When we hear the term MSA, most of us think of the Goodman model. This is where an MSA is funded with the premium difference from today’s more expensive health plan and a high deductible indemnity insurance policy which is used in conjunction with the MSA to pay health care costs. All of the deductible must be met on an annual basis before the first dollar is paid from the insurance. The non-insurance derived money in the MSA is used to pay for the deductible costs, and any medical discretionary spending done by the family. This model was designed to primarily address those with employer-based insurance as being a more efficient way to control outpatient medical costs. However, this creates a problem for the very sick and the poor and working poor without employer insurance who can’t afford the high deductibles. The theory behind the Goodman model is that when the patient has the perception that the money spent on health care belongs to them personally, the patient will have a personal interest in how that money will be spent and therefore will shop around for better cost. This is an excellent theory and makes the MSA a truly powerful tool to help rein in health care costs. MSAs federally qualified under Kassebaum-Kennedy are similar to the Goodman model. However, problems begin to emerge when we look to this particular model for a solution to our most pressing needs in health care reform.
First of all, the proponents of the Goodman model have never claimed that their model of MSA is the solution to all the problems in health care reform. Accordingly, it would be a mistake to expect it to be or even try to force it to be. A good place to start would be to examine just what health care reform is all about.
The Rationale Behind Managed Care vs MSAs
Most serious discussion about health care reform addresses the problem of affordability, accessibility, and portability. Unfortunately, those persons with employer- based insurance, which traditional MSAs target, do not have a problem with affordability or accessibility even though costs are increasing. No one has portable insurance except the self-insured which makes up a small percentage of the population. The real problem with accessibility and affordability occur among the working poor many of whom are uninsured or under-insured because they simply do not earn enough money in their jobs to afford the inflated costs of health insurance in today’s distorted market. When these people do get care, costs for their care are shifted to those with employer-based insurance in the form of higher premiums, less benefits, and more expensive hospitals costs. But the cost shifting moves into high gear among those members of our society who are covered under government-based insurance because benefit payments are only a fraction of market costs and the amount of government regulation is massive driving up the overhead costs for the doctors and hospitals. So the real problems that need to be addressed in health care reform are the fact that the working poor, the indigent, and the elderly can’t pay market price; the cost shifting that this produces; and the inflated costs of hospital care and insurance premiums. Because of inequities in the tax law, the cost of health insurance is not the same for different segments of our population further aggravating this problem. In addition, many of these problems and government regulation have distorted the health insurance market to the point where even today’s high deductible indemnity policy is far too expensive. Guaranteed issue and community rating which are mandated by law were designed to create accessibility and equal premium payments but have resulted in excessively high premiums that few can afford and adverse effects in the risk pool as young healthy persons drop insurance to avoid paying higher premiums so that the elderly sick can pay lower premiums.
Another problem with insurance in today’s market is that the insurance payment is designed to pay the fee-for-service through a reimbursement scheme directly paying doctors and hospitals for performing procedures in an open ended system. This creates inequities of access. High income families tend to be overinsured and low income families underinsured because the insurance plan that pays for the service pays off in a more luxuriant way the higher the premium. Managed care seeks to close that system by imposing limited payments that have to suffice as the fee for service. Unfortunately, this cost control measure limits patient choice and the doctor’s ability to provide the patient with the most appropriate care. Managed care is furiously devising practice guidelines and investigating outcomes to determine how physicians must practice medicine if they are to survive in practice. Unfortunately, managed care controls the high hospital costs through rationing many times denying patients needed inpatient care. But more importantly, managed care has actually increased outpatient consumption by shifting care from the more expensive inpatient venue to the less expensive outpatient venue. Managed care now seeks to reduce its costs for this increased outpatient consumption through capitation of the physicians direct reimbursement. This will further deteriorate quality of care.
Somehow, I think that managed care has missed the boat in the sense that limitations in insurance payments impose limitations on quality care, choice, and the unencumbered practice of medicine by physicians. Managed care seems to imply that all decisions about health care are based strictly on cost. Certainly from the patient’s perspective, everyone wants the best care for the lowest price. However, from the doctor’s perspective, the most appropriate care is paramount. The recent machinations of managed care have begun to experiment with eliminating the professional aspect of the patient-doctor relationship. However, it is only within the traditional professional relationship that the doctor and patient can together design a fit between the patient’s unique medical needs and the most appropriate care for that individual patient. Cost decisions cannot and should not be divorced from medical decisions. It is unwise to allow insurance companies or patients to base their decisions about health care strictly on cost alone. Medicine is a profession not just a business. Physicians differ from the most ethical businessmen because the bottom line in business is always the dollar. In medicine, it is what is best for the patient. Cost containment in medical care must be done within the context of appropriate treatment. This can only be done by a physician.
The Insurance-MSA Linkage
Second generation or comprehensive MSAs may provide an answer to the vexing problems presenting themselves to those attempting to reform health care. Comprehensive MSAs use the full power of the traditional MSA, that is the fact that people are always more careful about spending their own money than they are about spending someone else’s, to address all medical and hospital costs. In addition, comprehensive MSAs call for the creation of a new insurance product that pays benefits directly into the patient’s MSA for only serious acute and chronic medical events now covered under regular major medical insurance and Worker’s Compensation (WC) insurance. This would allow employers under the current WC mandate to contribute the annual premium as a defined contribution into the MSA of their employees. This would create a huge savings for the employer who also has been purchasing employer-based insurance since in essence he will save the dollar amount of the WC premium. For the working poor this creates a tax free source of financing the MSA that doesn’t require any new taxes or mandates and no tax increases.
