Medical Savings Accounts Survive

May 7, 2002
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WASHINGTON, D.C. — As the new administration and a split Congress start wrestling with medical care reform this spring, supply-side people may dust off an old idea: the Medical Savings Account.

The MSA is a personal, tax-favored savings instrument reminiscent of the 401-K in that one funds it with pre-tax dollars. It must be used in tandem with high deductible health insurance.

The concept was that the high deductible would lead to profound premium reductions, and the savings then could fund a personal savings instrument, from which one could pay deductibles and routine and preventive care.

So far, as it is presently constituted in a 4-year-old pilot project, the MSA has been a non-starter. Congress authorized 750,000 of the accounts among the self-employed and firms with less than 50 employees.

Critics of Congress said the group size limit was an attempt to torpedo the concept, because few health insurers are interested in developing and marketing a new product for the small business market.

And marketing looks like a huge concern for insurance companies. While people in business immediately grasp how such a program might work, the concept of high deductibles intimidates most consumers.

Thanks to that and a number of other restrictions, it's believed that no more than 100,000 to 150,000 accounts ever were put into use. 

The Business Journal has been able to find one local insurance agent who has written such a program. And the agent, Cheryl Rowland, of the Campbell Agency, was able to write it only for two or three sole proprietors, only one of whom has retained it. 

Moreover, she said, a high deductible in a single coverage policy generated only minimal savings.

She explained, too, that insurance industry knowledge of the MSA is primitive and sketchy. Worse, even though Congress established the MSA as a tax-favored instrument, the IRS seems barely aware of it.  That scares everybody including people inside the IRS, because in the absence of clear regulations, it portends expensive precedent-setting litigation in the tax courts.

Finally, insurers were reluctant to develop and market a new product that might not exist past the pilot's expiration: Dec. 31, 2000.

But one of the last Congress's last spending bills included a 2-year reprieve for the program.

And the extension also included an amendment that may indicate some of Congress's restrictions on the MSA will ease, and perhaps ease in a big way.

The amendment officially changes the designation Medical Savings Account to the Archer Account.

The change apparently comes at the instigation of Congressman Bill Archer (R-TX), chairman of the House Ways and Means Committee and one of Washington's most influential political figures.

The name change might just be another example of a Congressional ego trip. It also might indicate Archer wants throw personal influence behind the concept in the 107th Congress, which soon will resume tax work without the threat of Clinton vetoes.

Proponents of the concept will be petitioning for:

  • Allowing insurers rather than members of Congress to set the range of deductibles.

  • Allowing insurers to write the accounts for employers of any size, thus freeing insurers from the onerous regulations that afflict the small business market.

  • Eliminating Congressionally mandated sign-up times for such accounts, and allowing both employers and employees to contribute to such accounts.

  • Congressional preemption of state health insurance mandates during the remainder of the pilot project.

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