Medical Savings Accounts Study: Case Studies
The Golden Rule Insurance Company Plan

• Sponsor: Golden Rule Insurance Company, Indianapolis, Indiana

• Coverage: Choice of two health plans; standard indemnity or MSA/catastrophic health plan

• Number of employees: 1100

• Summary effect: 1993 company costs were 38% less than budgeted

• Year of origin of MSA plan: 1993 (started 1 May)

After a year of planning, employee education, and program development, Golden Rule offered its employees a choice between two plans in May of 1993; a traditional indemnity plan with a $500 deductible or the Golden Rule Medical Savings Account plan. The response exceeded initial expectations. Nearly 81% of employees chose the Medical Savings Account Plan. This plan put cash in individual employee accounts and provided catastrophic insurance for expenses exceeding the MSA. Despite using post tax dollars for the MSA deposits, this health plan was even more popular the following year. In 1994 more than 90% of employees elected the Golden Rule Medical Savings Account plan.

After only 8 months of employee participation in 1993...

Golden Rule's spending dropped as employee claim frequency declined. Employees were highly satisfied with the new plan. After eight months, the loss ratio (medical claims as a percent of premium and deposits for both the traditional insurance and the MSA plans), was 52%. The loss ratio for the traditional insurance and catastrophic insurance coverage was less than 70%. The loss ratio for the funds deposited in the MSA accounts was 25%. The unspent funds in the MSAs remained the property of the enrolled employees. No dollars were returned to enrollees in the traditional insurance plan.16In 1994, the results were even more impressive (see Appendix).

"Golden Rule's spending dropped as employee claim frequency declined."

"Employees were highly satisfied with the new plan."

What brought about this change?

Health care spending is a function of utilization (frequency) and intensity. Utilization dropped precipitately without any discernible adverse effect upon the health of the insured population. Individuals considered their deposits in MSAs as their money to be spent or saved at their election. As a result behaviors and attitudes toward medical services changed. Contrary to loud speculation by opponents of MSAs, we found no evidence of Golden Rule employees or their families failing to use needed preventive or acute care.

Individual employees enrolled in MSA plans report they no longer contend with a personal out-of-pocket deductible. Instead, they have cash available to pay directly for well baby visits, periodic examinations, repeat checkups, emergency room visits, diagnostic tests, and a host of other services.

Third party intrusiveness doesn't exist with MSA clinical and economic transactions. Employees report great satisfaction knowing they do not have to deal with complex insurance forms for most of their medical transactions. Waiting weeks and months before provider charges, personal payments, and insurance reimbursements are finally processed is a thing of the past for these employees.

Stories are now commonplace at Golden Rule about employees who have become active, assertive, and involved purchasers of health services. Contrast this attitude with users of traditional prepaid medical services, where someone else pays all the bills and cost for care is unimportant after the deductible is met. These patients often feel entitled to care; their doctors often feel defensive.

A typical employee experience:

A Golden Rule employee recently delivered her baby in the maternity unit of a local Indianapolis hospital acknowledged as one of the finest facilities in the city. In advance of her expected confinement, she personally obtained prices from various hospitals within proximity to her job and home.

The highest cost offered was nearly $5000 for all services associated with an uncomplicated delivery and postpartum stay. Without her MSA, this employee stated that she probably would have delivered at this hospital. With the medical savings account, she thought better of that decision even though her annual deposit of MSA funds would be entirely consumed and her catastrophic plan would take over. S

he explained, "Why is it right for me to find an acceptable and affordable price for care, but disregard cost if it is paid by my employer?" Believing that paying the right price for the right place was the right thing to do, she canvassed a number of hospitals for their complete charges for an uncomplicated delivery. She narrowed her choices to one hospital that offered a single charge of $2600 and another at $2200. Her final choice was based on convenience and the attitudes shown by the hospital staff. She paid the hospital $2200.

"Individuals considered their deposits in MSAs as their money to be spent or saved at their election. As a result behaviors and attitudes toward medical services changed."

"...we found no evidence of Golden Rule employees or their families failing to use needed preventive or acute care."

This employee's experience illustrates the change in attitudes about the costs of care even when employees exhaust the MSA funds and trigger payment under the catastrophic plan.

Another employee's experience:
Additional employee opinions

Talking directly with a number of other Golden Rule employees, one member of the research team found high employee satisfaction with the Golden Rule MSA plan. Employees preferred that their MSA deposits and end-of-year savings were not taxable as regular income. However, none of the MSA participating employees said they prefer zero untaxed dollars to receiving 1993 taxed distributions averaging $602.

Golden Rule TO: Pat Rooney FROM: Shelli Johnson RE: MSA savings June 1, 1994 Pursuant to our conversation last week, I am providing you with the details of the experience I had with "shopping around" for a better price on medical care. After having been told by my primary care physician that I needed to have a couple of tests run at a hospital, I explained to him about my medical savings account and inquired about the cost of the tests. The doctor was uncertain but had his nurses call the local hospital and I was given the following approximate costs: Test 1 — $250.00 Test 2 — $295.00 Reading of Test 1 — $120.00 Reading of Test 2 — $120.00 Grand Total of Tests = $785.00 The grand total of the tests and readings was $785.00. I thought that was way too much, so I asked the doctor to hold off on scheduling the tests until I had time to shop around. I called several hospitals and was given a wide range of costs. Finally, I found one that was almost too good to be true. St. Vincent's did both tests and readings for a grand total of $114.00! That's a savings of $671.00. Pat, I know if I had not had a medical savings account, I would never have even thought to ask about the cost of the tests, not to mention thinking of shopping around for a better price.

