[Congressional Record Volume 142, Number 55 (Thursday, April 25, 1996)]
[Extensions of Remarks]
[Pages E635-E636]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




MEDICAL SAVINGS ACCOUNTS: WHY THEY ARE TAX BREAKS FOR THE UPPER INCOME 
                   AND BAD NEWS FOR WORKING AMERICANS

                                 ______


                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Wednesday, April 24, 1996

  Mr. STARK. Mr. Speaker, medical savings accounts are bad health 
policy. They are bad tax policy.
  The following analysis from the Center on Budget and Policy Studies 
explains why:

   Who Will Use Medical Savings Accounts and Why Will They Use Them?

                            (By Iris J. Lav)

       Prior analysis of Medical Savings Account proposals has 
     shown that MSAs would primarily benefit those at high income 
     levels because MSAs create opportunities to accumulate tax-
     sheltered funs for purposes other than medical costs. Higher-
     income taxpayers would be most likely to take advantage of 
     these tax shelter opportunities because the tax benefits are 
     worth more to taxpayers in higher tax brackets and because 
     such taxpayers can afford to pay substantial out-of-pocket 
     medical costs if they choose to leave the tax-advantaged 
     funds on deposit in the MSAs or if funds accumulated in the 
     MSAs are insufficient to cover their medical bills.
       Recently, the Joint Committee on Taxation has released data 
     estimating what proportion of people in each income class 
     would make use of Medical Savings Accounts, finding that a 
     large portion of the participants would be middle class. 
     These data have been used to bolster claims that MSAs would 
     benefit middle class taxpayers as well as the wealthy. But 
     the Joint Tax data are not incompatible with the conclusion 
     that higher-income taxpayers would be the primary 
     beneficiaries of MSAs.
       As the text of the Joint Tax analysis makes clear, 
     participation in an MSA may not be voluntary. Taxpayers who 
     participate in MSAs because their employers offer no other 
     option for health care coverage may not benefit from their 
     participation and may become worse off as a result of their 
     employers' switch from offering a conventional insurance 
     policy or a managed care plan to a plan that offers only a 
     high-deductible insurance plan with an MSA.


       joint tax highlights benefits to companies, not employees

       The Joint Committee notes that its estimate is based ``on 
     the assumption that a large proportion of small- and medium-
     sized companies might potentially benefits from the 
     MSA proposal and offer such plans to their employees.'' To 
     assume that a company would benefit generally means that 
     the company would pay less for its employees' insurance 
     coverage. This suggests two further assumptions that 
     likely underlie the Joint Tax analysis.
       Small- and medium-sized companies that do not now offer any 
     health insurance would not begin to offer high-deductible 
     coverage with MSAs as a result of this legislation. Such an 
     assumption would result in increased rather than decreased 
     costs for the companies and thus would be incompatible with 
     the statement that the companies would benefit. The analysis 
     must instead assume that employers currently offering 
     conventional coverage or managed care plans would begin to 
     offer high-deductible insurance with MSAs.
       Furthermore, companies would receive a cost-saving benefit 
     from such a switch only if the total cost of the high-
     deductible insurance including the MSAs would be less than 
     the cost of the insurance the company currently offers. Thus 
     the small- and medium-sized companies that switch to high-
     deductible insurance with MSAs likely would not put the 
     entire difference between the conventional insurance premium 
     and the high-deductible insurance premium into their 
     employees' MSAs. Companies would realize cost savings from 
     the switch only if they choose to keep, as a profit-enhancing 
     savings, at least a portion of the difference in premiums 
     between the two types of plans.


      low- and moderate income taxpayers may participate in msas 
                             involuntarily

       The Joint Committee on Taxation analysis goes on to say 
     that ``Employee wages for small- and medium-sized are 
     weighted toward the lower- and middle-income classes. As a 
     result, the revenue estimate assumes that taxpayers in the 
     lower- and middle-income classes are more likely to be 
     offered a high deductible plan coupled with an MSA as their 
     primary health plan.'' (Emphasis added.) Although the 
     Committee's use of the term ``primary'' is ambiguous, it 
     suggests some further issues.
       Low- and middle-income employees may be reluctant 
     voluntarily to accept high-deductible insurance with MSAs, 
     because they usually do not have the resources to pay large 
     out-of-pocket health care costs. An assumption that 
     substantial numbers of such employees would participate 
     suggests that their employers might offer only high-
     deductible insurance with MSAs and would no longer offer 
     either a conventional fee-for-service policy or a managed 
     care plan. For low- and moderate-income employees who consume 
     significant amounts of preventive care for their young 
     families through a health maintenance organization, for 
     example, or have chronic health problems that require 
     continuing care, the restriction of choice to a high-
     deductible plan could substantially degrade their ability to 
     afford necessary health care services.

[[Page E636]]

    inadequate msa deposits transfer large costs to moderate-income 
                               employees

       Low- and middle-income employees are likely to face high 
     out-of-pocket costs under the high-deductible insurance plans 
     with MSAs because the MSA contributions made by their 
     employers are likely to fall short of the annual 
     deductible amounts under those insurance plans. In fact, 
     employers are unlikely to be able to afford to deposit the 
     full deductible amount. Consider the following. A company 
     may currently offer its employees family coverage under a 
     conventional insurance policy and pay an annual premium of 
     $5,200 for that coverage. If the company switches to 
     offering a high-deductible plan with an MSA, the annual 
     premium for the high-deductible insurance policy would be 
     approximately $3,900. These costs assume the insurance 
     plans are comparable except that the conventional coverage 
     includes a $200 deductible while the high-deductible plan 
     has a $3,000 deductible. Because the company's annual 
     premiums savings from switching to the high-deductible 
     insurance plan is only $1,300 per family ($5,200 minus 
     $3,900), the company is highly unlikely to be willing to 
     deposit $3,000--the full amount of the deductible--into 
     the employee's MSA. In addition, employers are likely to 
     keep some of the difference as a cost-saving benefit to 
     the company. Thus low- and middle-income employees likely 
     would have significantly less than half of their annual 
     deductible amount--and most likely no more than one-third 
     of the deductible--deposited into MSAs by their employers 
     and thereby available to meet ongoing health care costs.
       Moreover, nothing in this bill requires employers to make 
     any deposits to MSAs as a condition of offering high-
     deductible insurance. Once small- and medium-sized employers 
     shift to offering only high-deductible insurance and no 
     longer offer conventional insurance or managed care plans, 
     they would be free to reduce or eliminate contributions to 
     the MSAs at any time. If that occurred, the low- and 
     moderate-income employees of those companies would be left to 
     finance the entire deductible amounts out of their own 
     pockets. Although the low- and moderate-income employees 
     could make deposits on their own to an MSA, they would 
     receive little or no tax advantage from using MSAs--because 
     they either do not pay income taxes or pay taxes at much 
     lower rates than the higher-income taxpayers who would be the 
     primarily beneficiaries of this MSA legislation.
       In short, if low- and moderate-income taxpayers use MSAs in 
     substantial proportions, it will likely be because they have 
     little alternative. And the use of the MSAs with high-
     deductible health insurance plans is likely both to increase 
     their risk of incurring unaffordable health care costs and 
     reduce their ability to afford adequate levels of health care 
     services for themselves and their families.

                          ____________________