A Stitch in Haste

Who came up with this dumb-ass rule?

An effort to make flexible-spending accounts for health-care expenses more flexible has run into a major roadblock.

Treasury Secretary John Snow rejected a request by the Senate Finance Committee's chairman to modify a heavily criticized rule that forces participants to lose any money left in their accounts at the end of the year. That rule requires employees to spend every penny they set aside in a flexible-spending account each year -- or forfeit the balance.

Of course, in the narrow sense Secretary Snow is exactly right in that the Treasury Department likely does not have the authority to "administratively interpret" the rules (i.e., he's declining to be an "activist Cabinet member").

Which only means that Congress should grab the baton and change the rule itself.

The "use it or lose it" rule is one of the most incomprehensible and indefensible constraints in all of tax law. It has no basis whatsoever in terms of economic efficiency (what behavior does it encourage or deter?) or fiscal equity (who benefits from these accounts -- the working poor, the middle class or the rich?).

Scrapping the flex-spend forfeiture rule would be a wonderfully apropos baby step to take toward the President's "ownership society."

I rarely blog about Becker-Posner posts, mainly because there's hardly ever any need. The posts emerge fully formed from the heads of these two extraordinarily brilliant men. One can rarely add anything to their commentary other than, "But of course."

But this time I can add a minor footnote to Becker's post about Health Savings Accounts. (He's for them and for expanding them, which is fine.)

Health Savings Accounts allow workers with high insurance deductibles to save on a pre-tax basis to cover the cost of those deductibles. The HSAs (which are essentially "medical IRAs") encourage saving and an efficient level of spending on health insurance (since the worker is spending, or not spending, his own money without the distortions of government financing or employer subsidies). HSAs are also like IRAs in that unspent account balances carry over from one year to the next. A worker who, through luck or wisdom, has low medical expenses during her career can accumulate savings over time, with the total unspent balance available for retirement upon reaching eligibility for Medicare at 65.

Becker's favorable analysis of the features of the HSA, meanwhile, is a good opportunity to point out the comparative economic inefficiency of the "use it or lose it" rule for Flexible Spending Accounts, which are similar to, but distinct from, the Health Savings Accounts that Becker critiques. Under "use it or lose it," FSA balances are not carried over from one year to the next and allowed to accumulate over time. The unspent funds are instead forfeited, with no opportunity for FSA balances to grow over time as is possible with HSAs.

The FSA rule leads both to suboptimal contributions (since a participant will undercontribute in light of the risk of forfeiture), and to wasteful overspending (or misallocation) since he is compelled to spend any excess balance toward the end of the tax period to avoid forfeiture of residual funds. (Ever walk past an optometrist store around tax time? The windows are often plastered with signs reading something like "Don't lose your flexspend money, buy eyeglasses now!").

As I've blogged previously, with all the talk of an "Ownership Society," it seems utterly bizarre that the Administration has not sought to revoke this very "anti-ownership" rule for FSAs. All the arguments for private Social Security accounts apply to FSAs, and the lost tax revenue would likely not be too onerous on the federal budget. And it would get people comfortable with the idea of private accounts for all workers, including the working poor whom liberals claim to care about.

Of course, in the alternative, the government could abolish FSAa altogether and instead greatly liberalize the rules for HSAs, which again do not have the "use it or lose it rule."

Either way, tax-advantaged accounts for medical expenses are a ideal baby step towards Social Security reform and the other aspects of the "Ownership Society," the single best idea this Administration has ever had.

Paul Krugman takes on the obesity "epidemic" --

One answer is to focus on the financial costs of obesity, and the fact that many of these costs fall on taxpayers and on the general insurance-buying public, rather than on the obese individuals themselves.
...
It is more important, however, to emphasize that there are situations in which "free to choose" is all wrong — and that this is one of them.

For one thing, the most rapid rise in obesity isn't taking place among adults, who, we hope, can understand the consequences of their decisions. It's taking place among children and adolescents.
...
Above all, we need to put aside our anti-government prejudices and realize that the history of government interventions on behalf of public health, from the construction of sewer systems to the campaign against smoking, is one of consistent, life-enhancing success. Obesity is America's fastest-growing health problem; let's do something about it.

This is, of course, utter nonsense.

Some hasty stitches:

--The notion that "other people pay for obesity" is totally circular and obnoxious. Keep the true nature of this argument in perspective: The nanny-state central planners decide to provide public health care benefits, of whatever flavor, which are by definition paid for with public money (i.e., taxpayer money). They then turn around and tell those very same taxpayers that, since it's "the public's" money and not theirs, the government can therefore impose controls on the public's behavior to compensate for the resulting mismatch — that the government itself created! — between the "public" that pays for the benefits and the "public" that receives them.

