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Medical Savings Accounts:

An Interview with Scott Holleran



Scott Holleran is editorial director of the educational organization Americans for Free Choice in Medicine (AFCM). Mr. Holleran is a writer for the Daily News of Los Angeles and regular contributor to The Intellectual Activist. His articles have appeared in the Wall Street Journal, San Francisco Chronicle, Orange County Register and Los Angeles Times. This interview was conducted by Joseph Kellard.

Axiom 3: Describe the fundamental state of today’s health care system, particularly the effects made on it by Medicare and certain "reforms" that have been enacted, such as government-mandated HMOs and the Kennedy-Kassebaum bill.

Scott Holleran: First, the bad news. Health care financing, the freedom to pay for health care, is in a state of incremental socialized medicine. We are moving toward a complete, managed, rationed health care system and expansion of medical savings accounts, in my opinion, is the most politically realistic hope of protecting free choice in medicine. From cradle to grave, an individual has no real choice in contracting for private medical care. Federal and state government steals your money to pay for Medicare, Medicaid, and state programs, and, if you are covered by your employer, your choices of health plans are decreasing. Therefore, your choice of doctors is vanishing and the quality of medicine deteriorating. How did this happen? The tax code encourages employers to offer health care benefits to employees. An individual employee's health insurance premiums are fully 100 percent tax deductible to the employer, but premiums are not fully tax-deductible to the individual. This puts the burden of health care coverage on the employer and creates an entitlement mentality in the employee, the idea that "health care is a right it subsequently encourages an employer to offer the cheapest care. That usually means managed health care plans (i.e., HMOs, PPOs, point-of-service plans). Actually, managed care is not necessarily cheaper, but employers mistakenly believe HMOs are cheaper, so they offer a "choice" between HMO Twiddle-Dee and HMO Twiddle-Dum. It's not a real choice at all. Employers rarely offer to compensate an employee for a health plan which offers unrestricted choice of doctors. Doctors join HMOs because HMOs scare them and threaten to drive them out of business if they don't join; physicians think they are doomed if they stay in private practice. And they have reason to fear. Patients are pushed into HMOs by their employers, who are pushed into offering health care coverage by the tax code, created by government. Self-employed individuals entrepreneurs, farmers, construction workers, lawyers, writers, all independent contractors are among the most persecuted; they are really penalized for being on their own. Managed care domination of the market drives premiums for self-employed individuals up because the market shrinks for real individuals the health insurance industry is locked into collectivism; the tax code and statist intervention on behalf of HMOs have forced health insurers into treating everyone as a giant group. The individual is the exception and he pays dearly for it. The recent Kennedy-Kassebaum law passed overwhelmingly by Congress in August 1996 is the worst piece of health care legislation since the HMO Act in 1973, maybe worse. The law makes it illegal for an insurance company to refuse an individual coverage if he has a pre-existing condition; this is like forcing an insurer to write a homeowner's policy on a house which has already caught fire. If a person has cancer, the insurer can not refuse him health insurance. The law makes it illegal for an insurance company to make decisions based on objective information it forces insurers to offer health insurance regardless of health. What do you think will happen to your insurance premiums when your insurer is forced to cover people who are incredibly ill? Your rates will skyrocket, and, when that proves unpopular, Congress will nationalize health care. There's more bad news about Kennedy-Kassebaum, including Clinton's $23 billion program to subsidize uninsured children in each state, and decreased payments to doctors who take Medicare patients. And there are fraud and abuse provisions that put a doctor or his office staff secretary in jail for making a mistake on an insurance form. The good news is that America still has the best health care delivery system in the world. America is still the best place to get sick but that's changing and, in order to receive the best quality care, you have to stay well informed and you practically have to have connections to the health care profession to get medical expertise.

Axiom 3: Many people estimate that Medicare will be bankrupt by 2002, but hasn’t it already reached bankruptcy? Isn’t it undeniable that in order to maintain Medicare there must be either massive tax increases or massive government borrowing?

Scott Holleran: Yes, Medicare is funded by one scheme or another, but government is just buying time it's headed for disaster. Medicare is going broke by all accounts even Secretary of Health and Human Services Donna Shalala and key Democrats admit that Medicare is bound for bankruptcy. If you are under 35, the money expropriated for Medicare from your paycheck is going to pay for people who are currently over 65. Though Medicare "contributions" ostensibly go to cover part of your health care expenses over age 65, if you are young, you are not going to see a dime of that money. People are living longer and the system is headed for a breakdown.

