Can Medical Savings Accounts (MSAs) limit rising healthcare expenditure, as well as increase equity and efficiency in healthcare provision?

Despite it is being discussed in many developing countries and promoted by some political groups, health organizations and influential think tanks (Canada, UK etc.) so far, we see Medical Savings Accounts (MSAs) in only four countries (Singapore, China, South Africa and the U.S.A) as a health care financing method (in the United States, Health Saving Accounts - HSAs - term is being used instead of MSAs). Among from these four countries, Singapore can be shared as an example for MSAs in terms of “provide high-quality care at comparatively low cost” (Wouters, Cylus, Yang, Thomson, & McKee, 2016). But “the available evidence suggests that MSAs scheme has generally been inefficient and inequitable and have not provided adequate financial protection” (Wouters et al., 2016) due to several reasons including but not limited to its ‘no risk pooling’ and ‘regressive health care distribution’ characteristics.

Persistent increase of health care costs with the need for individual ownership to decrease the ‘moral hazard’ and control the health care expenses are the two major reasons to introduce MSAs/HSAs in these countries. In theory, it's been thought that when the individuals are being empowered to take charge of their health care decisions, they would make more prudent choices for their spending and this would automatically decrease both the individual premiums and ultimately the overall growth of health care expenditures of the countries.

MSAs are earmarked pre-paid accounts (through compulsory or voluntary contributions of individuals, households or companies) that can be used for the account holders and their households’ health care expenses only. MSAs allow individuals to make tax-deductible contributions, withdraw money tax-free to pay for qualified medical expenses and avoid taxes on the money invested in the account. Although MSAs can be very beneficial for people of a certain income level, this system does not provide any advantage (tax related) to the poor people in the society as they can’t contribute these lumpsum amounts to their bank savings anyway.  

Even though the United States spends its app. 18% of GDP (or nearly one of every five dollars in the economy) for health care expenses, it's ranking in terms of providing efficient and equal health care services is very low. As they had failed in the past to have large scale health care reforms, policymakers proposed to make ‘incremental reforms’ via MSAs and “use of the tax system to encourage the purchase of insurance coverage (Pauly et al., 1995)” to increase efficiency and equity.

Today, in the U.S.A “there are about 20-22 million policyholders with $28 billion in assets”(Mukamel, Haeder, & Weimer, 2014), in Singapore 5.6 million people have compulsory MSAs, in South Africa MSAs is a voluntary health insurance option and almost 15% of the population (those with higher incomes) has private health insurance (PHI) and only half of this group has MSAs (app. 4-4,5 million). It is only in China that MSAs covers compulsorily hundreds of million people right now. Four countries have differences in terms of design, tax incentive limits, contribution sources and values, withdrawal conditions with their MSAs system. Nonetheless, the critical point is that in none of these countries use the MSAs as a standalone health care financing scheme. Accumulated value at individual MSAs can only be sufficient for the routine health care expenses and would not be enough to cover the higher costs associated with more complex interventions, thus all these countries also implemented and integrated additional social or private catastrophic health insurances (in parallel with MSAs or upon market failure) to pool catastrophic health care risk among all insured employees, and as Yi Y et al. (2005) mentioned to improve equity by creating a universal health insurance system that applies the same coverage and policies to all employees.

Thus far, as William Haseltine, president of ACCESS Health International notes “Singapore has managed to make MSAs work, but only as one small part of an extremely complicated system involving extensive government intervention” (McKee & Busse, 2013). Singapore was the first country implemented MSAs (Medisave) in 1984. During the last 35 years, the system tried to mend its flaws and failures with additional layers (MediShield, Medifund). Nonetheless, MSAs, even in Singapore is not the major financing source for the country’s health system only represents less than 10% of total health expenditure.

“Nichols et al. discussed the potential of medical savings accounts in developing countries. They identified the following five key issues: 1) medical savings accounts must be combined with other policy tools; 2) resource mobilization will take time; 3) medical savings accounts need to be designed to enhance efficiency; 4) they pose equity risks; and 5) there are major institutional prerequisites, including the level of per capita income, high formal labor force participation, information systems, and systems for the collection and management of funds”(Dixon, 2002).

Efficiency - The health care insurance system (both social and private) raises the demand for health care services as it creates a curtain and shields people from the real cost of care at the time of the service. Besides, there is the ‘agency’ relationship in the health care insurance market. The ‘agent’ is the patient or the doctor, and the ‘principal’ is the insurer. Both the patient (consumer) and the doctor (supplier) can take actions (demand side and supply side moral hazard) that are unobserved to the insurer that increases insurer payouts. To minimize the moral hazard “it is suggested that MSAs, like user charges, can enhance efficiency and, potentially, control health-care costs by reducing the use of low-value treatments. Analyses of selected employer-sponsored plans in the USA, however, have suggested that HSAs discourage the use of both low- and high-value treatments (Dixon et al., 2008; Parente et al., 2008; Hardie et al., 2010; Buntin et al., 2011; Charlton et al., 2011)” (Wouters et al., 2016). However, we see that this strategy to curb the health care expenses failed in all four countries.

