HSAs Grow Faster than Critics’ Understanding of HSAs

An article in today’s Detroit Free Press reports that health savings accounts (HSAs) are catching on, and showcases some of the less-valid criticisms HSAs.

In the article, Jason Furman of the Center on Budget and Policy Priorities argues that a family of four with an annual income of $30,000 and the usual expenses is unlikely to be able to save $5,000 per year in an HSA.

There are a number of problems with that argument.  For example, it doesn’t address the question, “Compared to what?”  The alternative to HSAs is usually comprehensive third-party health coverage, which carries much higher premiums than high-deductible health insurance.  If the family can’t afford to save, where are they supposed to get the money to pay those higher premiums?  Also, there’s nothing in the HSA law that says a family must have $5,000 of cost sharing.  The family’s cost sharing could be as low as $2,100.  (Less cost sharing means higher premiums, but shouldn’t the family be able to make that tradeoff for themselves?)

The article raises a number of other criticisms of HSAs, all of which I address in a study released today by the Cato Institute titled, “Health Savings Accounts: Do the Critics Have a Point?

Peruvian Elections and the Future of Latin American Populism

The upcoming Peruvian runoff elections for president may provide another sign that the wave of Hugo Chavez-style populism in Latin America has crested. The contest is between Alan Garcia–a former populist president who ruined the country during his term (1985-1990) with heterodox economic policies (Peru was set back 30 years in terms of per capita income; had 7,000 percent inflation in 1990; and much of the country was controlled by the Shining Path guerrillas)–and Ollanta Humala–an extreme nationalist and populist who, following the example of Chavez, led a brief but failed rebellion against the outgoing regime of President Alberto Fujimori in 2000. Humala´s popularity among the most disenfranchised of Peru´s poor, especially in the country´s interior, went virtually unnoticed among Peru´s elite and the press until last year. (Peruvian adjunct scholar Enrique Ghersi was alone in foreseeing this development in an op-ed in the Christian Science Monitor in 2003).
 
Garcia promises to run a responsible government that respects the constitution and the separation of powers, including the independence of the central bank. Humala promises nationalizations, a rejection of the free trade agreement with the United States pending in the congress, a constituent assembly to draft a new constitution, and the arrest of corrupt ex-presidents including Garcia himself. 

Polls give Garcia a lead in the June 4 elections, especially among voters in urban areas and along the coast. Peruvians don´t love Garcia; many who plan on voting for him even hate him but consider him a lesser of two evils who will stick to democracy and be constrained by a Peruvian economy that is much more open than it was during the 1980s. Humala´s authoritarianism promises to change the rules of the game in a way that scares most Peruvians.
 
I’m writing from Moyobamba, Peru.  In the rural areas surrounding this jungle town where the Andes turn into the Amazon rain forest, most villages have no sewerage or running water and electricity for some areas is recent. Rural Peruvians here will vote for Humala. But those votes are not necessarily ideological. Many will vote for Humala because they feel they have nothing to lose from rejecting the traditional political system that has served them poorly. Indeed, were the supposedly neo-liberal former president Fujimori (1990-2000) allowed to run again, the poor here would overwhelmingly give him their votes. The two most popular presidents in this part of the country are Fujimori–for pacifying the country by getting rid of leftist guerrillas who terrorized rural areas–and Fernando Belaunde, who in the 1960s built major roads connecting the region to the rest of the country. 
 
Garcia´s likely election will be a blow to Hugo Chavez. Chavez has explicitly endorsed Humala, leading to heated and continuing exchanges between Chavez and Garcia, who accuses the Venezuelan president of interfering in Peru´s internal affairs and of planning on using Humala as his puppet. Chavez may have an ally and a client in Bolivian President Evo Morales, but his Bolivarian dream of uniting Latin America under his leadership is being undermined by a Latin American reality: Latin America´s usually irresponsible governments more often than not, thankfully, do not get along. 
 
Thus Brazil and Bolivia are in a dispute over Bolivia´s nationalization of gas companies that belong to Brazil and provide that country with much energy; Mexican President Vicente Fox has clashed publicly with Chavez about Mexico´s relations with the United States; and the leftist governments of Argentina and Uruguay are in a heated dispute about a border issue. 
 
