Medical Savings Accounts: "Three Cheers for the IRS"

Wall St. Journal ^ | July 2, 2002 | Editorial

[The Raven]

We can already feel Ted Kennedy's blood pressure rising. He and New York Senator Hillary Clinton are slowly but steadily trying to build support to nationalize American health care. So when Congress passed Medical Savings Accounts back in 1996, he succeeded in restricting their terms and limiting the total number of policies allowed to 750,000. Suffer your HMOs, he said.

[The Raven]

Wow!!! They kept this quiet, didn't they??

[The Raven]

ping

[DoughtyOne]

They sure did. The beauty of this plan is the rollover. Without it the old plans were great if you wanted to schedule something during the year, but worthless for catastrophic illness. This could go a long way toward self-insurance for the average Joe. Excellent. Putting away $500 or so per month can realize a huge medical savings account in only a few years. And putting away $500 per month isn't as hard as it sounds, since about two thirds of it would be covered by reduced taxes. This is way cool. If the Bushmeister was behind this, he deserves huge kudos.

[RJCogburn]

This sort of plan can make a huge diference in the costs of care and to some extent the way we get our care. It is a major step forward, but it all seems that it came about too easily. After fighting about MSAs for years can this just suddenly be okay?

Is it Begala's 'stroke of the pen, law of the land' in action?

[kcvl]

FROM THE OFFICE OF PUBLIC AFFAIRS

June 26, 2002
PO-3204


Treasury and IRS Issue Guidance on Health Reimbursement


Today the Treasury Department and the Internal Revenue Service issued guidance that clarifies the tax treatment of health reimbursement arrangements (HRAs) in which the employee’s health benefit arrangement provides for employee-controlled reimbursement of medical costs.


"With this new guidance, we clear the way for employers to adopt health plans with patient-directed features so that employees have more choice and greater control over their health care coverage," stated Treasury Secretary Paul O'Neill.

The guidance, consisting of a notice and a revenue ruling, provides that medical benefits paid by Health Reimbursement Arrangements (HRAs) that meet certain requirements are not taxable. The guidance also clarifies that HRAs generally are not subject to the complex design requirements for health Flexible Spending Arrangements funded through salary reduction under a cafeteria plan.

The primary requirements for an HRA are that (1) the plan must be funded solely by the employer and cannot be funded by salary reduction, and (2) the plan may only provide benefits for substantiated medical expenses. If the plan provides for payments or other benefits irrespective of medical expenses, all amounts paid by the plan become taxable, including prior medical reimbursements.

Under this guidance HRAs can:

Allow the carryover of unused amounts to later years (i.e., the "use-it-or-lose-it rule" does not apply) and
Reimburse employees for the purchase of health insurance.
In addition, the guidance provides that:

HRAs may allow former employees, including retirees, continued access to unused reimbursements;
HRAs may provide that an FSA funded by salary reduction reimburses expenses before the HRA; and
HRAs are group health plans subject to the COBRA continuation requirements.
The text of the notice and revenue ruling are attached.

Part 1-Section 105.–Amounts Received under Accident and Health Plans

[dawn53]

Participants in such plans will have plenty of reason to consume health care wisely, since they get to keep any unspent funds.

If they would do something like this to Medicare we would see the cost of the system drop.

Not to be cynical, but I'm dealing with four elderly folks (parents and inlaws) and can't believe the number of dr. visits that are taking place.

Not for real health issues, just check ups.

But when you've got specialists (cardiologist, ENT, dermatologist, opthamologist, allergist, gynecologist, urologist, pulmonary dr., regular MD, and in one case a psychiatrist) and check ups on a regular basis, there seems to be a dr. visit per week, and sometimes more for each of these elderly folks.

No acute healh issues are being dealt with at these appointments (I know because I've been in the room), but because the doctor says they need a check up (and granted he's probably just doing it because of the liability if he didn't and something came up), they insist on keeping the appointments. If there were some financial incentive not to, maybe things would change.

[DoughtyOne]

Well, you've got me there. Sounds like it doesn't it. And on principle I don't like the old EO or PDDs.

[DoughtyOne]

When you get someone 65 or up, regular checkups are probably a good idea. A lot of things can go south pretty quickly the older people get.

[snopercod]

...putting away $500 per month isn't as hard as it sounds...

Unless that figure represents two weeks pay.

[kcvl]

When you go to that many doctors how can you be sure each one knows what the other one is doing? That could cause more health problems than seeing one doctor who handles it all unless they have a specific problem that needs addressing. But, that should be taken care of by the "regular" doctor once the initial problem is found.

Do each of those doctors know what the other is prescribing? If not, that could cause a HUGE problem.