"...none of the MSA participating employees said they prefer zero untaxed dollars to receiving 1993 taxed distributions averaging $602."

Asked also about their ability to understand the complexities of medical decisions and charges for services, these employees provided strong opinions about what they called the worst form of "paternalism" often heard in the health reform debate. One employee was incensed—actually offended—when someone at a congressional hearing inferred that she was just "too stupid" to be able to make good economic and clinical decisions with her own money in her medical savings accounts. At the hearing, the employee said that she "fully well knew how, when, and what questions to ask of her doctors." And, furthermore, she "most certainly could make decisions important to her about her health as well as her children and what might be the benefits, costs, and consequences of her decisions."

What about medical plan abuse?

Golden Rule's prior experience with plan abuse and medical overcharging appears to be largely curtailed with Medical Savings Account plans. This occurs because employees have their own self-interest at risk. Additionally, Golden Rule does not permit employees to maintain double coverage or plan coordination between complementary plans held by spouses. Golden Rule does this to highlight the desired objectives and the concept behind the Medical Savings Account. For similar reasons Golden Rule discourages employees enrolled in MSA plans from purchasing supplemental insurance to "protect their MSA deposits." There is no point to destroying the very incentive that Medical Savings Account bring to the economics of health care.

Options for Golden Rule employees and their families

Employees may choose either a traditional health insurance plan or the Medical Savings Account plan. They may switch on each anniversary date of the plan. These are the choices employees could make in 1994:

The figures in the "traditional family" column are per family member to a maximum of three people. Applicable copayments are 20% of the first covered $5000 of expenses above the deductible. Under the Medical Savings Account Plan, the major medical insurance has a deductible of $2000 for the individual and $3000 for a family of two or more. All covered expenses count against the deductible.

"One employee was incensed—actually offended—when someone at a congressional hearing inferred that she was just "too stupid" to be able to make good economic and clinical decisions with her own money in her medical savings accounts."

"Golden Rule's prior experience with plan abuse and medical overcharging appears to be largely curtailed with Medical Savings Account plans."

The maximum individual traditional plan out-of-pocket exposure for the employee is $1500. The maximum family traditional plan out-of-pocket exposure could be as much as $4500. By comparison the maximum out-of-pocket exposure is $1000 for the individual or for the family with an MSA plan.

The figures above do not include insurance premium costs. The total family premium is $4560 for the traditional insurance plan and $2200 for the MSA catastrophic insurance plan.

Requirements for employees who choose MSA plans

Everyone at Golden Rule pays 25% of their health benefit insurance cost. Some employees do not enroll in the MSA policy plan because of a spouse's coverage. As previously stated, Golden Rule does not permit employees to enroll in both the MSA plan and their spouse's plan, or to purchase supplemental policies to cover their deductible.

If the MSA has insufficient payroll deposits to cover expenses, Golden Rule offers to advance the difference without interest. Full coverage is provided throughout the entire plan year.

Deposits into the Medical Savings Account belong to the employee, not to the employer. Money may be withdrawn:

1. for health care expenses,
2. upon termination of employment,
3. at year end.

MSA allocations under current tax law are subject to income and social security taxes as with any other taxable income. These taxes are withheld from each paycheck and any MSA balance at year end is therefore after-tax dollars, free and clear of further taxes.

The Golden Rule MSA plan is not a flexible spending account plan (IRS Section 125). Under these rules, all funds in medical spending accounts remaining at the end of the year must be returned to the employer.

What do employees think of the MSA plan?

At the start of the second plan year, an independent survey asked employees what they thought about the MSA plan. (See Appendix for details and findings of the survey published February 1994 and January 1995.) The survey addressed specific issues:

• The reasons employees selected the MSA plan, concerns they may have had, and knowledge of the MSA benefit;
• The patterns of usage of the MSA plan;
• Consumer behavior changes;
• Satisfaction and problems with claims experiences;
• Employee use of MSA balance at end of the year;
• Suggestions for plan improvements.

"By comparison the maximum out-of-pocket exposure is $1000 for the individual or for the family with an MSA plan."

Compared with the traditional plan, employees strongly preferred the MSA plan. Even the 6% of employees who had spent the entire MSA balance strongly preferred the MSA plan. The major reason for choosing the MSA was definitely economic. However, only 3% said they enrolled because they thought their medical expenses would be low.

Almost 40% of employees had some worries about the MSA plan prior to enrolling—mostly revolving around the high deductible—or that the MSA might cost more. In 1993, 94% had year-end balances averaging in excess of $600. In 1994, end-of-year average balances were more than $1000 per employee.

At Golden Rule, medical spending has decreased dramatically, employees have greater choice and participation in both clinical and economic decisions, and overall acceptance exceeds initial expectations. Asked if the MSA option was replaced by a choice between a traditional insurance plan or other comprehensive prepaid medical service plan, the reaction from the Golden Rule employees was uniform—"We wouldn't like that and do not do it."

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org