Wednesday, July 24, 2002
The Globe & Mail

MSA study needs major surgery

By Brian Lee Crowley and Brett Skinner

Medicare has been dominated for decades by the belief that government officials and health care professionals know best. They get to decide what services are insured, who gets to spend money on health care, how much will be spent overall, and on what.

But to the horror of the old guard, increasingly dissatisfied Canadians are more and more unwilling just to take what the system dishes out and be grateful for it. People want to make their own health care choices, and control their own health care budgets, while safeguarding the universal insurance and equity of access that are Medicare’s most precious features.

That is precisely the point behind Medical Savings Accounts (MSAs). Typical MSAs involve maintaining universal government insurance for catastrophic medical care, but giving individual consumers control of a personal account or health allowance to fund ordinary run-of-the-mill health expenditures.

With MSAs, users of the system become accountable partners in health care decision making. If they spend the money in their account wisely, they get to save the balance at the end of the year. If they think about going to the doctor for the everyday complaints we all face, they have to face the fact that medical services cost money, something our system pretends isn’t so. And if they fall really sick, they get exactly the same level of tax-provided care they’re entitled to today. In other words, people are rewarded for using health care services sensibly, rather than penalized for using them appropriately.

MSAs are one of the most creative, innovative and promising ideas in the health care debate today, and are used in Singapore, China, South Africa, the USA and other places, where they are popular with consumers. Yet those who dominate official thinking on health care in Canada seem anxious to discredit the idea.

Take for instance an article that appeared in the July 23 edition of the Canadian Medical Association Journal (CMAJ) entitled, “Medical Savings Accounts: Will they reduce costs?” The authors create an MSA model then show how it would increase present health expenses by 54%. However, since no MSA would look like their model, their results are worthless.

For example, in trying to determine how MSAs might influence health spending, they assume that every person would be given exactly the same amount of MSA money. Yet sensible MSAs adjusts for income, sex and health status. The sick poor would get more than the healthy and wealthy.

Astonishingly, the CMAJ authors also assume no reduction in demand for medical services under MSAs. Yet the literature is clear that when consumers share in the cost of health care, they cut back on unnecessary demand for services. The largest and most expensive health care study ever carried out, the RAND Health Insurance Experiments, is an eloquent instance.

Importantly, the RAND study also showed that while people who had to pay something consumed fewer health care services, their health status was just as good as people who got totally free care, and therefore consumed considerably more health care. MSAs introduce reasonable incentives without undermining social equity or heath status.

Since there is no virtue in encouraging people to consume health services from which they may derive little benefit, this seems a double advantage. The reduction in demand for medical services among the vast population of healthy people will free up access to services for the sick who truly need care, and the problem of long-waits for care under our current system will be relieved.

Not only does the international experience belie the conclusions of the CMAJ study, but so too do other studies that have already looked at how MSAs might operate in Canada. The Consumer Policy Institute in Toronto, for example, did a significantly more thoughtful job a few years ago (Litow and Muller, “Feasibility of Health Care Allowances in Canada”). Using an actuarially sound MSA design, the CPI forecast a significant savings and consumer benefits with MSAs.

And the authors neglect another vital feature of MSAs for a society facing a demographic tidal wave of demand for health care services. These accounts allow people to accumulate tax-deferred savings against future demand for various types of health care.

So using a design that no serious MSA proposal would advocate, and ignoring what some of the most central literature in the field says, and forgetting everything we know about how people respond to healthy incentives, and neglecting the benefits of setting aside savings against future health care needs, the authors of this new study conclude that MSAs would dramatically increase expenditures and offer little benefit to Canadians. It would be more accurate to say that this study adds little to public understanding of a complex issue. MSAs are an innovative idea that deserves careful study and a more thoughtful response.

Brian Lee Crowley, a member of Alberta’s Mazankowski Committee on health care, is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. Brett Skinner is an intern at the Institute.