SPBA Cautions & Questions about MSAs as They Evolve

by Frederick D. Hunt, Jr.
President, Society of Professional Benefit Administrators

The mood among TPAs towards MSAs (Medical Savings Accounts) ranges from warily watching to wildly enthusiastic. SPBA's position is always to expand & maximize the private employee benefits system, so SPBA has been supportive of the MSA concept from the beginning. However, SPBA has also often had to be the realist to face both the tough psychological/political as well as the legal compliance basic questions of if and how MSAs would fit into the existing employee benefits market & regulatory scene.

On the psychological side, any health reform or new product must avoid even the hint of possible horror stories (such as someone who fails to save or who fritters away the MSA money on non-essential health services...and then becomes a front page sob-story with no money when a true health need hits). How do we legislate & enforce financial responsibility? If the answer is that both the frittered and necessary medical bills will be paid, then there are no financial savings, which is the driving force of any reform. There is a precedent for this debate. In recent years, there has been a major shift from defined benefit pensions to defined contribution style, often with the person actually holding or controlling the money individually. Many pension observers forecast a retirement crisis because individuals have not managed their money as well as professional pensions did.

On the issue of legal compliance, the most basic questions still aren't answered. Would MSAs be employee benefit "plans"? (Precedents seem to clearly say yes. Arrangements with even tangential involvement of employers are usually considered to be "employer-sponsored plans".) Assuming so, is the whole arrangement legally considered to be "insured" (because of the catastrophic back-up insurance and/or new rules from State Insurance Commissioners) or legally considered to be self-funded ERISA plans, or some combination thereof? Would self-funding be allowed for the catastrophic coverage policy? (About 85% of U.S. benefit plans use some degree of self-funding, so excluding the self-funding option alienates those potential supporters who like self-funding.. Many see a kinship between MSAs & self-funding, since self-funding is simply group-MSAs) Does ERISA fiduciary, reporting, and/or preemption apply? What about over 1,000 state mandated benefits, taxes, etc.? How would

COBRA, MSP, QDRO, QMSCO, etc. etc. all interact? No one seems to want to focus on such "minor details", so expect years of regulatory wrangling and lack of guidance if/how employers would need to obey.

Beyond specific legal compliance, there are some logistical considerations:

• Will MSAs generate more administrative work? If MSAs are still considered employer-sponsored "plans", then there will be the reporting & compliance related to the MSAs, tracking claims for reaching catastrophic, and any ancillary plans...all done on an individual basis, which is much more time consuming (more administrative load). Proponents claim that MSAs would attract many additional employers into the benefits market. Greater efficiency and greater paperwork would probably balance out from that.
• Retail versus discounted medical costs: If MSAs put patients into the streets to purchase health services on their own, the patients are going to get ripped off (despite the self-interest desire to be frugal). For example, an SPBA member demonstrated that a random procedure in his area is paid $1,000 by Medicare, and in that range by most of the managed care, PPO and capitated plans (and that level of payments is headed lower). However, the HIAA U& C (what was billed, not what was paid) was $2,500 last year and $3,000 this year. "Docs & hospitals are just hoping & waiting for some sucker to come along with money in his pocket." said the TPA. Obviously, MSA money won't last long if it gets used up at rip-off prices, so a big market will be for TPAs via employers or on their own to help MSA patients get the most bang for their buck.
• Risk selection disruption: MSAs could have a destructive earthquake effect on the benefits market and anti-selection.
  • What if all the healthy folks run to MSAs, leaving the sick ones in the old plan?
  • Will employers drop traditional plans (especially thinking they can escape legal & administrative hassles and costs) in favor of just giving MSA checks?
  • Will Congress do as it did with HMOs, and create some mandate or special advantage for MSAs?
  • Will people spend wisely, or will there soon be horror stories of people unable to pay their medical bills...because they spent their MSA on non-necessary medical services? (Horror stories lead to government "solutions".)
  • What's the role of stop-loss in MSAs?
  • Will the catastrophic be able to be self-funded?
  • Will Stop-Loss carriers view it as individual or group policies?
• Would the new NAIC model & state laws limiting stop-loss force MSAs to retain at least $20,000 risk?
• Who holds the money? MSA proponents seem to be viewing MSAs like IRA or SEP pensions...where the money must be deposited with a responsible financial institution acting as "trustee". Thus, the money (the role of plan) would be designated as a bank or insurance company. These financial institutions will not be eager to do the day-to-day claims processing and plan management, so TPAs may find a whole new market for their services from banks & insurers who would hire TPAs to administer the eligibility & claims processing and perhaps managed care billing discounts for MSA clients...but institutions might decide to do it themselves. Are they qualified (especially important since employers get the penalties, not the institution)? Can financial institutions legally do so? As currently envisioned (as in IRS & SEP), the financial/investment institution would actually hold and be responsible for the money as "administrator". Under ERISA, TPAs do the paperwork, but never hold (own) the money as a bank or financial institution would.

Thus, the issue is not whether the concept of MSAs is good. They're very attractive for responsible people. The real question is if/how they'd fit & interact with thousands of federal & state laws...as well as the political realities in which MSAs would find themselves?

This article was provided by:

Society of Professional Benefit Administrators
Two Wisconsin Circle, Suite 670
Chevy Chase MD 20815
Phone (301) 718-SPBA
Fax (301) 718-9440

SPBA is the national association of Third Party Administration (TPA) firms who contract with clients to administer employee benefit plans (much as employers often hire an outside CPA firm for book-keeping & tax computation services on an ongoing basis). About 40% of all U.S. covered workers are in benefit plans administered by SPBA member firms. These client plans represent every size & format of employment (union, non-union, big & small business, plans-sponsored by associations, state & local governments as employers, and religious groups who are in every industry and state.) Understandably, legal compliance is a major focus of the work of TPAs.