Wednesday, February 2, 2011

FSA/HCRA: Holding Your Money Hostage and Creating Waste.

In recent years, I have made a small but significant use of the Flexible Spending Account (or Healthcare Reimbursement Account) benefit which my employer provides.  For those unfamiliar with the concept, it is basically a pre-tax medical escrow account that you can draw on to pay co-pays, costs for prescription drugs, corrective eyewear, and previously over-the-counter medications.

This last is the subject of my post.  The FSA has always been cumbersome.  Your employer requires that you predict during the year before what amount you would like to be put into that account during annual benefits enrollment.  The dollars which are set aside held hostage are drawn as pre-tax dollars.  You have to spend it during the next year.  They get to keep what you fail to spend by the end of the year.

Starting in 2011, they now require a "statement of medical necessity" for any over-the-counter medications.  I am certain that this has to come from my doctor, and I am also certain that my doctor would be required to document that I have visited them recently to produce this.  This may be fair on their part since they have to be compensated for their work, even if it's clerical bullshit imposed by the IRS because of odd tax laws.

Here's the thing though.  I'm buying allergy medicine, Lortadine.  A year's supply is roughly $15 at Costco.  A doctor's visit probably costs $60-90 dollars ($15 out-of-pocket).  If I were to bug my doctor for this statement, the total cost would likely be much more than the $2-$5 dollars in tax savings I would get.  And even if I were narrowly focused on my out-of-pocket costs - that would still be a net loss.

I thought this story was worth sharing.  It is a small example of how onerous government tax structures designed to influence people into behaving in certain ways results in greater waste.  That is: more net cost, less benefit.

What can be done?  Here is a list of suggestions.
  • Remove all tax incentives for medical care - especially the tax break for employer provided health insurance.  
  • Remove any regulations on medical providers and insurance companies.
  • End all coercive welfare/redistribution programs, especially Medicare, and let voluntary charity handle situations where people cannot afford their own care.
  • Reduce the size of government and simplify the tax code.
Combined, all of these actions will result in leaving medical providers free to structure their services according to their best judgment and will require them to compete in a price and value coordinated market for medical services.  It will leave consumers of medical services with more of their income and will permit them the exercise of greater choice.

Medical care *is* broken in America.  This will address the cause and not just the symptoms.

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If you want to know more about America's medical disease, see also: Freedom and Individual Rights in Medicine - http://www.westandfirm.org/