The emerging Republican plan to overhaul Medicare will allow all Americans, not just the elderly, to set up tax-exempt savings accounts to buy health insurance and pay for uncovered medical services, GOP leaders said Tuesday.
Their disclosure ignited an immediate firestorm of criticism from Democrats who derided medical savings accounts (MSAs) as another Republican gimmick that favors haves over have-nots and said such accounts would adversely affect the nation’s deteriorating medical insurance financing system.
Among the worst-hit would be the sickest Medicare beneficiaries who would be in a shrinking insurance pool of those needing the most medical care, said White House economic adviser Laura Tyson.
MSA proponents, however, said the market-oriented approach would give consumers a freer hand in choosing their own coverage, generate insurance competition and drive down overall health spending by instilling greater cost-awareness among buyers. The plan would be an alternative to Medicare, and those who wish to stay in the current system would be allowed to do so.
Key details of the GOP plan are yet to be finalized. But the essential concept of MSAs, long championed by conservatives and by most leading Republicans in Congress, is clear:
Participants would obtain a high-deductible catastrophic insurance plan, coupled with a medical savings account. The insurance policy would cover expenses exceeding an annual deductible of about $3,000. Participants would use funds in the savings account to cover co-payments or items such as prescription drugs or supplemental “Medigap” insurance that covers out-of-pocket expenses.
If money remains at the end of the year, the account holder gets to keep it, subject perhaps only to the income tax. The funds also could be accumulated to pay for high-cost items like long-term care, officials said.
Under the GOP plan, a Medicare beneficiary wishing to create a medical savings account designates a private catastrophic insurer to receive a federal payment on his behalf - presumably about the same amount that Washington now spends annually per Medicare recipient, or roughly $4,900. The insurer then uses a portion of the payment, perhaps $2,100, to set up an MSA for the individual. (The $900 difference between the $3,000 deductible and the $2,100 in the MSA fund would be a consumer’s out-of-pocket cost.)
The MSA proposal would work in the same manner for those with workplace-based health insurance, except their employers and not Uncle Sam would be the source of most, if not all, of the MSA funds.
Among those who briefed the news media on Tuesday were House Majority Leader Dick Armey, R-Texas, and House Majority Whip Tom Delay, R-Texas. In the Senate, a similar plan has been drafted by Sen. Judd Gregg, R-N.H. As Republican leaders publicized their MSA proposal on Tuesday, they came under increasing Democratic pressure to provide details of their total Medicare reform package, which they say will ensure the solvency of the federal health insurance program for the elderly, in part by saving $270 billion over seven years through slowing the program’s rate of growth.
The GOP intends to enact the Medicare reforms as a part of the annual budgeting process, but with a new fiscal year barely more than two weeks away, time is running short - a point repeatedly emphasized by Democrats on Tuesday.
“Never has the United States Congress made a decision that affects as many people, affects so much money (and) in such a short period of time as we are about to do - yet with so little information,” fumed Rep. Sam Gibbons, D-Fla., the ranking Democrat on the House Ways and Means Committee.
On the Hill, Democrats also are intensifying their charge that Republicans are enacting the Medicare savings in order to provide $245 billion in tax cuts - a line of attack that Democrats clearly hope will derail both the tax cuts and the Medicare overhaul.
Rep. Henry Waxman, D-Calif., a Medicare expert, said medical savings accounts would hand millions of Americans thousands of dollars a year that they do not need - while depleting program funds available for the sickest Medicare recipients.
Noting that about 70 percent of all Medicare outlays are spent by only 10 percent of the Medicare population, the longtime chairman of the House Energy and Commerce health subcommittee said:
“If you take the average amount that will be spent on everyone … and then give people cash equivalents to that amount and say: ‘Go put it into a medical savings account,’ you’re going to be giving a lot of people money who don’t need it … And for those who are really sick, they’re going to stay in the program and that’s going be a very expensive program because we’ve segmented the market.”
xxxx How MSAs work With medical savings accounts, retirees could take their little slice of the Medicare pie and try to do a better job than the government. Here’s how it might work: An elderly person would opt out of traditional Medicare. Instead, the beneficiary would select the MSA option and get a voucher worth about $5,000 from the government. The retiree would use the voucher to buy “catastrophic” health insurance that only starts paying after $3,000 to $4,000 in annual medical expenses. The money left over after buying the policy would go in a tax-sheltered MSA to cover routine medical expenses. The beneficiary would also have to put some of his or her own money in the account. Money not used by the end of the year could be rolled over and applied to the next year’s medical bills. (Retirees could also withdraw the leftover money, but they’d have to pay taxes if they spent the cash on anything other than health care.) The advantage of an MSA is that you can end up with money in the bank at the end of the year if your medical expenses are low. The disadvantage is that an unexpected illness could leave you liable to higher out-of-pocket costs, especially if your account balance is low.