Archer MSAs gain renewed support as means of holding down health-care costs
Ten days before the pilot program’s expiration on New Year’s Eve 2000, GOP supporters managed to save a revolutionary, though controversial, program aimed to help reduce health-care insurance costs. Medical savings accounts (MSAs) give self-employed and small businesses the ability to set up tax-free savings accounts for non-covered medical expenses in conjunction with an existing high-deductible insurance plan.
"I call it a medical IRA," says Tom Williams, broker/consultant for Group Health Planning in Hartland and a recent MSA client.
"I knew about this for years, but I never signed up because the premiums that I was paying weren’t significant enough," he says. "But over time I realized I was paying a lot of money for insurance I never used."
Renamed Archer MSAs after the House Ways and Means Committee Chairman Bill Archer (former R-Texas) who spearheaded the initiative, the program has gained renewed momentum over the former Clinton Administration’s heralded universal health-care initiative.
Medical savings accounts allow individuals to deduct a limited amount of funds, pre-tax, to be put into an account through a financial institution where it accrues interest and, in some cases, can even have a portion rolled over into mutual funds. Enrollees write a check or use a debit card, tax free, to pay expenses not covered under the accompanied high-deductible plan. The balance rolls over from year to year and, at age 65, the funds can be taken and taxed as ordinary income. The high deductible allows for a significantly lower-priced premium.
According to Williams, many employers opting for the plan choose to pay the contributed amount and let the employee pay the low premium. However, he points out, the downside is that employees have to incur the expense of any rise in premiums.
Archer MSAs were essentially designed for uninsured or underinsured small business owners. "Right now one in five applications that come in for an MSA was previously uninsured," says Kerry Smith, government relations’ director at Fortis Health in Milwaukee.
Fortis Health offers Archer MSAs with the option of rolling over into a mutual fund after one year in the program. "So to me that shows that, while obviously not the panacea, it’s another option," he says. "It’s something else we can do to address the issue of affordable coverage for the uninsured."
"Every employer right now is facing 20 to 30 percent increases in health-care costs," adds Williams. "So the employers are saying, ‘I’ve got to stop this freight train.’ And for many, this is an excellent way to control costs."
MSAs began as a pilot program in 1996. Lead by Republicans in Congress, the program was reportedly the result of a compromise between the Democrats, who opposed the legislation, and the Republicans who supported it. The stipulations placed upon the pilot plan included limiting the number of individuals allowed to participate at 750,000. But fewer than 55,000 signed up in 1999.
According to Smith, the lack of public acceptance is primarily due to lack of knowledge about MSAs. "It’s like IRAs when they were introduced in the 1970s," he says. "Nobody knew what they were. Now everybody has one."
Williams agrees. "It’s hard to convince customers that this is a good deal. They get sticker-shock when they see the high premiums, not realizing that they could actually be saving money this way."
It may also be tough to convince the public due to congressional Democrats claiming that the plan is directed mostly toward the young, healthy and wealthy – leaving the older and less healthy out in the cold.
"Enacting medical savings accounts to address the uninsured would be like eating a hot-fudge sundae to cure a stomach ache — it may look good but it makes the problem much worse," said New York Democrat Rep. Charles Rangel of the program in December. Democrats contend that older, less healthy individuals would be forced to pay higher premiums for traditional coverage.
Smith disagrees. "The argument that it bifurcates the market is invalid and illogical because the same person is going to buy coverage; it’s just do they choose the savings vehicle or do they not. That’s all it is."
According to Smith, Fortis Health currently has about 25,000 enrollees in the program. "Any time you bring in young and healthies, you help spread the risk even further," he says. "So I’d even turn that argument around and say not only does it not bifurcate, it helps spread the risk even further by bringing more of the young and healthies in."
Williams contends that the plan also creates a smart consumer. Since enrolling in the MSA, he says he has found himself shopping around for the best price in prescription drugs. "I even went to [one store] and said, ‘Will you match that price?’ They laughed at me. They said, ‘We don’t match prices.’"
Many experts argue such consumer pressure could help drive down health-care costs by forcing health-care providers to make their prices competitive. "So I’m now a consumer. Where before I had a drug card and I paid a co-pay and didn’t care about the rest of the cost, now I’m a smart shopper," says Williams.
"I always say, if you give an employee, say, an American Express card and send the bill to the employer, [employees] don’t care where they go or how much they spend," he adds. "But if the bill goes to them, now all of a sudden they’re smart shoppers."
As a pilot program, MSAs were only available to self-employed individuals and qualified corporations with 2-50 employees. However, the renewed Archer MSA plan would reportedly ease the eligibility requirement that workers have a high-deductible medical plan. Under current law, the health insurance policy must have a deductible of at least $1,550 for individual coverage and $3,100 for family coverage. The Archer proposal would lower the minimums to $1,000 for individual coverage and $2,000 for family coverage.
Contributions to MSAs are now limited to a percentage of your insurance policy’s deductible. For individual coverage, the limit is 65% of the deductible. For family coverage, the limit is 75%. Archer’s plan would raise the limit to 100% of the deductible.
"I can tell you right now that there’s legislation being drafted to expand the program starting this year," says Smith. "Mr. Bush campaigned in support of MSAs for Texas and now nationally. So I would say you’re going to see some legislation probably by summertime, and you’ll probably see it in the proposed tax package."
