Medical savings accounts for the poor may begin to gather steam.
As Congress tries to rein in healthcare costs by limiting growth in the federal government's share of Medicaid spending, states are considering incorporating medical savings accounts, or MSAs, into their Medicaid programs as a cost-control measure.
Congressional budget resolutions propose paring as much as $184 billion in federal Medicaid spending over seven years in an attempt to balance the federal budget. The resolutions would turn the federal share of Medicaid spending into state block grants that could grow no more than 4% a year.
This year, Indiana, Louisiana, Oregon, Texas and West Virginia considered giving Medicaid beneficiaries their healthcare benefits in the form of vouchers they could use to buy inexpensive, high-deductible catastrophic health insurance plans. Their balances would be deposited in MSAs, allowing consumers to set aside pre-tax dollars to pay for day-to-day healthcare costs.
Under the states' proposals, based on a model bill written by the American Legislative Exchange Council, unused money in the MSA would be partly rebated to beneficiaries in cash or scholarships, which in theory would encourage them to shop for the lowest-cost, highest-quality healthcare.
A sixth state, Virginia, this year passed legislation instructing the state government to develop a plan to provide an MSA option for Medicaid beneficiaries and state employees.
So far, none of the other states that considered Medicaid MSA legislation has passed it, and three of them already have wrapped up their 1995 sessions (See chart). But advocates say congressional Medicaid limits could drive increased consideration of MSAs next year.
"With block grants, there's going to be a scramble to figure out how to save money and improve quality, and I think MSAs figure into it," said Duane Parde, state affairs director for the Council for Affordable Health Insurance.
In 1993 Parde's group projected that if states had, beginning that year, provided Medicaid benefits in the form of MSAs backed by catastrophic insurance policies, Medicaid spending for the under-65 noninstitutionalized Medicaid population over the next five years would have been $277 billion, in constant 1992 dollars.
According to the council's projection, spending actually would drop from $76.4 billion in 1992 to $54.3 billion in 1997, in constant 1992 dollars.
Under existing law, federal Medicaid spending is expected to reach $111 billion (in inflated dollars) in 1997, according to the Congressional Budget Office. The federal government is expected to spend more than $950 billion (in inflated dollars) on Medicaid between 1996 and 2002, under current law.
But opponents said establishing Medicaid MSAs and rebating unused dollars would give beneficiaries an incentive to delay necessary primary care, resulting in more costly hospital stays.
Furthermore, opponents said, such a plan would open the way for beneficiaries to spend Medicaid money for something other than healthcare.
"MSAs for the poor strikes me as something people haven't thought out," said Larry Gage, president of the National Association of Public Hospitals.
Merrill Matthews, health policy director for the National Center for Policy Analysis, a pro-MSA group, acknowledged that the question of rebating public money has become a political problem because the public fears beneficiaries may use that money for "less-than-beneficial purposes," such as substance abuse or gambling.
States considering Medicaid medical savings accounts
Indiana Legislature adjourned before bill passed both houses
Louisiana Passed House; before Senate last week
Oregon Legislature still in session; no decision yet
Texas Legislature adjourned before bill passed both houses
Virginia Enacted legislation instructing officials to develop an MSA plan
West Virginia Died in committee; Legislature has adjourned
Sources: American Legislative Exchange Council, Council for Affordable Health Insurance