We have referred
friends to this plan, and we are very satisfied customers ourselves."
Diane Thatcher is a typical MSA policyholder. According
to a recent study, 17 percent of all MSA policies cover previously
uninsured persons, while 77 percent cover self-employed persons.
One of the best characteristics of MSAs is affordability. The plan
can be less expensive than traditional health insurance, and it
gives lower-income Americans the opportunity to purchase excellent
health insurance coverage for themselves and their families.
In an occupational study of MSAs, 18.4 percent of
policyholders were business owners. According to a Dun & Bradstreet
survey conducted earlier this year, 40 percent of small-business
owners shopped for a new health insurance carrier, and one-third
of the group opted for Medical Savings Accounts.
MSAs were authorized by Congress two years ago and
could be expanded with current plans for health care reform measures.
As of mid-1998, more than 92,000 people have been insured through
MSAs at Golden Rule, and the number keeps climbing.
Under an MSA plan, an employer purchases a high-deductible health
insurance policy which costs significantly less than a low-deductible
policy. The premium savings are then deposited into medical savings
accounts for employees' use.
Over the course of a year, employees draw on their
MSA money to pay any necessary medical bills, including preventive
care. If funds remain in an MSA at the end of one year, they may
either be taken out by the employee subject to income tax and a
15% tax penalty or carried over into the MSA for the following year
in an interest-bearing account.
If an employee depletes the savings account, only the difference
between the deductible and the MSA needs to be met with covered
expenses before the high-deductible policy is activated. Subsequent
medical expenses are covered up to $2 million by most insurance
plans. For example, for a single person with an MSA of $1,300 and
a deductible of $2,000, the individual is only responsible for $700
out-of-pocket expenses ($2,000 deductible minus $1,300 MSA) before
subsequent covered medical bills are paid 100 percent by the high-deductible
insurance.
MSAs are good options for everyone - sick or healthy, high or low
income. While MSAs offer a tremendous cost savings, they will also
potentially remove the tremendous number of people from the list
of uninsured. Lower-income individuals may actually prefer the MSAs'
first-dollar benefits which allow them to pay for care without having
to meet a deductible first. Removing such deductibles will encourage
lower-income recipients to seek out preventive health care initially
rather than waiting for a condition to deteriorate.
Studies of MSA customers' financial situations point
out that MSAs do not just appeal to the wealthy. In fact, according
to a sample of 1,249 randomly selected customers conducted by Golden
Rule Insurance Company in April of 1995, 58% of those surveyed reported
annual incomes of less than $25,000.
Sick people may prefer an MSA as well, since MSAs
reduce out-of-pocket expenses. The difference between the MSA amount
and a high deductible is often less than the sum of the deductible
and co-pay with traditional 80/20 plans. An MSA also gives them
the freedom to choose their own physician and allows them access
to advanced care that more than likely would be limited under managed
care plans.
MSAs reduce costs by turning the covered person from a user of health
care services, with no concern about the cost of what they consume,
into a purchaser of care with an economic interest in their health
care purchasing decisions. Experiences of those with MSA plans show
that covered persons shop for care, question costs, and frequently
find provider discounts when providers realize the patient is paying
directly for the care. These market forces complement other activities
to reduce costs, and increase efficiency in the health care system.
Because MSAs provide first-dollar benefits, they eliminate the barriers
which hinder routine or preventive care. Under traditional plans,
even minimal deductibles and co-pays often provide an incentive
to skip needed health care. MSAs go farther than any other plan
to ensure that families can afford access to routine and preventive
care when they want and need it. Additionally, Golden Rule's own
experience with offering MSAs to its employees shows that employees
use the MSAs to purchase health care services they would have postponed
in the past because they weren't covered under previous insurance.
The impact is huge for the self-employed. In today's world, they
can only deduct 30% of the cost of their health insurance, compared
to the 100% deduction larger employers get. On January 1, the self-employed
will be able to deduct 40% of the cost of the high-deductible insurance
(scaling to 80% by 2006), and 100% of the allowable contribution
to the fund. The MSA is the most logical choice for the self-employed,
simply from a tax standpoint.
- How much the plan charges in fees
- How much intrest the account earns
- When the intrest begins (in the first year of
the plan or later)
- A.M. Best - 1-800-424-BEST
- Moody's - 212-556-0377
- Standard & Poor's - 212-208-1527
Tenna Merchent is the assistant vice president of
Golden Rule Insurance Company located in Lawrenceville, IL. You
can reach them at 618-943-8000 or on the web at www.msanews.com. |