The government creates the moral hazard in the first place, then turns around and decries it — all the while escalating the tax-and-regulate, tax-and-subsidize, tax-and-ban, tax-and-control spiral and all the while defending the practice with Orwellian economic double-talk.

--The analogy to "successful" government-run public health programs such as sanitation and anti-smoking crusades is 100% invalid. There is no such thing as "healthy smoking" or "healthy raw sewage," but there is obviously such a thing as "healthy eating" and there can even be "healthy eating of junk food." As Krugman reluctantly concedes, the problem is not one of eradication but rather moderation (which he sidesteps in two ways: first by saying that lack of dietary self-control is ubiquitous, as if Snickers bars were equivalent to nicotine or crack cocaine, and second by invoking that perennial bromide, "it's all about the kids").

--Speaking about the kids, it has been objectively and historically shown, ad nauseum, that childhood obesity is increasing not because children are eating more but because they are exercising less (see also here). Blame TV if you want, or video games or school gym budgets or the Internet, but it is demonstrably invaild to blame the problem on junk food or sugared sodas.

Other responses to Krugman at Atlantic Blog and Lifelike Pundits.

Kevin Drum on Health Savings Accounts:

[A]ny healthcare proposal that's designed to appeal more to healthy people than to sick people is fundamentally flawed. After all, the whole point of healthcare is to take care of sick people.

The bottom line is that if HSAs are a better deal for healthy people, then inevitably they're a worse deal for sick people. And if you take healthcare seriously, it's sick people you should be concerned about.

This is, of course, utter nonsense.

The false premise underlying Drum's entire lament is the patently false reduction of a person's condition to either "healthy" or "sick." This is such a preposterous claim as to hardly merit rebuttal. As we all know, a person can be "perfectly healthy," except for hypertension, or high cholesterol, or excess weight, etc. A person may be "perfectly healthy" except for a family history of heart disease or breast cancer or mental illness. A woman can be, and hopefully is, "perfectly healthy" while she's pregnant. Flu shots are meant for the "perfectly healthy" and not for people who are already sick with the flu. And so on...

It seems to me that the purpose of "health care" is to maintain and improve the health of individuals, regardless of health, not just to "cure the sick." And the purpose of health insurance is not to blindly transfer money from the "healthy" to the "sick," but rather for each individual participant to plan for the contingency of becoming sick himself. A "healthy" person today may become sick tomorrow, and a "sick" person today may become healthy tomorrow. Any policy that imagines healthy people staying healthy forever and sick people staying sick forever is, to use Drum's term, "fundamentally flawed."

And since when is expanding choices a bad thing? Health Saving Accounts would be voluntary. But, as we saw with Social Security reform, nothing voluntary is ever to be tolerated by liberals. Ever.

And since when is lowering taxes in order to increase saving, especially saving for health care, a bad thing? Is it now immutable liberal dogma that taxes are always preferable to savings?

An insurance system that only works only has any chance of working if it compels people to participate against their will is also by definition "fundamentally flawed" (see also, "Social Security"). Should people without cars be forced to buy auto insurance simply to reduce premiums for people with cars? Even assuming arguendo that Drum's dubious zero-sum assertion of "if HSAs are a better deal for healthy people, then inevitably they're a worse deal for sick people" is correct, so what? Why do "healthy people" owe any duty to "sick people" to ease their healthcare financing burden any more than people without cars should be forced to ease the auto insurance burden of those who do? The purpose of a person's health insurance is to insure that person, not to engage in stealth taxation to insure his neighbor.

So now the radical liberals have gone from the abstract "hatred of the good for being the good" to the concrete "hatred of the successful for being the successful" to the absurdity-embracing "hatred of the healthy for being healthy." All in the name of "progressive compassion for the less fortunate."

Is it too late to dress up as a scary liberal for Halloween?

(Via Marginal Revolution. More thoughts at Truck and Barter.)

An op-ed quoted on another blog:

Health care is a public good, not just an industry, to be governed by the same economic principles that govern pure business. Value in health care can only be assessed by weighing cost and quality together. Quality health coverage not only improves care, it saves lives.

My comment at that blog:

The definition of a public good is something that is:

(a) non-excludable, such as national defense, and

(b) non-rival, such as a large park or movie theater

"Health care" — whether a doctor, an ER, a flu shot or a tongue depressor — is, with hardly any exceptions, neither non-excludable nor non-rival and is therefore not a public good, any more than food, clothing or housing are "public goods."

People who blather that "health care is a public good" are really saying that they want other people to pay for their health care. Which might be a legitimate public policy goal (I think not), but it has no basis whatsoever in the economics of public goods.

"I told them I eat what I want to eat and the hell with them."
--John Johnson, 61, West Virginia Medicaid recipient.

