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?”

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 Con​sumer​Lab​.com tests dietary supplements with an eye toward catching unsafe or mislabeled products in the lab before they harm anyone. Con​sumer​Lab​.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:

Con​sumer​Lab​.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​.con​sumer​lab​.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.

Con​sumer​Lab​.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 Con​sumer​Lab​.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:

Con​sumer​Lab​.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:

• Accreditation Council for Continuing Medical Education (physicians)
• Accreditation Association for Ambulatory Health Care, American Association for Accreditation of Ambulatory Surgery Facilities, Joint Commission on Accreditation of Healthcare Organizations (health care facilities)
• American Gem Society, Gemological Institute of America (jewelry)
• American National Standards Institute (standards-developing organizations)
• Clinical and Laboratory Standards Institute
• Consumer Reports (everything under the sun)
• Consumers CHECKBOOK (everything under the sun, including federal employees’ health plans)
• Good Housekeeping Institute & Good Housekeeping Seal Directory (consumer products)
• HealthGrades, WebMD, Subimo (physicians, hospitals, and nursing homes)
• Insurance Marketplace Standards Association
• Sporting Arms and Ammunition Manufacturers’ Institute (firearms, ammunition, and components)
• Underwriters Laboratories (the big cheese; thousands of potentially dangerous products, including dozens that you use every day)
• United States Pharmacopeia Drug Information (“off-label” uses of pharmaceuticals)
• Worstpills​.org (information on pharmaceuticals for those who think the FDA’s standards are too lax)

Read more about a world without the FDA.

Since I’ve disagreed with Ezra Klein in the past, I am pleased to report that we agree on what to do about the 7,000 Americans who die every year while waiting for transplantable organs. In a recent post, Klein notes that the shortage of organs is due to a ban on payments to organ providers. Klein advocates lifting that ban. My favorite line:

We’ve stupidly disallowed payment for organs (if money can’t buy you life, why keep it around?)…

Klein brought to mind an observation made by Prof. Richard Epstein last week in the Wall Street Journal:

Only a bioethicist could prefer a world in which we have 1,000 altruists per annum and over 6,500 excess deaths [to] one in which we have no altruists and no excess deaths.

In Healthy Competition, Mike Tanner and I argue for repeal of Sen. Orrin Hatch’s 1984 National Organ Transplant Act, which prohibits payments to organ providers. 

In a recent issue of Cato’s Regulation magazine, Prof. Lloyd Cohen throws up his hands and issues a challenge to those opposed to such payments. Cohen has re-written his will to ensure that when he dies, his organs cannot be harvested unless his estate is paid $864.27 per organ. Why? Because that requirement will create a real-life situation where paying up will generate more transplantable organs. That will force the bioethicists to explain to four, maybe five families who have their checkbooks in hand, We’re sorry, but your loved one must die for our principles. Cohen urges others to insert similar clauses into their wills, just to get the message through the bioethicists’ heads.

Cohen and other powerful presenters will speak at a June 12 conference on organ markets at the American Enterprise Institute.

At about 6 pm yesterday, I received an invitation to a Heritage Foundation event titled, “Another Step forward for Free-Market Health Care Reform.” The event was anything but.

Heritage hosted Rep. Mike Rogers (R‑MI), who proposes to allow health savings accounts in Medicaid. In the book Healthy Competition and elsewhere, Cato scholars have explained that Medicaid HSAs are not a free-market health care reform and instead distract Congress from reforming Medicaid the way it reformed welfare in 1996.

In fact, Rep. Rogers proposed a number of non-free-market health reforms:

• Expanded federal regulation of the health insurance markets (a.k.a. “association health plans”)
• Federal health information technology reforms
• Federal malpractice liability reform

Rep. Rogers concluded his opening remarks by saying that health care “is the one place where we know how to tinker, we know where to tinker, [and] now we just [need to] have the will to tinker.”

I demur. Free-market reforms reduce the influence of government over the economy. The proposals offered by Rep. Rogers do the opposite. Then again, I have only listened to the Heritage event. I have not seen the most recent iteration of Rep. Rogers’ legislation, which is not yet available online. I hope Rep. Rogers or someone from the Heritage Foundation will explain what makes Medicaid HSAs (or the other proposals) a free-market health care reform.

