Government Think Tank Confused About Consumer-based Healthcare Model

Media Appearances, Healthcare & Welfare, Frontier Centre


Medical savings accounts prey on poor, sick in society

in the Winnipeg Free Press, Saturday, August 19, 2000

By Carolyn De Coster and R.J. Currie

YOU'VE probably heard about medical savings accounts as a fix for our ailing health-care system. MSAs, it is said, will control costs, improve service and encourage efficiency. Don't believe it.

First, how do MSAs work? One common proposal is for the government to deposit money annually into each person's account. You would pay for minor health-care expenses out of this MSA. Any money left over at the end of each year would accumulate to an amount considered sufficient to cover your future health-care expenses.

But the MSA doesn't cover everything. You also must purchase separate catastrophic health insurance (CHI) to cover major health-care expenses like cancer therapy or major trauma. In some proposals, you can use part of your MSA to buy the CHI; in some it comes out of your own pocket. Usually, there is a gap between the MSA and the CHI, for which you are responsible. With MSAs, the theory is that people would see the connection between what they spend and the health-care services they receive. This would make them more discriminating consumers.

Along with that argument is an implicit assumption that the private sector should be allowed to compete freely in health care. Such competition between providers, it is said, will reduce prices while maintaining quality. This, despite evidence to the contrary. For example, in the U.S., for-profit health care is more expensive, due to higher administration, marketing costs, the need for a profit margin, more high-tech equipment and bigger markups on tests and drugs. Health care is big business and more money is made, not by reducing costs, but by selling more services to vulnerable consumers.

Real life

But instead of debating MSA theory, let's look at a real-life example: Singapore.

MSA supporters frequently point to Singapore, which has had an MSA system in place since 1984. Measures of population health — life expectancy and infant mortality — are comparable to Canada's, yet we spend more of our GDP than Singapore on health care: 10 per cent versus three per cent.

But critics say that statistic alone is misleading. For one thing, that three per cent excludes some health spending that other countries count.

For another, since the introduction of MSAs in Singapore, the per capita cost of health care has risen on average 13 per cent per year (Canada's was six per cent). And the future is worrisome: while Singapore's economy has grown more than 10 per cent annually, medical spending has grown even more, so MSA balances have not kept up with inflation.

One reason for the escalating costs is the competition with private health care. With the MSA system, private-sector physician fees rose phenomenally, so public sector salaries had to rise just to keep highly-qualified professionals. So much for competition lowering costs.

What about the claims of improved services?

Singapore has three classes of hospital beds depending on the proportion of costs covered publicly. Those who cannot afford to pay still receive care, but in 20-bed non-air-conditioned wards, and they cannot choose their own physician.

Private-sector hospital beds do offer more services. In fact, they offer the latest in high-tech equipment. But are they necessary services? As is true of private, for-profit health care in the United States, Singapore's private hospitals do not compete by offering better prices. They compete by offering more high-priced — and sometimes unnecessary — services.

Another argument of the MSA proponents is that administrative costs would be reduced. But Canada's administrative costs are already low at less than three per cent. How could having separate accounts for millions of Canadians lower administrative costs? Adding to this dubious claim is the fact that administrative costs would increase even further because it would be necessary to define, regulate, and keep track of what MSAs could and could not be used for. In Singapore, for example, perinatal care is provided for the first three children but not for additional births.


It would also be necessary to determine when the catastrophic health insurance, or CHI, would kick in. It's fairly easy to see that being hit by a truck would constitute a catastrophe. But what about a chronic condition like diabetes or arthritis that requires repeated visits to health-care providers, regular prescriptions and medical supplies?

And then there's the problem of finding a carrier for the CHI. Even in Singapore, catastrophic coverage is not available to anybody over the age of 75. Nor is it available to those with a disability or a severe pre-existing condition. So an elderly relative who breaks a hip might not be covered at all.

The worst thing about MSA systems is they discriminate against people for being seriously ill. And in a society where the poorer you are, the sicker you are likely to be, it is the poor who will most bear the brunt of this discrimination.

For the poor and unhealthy, the likelihood is that their entire MSA will get used up each year. Not only will no funds accrue, they will have to come up with more of their own money — which most don't have — to cover the MSA-CHI gap. Unlike our current system that provides more services to those who need the most care, the MSA system most benefits those who need the least care — the wealthy and healthy.

Don't be fooled. On close inspection, MSAs are not what their proponents claim them to be. They wouldn't control costs. They wouldn't improve efficiency. They wouldn't encourage quality. What MSAs would do is prey on the less fortunate, systematically decreasing care for those who need it the most. MSAs a fix? Far from it.

Carolyn De Coster is a senior researcher with the Manitoba Centre for Health Policy and Evaluation, University of Manitoba. R.J. Currie is a Winnipeg freelance writer.



The Focus page of the Winnipeg Free Press carried an article on August 19, 2000, “Medical savings accounts prey on poor, sick in society”. It reveals a weak understanding of the MSA concept, a consumer-based medicare model which the Frontier Centre for Public Policy, among other think tanks, believe is the wave of the future.