To elaborate:

Ignoring doctors' orders may now start exacting a new price among West Virginia's Medicaid recipients. Under a reorganized schedule of aid, the state, hoping for savings over time, plans to reward "responsible" patients with significant extra benefits or — as critics describe it — punish those who do not join weight-loss or antismoking programs, or who miss too many appointments, by denying important services.

Granted, Medicaid — which is redistributionist welfare pure and simple — is a somewhat different creature from Medicare or from nanny-state health management initiatives such as smoking bans, restricting junk food ads or tracking diabetics. But the underlying rationale (i.e., rationalization) of the West Virginia proposal — to require "correct" health care choices — is the same: It's the government's money, so the government gets to decide how it will be spent.

But of course there is no such thing as "the government's money." There is only taxpayers' money. As I explained in this post: the government taxes you, then gives (some of) the money back to you, but only if you behave yourself like a good little citizen.

So the government turns itself not only into a rod-wielding governess or tsk-tsking Nurse Ratched, but also into a petty middleman — a moneychanger at the hospital instead of the Temple.

Again, since Medicaid recipients are by definition not significant taxpayers, the idea of attaching strings to taxpayer money for their health care may seem "less unreasonable" in a myopic, context-dropping sense. But no advocate of government-run or even government-financed health care will stop there. Medicare will be next, and if anything comparable to Hillarycare ever comes to pass in America, then it will apply to us all. Take our money, give back some of it, and strip our personal autonomy in the process. And all the while telling us it's "for our own good."

This, to its advocates, somehow constitutes "enlightened" health care policy.

Madness. Sheer madness.

(Via Kevin, M.D.)

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Somewhat off-topic:

Brittney Lovejoy, 18, earns $5.40 an hour at the Burger King here and is a Medicaid patient at the Lincoln center, as are her 4-year-old daughter and 6-month-old son.

Arithmetic can be very scary sometimes. Of course, any suggestion that a good way to save Medicaid money would be by bribing people like Ms. Lovejoy into receiving long-term contraceptive implants would be met with shock and indignation. Go figure.

Crooks and Liars cites to this Ezra Klein op-ed and concludes:

I do think we've reached a point at which a critical mass of the American middle class understands the system is seriously bleeped and is willing to listen to options. Unfortunately the Vast Right Wing Conspiracy still has a tight enough grip on news media that it damn near impossible to have the dispassionate national discussion on health care we need to be having. As soon as the phrase "universal health care" leaves anyone's lips, you can count on a right-wing goon to be standing nearby to shout it down.

Right-wing goon? Me? Whatever.

First off, Klein does not actually argue for universal health care (Goon shout! Goon shout!) -- at least not overtly. He argues for reform, which does not inevitably mean "universal health care." (Goon shout! Goon shout!) Reform means, um, reform. One alternative might be universal health care (Goon shout! Goon shout!), and Klein cites to some examples, but merely as examples and not necessarily as recommendations. Indeed, he dismisses one proposal as "a bad plan."

But universal health care (Goon shout! Goon shout!) would be a disastrous type of reform, for the simple economics-metaphysics reason that all scarce goods must be rationed. Under universal health care (Goon shout! Goon shout!), the rationing will done by politicians and bureaucrats, not by patients, doctors or even "greedy" insurance companies. That scares me more than any disease.

In any case, the far more useful takeaway from the Klein piece (and of course totally ignored by the C&L poster is how the present system came about in the first place:

It blossomed out of a World War II tax reform meant to guard against corporate war profiteering. Liberals, with their usual combination of good intentions and inadequate foresight, imposed massive marginal tax rates on corporations, effectively freezing their profits at prewar levels. But the law had a loophole: Corporations could funnel their wartime riches into employee benefits, such as healthcare, thus putting the cash to use within their company. And so they did, creating the employer-based healthcare system.

In other words, the mess of a system was directly created by the federal government in the first place. Go figure.

And now, is a stunning leap of logic (faith?), proponents of universal health care (Goon shout! Goon shout!) go from:

"The current government-created system of health-care finance doesn't work..."

to

"...We must therefore replace it with a government-created system of health-care finance."

It boggles the mind.

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The better way to reform health care finance is simply to get employers out of the health care benefits business altogether (i.e., by eliminating their government-crafted tax advantage). Return to tax-neutral, cash-based compensation (and competition) and let employees buy (competitive) health coverage directly, no different than homeowner or automobile insurance. The poor can be accommodated via Medicaid or similar programs.

The only reason employees can be "exploited" by "greedy" insurance companies is because employees are, thanks to the federal government, a captive market -- they are not the consumer; the employer is. Change that, and most of the rest will follow. In other words -- undo the damage done by government in the first place.

Universal health care (Goon shout! Goon shout!) is simply not the predestined, or even the optimal, solution.

