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A New Way To Pay For Health Care
Medical Savings Accounts are gaining acceptability elsewhere. Will Connecticut get on the bandwagon?
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Business New Haven
10/19/1998
By: BNH
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Douglas A. Hayward, former president of the HMOs M.D. Health Plan and Wellcare of Connecticut, is now promoting a different approach to health-care cost management: Medical Savings Accounts (MSAs). Legislated into existence by Congress in 1997, MSAs are permitted by law in 46 states - Connecticut being one of just four that doesn't allow them. At least, not yet.
Tell us about your newest venture.
I am working at InvestCare, of which I am part-owner. After M.D., I took on the responsibility of setting up and establishing the WellCare of Connecticut HMO. After it got off the ground, I decided I wanted to look at other opportunities. The whole area of Medical Savings Accounts [MSAs] intrigued me. I thought that for the first time, we would be able to bring consumer responsibility and accountability to the delivery of financing new health care. [Partner Christopher Austin and I] began to talk about starting a new company; that was the germination of it. As we started to pursue it, we discovered that 46 other states approved MSA products, but Connecticut didn't.
What is a Medical Savings Account (MSA)?
An MSA is a tax-exempt trust or custodial account established for the purpose of paying medical expenses in conjunction with a high-deductible health plan. A number of the rules that apply to MSAs are similar to the rules that apply to IRAs. For example, like an IRA, an MSA is established for the benefit of an individual, and is “portable.” So if an individual is an employee who later changes employers or leaves the workforce, the MSA does not stay behind with the former employer but stays with the individual.
How does it work?
The deductible component is paid from tax-free dollars. The payment to cover the deductible component is paid from [deposits to the] account until such time that the deductible is met. As an individual you can have a deductible of $1,500 up to $3,000; a family can start at $2,000 and go up to $4,000. Each year you can [contribute] on a tax-free basis 65 percent of the individual contribution ($1,500) and 75 percent on a family plan. In subsequent years, you can continue to contribute that, and all that money can grow to become a supplemental retirement plan at age 65.
Is it still a pilot program?
It is a four-year pilot. The good news is that we are starting to see new legislation at the federal level, and some of the legislation that has been proposed is to do away with the pilot concept entirely.
Who is eligible to have an MSA?
Two types of individuals are eligible: 1) an employee or spouse of a “small employer” who maintains an individual or family high-deductible health plan covering that employee or spouse, or: 2) a self-employed person (or spouse) maintaining an individual or family high-deductible health plan. The small employer for a calendar year with an average of 50 or fewer employees.
So what is the incentive there for the employee?
Their incentive is really two-fold: In the event they don't spend the money that is committed to their account, they gain as savings. They keep the money. So the incentive is that money then grows for them tax-deferred, much like a IRA would, until age 65. On average, an individual involved in one of these accounts will accumulate over the lifetime of their employment anywhere from $50,000 to well over $250,000.
How popular are MSAs becoming elsewhere in the country?
Well, they never got a great deal of publicity off the block. In the Health Care Accountability-Affordability Act, the emphasis was on portability and guaranteed insurability. Because it was originally set up as a pilot, with 750,000 people eligible to participate, none of the traditional insurance companies had a real commitment to it.
Why is Connecticut one of only four states that doesn't allow MSAs?
That is what we began to ask the Department of Insurance. The response that we got was that Connecticut insurance law limits one of its coverage components, which is that the size of the deductible for home-care visits cannot exceed $50. In this case, where you have a conflict between federal and state law, state law supersedes [federal law], and consequently MSAs are not qualified to be offered in the state. I think that a lot of the insurance companies tend not to support the MSA concept, and that is partly due to the fact that they stand to reduce their revenue flow significantly because the premiums are so much lower. We ended the last legislative cycle in June, and didn't get anywhere.
So what is the next legal step?
We hope to resurrect the process again in the fall. We are trying to come back to the state and show them that this product is getting momentum. The federal government has just included an additional 350,000 Medicare-eligibles to enable them to have an opportunity to participate in MSAs. Connecticut can't stand alone on this; they have to get behind the momentum out there.
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