Medical Savings Accounts

The health system in America has been faced with a lot of challenges lately. The lawmakers and medical experts, however, have found it hard to come to an agreement on what should be done to improve the conditions. The debate on medical reforms has taken up to half a century with proposals being given on how the access to medical services can be expanded, costs controlled and even the quality of medical care improved. Some of the great advances that have been witnessed are the ease with which the elderly, physically challenged and poor children can access healthcare.

 Even with these achievements, a proper solution to the ever changing dynamics of the system is yet to be achieved. The policy on managed care that for some time seemed to be working as it brought down the ever increasing costs in the 1990s has since lost its ground. The healthcare costs have been on the rise, and the number of people who are still uninsured is still on the increase. This, according to Schimpff (2012) has posed a great challenge with the significant decline in quality of services being offered in health centers.

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Certain considerations should be factored in when designing a healthcare financing system. The first aspect is the uneven nature of costs related to healthcare; Research by Remler & Glied (2006) has shown that subtle proportions of the population account for a relatively high percentage of healthcare costs. It has even come to a point where the distribution scale of values in which individuals fall has become unpredictable. The people with chronic illnesses or the elderly ones are more often likely to incur more costs as compared to those who are relatively young and healthy. However, there may be instances in life when the healthy people encounter catastrophic events such as accidents or even terminal diseases such as cancer, and they find themselves incurring more costs. This, therefore, means that the risk of being a victim to any eventualities is evenly balanced.

People can opt to purchase an insurance cover as a precaution in the case that they encounter catastrophes. In the developed countries, for example, the health insurance, whether private or public is very familiar. When designing a health insurance system, individual choices have to be made including whether the cover should be privatized or made public or whether the insurance amounts to some form of savings or if it is a means to which the costs can be shared evenly across the society.

The second most pertinent issues are that which touches on the affordability of the medical care. The question as to the payment plan, for example, should be factored in when designing a health system. The other issue is on how the information on costs and quality of products should be produced such that it allows for efficient purchase. Moral hazard is another subject that the healthcare finance system must deal with adequately. Insurance, for example, tends to lower the price of healthcare to the immediate consume (Beik, 2011). The absence of cost sharing reduces the prices of healthcare to almost a zero.

There is a potential for the expansion of goods and services that are offered free of charge. When referring to any kinds of insurance, the question of moral hazards is always bound to pop up. There is always the danger of insurance having to pay extra costs if the consumers are not constrained by the regulation of prices of healthcare products and services as a measure to limit their utilization. Although health experts agree that moral that moral hazard is a problem, they have never come to a consensus about its severity. Either way, it should be considered when drawing up a plan for the health systems.

 The individuals who are championing for the consumer-directed healthcare movement have laid out claims of them having found a lasting solution to the problem. The movement has set out a proposal for the creation of medical and health saving account (HSAs or HSAs). These accounts, Sage (2016) argues should be accompanied by a high-deductible health plan (HDHPS). Their reasoning is based on the idea that the consumers should be urged to save up for their medical care. Their savings can then be relied upon to cover their expenses once in a while. This will, in turn, ensure that the insurance cover is only put into use whenever sudden catastrophic events that require medical attention occurs. They hold the thought that deductibles as high as $6,000 to $10,000 should be included in the insurance policies.

They are also of the belief that consumers will only purchase medical care that suits them if they are given a chance to spend their money on medical care. They will also have the opportunity to choose from various healthcare providers while purchasing that which they consider pocket-friendly. With time, the consumers will have an experience as they shop around and they will be able to focus more on quality, and this will, in turn, force the providers to improve on the offers that they provide. Eventually, the high deductibles will result in a significant reduction of costs related to medical insurance cover as they will shift their focus to bigger healthcare claims.

One of the market-based strategies that have been employed is the use of a managed competition. Those who advocate for this concept have proposed for a competition which is organized among the managed care plans to create a market that is competitive for health insurance. This market they say will be key to bringing down the costs and also improving the quality of healthcare. When it is made mandatory for health plans to offer competitive premiums and packages, they will be in a position to regulate the practices of providers who are affiliated with them.

They will in the process be able to maintain a low cost and in the long run improve the quality of medical care. The consumer-driven health care (CDHC) market advocates argued that the most appropriate time to bring in competition into health care is that moment when consumers finally make a decision on whether to purchase certain items and services related to health care. Their objection to managed competition is baseless since it still has a significant dependence on the government regulation on the structuring of markets and also on managed care organizations instead of the consumers having to make their decisions.

The consumer-driven health care has a strong belief on moral hazard being a major problem in the health policy. It insists that the excess insurance is one of the forces that drives the increase in healthcare costs. People should, therefore, be prepared to take trade-offs whenever it comes to the comparison of their preferences between the healthcare and all the other consumer goods and services. The outlawing of health insurance is considered the ultimate solution to the problem of moral hazard. It is however not embraced by all people since they have an understanding that over-insurance is the primary cause of cost problems in the healthcare system.

 While acknowledging the problems that may come along with the scraping of health insurance, the consumer-driven health care advocates for the limitation of insurances to urgent cases by imposing high deductibles that would push customers towards making better decisions when purchasing their medical cover. Other people have also called for the coupling of health saving accounts (HSAs) that comes with health policies that are high-deductible. They call for subsidization of taxes as a way to cover contributions to the health savings account (HSAs) as well as the payments for high-deductible health plans.

