Medicare debit cards

Lawrence Solomon
National Post
January 15, 2002

The Mazankowski report gives Klein an opportunity to support a health-care payment system based on medical savings allowances

Next Thursday, on Jan. 24, all of Canada’s premiers will gather together in Vancouver to act upon what the pacesetter among them, Alberta’s Ralph Klein, will have decided on Wednesday, Jan. 23 about the future of medicare.

Mr. Klein promises to act on the recommendations in “A Framework for Reform,” the newly released study of medicare prepared for him by Don Mazankowski and other members of the Premier’s Advisory Council on Health. If Mr. Klein acts decisively, as he has so often shown himself capable of doing, medicare as we know it – long waits for surgical procedures, needless visits to GPs, alienating experiences for those without connections – will be over. Medicare as it could be – empowering, responsive to consumers, economically efficient – will get a chance to show its superiority over the two-tier medicine practised in all other western countries.

The Mazankowski report – the first by a government agency to flatly reject top-down, “central planning” approaches that have perpetually failed – presents many alternatives, leading some to claim that it waffles on presenting solutions. But virtually all the Mazankowski alternatives eventually lead down one road – to a debit card based system of medical savings accounts. The premiers would do well to understand this system. MSAs can stop the premiers’ current trend to withdrawing the medical services available to Canadians, MSAs don’t require raising taxes, and MSAs are consistent with the Canada Health Act. The premiers have six billion reasons to like MSAs – that’s how many dollars they would save each year in primary care alone.

In coming to its conclusions, the Mazankowski report surveyed literally hundreds of studies, including one which proposed a debit card system of medical savings accounts for Canada’s public health system. This study, the only one based on Canadian data ever conducted that analyzed financing for a Canadian medical savings account system and quantified the resulting savings, was conducted by Milliman and Robertson, the international actuarial firm. Milliman and Robertson, as those in health care circles know, is famed for having solved the riddle, after many others had failed, of how to sustainably structure HMOs in the United States.

Under the Milliman approach to medical savings accounts, which the Mazankowski report is consistent with in all details, all Canadians would receive in their personal accounts an annual allowance from the government, initially based on age and sex. (This amount would be primarily available for routine doctors’ expenses – hospital care and other big-ticket items would continue to be covered by the current medicare system). The very young and the very old would receive larger allowances, to reflect their generally greater need for health care services, but all Canadians would receive allowances far larger than they ordinarily need to meet their annual medical needs. After the doctors’ bills for the year have been paid, and when a surplus remains (this would occur in three out of every four years, on average), the government would claw half of the surplus back, the other half remaining in the personal account to be invested and remain available, as needed, for uninsured medical services such as dentistry, prescription drugs and home care.

In the one year in four that doctors’ bills exceed the annual allowance, the patient would be responsible to cover a limited amount of what are called “corridor costs.” After those limited corridor costs have been paid, medicare would kick in again, covering subsequent costs for the balance of the year. The chart nearby provides examples of how much Canadians of different age and gender would receive under an MSA system and the maximum they would need to pay in a year after they have exhausted their annual allowance. This payment, which would not apply to the poor, could be paid for with savings from previous years’ allowances.

The debit card system manages the accounting, letting Canadians know how much they have invested from previous years’ savings and how much of this year’s allowance remains unspent. But the debit card system’s main financial benefit comes from tracking the costs of patients in poor health. Many of these patients, whose medical condition will always cause them to spend their entire annual allowance, and then some, have no ability, and thus no incentive, to save part of their annual allowance. To provide an incentive to save, in the process also saving money for the health care system as a whole, their annual allowance needs to be high enough that they, too, would obtain savings in three out of every four years.

The debit card system creates the data base that allows sick patients – a group that is disproportionately poor – to receive large allowances and healthy incentives, for example by seeing a GP instead of going to emergency for routine problems or by changing their lifestyles to avoid smoking, drinking or sexually communicable diseases.

Polling by the Angus Reid Group on medical savings accounts found overwhelming support among Canadians, both men and women, and particularly among the poor and the elderly. By a two-to-one margin, Canadians believe medical savings accounts, which let patients hold the purse strings, would make doctors more accountable to them, promote better health, and encourage Canadians to use the health system more carefully.

Apart from Mr. Klein, no Canadian politician has the gumption to implement sweeping medicare reforms, no matter how sensible they may be. But Canadian politicians do have the wherewithal to sign onto a good idea, once a precedent is set and they have plenty of company.

How Medical Savings Allowances Would Work
In dollars based on 1998-2000 estimated government health care spending
Child 30 years 55 years 75 years
male female male female male female male female
Health Care Allowance* $208 184 416 680 782 850 2880 3330
Corridor** 52 46 104 170 138 150 320 370

*The amount each Canadian would receive each year in health allowances, based on their age and sex.
**Should an individual exhaust the annual allowance, further medical expenses, up to the amount in the corridor, become the individual’s responsibility.
Any medical expense greater than the allowance and the corridor would be covered by government.
Source: Milliman and Robertson, 1998

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