Axiom 3: If the status quo is maintained and more socialist-based “reforms” are enacted, what kind and quality of health care can individuals currently 35 years-old and younger expect to receive in their old age?

Scott Holleran: Unfortunately, that kind of torturous future has already arrived. Government is paying hospitals not to train doctors, affirmative action and other programs discourage ability in medical school admissions, med schools are pushing students into primary care, med school curriculum is being dumbed down with an emphasis on herbs, so-called alternative medicine and communicating with patients which is essential but today's med students are not learning real medicine and science. The best physicians are quitting the profession because they can't make a good living by practicing medicine autonomously. Young people will be even worse off in their old age, because, if current trends continue, there won't be any good doctors left; they'll be HMO drones who get money for withholding health care. HMOs do not trade value for value it's a rationing scheme. People over 50 ought to be concerned, too; the best doctors are fleeing the profession and so are the most skilled nurses, respiratory therapists and hospital staff workers, the most informed pharmacists, the most serious laboratory technicians, the most knowledgeable insurance agents, the finest surgeons, the best psychotherapists and psychiatrists the best among them are leaving the medical profession. Managed care is ruining each and every aspect of medicine. You won't like the professionals who'll take their place.

Axiom 3: Explain how Medical Savings Accounts (MSAs) work and how they will truly reform health care particularly how they will improve quality care and cut medical costs?

Scott Holleran: A medical savings account is used in conjunction with catastrophic, high-deductible health insurance. A MSA does not replace health insurance. The MSA augments the insurance. Your contribution to the MSA is tax-deductible; money earns interest. For example, my MSA earns 4.5% interest. Some MSAs earn 5% interest. I can use the funds in my MSA for any health care expenses without paying taxes on that money. I can use funds to buy a house, too, though a penalty applies to non- health care expenses. I can't use it to pay my premium, but, I can pay for medical services with money in my MSA that don't count toward my health insurance deductible, including psychotherapy, vision, dental and orthodontic care, pharmaceutical costs, chiropractic treatments and much more tax-free. If I don't use money in my MSA, it earns interest. At age 59 1/2 just like with a IRA I can withdraw funds tax-free. If I get really sick and my health expenses exceed the deductible, my health insurance pays the costs. Congress put dozens of restrictions on who can have a MSA and there is a cap on the annual contribution, like with a IRA. Those who may be eligible include the uninsured, self-employed and those who work for an employer with under 50 employees. The rest of Americans will have to wait for a MSA. With my MSA health insurance policy, if I get cancer, I can go to the Mayo Clinic and my insurance pays 100 percent of the cost. I don't have to pick a doctor from a book, I don't have to wait for hours to see a primary care doctor who sees me for five minutes and refuses to refer me to a specialist my physician doesn't have to get the approval of a committee, either. I have true free choice in medicine or as close as you can get in the United States today. It should be pretty clear how expansion of MSAs to the entire population will revolutionize the health care profession. Patients save money, have confidence through freedom of choice of physicians, while doctors get paid directly, maintain autonomy in a private practice and contract with a patient directly. In my opinion, if MSAs were expanded tomorrow, few would want managed care.

Axiom 3: Please explain in detail how Medicare can be phased out so that it will pay out the individuals who are now 65 years-old and older, but would otherwise allow individuals currently ages 64 to 36 to receive only a certain amount of money from Medicare while requiring them to rely in part on their personal savings placed into MSAs, and require individuals currently 35 and younger to rely entirely on their MSAs.

Scott Holleran: Phasing Medicare out is complicated. AFCM's founders researched and wrote a plan to eliminate Medicare, which we published in 1994. It's available from AFCM. Under AFCM's plan, essentially, older people continue to receive Medicare. They've been forced to pay into Medicare their whole lives much longer than you and me and government can't just cut them off without compensation. Funds already allotted for middle-aged people by Medicare are invested in a MSA. The money is the individual's; he owns it, he uses it, it's his account and it's his money. People like you and me under age 35 are basically on our own whatever money has been stolen from us for Medicare is already gone so we'll have to rely on the freedom of the market, money invested in a MSA and our own individual efforts to pay for health care. We can look forward to a sound future and be in control of our own health care dollars.

