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Save for a Rainy Medical Day.

Imagine being able to go to any doctor you choose

WebMD Feature

July 19, 2001 -- Imagine being able to go to any doctor you choose and pay for services out of your own pocket using funds accumulated in a tax-deferred account.

That, in essence, is the vision behind medical savings accounts.

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MSAs are an innovative form of health insurance that advocates say side steps the cumbersome third-party insurance reimbursement that has dominated American healthcare for decades. In doing so, MSAs promise to lower healthcare costs by making individuals responsible for paying for their own care -- and hence more cost-conscious.

At the same time, advocates say that MSAs promise to return to individuals their right to seek out care from any healthcare provider they wish, without the restraints of managed care.

"Patients can have more control over their own resources," says health policy analyst Greg Scandlen. "They have no restrictions on who you can see and not see, and many physicians are willing to provide discounts in return for instant payment. Just as important, it helps to restore the doctor-patient relationship by empowering patients to deal directly with their physicians."

Scandlen is with the National Center for Policy Analysis in Dallas, which has been a major proponent of MSAs.

Here's how they work: Purchase a low-cost, traditional indemnity (non-managed care) insurance plan with high deductibles. Then use the savings from paying a lower premium to make deposits into a tax-deferred MSA. While the insurance company would still pay for high-cost medical episodes, such as lengthy hospitalizations, the individual could use the MSA to pay out of pocket for lower-cost routine care.

The virtues of MSAs were extolled in a 1994 book called Patient Power written by health economist John Goodman, PhD, president of the National Center for Policy Analysis." The vision gained considerable momentum in the years following the Clinton Administration's failure to reform the national health system. Even the American Medical Association voiced their support for MSAs.

In 1996, federal legislation to promote MSAs was enacted as part of HIPAA, the Health Insurance Portability and Accountability Act.

Since that time, however, the vision of MSAs seems to have withered somewhat. Many health policy analysts saw the idea as an innovative one with many virtues -- possibly attractive to some individuals -- but full of shortcomings when it came to answering the larger problem of spiraling healthcare costs.

Len Nichols, PhD, a health economist at the Urban Institute in Washington, says the outstanding flaw in MSAs is that they are likely to appeal only to the youngest, healthiest, and wealthiest of the population. Left behind in the traditional insurance market would be the older and sicker population, for whom costs would likely rise.

"The difficulty is that health expenditures are extremely skewed," Nichols tells WebMD. "One percent of the population accounts for 30% of all expenditures."

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