Raisa Deber, Evelyn L. Forget and Leslie Roos
National Post
August 7, 2002

It is regrettable that Rise of a ‘Zombie’ (July 31), Lawrence Solomon‘s response to our peer-reviewed paper analyzing medical savings accounts in the Canadian Medical Association Journal (July 23), resorted to ad hominem attacks rather than dealing with the real policy issues raised.

Advocates of MSAs assume that enormous savings can be made – Mr. Solomon estimates $6-billion per year – through replacing the existing system of hospital and medical insurance by individual accounts. The extent of possible savings clearly depends on the actual distribution of health expenditures. Our analysis accordingly examined the distribution of health expenditures in the Manitoba population.

MSA advocates who dislike our findings have focused on one of the computations we performed: If one chose to give each Manitoban the average amount spent in 1997-1999 for physician and hospital care ($730), it would result in a 54% cost increase, all going to healthy people. This result occurs because 80% of Manitobans spend less (usually far less) than the average, while the sickest 1% accounted for 26% of costs. However, our paper stressed that many different MSAs could be modelled. We also noted that total costs would clearly depend upon such factors as how much of the surplus healthy individuals were allowed to keep, and presented a table giving a breakdown of expenditures by age category.

The key reason why MSAs are “guaranteed to fail” is that, in every age group, 80% of all people incur costs less than the average for that age. In most formulations, one is still sending money to a lot of relatively healthy people, without generating offsetting savings from the sickest. (If, on the other hand, government does not provide these people with an allowance, costs can indeed be shifted on to business and individuals; this, however, is no longer an MSA but a high-deductible catastrophic insurance plan.) The fundamental issue which MSAs must confront is that “incentives” to economize on use of care cannot generate meaningful savings from people who are not already spending much for insured health-care services.

Most MSA proposals tend to be vague. Whenever specific proposals are made and do not hold up under analysis, a new variant crops up, usually without enough data to fully evaluate its implications. Mr. Solomon holds up as his gold standard a Milliman & Robertson study, which refers to the actuarial study, prepared by Mark Litow and Stacey Muller, conducted for Mr. Solomon’s Consumer Policy Institute, dated June 9, 1998, and posted on Mr. Solomon’s Web site. As far as we can determine, this paper did not use actual data on the distribution of health costs, which would not have been available from the national sources they used. Instead, it appears to have taken average spending for each age-sex category, with an unspecified “adjusted claim probability distribution” drawn from a proprietary U.S. database used to construct premiums for group insurance policies rather than to predict individual spending.

We welcome any analysis using real data, rather than hypothetical distributions. Although our research continues, in all of the many variants we have analyzed to date, given the extreme skewing of the actual distribution of health expenditures in the population, our results suggest that, no matter how you formulate MSAs, these accounts are not cost saving, unless coverage is cut to the extent that they no longer constitute insurance.

Read Lawrence Solomon’s response, “Medical Savings Accounts live”

Read “Rise of a ‘zombie,'” the article by Lawrence Solomon that initiated this debate