The election of Garcia will not be a victory for market liberals or a definitive defeat of populism. As a Peruvian economist recently described to me, Peru, with its long coast and Andean and jungle interior, is part Chile (modern and open) and part Bolivia (more backward and isolated).  A Garcia presidency will be mostly mediocre with a possibility of market reforms in some areas (agriculture and perhaps property titling, for example) and with Humala as a remaining, significant irritant. 
 
Such is the uneven pace of progress in Latin America these days. But it would be progress nonetheless. The next bit of major good news in the region may come from Mexico, where presidential elections in July may result in the rise to power of Felipe Calderon, a market liberal now leading in the polls, and the defeat of populist Andres Manuel Lopez Obrador, Chavez´s favored candidate.

Jump Ship!

Thursday’s New York Times Economic Scene article by Austan Goolsbee made the rounds late last week. Here’s Alex Tabarrok’s take. Be sure to read the comments. From the left, here’s Lindsay Beyerstein and commenters. Goolsbee presents research that shows that the state of the economy when you take your first job can have a long-lasting effect on future earnings:

Lost in the argument over whether young people today know how to work, however, is the mounting evidence produced by labor economists of just how important it is for current graduates to ignore the old-school advice of trying to get ahead by working one’s way up the ladder. Instead, it seems, graduates should try to do exactly the thing the older generation bemoans — aim for the top.

The recent evidence shows quite clearly that in today’s economy starting at the bottom is a recipe for being underpaid for a long time to come. Graduates’ first jobs have an inordinate impact on their career path and their “future income stream,” as economists refer to a person’s earnings over a lifetime.

The importance of that first job for future success also means that graduates remain highly dependent on the random fluctuations of the economy, which can play a crucial role in the quality of jobs available when they get out of school.

[…]

These data confirm that people essentially cannot close the wage gap by working their way up the company hierarchy. While they may work their way up, the people who started above them do, too. They don’t catch up. The recession graduates who actually do catch up tend to be the ones who forget about rising up the ladder and, instead, jump ship to other employers.

What’s really the advice here? Shoot for the top, or do a lot of switching? Goolsbee seems to be endorsing aiming for the top, but the last sentence above, about jumping ship, seems to support something else altogether.

In 1995, with my degree in Studio Art and the History and Philosophy of Art firmly in hand, I landed a plum “you want fries with that” gig at the Arby’s in the Iowa City mall. I guess I should be glad I didn’t try work my way up the Arby’s ladder!

Stanford’s Paul Oyer, whose study Goolsbee cites, says: “Try to get lucky. And also, think carefully about that first job because it can matter for the rest of your career.” Isn’t this is terrible advice?

First, Oyer assumes that maximizing lifetime income is our goal, which is absurd. I imagine you should try to get a job you will like. And it is lucky indeed to hit the career bullseye with the first throw. So you should simply assume that you won’t get lucky, won’t get the dream job out of the gate. Even if you do get the dream job, you’ll likely find that it’s not such good luck after all, and find yourself dreaming a different dream. It will take a while to find the right fit, so plan for that.

Still, even if your goal is lifetime income maximization, the article seems to indicate that you should bail from your first job just as soon as you can get one that pays more. Your earnings are path-dependent as long as you stay on the same path. So don’t. Switch paths. The days of 35 years, a gold watch, and a pension are long gone.

Anyway, why even try to get lucky with your first job? If I’m giving advice to undergrads, I’m going to tell them to study something they really enjoy—something they’ll get satisfaction from for their rest of their lives. I don’t use it on the labor market, but my art history major is and will continue to be a source of enjoyment to me. About the first job: don’t think ladder, think springboard. (However, if you’re studying something interesting but not very marketable, make sure you get some real work experience in another area, so you don’t find yourself in the dread category “educated but unskilled.”) As I mentioned before, people are afraid of volatility, but many would be happier if they took more risks. In a society like ours, a good diploma from any decent college, grad, or professional school is pretty much all the safety net you’ll ever need, especially when young and childless, so the risk of job-switching isn’t actually very risky at all.