The writers, Carolyn De Coster from the Manitoba Centre for Health Policy and Evaluation and R.J. Currie, set up a straw man, a medical savings account (MSA) model that is patently unfair and unworkable. An easy target to demolish, but it hardly exhausts the range of possibilities. The economic advantages of MSAs – they restore prices and consumer sovereignty to the healthcare system – are ignored, an unfortunate omission from an agency dedicated to objective research.

In the MSA model the Frontier Centre for Public Policy has proposed as a remedy for Canada’s health care woes, the government would put the money now spent on our behalf, about $1,750, into an account controlled by each person or family. These critics say, “But the MSA doesn’t cover everything,” because you must purchase catastrophic health insurance (CHI) to cover major healthcare expenses.

“Usually,” they write, “there is a gap between the MSA and CHI, for which you are responsible.” That’s not true. Our research indicates that comprehensive coverage for major trauma or illness would use up only about half of each person’s MSA allotment. Our model accomodates the needs of the small minority with pre-existing conditions, the disabled and the elderly, who normally might not have access to such insurance. It makes ample provision for them, including removing the ability of insurance companies to cherry-pick low risk groups and or creating a targeted subsidy to cover them. Owning 100% of the system and running it like a Soviet tractor factory to protect this small group is clearly overkill. By selling existing healthcare assets, worth several billion dollars, the government would build a Provident Fund to underwrite those who fall through the cracks.

The writers attack the idea of markets in healthcare by describing the American system, as if it were an example of a fully functioning consumer-based system. But it’s not. A good chunk of American spending on health, almost half, comes out of tax dollars, just like ours. The rest relies on the private sector, but consumers pay only five cents out of every dollar spent there. They count on insurance to pony up the other ninety-five cents, and they have no more idea what things cost than we do. Only 40 million people – roughly 15% of the population, mostly the working poor — pay the whole price. The disconnect between costs and benefits is just as pronounced as ours.

Weaknesses of the MSA system in Singapore are dwelled upon, with little historical context and no discussion of its merits. Healthcare spending there has increased at a rate twice Canada’s, but what was the starting point? In 1984, when MSAs began, this Asian Tiger was just emerging from third-world status. With MSAs, their healthcare system grew quickly, and now surpasses ours in key indicators like the speed of service, the level of technology used and, most importantly, patient outcomes. In fact, a recent United Nations study ranked Singapore’s system as the world’s 6th most effective, in terms of results obtained for healthcare dollars spent. The mediocrity of our country’s system was reflected in Canada’s dismal 30th place position. It’s simply false to claim that “an elderly relative who breaks a hip might not be covered at all.” By statute, the Singapore government’s Provident Fund has the first claim on its ample budget surpluses, and no citizen is denied.

It’s ironic, in light of the continuing drain of our medical school graduates, that high physicians’ salaries in Singapore are criticized. How do they propose that Canada retain our best and brightest, without paying them fairly? Similarly, they quibble about different levels of medical service. That’s opposed to our single level, where thousands of patients are routinely denied any service at all and languish on waiting lists. The rich in Canada can simply hop on a plane, but many of the rest of us just do without. There are no waiting lists in Singapore.

De Coster and Currie make much of Canada’s low administrative costs under Medicare. Our public health monopoly doesn’t spend much on administration, on tracking health outcomes or producing information about production costs. This is much like the old Soviet Union, whose economy ultimately collapsed from the sheer inefficiency that characterize socialist production systems which lack normal price signals. They too saved money by not bothering with accounting and information systems. MSAs might cost more to administer – the jury is still out on that matter, because a smart-card system has never been tried – but paying a few pennies on the dollar more to create transparent costing information would be worth it if they bring better outcomes. The dozens of American companies who use MSAs to provide healthcare for their employees found that letting individuals control the spending saves an enormous amount, because they reduce their consumption when they get to keep leftover funds. The use of consumer choice to wash out the frivolous use of medical resources has the potential to recover way more money than any administrative economy.

The authors claim that in Canada the poorer you are, the sicker you are likely to be, and that MSAs will therefore discriminate against the poor. That’s exactly backwards. People who are sick are generally poorer because of their illness, not the other way around. Delays in treatment prolong the problem. MSAs empower everybody, including the poor, by putting cash in our pockets and giving us a say in how our money is spent.

The most important feature of MSAs has nothing to do with accessibility or universality, they are addressed in the model. A consumer-based healthcare system restores prices, and by doing so allows both sellers and purchasers to make rational decisions about costs and benefits. We now block-fund the providers, but they have no idea whether the money they spend actually improves outcomes. When you add the judgments of 30 million consumers to the mix, you have a better chance of success. Regional health authorities don’t get sick, people do.

We would encourage our tax-funded counterparts at the Manitoba Centre for Health Policy and Evaluation to be more open-minded about finding solutions to our imploding Medicare crisis. Why not think, at least a little, “outside the box”? Healthcare is too important to leave it hang at the mercy of whatever political winds happen to be blowing. It’s government’s job to make sure that people have the resources to treat their illnesses. Much evidence shows that it doesn’t do a very good job of running the complex machinery of service delivery.

MSAs do both.

August 25, 2000

For more on MSAs go to:

Exploding the Myths of Medical Savings Accounts