In less than 10 years, many employers will no longer offer regular health insurance but, instead, will offer employees medical allowances. Whatever is not spent on health care will be saved by employees for retirement, predict two Cornell University heath-care experts.

These so-called medical savings accounts (MSAs), they claim, not only would save employees, employers and society billions of dollars each year but also would provide employees with more freedom and control over health-care choices, as well as incentives to stay healthy and keep medical expenses down. At the same time, they would give employers a way to offer a benefit plan in which they no longer bear most of the risk of rising premium costs, providing better budget control and a relief from fast-growing administrative and legal burdens.

MSAs, the Cornell researchers say, also would replace the current system of managed care, which is widely criticized for focusing on profits at the expense of quality.

"Today's employment-based health insurance is an historical artifact that is outdated, impractical and too expensive to maintain," says Roger Battistella, professor of health policy and management at Cornell, writing in the next issue of the journal Compensation and Benefits Management (Vol. 15, No. 3, Winter 1999).

"It just doesn't fit in today's society with its aging work force, skyrocketing health insurance premiums, global competition and employers' legal exposure to medical malpractice because of injuries and complications workers and their families may experience when managed care firms deny access to cost-ineffective but potentially beneficial health services."

With colleague David Burchfield, assistant professor of health care financial management at Cornell, Battistella compared regular employment-based insurance with MSAs and vouchers and concluded that MSAs are, by far, more practical and cost-effective not only for employers and workers but for the country as well. While vouchers, which allow employees to use earmarked money to choose their own insurance, do the most to simplify and limit employers' continuing involvement, the Cornell researchers believe that MSAs will emerge as the solution of choice.

"They are inherently more popular with workers, and they provide a more effective instrument for curbing health spending because of the built-in incentives for individuals to become more prudent health care purchasers," says Battistella.

MSAs look so promising that Medicare recipients will be able to choose them beginning next year. "The beauty of MSAs is that, unlike health insurance, whatever consumers don't spend can go directly into their retirement accounts, which will dramatically reduce waste in health care," says Burchfield, a health care economist.

Although federal regulations now essentially prohibit the adoption of MSAs for companies with more than 50 employees, the government is closely watching the several dozen small companies currently offering MSAs. Battistella and Burchfield predict that within several years restrictions will be lifted and MSAs will rapidly gain in popularity.

The two Cornell experts explain that instead of buying today's increasingly complex and unpopular managed-care policies, employers would purchase a single catastrophic health insurance policy for their work force offering basic fee-for-service benefits. However the policy would carry an annual high individual deductible of, for example, $3,000. Each worker would be provided with an annual account of somewhat less, possibly $2,000. Workers would be free to spend any part of this on health-related expenses, with any unused amount rolled over to the following year until a certain amount, perhaps $10,000, accumulates. This money could then be transferred to a retirement fund.

In the voucher system, employers would earmark a sum of money for employees to spend on their choice of health insurance coverage. This system, however, would not allow consumers to save unspent amounts, and employees would have less of an incentive to economize in their use of medically questionable and unnecessary physician services.

Battistella and Burchfield also argue that MSAs would reduce the number of Americans who lack health coverage. Because such allowances would simplify fringe-benefit administration and put a cap on health-care contributions, employers not currently offering health insurance would be encouraged to do so, and those already providing it would be less inclined to discontinue the benefit.

Today, about one-third of the work force is uninsured or experiences disruptions in coverage. "More alarming yet, three-quarters of the currently or recently uninsured are members of families containing a full-time or part-time worker," says Battistella. Furthermore, widespread acceptance of MSAs would eliminate the dilemma that many low-income workers face when given a choice between health insurance and higher take-home pay, he says.

"We think that the benefits of MSAs, though no 'magic bullet,' so outweigh the disadvantages that we will see an inevitable transition from traditional health insurance to MSAs, thereby radically changing how employees get medical benefits over the next decade," concludes Burchfield.

Battistella's research focuses on the organization and financing of personal health services, managed health care delivery systems, and health and welfare policy in postindustrial nations. Burchfield studies the financing and delivery of health services and on information technology as it relates to the health-care industry. Both teach in the Cornell Sloan Program in Health Services Administration, which offers a master's degree-level program in health care management, and in the Department of Policy Analysis and Management in Cornell's College of Human Ecology, which was among the first in the world to offer graduate academic programs in health services management.