The working poor currently get the earned income tax credit which is tax free. This could be an additional source of financing the MSA of the working poor giving them access to affordable health insurance and a fully funded MSA which can be used to pay market price for necessary health care without having to pay a huge deductible annually in the face of serious illness.
The infusion of tax free money into the MSA of the working poor give this population tax equity with wealthier persons who, because they are in a higher tax bracket, will always have better access in a system where MSA financing is based on earned benefits alone. In addition, the MSA can fund premiums for long-term health care insurance, keeping this population from having to rely on the Medicaid system to provide this care after retirement. This is especially important as our aging population grows. By allowing the retired population to use their MSA as tax-deferred income a strong incentive for preventive care is created. This can be reinforced with discounts for insurance premiums for those individuals who maintain a healthy lifestyle and maintain testable parameters within a healthy range.
By having the insurance pay directly into the MSA of the patient, we avoid the problem of having limited insurance payments limiting the choice of the patient and the ability of the physician to privately contract with the patient for payment. Since the MSA contains the premium difference from today’s inflated health plans and the reformed insurance product, there will be large amounts of money growing tax free, rolling over year to year and growing with tax free compounded interest. The patient then gets an appropriate insurance
payment based on the information communicated to the insurance company when an insurable event occurs. Under this design the physician could relate to the insurance company the following information: 1) that a particular event has occurred, 2) how sick the patient is, and 3) the most appropriate treatment. This is information that only a physician should provide. The insurance company would then determine according to its guidelines and protocol what level of benefit payment best fits the clinical situation described by the doctor.
Custom fitting each claim will save a lot of money currently being wasted in the one size fits all system we currently have. This will also allow the doctor to do more procedures appropriate to an outpatient or office setting rather than in hospital, saving money. By using protocol payments, the insurance company would also save money spent on policing and micromanaging the fee-for-procedure system we currently have. The protocol payment is more like benefit payments in other types of insurance and similar to capitation in that there is a stop loss with each payment instead of a continual hemorrhage of money. The important difference is that under the protocol insurance/MSA plan, capitation does not affect the doctor’s ability to privately practice medicine or the patient’s choice and ability to pay market price since the insurance does not attempt to pay a fee for the service. All of this could be reflected in lower and more stable premium costs and help to provide for more affordable and portable insurance.
Most importantly for the working poor, protocol insurance payments, because they pay off in direct proportion to how ill the patient becomes and not in proportion to how luxuriant the plan is, creates health care access equity for all Americans regardless of income level.
By utilizing the full power of the MSA, by having the patient pay all medical and hospital costs from the MSA which has been fortified by insurance payments, we have created a market solution to address the problem of high hospital costs that are not addressed by the first generation MSA. Cost shifting is eliminated if the working poor and those on Medicaid and Medicare can pay market price, which they will be able to do with financing mechanisms outlined in this plan.
Financial institutions maintaining these MSAs may even be able to make pharmaceuticals available at discounts compatible with managed care through economies of scale for patients utilizing their debit card for the MSA. Since all patients will pay all costs via the debit card, all bills will be paid on the day of service saving large amounts of money now spent in collections.
The best way to address comprehensive affordability, accessibility, and portability is to organize the risk pool sharing of many different companies in the form of a syndicate through re-insurance. This would limit each company’s risk, and allow the individual companies to profit according to how well each company managed their risks. This would have to be coupled together with high risk pools also backed by re-insurance for those uninsurable or pre-existing conditions. It would be less expensive to just subsidize each person’s premium in the high risk pool, above the average spent by others of the same age not in the high risk pool, than go to community rating and guaranteed issue but the same goal could be achieved. In this way, everyone could have access to a low and stable cost insurance policy specifically designed to work with MSAs that would be personally owned and 100% portable.
In summary, comprehensive MSAs can solve every problem in a win/win fashion for all participants in the health care market place by providing a new insurance product that doesn’t require a deductible for bona fide medical events that are both acute and chronic. All routine medical events as well as all discretionary spending would not be covered by insurance and would be payable directly from the MSA not fortified by the insurance payment. In this way, insurance payments could be designed to meet the specific needs of the patient and pay off appropriately on a graduated scale that correlates directly with how sick the patient becomes. This insurance and its protocol payments would not interfere with the physician or the patient as they together decide the most appropriate treatment for the patient who will have the money necessary to pay full fair market value. And most importantly, insurance payments would in no way dictate fair market price between the patient and the doctor or hospital.
Dr. Lanzalotti trained as a plastic and reconstructive surgeon. He is in private solo practice. He is also Vice-Chairman of the Board and Policy Director of the Jeffersonian Health Policy Foundation, a Virginia-based group dedicated to research and education. He is the author of the American Health Care Plan, a comprehensive, market-based plan for health care reform, which formed the basis for the Virginia Medical Savings Account Act. His address is 136 John Tyler Highway, Williamsburg, VA 23185. (757) 253-2729, Fax (757) 253-1481.
Originally published in the Medical Sentinel 1997;2(3):90-92. Copyright ©1997Association of American Physicians and Surgeons (AAPS).