Saturday, February 18, 2012

The HSA of MMA is High Deductible Insurance

@CraigJCasey asked: "is the MSL essentially an HSA?"

I developed the Medical Savings and Loan in the 1980s. At this time people used the term "Medical Savings Account."

Insurance was based by analyzing the experience of a group over a year. I wanted to create a product based on a full lifecycle analysis of an individual.

I wanted a system where people owned the first x% of their total health care experience. The value of x would be determined by looking at the distribution of medical expenses to income.

Let's say the analysis showed that 95% of people spent less than 18% of their income on health care. I would set the life time ratio of health care expenses at 18%. I would expect all the people living under that percent to self-fund care, and give charitable supplements to people living over that percent.

You could think of it as catastrophic insurance with a lifetime deductible instead of a yearly deductible.

As for Health Savings Accounts. These were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). This program gives tax deductions to a health savings account coupled with high deductible insurance.

I was critical of MMA for the following reasons:

MMA is still a traditional insurance product based on year-over year analysis of a group. I want a system a system based on a full lifecycle analysis of the individual.

The MMA creates perverse incentives that keep people from seeking preventative care. The program fails to provide a mechanism for cutting costs.

People with high deductible insurance develop a mindset where they skimp on care when they are below the deductible. They then splurge when they've passed the deductible.

People with high deductible insurance make decisions based on the cycle of their deductible and not on their health needs. Let's say a patient passed the deductible this year. The patient will try to buy a bunch of extra medical care, hoping that it will last through the next year during which the patient will not seek medical attention.


Health Care Providers are intensely aware of who is paying the bill. Care providers are apt to do things like undercharge when a patient is below the deductible and overcharge when the patient is over the deductible.

A health care system is broken when the first words out of the doctor's mouth are: "Let me look at your coverage" when it should be "let me look at your problem."

The high deductible insurance of the MMA has proven problematic for lower income workers living on the margin. You pay the premium but don't have any money left for basic care. When you do have a problem, paying the deductible means that they can't pay the next year's premium.

The MMA is horrible for people with chronic conditions. Let's say you had a condition that cost $5000 a year. A person with a chronic condition has to pay their full premium and full deductible EVERY YEAR!

The MMA does not start to address the problems of tort reform. Pretty much all of the cases involving litigation are above the deductible.

My Plan Is Different!!!

The Medical Savings and Loan is innovative in the following areas: The program is based on a full lifecycle analysis of the individual. People essentially have a lifetime deductible based on their lifetime income. All supplements are based on the percentage of one's health care lifetime expenses to their lifetime income.

The MS&L creates a new position called Health Care Advocate who directly helps people with their spending and savings from dollar one.

The difference between the MMA and MS&L can be seen in the way people react to preventative care.

If a person in the MS&L was shown that a preventative care $x would save them $y later, they would buy the preventive care (assuming $x < $y). A person in the MMA is likely to make the choice based on the deductible thinking they should put off the care until a year when they've reached the deductible and care is free.

Conclusion: The HSA in MMA is really just high deductible insurance. It suffers the flaws of high deductible insurance. The MMA is problematic for the cause of health freedom. People are turned off the concept of self-funded health care because they don't like high deductible insurance.

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