Axiom 3: Do people express skepticism or disfavor towards MSAs because they see themselves in the burdensome position of saving for their own health care while continuing to pay for government-run programs, such as Medicare?

Scott Holleran: Not anymore. When AFCM first promoted the concept and we are not the only organization to favor MSAs there were a handful of Objectivists and many Libertarians who believed that MSAs were just another form of government control. Well, in a perfect laissez-faire economy, MSAs would be unnecessary. But, as a means to the end of getting government out of health care MSAs are a rational solution. Most people understand this. We have to live in the world and apply ideas to politics as the last in a series of applications. And that means dealing with reality as it is. Ideas aren't applied in a vacuum. After all, we have to start dismantling the welfare state somewhere. In that sense, I am proud that most of our members in AFCM are not Objectivists we are reaching the rest of the culture. Objectivists barely comprise 10 percent of AFCM's members. Of course, they're the best members in the sense that they tend to understand philosophy. Acceptance of the concept has increased overwhelmingly in two years. When I gave talks to community groups and civic organizations a couple of years ago, they were bewildered by the notion of a MSA. Today, audiences are much more responsive to the idea. They ask intelligent questions about MSAs what interest rates can I get? Can I put my wife on this MSA plan? Part of the reason is that groups like AFCM have been educating the public and another part is that people sense there's something desperately wrong with managed health care. They are hungry for an intelligent solution. MSAs are the beginning of a real transition to laissez- faire capitalism.

Axiom 3: Based on their support by doctors and politicians, what are MSAs’ current status in America? Specifically, who are MSAs strongest champions and opponents and why? And how can individuals help establish MSAs as a more prominent option among the continuous array of impotent, ultimately destructive reforms that are enacted?

Scott Holleran: MSAs are beginning to get better media coverage. They're available to self-employed individuals and people who are employed by an employer with under 50 employees. Medicare recipients can use MSAs now, too. HMOs and managed care companies detest MSAs because they know that if every American has a MSA, there will be no need for them and they will drop dead. After all, why pay someone to manage your health care if you are free to manage your own health care with the consultation of your private physician? Of course, there are the chief MSA opponents in politics and not all of them are Democrats. MSA enemies are Clinton, Ted Kennedy, Russell Feingold, Paul Wellstone, Dick Gephardt and the whole Democratic Party, except for a few renegade blue-collar congressmen from Illinois and some in the West and the South. The worst opponents to free choice in medicine are Republicans who claim to favor MSAs but really favor HMOs. It's as though they don't understand the issues clearly but I think they understand the issues quite clearly. The worst offender is Senate Majority Leader Trent Lott. I called his office the week before Congress voted on Kennedy-Kassebaum and was told that the bill was probably dead; that it wouldn't even come up for a vote anytime soon. The next week, the Senate passed Kennedy-Kassebaum 98-0. Either Trent Lott's staff lied or, as leaders of the majority party in the Senate, they are utterly incompetent. Maybe both. But Speaker of the House Newt Gingrich is a close second for worst on health care; MSAs have never been a priority with him they weren't even in the Contract with America. He gives lip service to free market reforms. There are Republicans who want Americans shoved into HMOs Senator Judd Gregg, Rep. Nancy Johnson, and Senator Orrin Hatch. MSA champions include Rep. Bill Archer, chairman of the House Ways and Means Committee; Steve Forbes, who is the most prominent Republican to call for MSAs and criticizes the proliferation of HMOs; Rep. John Porter; and a handful of others. Congress may expand MSAs early next year. Of course, MSA proponents should join Americans for Free Choice in Medicine. I really consider AFCM the best method of individual intellectual activism in health care today.

For information on Medical Savings Accounts contact Americans for Free Choice in Medicine (AFCM) at: 1525 Superior Avenue Suite 100 Newport Beach, California 92663. Tel: (714) 645-2622 Fax: (714) 645-4624 E-Mail: afcm@netcom.com URL http:\\ www.afcm.org

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Medical Savings Accounts

An Interview With Scott Holeran

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