Independent Doctors of New York

In 1998 Congress passed the Kennedy-Kasselbaum Bill into law, establishing the tax deductible status of MSAs, this law allows one (either an individual or an employer) to establish an MSA and fund it each year with enough money to cover 65% of the deductible amount of an insurance policy for an individual, or 75% of the deductible for a family. (The reason for allowing only a portion of the deductible to be covered by an MSA is theoretically to maintain some personal expense in medical care so that patients will spend their dollars wisely.) This law also allows deductibles to range from $1500 to $2250 for an individual, and $3000 to $4500 for a family.

This means that an individual may use an MSA to harbor a maximum of $975 in conjunction with a $1500-deductible policy or $1462 for a $2250-deductible policy. For family policies, the allowable contributions are up to $2250 for a $3000 deductible policy and $3375 for a $4500 deductible policy.

For an individual with a $1300 MSA contribution made by her employer and an indemnity insurance plan with a deductible of $2000, a co-pay of 20% and an out-of-pocket maximum of $5000:

The first $1300 of medical expenses would be paid directly from the MSA; the next $700 directly by the patient. Everything thereafter would be paid 80% by the insurance company and 20% by the patient until the out-of-pocket maximum is met. After that, everything would be paid by the insurance company.

Total out-of-pocket expenses for the patient under the following circumstances:

Total Medical Bills	Total Cost to Patient
$1300 or less	0
$2000	$700
$3000	$900
$5000	$1300
$10000	$2300

You will notice that the major expense ($700) is incurred when the patient encounters the gap between the MSA contribution and the deductible. If, however, during the first year, medical expenses are lower than the MSA contribution, the amount remaining in the MSA at the end of the year accrues interest tax-free, is added to the next year's contribution and can be used to wipe out that gap expense. If medical expenses remain below the amount of MSA contributions for a few years, your MSA can be an excellent means of building additional savings, retirement funds or financial resources for long term health care.

How does the cost of the MSA/high-deductible indemnity plan compare to a managed care point-of-service plan from a patient's perspective?

Assuming the managed care plan had the same 20% co-payment and a $500 deductible, the following are actual costs for a high-deductible indemnity insurance /MSA plan from Anthem vs. a point-of-service plan from Oxford.

Amazingly, even though the MSA plan gives the patient complete freedom from insurance company interference with none of the "managed" aspects of medical care, it actually costs the patient less than being in the HMO. And that includes the first year gap. After the first year, the MSA plan may be even less expensive.

How does the cost of the MSA/high-deductible indemnity plan compare to a managed care point-of-service or PPO plan from an employer's perspective?

In New York City, one actual policy from Anthem Insurance works like this: An employer places $1300 into his employee's MSA. He purchases a high- deductible policy (deductible $2000) for $1620 per year. This represents a total cost to the employer of $2920. In contrast, an Oxford point-of-service plan like the one described above with a deductible of $500 would cost the employer $3240 per year.