Europe’s Public Health Crowd Hunkers Down to Fight the Scourge of “Secondhand Drinking”

Via the excellent Spiked Online:

The campaigns to combat the effects of ‘passive smoking’ are widely credited for Europe’s growing number of smoking bans. Now alcohol is in the sights of the public health lobbyists, and they have invented the concept of ‘passive drinking’ as their killer argument.I have seen a leaked draft report for the European Commission, which is due to be published some time in June. It makes claims about the high environmental or social toll of alcohol, the ‘harm done by someone else’s drinking’. The report is likely to inform proposals for a European Union alcohol strategy later this year.

[…]

By October 2004, the theme was established in a Eurocare submission to the Commission. ‘Alcohol not only harms the user, but those surrounding the user, including the unborn child, children, family members, and the sufferers of crime, violence and drink-driving accidents: this can be termed environmental alcohol damage or “passive drinking”.’

This of course is a replica of the roadmap the prohbition movement used at the beginning of the last century, though Spiked author Bruno Waterfield does draw one distinction, invoking John Stuart Mill:

Once the temperance movement believed man could be saved. Today, it joins with the public health lobby to treat drinking as a form of social pathology rather than a question of moral redemption. Once, public health had the aim of protecting society against disease. Today, the ‘new public health movement’ seeks to protect society against people themselves.

Today’s public health outlook on drinking dovetails neatly with other powerful contemporary trends that emphasise human vulnerability or undermine trust between individuals. Linking drinking to free-floating risks, independent of the intentions of individuals, is a characteristic of today’s anti-humanist climate. But 200 years after his birth, we can take heart from the works and legacy of Mill. He stood against the tide in his day and won. We owe him a debt and we owe the future of freedom a duty to make our own stand against the new public health alliance of the twenty-first century.

I warned in a Cato paper a few years ago about the rise of the neoprohibition movement here in America.  Think it couldn’t happen again?  Consider this little nugget, pulled from the DEA’s website:

A word about prohibition: lots of you hear the argument that alcohol prohibition failed—so why are drugs still illegal? Prohibition did work. Alcohol consumption was reduced by almost 60% and incidents of liver cirrhosis and deaths from this disease dropped dramatically (Scientific American, 1996, by David Musto). Today, alcohol consumption is over three times greater than during the Prohibition years. Alcohol use is legal, except for kids under 21, and it causes major problems, especially in drunk driving accidents.

Mark Thornton took on apologists for alcohol prohibition in a Cato paper way back in 1991.

An Otherwise Helpless Consumer Public?

In 1971, a federal court expressed the rationale behind the federal Food, Drug, and Cosmetic Act when it wrote that the law was “enacted for the protection of an otherwise helpless consumer public” [United States v. Lit. Drug Co., 333 F.Supp. 990, 998 (D.N.J. 1971)]. But would consumers be helpless without the Food and Drug Administration certifying the safety and effectiveness of drugs, biologics, and medical devices? A recent National Public Radio report suggests the answer is no.

The one area where Congress has reined in the FDA’s regulatory authority has been dietary supplements. The FDA has no authority to regulate the content or safety of dietary supplements before those products are sold. Since the FDA doesn’t require testing, there is no testing. Right?

Wrong. A for-profit firm called ConsumerLab.com tests dietary supplements with an eye toward catching unsafe or mislabeled products in the lab before they harm anyone. ConsumerLab.com provides reports on its findings to consumers who pay an annual fee, but it provides information on product recalls at no charge. 

According to the firm’s web site:

ConsumerLab.com, LLC (“CL”) is the leading provider of independent test results and information to help consumers and healthcare professionals evaluate health, wellness, and nutrition products. It publishes results of its tests at www.consumerlab.com — which receives nearly 2 million visits per year, in its acclaimed book ConsumerLab.com’s Guide to Buying Vitamins & Supplements, and in special technical reports. Its research is cited frequently in the media, books, and at medical meetings. As a certification company, CL enables companies of all sizes to have their products voluntarily tested for potential inclusion in its list of Approved Quality products and bear the CL Seal. In the past five years, CL has tested more than 1,200 products, representing over 250 different brands and nearly every type of popular supplement.