A physician-blogger is shocked, shocked to learn that some people — competent adults — make a voluntary decision to do without health insurance:

Is it acceptable to allow people to choose to be without health insurance? I say no. There are too many common, potentially devastating medical illnesses lurking out there. If Cindy were to find a lump her breast, for example, she would probably lose her job and her health, go bankrupt, and eventually, after prolonged suffering, end up on Medicaid. She would also, with her pre-existing condition, be uninsurable for the rest of her life. It should not be the public's job to pick up the pieces when an individual takes a risk and loses out. While one Cindy is a small risk for a society to take, a million of them is a serious risk, and one the public has a right to weigh in on.

If that is the case, then why not just require mandatory pre-emptive mastectomies for all women over 21?

That would reduce female breast cancer rates to zero, and is no different conceptually from compulsory insurance, or compulsory mammograms, or compulsory fill-in-the-blank.

Meanwhile, this nonsense that "the public has a right to weigh in on" the question of personal behavior and choice is a lie that I have debunked before. It is the social contract — a fiction to begin with — turned on its head.

The government (which is not "the public") taxes us against against our will, then spends our money on us (or, more likely, on someone else) and then, with an insolence that would make Louis XIV seem like an amateur, insists that — since "the public" is supposedly paying the bills — "the public" also gets to control our lifestyles, our financial choices, and every other personal decision that they may happen to disagree with (i.e., want to "weigh in on").

That is the malignant thinking of simplistic (and lethal) Marxism, not the "modern" or "enlightened" thinking that its advocates pretend.

Kip's Law: Every advocate of central planning always — always — envisions himself as the central planner.

(Via Kevin, M.D.)

I'm too drained after my last post to give John Edwards' outrageous, terrifying and patently un-American (un-Two-American?) proposal to establish health care totalitarianism — in the form of compulsory preventive care — the proper critique that it so obviously deserves.

So I will settle for posting this comment I left on another blog:

There is a fundamental and self-apparent difference between Medicaid and universal health care: Medicaid is not universal — it is welfare. It is those who don't benefit from it paying for those who do. So there is of course a basis — perhaps a heartless one, but a basis nonetheless — for attaching strings to Medicaid eligibility that do not carry over to bona fide universal health care (including Medicare).

Socialized medicine (including Medicare) is different from Medicaid: it is taxing people to fund a compulsory universal scheme, then saying that because the health care is "free" (!), the government can attach strings on the very people who (involuntarily) paid for the coverage in the first place.

So the government takes my money, and then demands that I conform to its (i.e., politicians' and bureaucrats') standards of "correct" lifestyle choices in order to get my money back. All in the name of establishing a "compassionate" and "enlightened" paradigm.

This is what I have previously dubbed "The Krugman Lie."

The era of Big Government is what?

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More thoughts from Liberty Papers, PoliBlog, Cato@Liberty.

Sometimes politicians introduce sarcastic bills in their legislatures to make a "slippery slope" or "jump the shark" sort of point -- a publicity stunt.

Please let this be that:

Any food establishment to which this section applies shall not be allowed to serve food to any person who is obese, based on criteria prescribed by the State Department of Health after consultation with the Mississippi Council on Obesity Prevention and Management established under Section 41-101-1 or its successor. The State Department of Health shall prepare written materials that describe and explain the criteria for determining whether a person is obese, and shall provide those materials to all food establishments to which this section applies. A food establishment shall be entitled to rely on the criteria for obesity in those written materials when determining whether or not it is allowed to serve food to any person.

The location is Mississippi, the nanny state activist legislator is state representative W.T. Mayhall, Jr., and he insists it's no joke:

He said that while, regrettably, he doesn't believe his bill will pass, this is serious. He wrote it, he said, because of the "urgency of the obesity crisis and need for government action." He hopes it will "call attention to the serious problem of obesity and what it is costing the Medicare system."

As I blogged previously:

The notion that "other people pay for obesity" is totally circular and obnoxious. Keep the true nature of this argument in perspective: The nanny-state central planners decide to provide public health care benefits, of whatever flavor, which are by definition paid for with public money (i.e., taxpayer money). They then turn around and tell those very same taxpayers that, since it's "the public's" money and not theirs, the government can therefore impose controls on the public's behavior to compensate for the resulting mismatch -- that the government itself created! -- between the "public" that pays for the benefits and the "public" that receives them.

The government creates the moral hazard in the first place, then turns around and decries it -- all the while escalating the tax-and-regulate, tax-and-subsidize, tax-and-ban, tax-and-control spiral and all the while defending the practice with Orwellian economic double-talk.

From the Northest liberal ivory tower of Paul Krugman to the brain-dead bumpkin bayous of Mississippi, we are as a people going totally insane.