Health-care reform offers sick solution

Monday, August 5, 1996

Proposed insurance deductibles only hurt consumers in the endBy
Gail Shearer

Health-care reform should make insurance affordable and
accessible for consumers. Unfortunately, Congressional leaders are
promoting a "reform" idea that will ultimately price many Americans
out of the health insurance market.

In their efforts to pass a health care reform bill in this
election year, Republicans and Democrats are negotiating over
whether and how to add Medical Savings Accounts to pending health
care legislation. Medical Savings Accounts (MSAs) are a costly plan
to couple high-deductible health insurance policies with a
tax-advantaged savings account. But MSAs are the antithesis of
insurance. Instead of pooling resources to take care of people when
they get sick, MSAs funnel money away from doctors’ bills and into
accounts that will help healthy people accumulate wealth.

Under the Republican MSA plan, families could have to pay
deductibles of $3,000 to $7,500 before they get coverage from their
MSA health insurance policy. Either employers or employees, but not
both, could make tax-free contributions of up to $4,000 per family
to an MSA. The family would then use the MSA toward the thousands
of dollars needed for the deductible for their catastrophic
insurance policy.

Deductibles of thousands of dollars would be devastating to most
families and would present a barrier to essential health care.
Consumers Union released a study in June that shows that the
average American family, with an annual income of $33,000, would be
forced to spend as much as 23 percent of its income a year on
health care.

Consider what a MSA would mean for a young family expecting a
child. Assume the employer contributed $2,000 to the family’s MSA
and the family had a $7,500 deductible. An uncomplicated
childbirth, including both doctor and hospital care, can cost as
much as $15,000. The family would use the $2,000 MSA balance to
cover some costs but would face another $5,500 in health care
expenses before insurance pays a dime.

Making this scenario even worse, the MSA plan discussed by
Congress allows insurers to charge consumers for 30 percent of the
cost of their care even after the high deductible is paid. Assuming
the young family had to pay 30 percent of the covered childbirth
costs, it would face another $2,250 in expenses. This family would
face a bill of $7,750 to deliver its healthy baby, a whopping 23
percent of its income if the family earns the national average of
$33,000 a year.

Today, four out of five consumers who get their insurance from
their employers have protection against such never-ending health
care costs. An estimated 80 percent of employer-provided health
care policies protect employees from bankruptcy by limiting
out-of-pocket costs to $1,200 in health care expenses through
deductibles and co-pays. Insurance covers the rest.

The widespread adoption of MSAs will mean that the health
insurance millions of Americans want most ­ the traditional,
low-deductible, comprehensive coverage most of us have today ­
may no longer be available. Families that want an insurance policy
with a total family deductible of $500 ­ the average today for
most family policies ­ could face premium increases of 60
percent or more. So, whether a family selects an MSA policy or opts
to stay with its traditional plan, it will face hundreds of dollars
in increased health care expenses.

MSAs are a bad prescription for consumers. MSAs encourage
consumers to gamble with their health insurance because someone who
is well today and signs up for an MSA may suffer from a costly
illness or accident tomorrow.

The Republican-led Congress has been trying to add MSAs to a
health care bill sponsored by Senators Nancy Kassebaum (R-KS) and
Ted Kennedy (D-MA). The bill, as it stands now, would allow workers
to take their health insurance with them when they change jobs and
would prevent insurers from using pre-existing conditions to deny
people health care coverage. Consumers Union supported the original
version of the legislation but, if MSAs are added the bill could do
more harm than good.

Gail Shearer is the director of health policy analysis for the
Washington, D.C., office of Consumers Union, the nonprofit
publisher of Consumer Reports magazine.