ConsumerLab.com was launched by William Obermeyer, a former FDA official whose job it was to test these products after problems emerged. When Obermeyer realized he could do more good by testing these products ex ante, he quit his day job and helped create ConsumerLab.com. 

Some have argued that allowing dietary supplement manufacturers to pay for the review that determines whether the CL Seal will go on a product creates a conflict of interest. Yet the value of the “CL Seal” depends on ConsumerLab.com’s reputation for independence. NPR reports, “There are no indications that this has created any bias.” (Besides, many see indications of bias at the FDA itself, even when the agency’s funding does not come from private parties.)

So it is not the case that the FDA is an indispensable agency. It performs an indispensable function. But if it disappeared tomorrow, private organizations would meet (1) consumers’ demand for independent product reviews and (2) producers’ demand for credible quality signals. And those private organizations would have to compete with each other on the basis of thoroughness and integrity. As NPR reports:

ConsumerLab.com isn’t alone in testing supplements. Another logo beginning to appear on labels is a blue NSF mark, which signals that a product has been certified by the National Sanitation Foundation.

And it doesn’t stop there. Other private organizations that set quality standards or evaluate the quality of various goods and services include:

Read more about a world without the FDA.

Doha Round: Curb Your Enthusiasm

In a sure sign of how desperate negotiators are to get a signal that something—anything—is going to come of the Doha Round of global trade talks, there has been much ado this week about the revised “offer” that the European Union has made on agricultural market access, one of the necessary elements in a successful deal.

Even the Australians—usually one of the most reliable critics of European agricultural policy—have welcomed the sign of flexibility.

But what would this offer mean exactly? There doesn’t seem to be a whole lot to get excited about. For a start, no numbers were mentioned. The message from EU trade commissioner Peter Mandelson, delivered by David O’Sullivan, director general of the EU’s trade directorate, merely said that “if, and only if, key partners also put something worthwhile on the table—the EU will be prepared to enhance further its current agricultural offer.”

The EU’s current agricultural offer would certainly benefit from some enhancing. Its last substantive offer in October 2005 proposed cuts to developed country farm tariffs that fall far short of the demands of the United States, the Cairns Group of agricultural exporting countries, and even the more modest demands from the G-20 developing countries. In a press interview prior to the official statement, O’Sullivan was somewhat more detailed about the EU’s bottom line, saying that they would be willing to “move towards, but certainly not as far as, the G-20 position.”

The lack of numbers was no deterrent to deputy U.S. trade representative and WTO ambassador Peter Allgeier expressing his indifference. According to him, the EU’s proposal “would not be nearly sufficient…for there to be new trade flows.” That benchmark seems a sensible one: surely new trade flows should be the ultimate aim of trade liberalization talks.

I wonder if O’Sullivan talked to French president Jacques Chirac before he made his tentative and conditional offer of flexibility. The French have been blamed for the obstinacy so far shown by the EU, and their attitude can be gleaned from this comment from President Chirac to Brazilian television: “[The] three areas to which we’ve attached the greatest importance [are]: industry, services and, above all, the aid and interests of the poor countries with which Europe has very strong ties and who could be the victims of the WTO’s actions.”

Even overlooking the unnecessary and inflammatory swipe at the WTO, Chirac’s comments must be seen as a cynical attempt to exploit former colonies’ so-called “dependence” on non-reciprocal preference rates. Despite research from the World Bank and the WTO that shows that most of the risks from preference erosion (the loss of competitive advantage, enjoyed by preference beneficiaries, that results from non-disriminatory—or “most-favoured-nation”—trade liberalization) are limited to a few items in a few markets and that developing countries will gain significantly from reducing their own tariffs, many preference recipients, encouraged by some NGOs, are threatening to block consensus on a final agreement if their “needs” are not addressed.

Instead of issuing statements that inflame such tensions, maybe President Chirac should step up consultations with French services and manufacturing bodies and find out how they would feel about the failure of the trade talks. Then he should pick up the telephone and call Mandelson.

Maybe then we’ll see an offer to get excited about.