A New York Daily News column by “money coach” Jean Chatzky shows consumers that it is possible to comparison-shop for health care services. Chatzky notes some of the resources available to patients:

[Health care] prices are starting to emerge. Private insurers like Aetna have started programs in parts of the country (Cincinnati is an early example) where they’ll publish online the exact prices they’ve negotiated with doctors in the area for hundreds of medical procedures and tests…

Healthgrades, which is the largest provider of quality information on doctors and hospitals, is now publishing information on 55 different surgeries and procedures and what they cost on average, in total, across the country…

Chatzky offers patients the following advice:

Price Shop… Get the difference between the list price (what doctors and hospitals bill for, on average) and the discounted or negotiated price that a health plan negotiated (which you and your insurer typically share). These prices can be hugely different.

Negotiate… 70% of adults who talked with a hospital say they were successful in negotiating a lower price for their medical bills… 61% who negotiated with a doctor were successful…

Ask About Cheaper Options. There are often less costly choices to what the doctor has prescribed…

And last. If you’re one of the 40 million people without health insurance, you should know that one of these high deductible plans may in fact make insurance affordable for you.

Chatzky even tells the story of Cato board member Lew Randall, whose doctor recommended a less-expensive barium X‑ray (instead of an MRI) when Randall noted he would be paying cash. “If it were my shoulder, that’s what I’d have,” the doctor said. Randall saved $900 on that visit alone.

Health savings accounts have passed an important milestone now that consumer advocates are debunking the myth that health care is too complicated for consumers to be making their own decisions.

The recently released Medicare Trustees Annual Report [pdf] contains a stark reminder of the Alice in Wonderland nature of Medicare’s financial projections and policy-making. Page 219 of the report carries the chief actuary’s “Statement of Actuarial Opinion.” Its contents should be mandatory reading for those worried about the program’s future. The statement’s second paragraph is reproduced here:

…the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law, due to further legislative action [emphasis added] to avoid substantial reductions in the Medicare physician fee schedule. While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require physician fee reductions totaling an estimated 37 percent over the next 9 years—an implausible result.

In other words: Despite Medicare being in a deep financial hole, don’t expect policymakers to stop digging for a while yet.

The funny part is that the actuarial method used in making projections is perfectly legitimate; it makes projections by completely ignoring future policy changes—no matter how likely they are. But the chief actuary is also correct to point out that certain aspects of current Medicare law are ridiculously out of touch with political reality.
Most official budget analysts have thrown a fit whenever I’ve used the words “debt” or “liabilities” to describe current-law Medicare obligations to future retirees. “We don’t ‘owe’ anyone anything because Congress can change current laws!” they’ve protested.

The chief actuary’s statement exposes the hypocrisy: His statement means that we are also obligated to pay future medical providers MORE than current laws stipulate. And, oh, by the way, don’t call that “debt” either because, in this case, Congress can choose NOT to change the laws!

I just returned from lunch with Mark McClellan, MD/​PhD (economics) and administrator of the Centers for Medicare & Medicaid Services—a very smart guy. The lunch was hosted by Grace-Marie Turner of the Galen Institute and Merrill Matthews of CAHI. (Thanks for lunch, guys.) 

Dr. McClellan told the group of the success of Medicare Part D, including the fact that it has (so far) cost less than projected. 

When recognized for a question, I made the following points:

1. Part D has contributed to a rift in the president’s base, as evidenced by an editorial in this morning’s Wall Street Journal.
2. Though there is disagreement over the significance of Part D’s lower-than-expected spending projections, there is no question that Part D made it more difficult to meet Medicare’s already unsustainable promises. 
3. One result of Part D is that people who would otherwise be talking about Medicare reform are talking only about whether Part D is a success. 

I asked Dr. McClellan when the president might begin pushing Medicare reform, in particular the kind of reforms discussed by the National Bipartisan Commission on the Future of Medicare in 1999. 

McClellan answered that the president’s budget proposes (a) slowing the growth of Medicare spending on hospital care, (b) requiring wealthier seniors to pay more for their Medicare benefits, and (c) having Congress create another Medicare commission to tackle the problem.

The first two proposals are both potentially helpful and woefully inadequate. The third is a punt. 

Today’s Wall Street Journal also reports that yesterday Alan Greenspan “repeated a warning to lawmakers, saying Medicare spending is unsustainable and could one day drive government debt and interest rates substantially higher.” The president has acknowledged his duty to address those unfunded liabilities. 

An anxious nation waits … and waits … and waits .…