In 1995, Jersey City became the first governmental entity to offer Medical Savings Accounts (MSAs) to its employees. In order to conduct an experiment with MSAs, we obtained temporary permission to withdraw our management employees from the State Health Benefits Plan to enroll them with Blue Cross/Blue Shield of New Jersey for the purposes of an MSA pilot program.

Our management employees were allowed to choose from three options that exactly mirrored the State Health Benefits Plan--a low-deductible, fee-for-service indemnity option; a Preferred Provider Option; and an HMO option--as well as a fourth, new option: Medical Savings Accounts. Fifty-six percent of our management employees chose the MSA option, including most of those who had previously opted for the standard indemnity option.

Under our MSA plan, the city purchased a catastrophic insurance policy that covered 100 percent of a family's medical costs above a $2,000 deductible. The city then placed an additional $1,800 in a medical savings account that the employee family could draw down to pay most of that deductible.

Putting these elements together meant that a family of four would, at worst, have to pay $200 in out-of-pocket deductible expenses for medical care in any given year. That $200 would come in the form of a "back end" deductible. In other words, the employee would not have to reach into his pocket to cover any family medical costs until the $1,800 in the MSA was expended. If a family's total health-care costs fell below $1,800 in a given year, the money remaining in the MSA account was refunded to the employee at year's end. The employee was free to use that money as he or she saw fit.

Employee satisfaction with MSAs was extremely high. The vast majority of new city employees choosing health-care options opted for the MSA plan. Even initial foes of this experiment among the city's civil-service management employees soon came to praise the plan. This should come as a no surprise. In comparison with the standard indemnity plan, our MSA option reduced out-of-pocket health-care expenses for major health-care users, gave money back to minor health-care users (the average employee family received $1,100 back at the end of the year), preserved absolute freedom of choice for all, and provided coverage for "Well Care" expenses, such as annual check-ups, which were not covered at all under the other plans.

What we set out to test in Jersey City was whether MSAs would provide superior health-care coverage for our employees and prove less expensive than traditional, low-deductible indemnity plans. Three full years of actual, real claims expenses proved our experiment a success. The 1998 renewal costs to the city for families choosing the MSA option (including both the catastrophic premium and the medical savings account contribution costs) was $997 a year less than the renewal costs for a family choosing the traditional, low-deductible indemnity option. The PPO and HMO options also continued to be priced cheaper than the indemnity plan. But these options achieved their cost advantages through third-party rationing of medical care and, accordingly, were infrequently chosen by employees. Our MSA option, in contrast, achieved this cost saving while preserving full employee choice relative to health-care providers and services.

The ability of individuals to control their own health-care decisions is becoming increasingly endangered in the current national health-care environment. With our MSAs, patients were able to choose the doctors they wanted to see and the procedures they wanted to receive. I think this is an extremely significant health-care advantage of the MSA option compared to the PPO and HMO options.

We have returned our management employees to the State Health Benefits Plan where we are now working to have MSAs offered as a fourth option for all State Plan enrollees. Our city employees tend to be older than the state average and many have disabilities or illnesses. Some have taken part-time jobs with the city just for the sake of our health insurance benefits. By enrolling our employees in the State plan, we are able to group them with a much larger and healthier pool of individuals. By having an MSA option added to the State plan, they will get to continue choosing the MSA option -- which they love!

It is our expectation that the legislature will add MSAs to the State Health Benefits Plan before the end of this year. As we showed in Jersey City, MSAs will quickly become the most popular health-care option for New Jersey state and local employees, will save employers (in this case, taxpayers) money, and will accomplish this while granting freedom of choice over medical care to participants--a freedom that all Americans cherish.

In addition to the federal tax law changes which you are considering for MSAs, you should offer medical savings accounts to your employees. As members of Congress, you can take the lead in national health-care reform by initiating reform in your own backyard. Also, as candidates for reelection, imagine how happy federal employees will be with you if the average employee family is able to save, as was the case with our experience, $1,100 each year, or at worst (if their health care usage is high) is enabled to reduce out-of-pocket expenses for health care.

Also imagine how happy taxpayers will be with you for the tax savings you provide and how happy doctors and pharmacists will be with you for helping to move America away from the darkening nightmare of having to deal with arbitrary HMO rules.

Your example could inspire huge numbers of private employers to follow suit. The anti-inflationary impact of the MSA approach, which creates first-party incentives to obtain value for every health-care dollar, will help to keep health care affordable for all and could even help preserve the solvency of Medicare.

We in Jersey City have had a tremendously positive experience with MSAs. By leveling the playing field relative to the tax treatment of MSA plans and offering MSAs to your federal employees, you could show the nation how to provide quality health-care at lower costs, while at the same time returning freedom of choice to the health-care consumer.

Also see:
Let's Talk Health Reform, Mr. President

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