[Molly Pitcher]

Thanks so much! This is an issue near and dear to my heart.

A few years ago, discussing MSAs with a liberal friend, her reply was: "But people wouldn't know how to manage them."

Typical answer...for a lib....

[DoughtyOne]

That's a good point.  And this system will have holes in it like the others do.  But it is a tremendous step in the right direction.  If it doesn't help the guy that makes $500 every two weeks, it will still help over a hundred million middle income workers.  This will take a big load off the system.  Those folks would need a catastrophic policy to cover the gaps, but regular run of the mill checkups up to minor surgeries could be handled without insurance.  Now there's an idea I like.

Take the middle man out, provide a descent profit to the healthcare providers and you'll see a healthier healthcare industry right away.  This is way overdue.

Let's not forget that this healthcare fund could be used for retirement when the time came if it was untapped.  At least part of it could.  And policies with a $25k deductable would be cheap and prevent the whole nestegg from being eaten up by one illness.  This could remove the insurance industry from a lot of healthcare.  Those billions would be freed up to be paid directly to healthcare providers or kept in reserve at the employees disposal.  Not bad.

Even if a person did make only $500 per every two weeks, if they spent $25 a paycheck, that would be $50 a month to save $150 per month.  That's not too bad.  They could develop a pretty descent little nest egg over the years.  It wouldn't be a whole lot, but it would still be more than the current system provides.  A supplimental policy for another $25 per pay check could provide some pretty decent coverage.  That's certainly a lot better than today.

[DoughtyOne]

That's true. It's the patient's responsibility to make sure each of his physicians knows exactly what the other's have put him on.

[Rodney King]

While I am in full support of MSA's, I am not sure how well they will work at first. Trying calling around 10 and saying "How much do you charge for X,Y, and Z". The nurses will say "What?" don't you have insurance? They can't quote you prices. There is no market.

[HiTech RedNeck]

They have price lists. There will be new advertising pushes for health provider loyalty, count on it. But the consumer will be more in control now, rather than having to follow his health plan around to this or that participating doctor to avoid facing uncovered megabills.

[Quick Shot]

OK there has to be an insurance salesman here in cyberspace(you can't get away from them if you wanted to).

My employee's plan rolls over August 15. How do I sign-up??? How does it get set up????

[dawn53]

Oh yeah, they all know about each other and each one hands out a different med, but supposedly all the meds are coordinated.

I have my doubts, medications to treat side effects from other medications seems bizarre.

For instance, after one TIA at the advanced age of 85, my mother in law was prescribed some hugely expensive medicine called Plavix (I think) which is supposed to prevent strokes. Now I've read studies that say it's not much more effective than aspirin, but try to convince her of that, after all the doctor told her to take it, and all this with no prescription coverage on the insurance, so it comes out of their pocket at $145/month for one med.

Same with prostate meds for minor aging prostate problems, and I've read that saw palmetto can do just as good a job.

In one way, it seems the docs and the pharmaceutical companies are way too cooperative.

[palmer]

Same with prostate meds for minor aging prostate problems, and I've read that saw palmetto can do just as good a job.

That may be true, but what is really needed is an entire lifestyle and diet change. I see tons of people washing down expensive drugs with coffee or coke. Then there are the unfortunate souls who use their doctor visits and pile of daily pills to alleviate boredom. Many have no relatives or friends.

The health care system is only too glad to keep "treating" these cash cows.

[dawn53]

The health care system is only too glad to keep "treating" these cash cows

I have my own theories, and like I said, I'm dealing with four elderly "test cases" for my theories ages 75,76,85, and 92 whom I speak with on a daily basis and see twice a week, at least.

One theory is that when a patient complains about "so and so" or "such and such", or just not feeling normal, the doctor feels obliged to hand out a med, or perform a test. They don't have the "guts" to look the elderly in the eye and say, it's because you're getting older, and "No" there is no cure for old age. Of course, one is not going to feel at 80 like they felt at 60, why should they expect to, but I've yet to run into a doctor that will tell them so. And hearing it from your kids doesn't seem to register.

My other theory is that the pharmaceuticals and medical industry have managed some slick advertising to make people believe that there is no such thing as "aging" in our modern world. You can stay young, do all you want to do, etc. until you are well advanced in years. So you look to the doctors and the meds to create this illusion and shield you from the fact that you are getting older.

It's a way of trying to "control" your grasp on life itself, which is slowly ebbing away.

[junebug58]

I have a MSA account now. Family plans have a $3300 per year deductible and are limited to $200 per month contribution. What you don't spend you keep tax fre. I would love to be able to contribute more, I have been told that this limitation was a Kennedy ammendment.