If managed-care companies are beating up your hospital's bottom line by asking for discounts, count yourself lucky. Your hospital could be dealing directly with consumers, and then watch what happens to prices.
"The market would get real competitive, real quick," says John Goodman, who heads the National Center for Policy Analysis, a conservative Dallas-based research and policy group. If that group has its way, consumers will be buying their healthcare through medical savings accounts, an idea that has been debated on the fringes of healthcare.
However, the idea may not be on the fringes for long. Not only are medical savings accounts a cornerstone of Republican Texas Sen. Phil Gramm's healthcare reform bill, they're also included in the mainstream GOP health reform legislation sponsored by Sen. John Chafee (R-R.I.). In 1993, 150 members of Congress co-sponsored at least one of 12 different bills designed to create personal medical savings accounts, according to the center.
Medical savings accounts "will be in any final reform package passed this year," predicts Mr. Goodman, noting that the American Medical Association and the Jackson Hole Group, an informal society of health experts that developed the idea of managed competition, also have endorsed the accounts.
Such accounts would be similar to individual retirement accounts and "would encourage people to be more assertive and price-wise," said Allan Shulkin, M.D., a critical-care physician at 509-bed Medical City Dallas Hospital and one of the leaders of Physicians for Patient Power, a 600-member national organization that supports medical savings accounts.
Pricing power. Mr. Goodman believes people will take better care of themselves when they're spending their own money and will get better prices on care.
He cites three companies-Quaker Oats, Golden Rule Insurance Co. and Dominion Resources-that have implemented medical savings accounts. At Indianapolis-based Golden Rule, 80% of the 1,300 employees opted for the accounts in 1993; this year it's up to 90%. However, those accounts are taxed, Mr. Goodman said.
The advantage to the employees is that the companies contribute to the accounts in lieu of other insurance, and they can keep unspent amounts at the end of the year. The companies say the accounts hold down their healthcare cost increases.
However, to make medical savings accounts meaningful, the federal government would have to change its tax laws to allow individuals and employers to maintain tax-free personal accounts. The accounts would pay medical bills not covered by insurance. In effect, individuals would have a high deductible, say $2,000 or $3,000. Any medical cost over that would be covered by a catastrophic-illness insurance policy (See graphic, this page).
That way, individuals could confine their health insurance to catastrophic coverage that would pay for expensive and infrequent treatments. The medical savings accounts would finance smaller purchases and preventive care.
Medical savings accounts "could be implemented overnight, and the market would react radically," Mr. Goodman predicted.
Hospital impact. What does this mean for hospitals? Mr. Goodman said he has not talked with the American Hospital Association about medical savings accounts, but he would "suspect they're against" it, noting that hospitals "are set up to deal with bureaucracies." He believes hospitals are more comfortable working with the largest institutional payers than with individual consumers.
The AHA does not embrace the concept of medical savings accounts, but not for the reason Mr. Goodman gives.
"By themselves, they are not enough to deal with our healthcare problems," said Carmela Dyer, senior associate director of policy development in the AHA's Washington office. Saying that there is "very little practical application," she adds that such accounts are an "upper- and middle-class solution to a problem that affects everybody."
A spokesman for the Federation of American Health Systems, which represents investor-owned hospital chains, said the group hasn't taken a position on medical savings accounts.
If medical savings accounts become a dominant form of healthcare payment, hospitals would be forced to become more consumer-oriented, especially in pricing. In his book, Patient Power, Mr. Goodman has been critical of hospital pricing, noting that "about 90% of the items listed on a hospital bill are unreadable."
When consumers begin spending their own money, they'll be more inclined to determine the cost of treatment and what's included, he says. In fact, he contends that hospital prices have risen faster than drug prices in recent years because hospital prices are primarily financed by third-party payers while drug prices are mainly out-of-pocket expenses for many consumers.
Although most hospitals don't publish their retail prices, many have set them. For example, some Texas hospitals have package pricing for foreign patients, such as Mexican nationals, who pay in cash.
Action in the states.Even though the federal government has not yet acted on changing the tax laws to favor medical savings accounts, some states have. Arizona, Colorado, Idaho, Michigan, Mississippi and Missouri all have passed laws exempting medical savings accounts from state taxes.
Four of those six states passed the legislation this year, and at least a dozen others considered it. However, some balked at the loss of tax revenues that inevitably would take place if medical savings accounts became widespread. For example, Kansas Gov. Joan Finney vetoed medical savings account legislation this year for that reason.
Minnesota also considered the legislation, but it failed to pass amid concerns that such accounts would primarily benefit middle- and upper-income residents-the same people who use IRAs-and fail to address the issue of universal coverage.