Medical Savings Accounts

Commentary, Healthcare & Welfare, Frontier Centre

Advances in medicine rank among the greatest accomplishments of this century. From the near eradication of infectious disease to technologies like Magnetic Resonance Imaging, these achievements have more than doubled our average life span.

But the public policy structures built to channel this progress haven’t met with as much success. Most of the Western world long ago established tax-funded systems much like Canada’s Medicare. Our 32-year-old system is still trying, unsuccessfully, to provide universal access at zero price to all citizens.

The problems of so-called "free" healthcare include long and growing waiting lists for most procedures, spiralling costs and increasing centralization of services in the misguided effort to control costs (witness Manitoba’s hospital-food farce). Central planning methods have transformed health care into a political football governments fumble more often than they catch. The pattern has bedevilled every country where politicians and planners have naively attempted to substitute their "wisdom" for that of millions of healthcare consumers.

Defenders of Medicare usually toss a false alternative at critics of socialized medicine, namely the expensive and inequitable American model. They have failed to notice that many of the U.S. system’s problems mirror our own: government programs similar to Medicare pay for about a third of all services delivered, mostly to the poor and elderly. Most private and co-operative plans also come without an up-front price tag. Health insurance is most often bundled with other employment perks, with beneficiaries paying little or nothing for access.

In a system without prices people have no objective information with which to weigh costs against benefits. They tend to tax the finite resources of the medical system to the to the limit. Americans enjoy better service — and they pay much more for it. But their "managed care", the notorious HMOs that work essentially the same turf as our system, have also resorted to cost containment by restricting choice and availability.

Some excellent research from the National Centre for Policy Analysis in Dallas, Texas describes how one country in southeast Asia has sidestepped our muddle with a program called Medical Savings Accounts. Introduced in Singapore in 1984, MSAs restored prices without restricting access. Citizens there now enjoy prompt, high-quality universal service while the bill amounts to only 3.1% of annual domestic product. That’s less than half of our expenditure and about a fifth of our southern neighbour’s.

Here’s how MSAs work. Singapore’s government mandates that workers place between six and eight percent of their incomes into dedicated accounts, the exact amount depending on age. This money can only buy health services, and some of it must purchase insurance for long-term and catastrophic care. During their lifetimes MSA holders cannot use the funds freely, but their estates inherit whatever’s left after death. Top-notch public hospitals fill the gap for those without incomes.

By allowing its participants a choice between saving money and spending it only when necessary, the price system enables them to ration themselves, to understand real costs and benefits. And guess what? Medical facilities in Singapore provide nothing but the technological best, and the stated service goal of treating most patients within fifteen minutes is usually met or exceeded.

Under the MSA regime, bean counters don’t nickel-dime service providers to death. Doctors earn paycheques as high as those of their American counterparts, and the medical "brain drain" does not exist. The city-state’s government still owns nearly half the hospitals, but private alternatives are growing fast.

MSAs can also be funded though taxes. Instead of delivering the services directly, the government would place the money to pay for them into dedicated accounts controlled by consumers.

Whatever form they take, MSAs offer a workable alternative to Canada’s increasingly clapped out health-care model.