Though often touted as an innovative way to bring low-cost health insurance to those who otherwise couldn't afford it, medical savings accounts may soon be reaching the end of the line in the U.S., victim of a political stalemate in Washington about how to provide Americans with the best healthcare coverage.
MSAs, tax-free accounts that can be used to pay for routine medical expenses, were created as a test program in 1996. But so far, only about 100,000 accounts have been opened, far below the original cap of 750,000. And unless there is an 11th-hour vote in Congress within the next few weeks, the four-year pilot will expire on Dec. 31.
Yet, even as politicians continue to debate the future of MSAs in the U.S., the accounts are flourishing in South Africa, a country less than one-fifth the size of the U.S. There, MSAs already cover 4.6 million residents, more than any other type of private insurance, and their popularity keeps growing.
"Countries considering healthcare reform could learn an enormous amount from South Africa and its unparalleled success with MSAs," says Daniel Perrin, executive director of the Washington-based MSA Coalition.
For much of the past decade, under the regime of Nelson Mandela, South Africa enjoyed what was perhaps the freest market for health insurance anywhere in the world.
After South Africa deregulated its insurance industry in 1994, virtually every type of health plan sold in the U.S. was made available there--including HMOs, PPOs and MSAs. And after a favorable ruling from tax authorities, employers' contributions to MSAs received the same tax breaks as payment of third-party premiums.
Thus, in South Africa, MSAs have competed against other forms of health coverage on a level playing field, and the result has been remarkable. In just six years, MSAs have captured more than half the market for private insurance, according to a new study by the National Center for Policy Analysis in Dallas.
"MSAs are enormously popular in our country," says Shaun Matisonn, the study's author and a risk management actuary at Discovery Health, a South African insurance company that sells MSA plans.
Open to all. So why have MSAs taken off in South Africa while having scarcely caught on in the U.S.?
Much of it has to do with availability. In the U.S., the Health Insurance Portability and Accountability Act of 1996 made MSAs available only to self-employed individuals or people who work for businesses with 50 or fewer employees--groups that often can't afford the high cost of health insurance.
Those limits were set because of concern that MSAs would benefit only the young and healthy and would encourage others to skimp on needed care. In South Africa, where there are no restrictions on who can open an MSA, insurers have found otherwise.
Although MSAs do appeal to young individuals who typically face few medical bills, Matisonn says, those who are sick and have higher treatment costs are also financially better off in MSA plans than with traditional insurance.
According to the NCPA study, younger families with MSAs cut their outpatient spending by 56%, while households headed by seniors enjoyed a 47% reduction. As for inpatient costs, younger families saved 81% and older families 73%.
In addition, there's no evidence that MSA holders try to save money by forgoing primary care in a way that leads to higher hospitalization rates.
"We haven't seen anything that suggests there are more catastrophic claims under MSAs than under non-MSA plans," says Mark Litow, a principal of Milliman & Robertson and a consulting actuary for Discovery Health.
More choices. Fewer government restrictions and greater flexibility in plan design have also helped fuel the popularity of MSAs in South Africa.
While Americans can contribute only up to 65% of an individual deductible to their MSAs each year, South Africans are free to chip in as much as they like. Many choose to deposit 100% of the deductible so they aren't left paying a large portion of the bill in the event of a medical emergency.
In addition, whereas U.S. law allows either the employee or the employer--but not both--to contribute to MSAs, South Africa allows deposits to be made by any combination of the two, much like 401(k) plans in the U.S.
"By refusing to allow employers to contribute, MSAs (in the U.S.) place the full burden of healthcare costs on the insured," says Gary Swan, president of Oneida, N.Y.-based Support Services, a statewide small-business membership organization. "If both parties were able to contribute, it would allow more employees to receive coverage and more employers to enjoy the tax benefits they're eligible for."
And unlike in the U.S., where the design of MSA plans is rigidly defined under the tax code, insurers in South Africa have been free to innovate. The result has been a far more dynamic product that's better suited to customers' needs, Matisonn says.
In the U.S., individual MSA plans consist of traditional insurance with a $1,700 to $2,250 deductible (which varies according to age and pre-existing conditions) for all medical services, and an MSA to cover costs below this deductible. Health plans that want to qualify for tax-free deposits into MSAs are required to use this design.
In contrast, South African MSA plans have varying deductibles. A typical MSA plan has no deductible for emergency care such as a heart bypass operation, given that patients can exercise little discretion within hospitals. But a $1,100 deductible applies for outpatient procedures, such as corrective eye surgery, because people typically have substantial control over such spending.
The high deductible would also apply to most prescription medications. But for chronic conditions such as diabetes and asthma, for which skimping on drugs could lead to more costly care, the deductible is zero.
"The theory behind deductibles that vary with the type of service is straightforward," Matisonn says. "It makes little sense to ask patients to choose between healthcare and other uses of money under circumstances in which rational choice is largely impossible."
Building infrastructure. Of course, South Africa faces a vastly different healthcare environment than in the U.S.
So far, only 20% of the country's
45.6 million residents have private insurance. Most of the rest rely on a public system of free care. But because of rationing and quality problems within the government-run system, the private sector has been growing a steady 3% per year.
Meanwhile, U.S.-style managed care has largely failed to take shape. Because doctors are relatively scarce in South Africa, they tend to organize themselves into group practices and associations to maximize their bargaining clout, making it nearly impossible for insurers to force them into risk-bearing agreements, Litow says.
The future. As in the U.S., the future of MSAs in South Africa remains somewhat fuzzy.
Earlier this year, the government passed a "guaranteed issue" law that requires health insurers to accept all applicants and charge one uniform premium. Theoretically, this discourages healthy people from buying coverage--and hence opening MSAs--until they get sick.
As such, many insurers are now designing MSA products that specifically target the young and healthy.
Discovery Health, for one, has created an MSA program that promotes wellness and preventive care. Customers win points for healthy activities, such as joining a fitness club or getting regular Pap smears and mammograms. Points can be traded in for prizes or discounts on such items as airline tickets.
"MSAs won't disappear," Litow said. "They'll simply have to change with the times."