Legislation would encourage MSA’s

Jersey City, N.J., insured its employees with a traditional “fee-for-service” plan at cost the city $6,775 per worker a year, until Mayor Bret Schundler scrapped the system and replaced it with a Medical Savings Account (MSA) that costs the city $6,500 per worker a year

“The city has been able to achieve immediate budgetary savings while also al, lowing employees to reduce their out-of, pocket health care costs,” says Schundler. jersey City, along with Ada County, Idaho, are the only two jurisdictions to have implemented MSAs.

Under an MSA plan, a jurisdiction pays 100 percent of a family’s medical expenses after a $2,000 a year deductible. Then it would place additional funds, say $1,800, in an employee,controlled MSA. Total out,of-pocket expenses would be no more than a $200 back-end deductible. Traditional plans, meanwhile, often require an upfront deductible for every family member, as well as a price sharing arrangement for other costs.

Under an MSA, employees can use the employer’s contribution to pay for existing ailments or for preventive care. If the employee does not use all the money, it is returned to him or her. Consequently, an incentive exists to shop around for the best deal, something the current system lacks. Health care costs drop accordingly.

But, under current law, employer contributions to MSAs are considered taxable compensation, and employees pay taxes on those contributions, as well as on the interests accrued in their accounts. That would change under legislation now before Congress. Sponsored by House Ways and Means Chairman Bill Archer (R – Texas), the legislation, which had been included in an early version of the budget bill, would encourage the idea of MSAs by applying the same tax treatment to them as is applied to traditional plans.

It would also encourage employees to keep the unspent funds in their MSAs to use for future medical expenses.

MSAs have their critics, notably the labor unions. John Sturdivant, president of the American Federation of Government Employees, argues that only younger employees will switch over to MSAs because they will want to pocket the employer’s contribution. That will leave only the sick in the traditional plans and thus increase their costs even more, he says.

Sturdivant also laments the fact that businesses participating in managed care networks will see their leverage over insurance companies diminish as employees depart for MSAs. And he argues that employees will forego or delay health care because they will want to save money.

“The idea of MSAs is best understood as one more step in the continuing process of shifting costs and responsibilities for health care away from employers and onto workers,” says Sturdivant.

Proponents of MSAs say that labor’s concerns are unfounded. The American Medical Association (AMA) says MSAs, unlike many traditional plans, would be available for preventive care. The AMA also points out that the cost of those services would drop because the middle men–insurance carriers–would be cut out of the equation.

MSAs and managed care networks can work in conjunction with each other, advocates insist, thus saving even more money. And, they say that even the sickest employees would have an incentive to participate in MSAs because their out-of-pocket costs would drop.

“We believe an MSA option not only represents a cost-effective approach to providing health care, it also strengthens the market for medical care by assuring patients more freedom of choice,” says Daniel Johnson, president,elect of the AMA.