Equity - Not enough money - As MSAs are private individual accounts, “enrollees, therefore, pool risks over time, although they do not pool risks across the wider population and the lack of interpersonal risk pooling in MSAs is a key limitation” (Wouters et al., 2016). According to WHO (2000) World Health Report, among 191-member states, China was 188th in terms of the fair distribution of health care financing. Thus, when they introduced the MSAs system, “the reform was also intended to improve equity by creating a universal health insurance system that applies the same coverage and policies to all employees” (Yi, Maynard, Liu, Xiong, & Lin, 2005).  With China Jiujiang/Zhenjiang examples, risk pooling has been solved as they created a citywide insurance pool for all workers including who were not able to get health expenditures reimbursement with old GIS/LIS system.

 “The introduction of MSAs reduces risk pooling for small expenses at an individual level and makes payments more related to use and ability to pay (Hurley, 2000, 2002). Theoretical analysis suggests that MSAs are a regressive financing source and may have a greater effect on the poor and the sick in terms of health care utilization” (Maynard & Dixon, 2002; Nichols et al., 1996; Jefferson, 1999).

Overall cost - There is no clear evidence thus far with the studies done on MSAs that it has significantly reduced consumer moral hazard and thereby contributed to containing costs in any country. This might be also related to dept and sources of moral hazard. It can be demand-side driven as well as the supply side. All four countries’ health care spending continued to grow after the adoption of the MSAs system at different times.

Discussion

We have empirical evidence limited to country contexts and inextricable factors with other reform efforts implemented in parallel to MSAs introduction (Singapore, China examples). It might be argued that MSAs can help to reduce demand-side moral hazard at the patient side, nonetheless, there is a bigger problem generated by the ‘principal’ (physician) side in the health care system. MSAs don’t have any influence for this part of the problem to avoid the overall increase in the health care costs. Besides, the selling point of MSAs is mainly tax incentives and this carrot generally attracts younger, healthier and wealthier individuals in the society and does not bring any benefit for the poor, old and sick individuals. Thus, from the beginning, the design of the MSAs creates an imbalance between equity and efficiency. Additionally, it’s clear that the total savings due to the limitations at MSAs would never be enough for complex, surgery needed, rare or oncology-related interventions which use the latest technology or the new pharmaceutical compounds. Thus, always MSAs need to be combined with compulsory (social or private) insurance for catastrophic costs. In that regard, the rationale behind the MSAs might be evaluated specifically to the country that considers implementation. 

"This essay has been written as an assignment for LSE MSc. Health Economics, Policy and Management Master Program as the Author is currently studying and a part of the program."

References

Dixon, A. (2002). Are medical savings accounts a viable option for funding health care? Croatian Medical Journal, 43(4), 408–416. https://doi.org/10.1097/SLA.0000000000000224

McKee, M., & Busse, R. (2013). Medical savings accounts: Singapore’s non-solution to healthcare costs One small part of a complex patchwork of funding. BMJ (Online), 347(7919), 1–2. https://doi.org/10.1136/bmj.f4797

Mukamel, D. B., Haeder, S. F., & Weimer, D. L. (2014). Top-Down and Bottom-Up Approaches to Health Care Quality: The Impacts of Regulation and Report Cards. Annual Review of Public Health, 35(1), 477–497. https://doi.org/10.1146/annurev-publhealth-082313-115826

Pauly, M. V., Goodman, J. C., Feder, J., Levitt, L., Butler, S. M., Cutler, D. M., & Wilensky, G. R. (1995). Tax Credits For Health Insurance And Medical Savings Accounts. Health Affairs, 14(1), 125–139. https://doi.org/10.1377/hlthaff.14.1.125

Wouters, O. J., Cylus, J., Yang, W., Thomson, S., & McKee, M. (2016). Medical savings accounts: Assessing their impact on efficiency, equity and financial protection in health care. Health Economics, Policy and Law, 11(3), 321–335. https://doi.org/10.1017/S1744133116000025

Yi, Y., Maynard, A., Liu, G., Xiong, X., & Lin, F. (2005). Equity in health care financing: Evaluation of the current Urban Employee Health Insurance reform in China. Journal of the Asia Pacific Economy, 10(4), 506–527. https://doi.org/10.1080/13547860500291745