The Programs

Health spending accounts are bank accounts that allow an individual to set aside some amount of money for medical purposes and also to save on taxes. There are some options from which a person can choose from whenever they intend to pen a spending account. The first option is the health savings account or the HSAs (Lo Sasso, Shah, & Frogner, 2010). They are financial accounts that are exempted from taxes and are used to as an avenue to cover medical expenses that are not included in the existing health plans. Examples of medical expenses that remain noncovered include routine prenatal, health evaluations that are scheduled periodically and the child welfare programs. Some of the requirements needed for eligibility to participate include the involvement in the high deductible health plan without participating in other health coverage except certain specified areas such as dental and vision care.

There is also the flexible spending account that is often used as a blanket term for the financial accounts in which the pretax monies are held so that they can be utilized for the reimbursement of medical expenses that have not yet been covered. The contributions that are made to the FSAs are from the deductions of employees wages before the withholding taxes can be deducted. It allows the employees to have pre-tax payroll deduction as an option for some insurance premiums and the care expenses for the children.

The health reimbursement account is another type health insurance fund that reimburses the employees for certain medical expenses for which they qualify. They consist of funds that are set aside by employers to cover their employees for the medical expenses that are eligible for them. Some of its advantages are that they are open to employees of companies of any size. This is different from the other accounts such as the medical savings account which are available exclusively to small business employers. Under the health reimbursement accounts, the employers and not the employees are the ones tasked with the provision of funds. The funds which remain unused are often carried over to the following year, such that it is possible for the retirees and former employees to have access to the reimbursed funds that had not yet been put into use.

Another type of a financial account that is exempted from taxes is the Archer medical saving accounts. They have been set up for offsetting the medical expenses that remain noncovered for individuals who are self-employed or the ones who run small businesses. Some of the basic requirements for participation in the medical service accounts include the requirement that a person is employed by a small employer who maintains a high deductible health plan or is self-employed. There are also particular incentives that come along with the use of Medical Savings Accounts. They are usually meant to ensure that individual can purchase health services efficiently. It can be easily summarized as a personal savings account from which people can pay for their health care and are usually coupled with a backup mechanism. The sources of such saving accounts can either be private or public.

Just like the other accounts considered to be out of pocket accounts and managed competition, this type of savings account provides certain incentives for their consumers so that they are well aware of the costs. They also ensure that there is the freedom of choice of the medical care providers and tend to offset the moral hazard that is a characteristic of the arrangements associated with insurance arrangements (Peter, Soika, & Steinorth, n.d.). Also, the medical savings accounts can help in the attainment of the fundamental development objectives by encouraging the act of saving domestically.

The two basic models in the medical savings account the Singaporean system; that works as a supplement to other health programs that are publicly funded, and the other is the model used in the United States. The latter allows for the coverage of a broader range of services. Both the two models, however, enjoy the backing of either the private or public insurance mechanism that reimburses even the costs which would ordinarily be considered as catastrophic above a certain threshold that can be deductible whenever the savings have been exhausted.

One of the apparent advantages of the medical savings account is that the individuals are provided with strong incentives to lure them into becoming prudent consumers of medical services.Beam & Tacchino (1997) argue that it is because they still have the ability to spend their extra funds in a variety of ways. The savings which remain unspent can be used for other purposes other than medical consumption and may even be inheritable as cash if the owner is deceased or may be pushed over so that they can be used for future medical expenses. The U.S health insurance reforms that have been passed recently passed provide tax subsidies to people who have already established such accounts, increasing the likelihood that it could attract a higher number of users.

The future of health system should be such that every person can obtain insurance that should be able to cover more of the catastrophic than routine needs. It may require a high deductible of up to even a thousand dollars or more. Just like the life insurance, the medical insurance premiums should be based on factors such as age or even life risk. Individuals also need to understand that they should be part of the solution. Unlike the ways in which they make their other purchases, they should rationally and make informed decisions based on their intellectual considerations. 

References

Am I eligible for other types of health plans? | Choosing the right plan | Independence Blue Cross. (2016). Health Insurance Basics | Independence Blue Cross. Retrieved 25 April 2016, from http://basics.ibx.com/spending-accounts-health-care-expenses/

Beam Jr, B. T., & Tacchino, K. B. (1997). Medical savings accounts. Journal of Financial Service Professionals, 51(5), 8.

Beik, J. (2011). Health insurance today. St. Louis, MO: Elsevier/Saunders.

Lo Sasso, A., Shah, M., & Frogner, B. (2010). Health Savings Accounts and Health Care Spending. Health Services Research, 45(4), 1041-1060. http://dx.doi.org/10.1111/j.1475-6773.2010.01124.x

Peter, R., Soika, S., & Steinorth, P. Health Insurance, Health Savings Accounts and Health Care Utilization. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2391821 (Peter, Soika, & Steinorth, n.d.)

Remler, D. & Glied, S. (2006). How Much More Cost Sharing Will Health Savings Accounts Bring?. Health Affairs, 25(4), 1070-1078. http://dx.doi.org/10.1377/hlthaff.25.4.1070

Sage, B. (2016). 4 Things You Never Knew About Medical Deductibles. About.com Money. Retrieved 25 April 2016, from http://personalinsure.about.com/od/health/a/aa011710a.htm

Schimpff, S. (2012). The future of health-care delivery. Washington, D.C.: Potomac Books.