The truth about medical savings accounts

Neil Dattani, Year 2 Medical Student, University of Toronto

Introduction

Medical savings accounts (MSAs) are one of the many options available to fund healthcare services. They are currently in use in various countries and details vary from country to country, but overall the principle is the same: governments distribute healthcare funding to everyone through individual accounts, and people use the money in their account to pay for healthcare. This money is enough to cover most minor expenses such as routine visits to the doctor, however it is generally not enough to pay for more complex healthcare services such as operations or care for chronic conditions. For this reason, in most cases MSAs must be supplemented by high-deductible or 'catastrophic' insurance. As the names imply, patients must pay a significant amount themselves before any insurance kicks in, making the insurance only useful in medical 'catastrophes'.

Examining two main arguments in support of MSAs

Advocates for MSAs suggest they will decrease the overall demand for healthcare, and reduce healthcare costs. While it is impossible to know for sure how MSAs will impact Canadian healthcare until the exact funding details are made public, current research and evidence from the experiences of other countries strongly suggest that MSAs will not yield these benefits in Canada.

It is hard to imagine how MSAs would decrease the true demand of healthcare services. Demand for healthcare is dependent on how often people get sick and to what degree. MSAs would only foreseeably decrease demand in the business sense of the word - that is they would decrease consumption by low income Canadians. Less wealthy Canadians will likely be forced to conserve their MSA funds and avoid expensive healthcare services, in order to limit the amount they pay out of pocket when the funds in their account are depleted.

Furthermore, although many Canadians would have less access to care, overall healthcare costs would not necessarily be lower - in fact, they could very possibly increase. There are many hidden costs associated with the implementation of MSAs, such as administrative costs, which would needlessly raise expenditures. Additionally, the introduction of a parallel, privately funded system would expectedly follow the introduction of MSAs, as explained later in this article. People who can afford services within this system would likely emphasize reduced wait times and more luxurious (but not necessarily medically better) treatment over cost minimization, further increasing overall healthcare costs.

Another major drawback of MSAs

In addition to the fact that they offer no reliable advantage, MSAs have several disadvantages. Arguably the biggest disadvantage is that they contradict the ideals of Canada's public healthcare systems.

At the core of Canada's publicly funded healthcare systems is the belief that access to healthcare be based on need, not income. However, the consumer-level incentive for spending less in a system funded by MSAs would generate enormous pressure for the widespread legalization of private, for-profit healthcare institutions, to reduce the demand for publicly funded (i.e. MSA-funded) services. While it may seem possible for public and private systems to coexist, evidence from other countries indicates that in such scenarios the public system loses quality over time. This occurs because more resources are pumped into the private system by those who can afford it. The end result: a two-tier system, in which the wealthy have better access to healthcare.

Moreover, the possibility of MSA-dependent Canadians being discouraged from using the funds in their account to limit out of pocket expenses, along with the high-deductible part of the necessary catastrophic insurance plan Canadians would need to buy, would be in opposition to the main goal of the Canada Health Act: to provide medically necessary physician and hospital services to all Canadians, without any payment out of pocket.         

Conclusion

It is a difficult time to make healthcare decisions, as there is a clear discrepancy between what changes are needed and which will offset increasing healthcare costs. However, one decision is simple - remove medical savings accounts from the list of changes being considered. They are clearly not the best way forward, as they neither address the current shortcomings in healthcare, nor do they offer an acceptable way to minimize costs.