Medical Savings Accounts Could Put Choice Back Into Health Care

Commentary, Healthcare & Welfare, David Gratzer

IT’S TIME TO BE CONSTRUCTIVE ABOUT HEALTH REFORM, Canada’s premiers have declared, in advance of a new round of jostling with Ottawa over Medicare. Here’s one constructive idea to think about: medical savings accounts (MSAs). They would help inject freedom of choice and personal responsibility back into health care, spur some badly needed changes in techniques and technology, and save billions of dollars.

The concept of the MSA is relatively simple. People put a certain amount of money annually into a tax-free account to spend as they see fit on their health care. It is the individual’s choice how that money is used for such things as checkups, blood tests or X rays. Major expenses — cancer treatment or the hospital care required for a major injury — are still covered by health insurance. MSAs would be like government-funded health RRSPs. The big advantage is that people could choose to spend or to save the money; they would no longer be consuming a “free” service. That difference would play a role in containing the demand for health services.

The idea has produced good results elsewhere. Singapore began to try the concept in 1984; citizens must save 6% to 8% of their income in tax-free accounts. The result hasn’t been greater medical shortages. Singapore boasts more diagnostic machinery than Canada on a per capita basis, and waiting times for MRI scans are a couple of days, vs. months here. Waiting lists for surgery are minimal. Singapore spends less than 4% of its gross domestic product on health care; we spend three times that.

There are, of course, problems. Singapore MSAs, for example, are limited to hospital-based care, leaving primary care to a patchwork of government and private clinics. But even so, Singapore ranked first in a major comparison of health-care systems conducted in 2001 by Canadian health economist Cynthia Ramsay.

China has also experimented with MSAs and dramatically lowered costs as a result. An initiative that began in 1995 in two smaller urban centers has spread to include Shanghai, Beijing and more than 40 other cities. In South Africa, MSAs are the most popular type of private health insurance, covering 4.6 million people. And even in the U.S., companies like Quaker Oats offer employees a type of MSA as an option in place of much maligned HMOs. The American Medical Association has endorsed the idea.

Here’s how a Canadian system might work. The federal and provincial governments could finance the accounts, allocating money based on age, gender and health status. And here’s the incentive to spend prudently. At the end of the year, people would get a cash bonus based on the unspent money in their account.

The Consumer Policy Institute, a Toronto think tank, has generated a model for MSAs, in tandem with the actuarial firm Miliman&Robertson. In this scheme a 55-year-old man would be allocated $782 from the government every year for health care. Health-care insurance would kick in for any expenditures above $920, meaning that $138 in expenses would have to be paid by the individual before the insurance was triggered. Based on the actuarial projections, billions of dollars would be saved annually. Why? Because people would have an incentive to use the health care system more appropriately, going to family doctors for minor problems, for example, not to an emergency room.

This would turn the worst problem of Medicare — managed supply — back onto a rational basis. Currently, provinces limit demand for medical services largely by restricting the supply of health care: reducing the number of medical graduates, running MRI scanners at banker’s hours, closing acute-care beds. Long waiting lists are the result. With MSAs, patient demand is tempered by fiscal discipline, and the supply of services would grow in line with patterns of consumer spending.

Of course, in a country where suggesting change to health care is deemed more offensive than flag burning, critics have lined up to attack this proposal. Some have argued that MSAs would lead to an explosion in administrative expenses. The Singapore experience, however, suggests otherwise. Others argue that medical savings accounts would punish the very sick for being, well, sick. But they would still be protected. And by improving efficiency, the system would be better able to care for everyone — including the very sick.

Then there’s the ultimate charge. MSAs are “dangerous,” the Toronto Health Coalition, a union-supported advocacy group, has declared. It claims MSAs are untested. But what’s really dangerous is the sinking status quo.