House GOP Medicare reform to include 'medical savings accounts'

September 13, 1995|By Knight-Ridder News Service

WASHINGTON -- House Republicans unveiled part of their Medicare reforms yesterday, touting a plan that would let retirees opt out of traditional Medicare and manage their own health care costs instead.

The government would give beneficiaries a cash voucher to help set up special bank accounts for routine medical bills and also buy private insurance for serious illnesses.

House leaders said the idea -- known as "medical savings accounts," or MSAs for short -- would be one of the key elements in their plan, due out within a week. "We dare to trust people to manage their own money," said Majority Leader Dick Armey, a Texas Republican.

But skeptics said MSAs could expose some retirees to higher out-of-pocket costs, undermine traditional Medicare by drawing healthy people away and fail to lower health costs.

"This is pretty radical as far as the Medicare system," said Edwin Hustead, an insurance expert with the benefits consulting firm of Hay-Huggins. "The MSA approach will be slow to catch on. The first reaction of a lot of people is going to be concern about the costs they could face in a bad year."

House and Senate Republicans are expected to release details of their respective plans to limit the growth of Medicare spending by next week. Republicans would cut payments to doctors and hospitals, raise beneficiary premiums and encourage the elderly to join cost-conscious managed care plans.

In the Senate, incoming Finance Chairman William V. Roth Jr. -- a Delaware Republican who takes over the lead on Medicare from the ousted Bob Packwood -- is a strong supporter of MSAs.

Republicans pointed yesterday to a new study by the benefits consulting firm of Milliman & Robertson that shows many elderly would be better off with MSAs. The study, commissioned by a conservative think tank that promotes medical savings accounts, also concluded the government could save nearly $200 billion over seven years with MSAs.

However, it assumed that Congress would give retirees a very strong push into medical savings accounts by substantially raising the cost of traditional Medicare, something Republican leaders have said they are not going to do.

With MSAs, retirees could take their slice of the Medicare pie and try to do a better job than the government. Here is 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 would 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.

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