The Trouble With Health Savings Accounts

In October 2003, President George W. Bush signed into law a congressional act authorizing health savings accounts. Is this a good law? Should individuals take advantage of it?

The option is voluntary. In the course of this analysis I will draw the conclusions that it is a bad law based on bad premises. This newsletter will illustrate that this law will aggravate the misery of many individuals, hamper the American economy, and indirectly the world economy, through waste, aggravation, and increased bureaucracy. The concepts which are this law's underpinnings are false. The ostensible requirement for health savings accounts is based on longstanding bad law and bad regulations stemming to the Roosevelt administration. I am referring to the McCerran-Ferguson act which exempted employer paid contributions to health insurance from taxation and created the phenomenon of "benefits." Most pathetically, the bursting bubble of euphoria, debate, discussion, postings on the web, and publicity-generated excitement for these arrangements never looked to the root of the problem which this law ostensibly sets out to solve.


Readers familiar with the concept of free market economics (Austrian economics) may skip this introduction. I suspect, however, that few of the readers qualify. Unless you have a grounding in understanding the basic concepts of microeconomics, nothing in this article will make sense to you. We are dealing here with a patch on a patch on a patch, the original patch being placed in the law books for bad reasons. This convoluted tier of remedies for mistakes, always adding regulations and bureaucracy and never removing the original error, is "better" than any dialectic that Lenin could have conceived. In this web of disinformation have been entangled: 1) Academic logic; 2) legislative documents galore; 3) a veritable army of regulatory interpretations; 4) a little cluster of financial gurus hoping to make money through the "administration" of these little tulip manias and worst of all; 5) waiting in the wings, so many un-resolvable audits that Felix Dzerzhinsky's (1877 to 1926, founder of the Russian Secret Service and coiner of the phrase "political correctness," as well as the famous phrase, "Name the man and I will name his crime.") These expressions will gain so much meaning as has never occurred before.

In a sophisticated society, such as the modern one we live in, all commodities are as important as their market value. The notion is that this value is related to the work added. The elaborations of David Ricardo (1772 to 1823) and Karl Marx (1818 to 1883) are clearly erroneous. In order to facilitate an exchange which is more sophisticated than barter, an agreed upon uniform (fungible) means of exchange is necessary. We call it money. The United States Constitution allocated the definition and creation of money to the U.S. Congress. However, since 1913 a private organization called the Federal Reserve Bank has been in charge of providing money in America and indirectly to the whole world. The unconstitutional delegation of this responsibility was the beginning (and in my opinion a major step) of the US Congress committing suicide. The control spread, and (most important) inflation of the money supply has provided the owners and manipulators of this private bank (the Fed) with wealth and power which has had many spin offs.

The economic characteristic of our era is that of the production of new forms for the transfer of wealth from the middle class, i.e., the productive members of society, to the smart and cunning money managers in many tiers and categories. I hope to show you by and by in this article that the phenomenon of the health savings accounts is but a case in point. If you have been able to internalize the concept that money is a means of exchange it should not take much contemplation to realize that unfettered use of one's own money is essential both to efficiency and freedom.


The cycle of life includes productive and nonproductive phases. The central structure of Western Civilization is that of the family. It has been normal since ancient times for family units to share resources and at times to save. This ability to plan this human characteristic (not, however, unique to our species; think of the squirrel) is one manifestation of human intelligence and capability. By definition, however, deferred gratification is a characteristic of individuals even though family and community support can embellish personal charity. The putative need for compulsory savings arises from the phenomenon of inflation and secondly through interference with a natural marketplace by taxation, both curses of central government. To demonstrate how bad things have become, let me quote from a recent news article from the United Kingdom, November 1, 2004: "Britons think that compulsory saving is the best solution to the pension shortfall, according to research published today. A survey for financial services company AXA revealed that 67% think compulsory savings is the way out of the crisis . . . . Of the age groups, those aged between 18 and 29 were most in favor of compulsory saving . . . ." The forceful reduction in freedom to utilize one's own resources should be anathema to any member of a free civilization. So far has the brain-washing of the survey subjects in the United Kingdom advanced – and of course the same applies elsewhere in the Western world – that the issues of the absence of individual responsibility and the absence of reliably stable and fungible money, the two fundamental issues in this supposed discussion, which really is a dialectic, are not mentioned. Regarding proposed forced savings by these young individuals aged 18 through 29 – how much of their saved money will they see when they retire? How much will it be worth? Which crisis will be used to divert these funds to some politico's ambition? And in the New World Order, with the unification of the United Kingdom with Europe and, for that matter, the New World Soviet, will these funds remain earmarked to the involuntary donor? The irrelevance of the debate is emblematic of the failure of the newspaper articles and their readers to think in fundamental terms for themselves.

I trust, Dear Reader, you have followed me through this argument, though I have not elaborated on the details with a surplus of words. Think a little.


Before researching for this article, I was favorably disposed to the concept of giving individuals an opportunity to spend their money for their health needs at their own discretion; ostensibly Health Savings Accounts. Not having looked at the issue in any detail, I was swayed by the several "freedom loving" associations to which I belong, the Association of American Physicians and Surgeons, the American Preventive Medical Association, and others. If you run a Google search on the web for health savings accounts, you will find a multitude of laudatory articles. Marked amongst these many articles by its absence is: 1) an analysis of the essential concepts; 2) a reference to the small print in the original legislation (I will come back to discuss the legislation presently). Individuals are invited to place their own money (and some of the money may be contributed by their employer) into a savings account and they may use this money to pay for their own choice of health care up to a certain limit. In order to qualify for this permission to save your own money in a government-regulated system, you have to buy a "catastrophic" insurance health plan. The ostensible advantage is tax deferment. This sounds fine and good, but let's stop for a moment and analyze why this is a good thing in a supposedly free society.

In an ideal free society, you have your money and you use it as you choose. Take the instance that you have a pot of money in this saving account which is ostensibly voluntary but the rules by which it is controlled are not voluntary and you now have a crisis in your life requiring urgent money. This crisis may, however, not be of a medical nature. Suppose your house burns down, or you have special educational requirements for a family member. Here the rule is that you may not use this money, even though it is yours. Now if in the choices of medical care the law states clearly that you may spend the money on "qualified medical expenses" (public law 108-173 December 8, 2003, title XII section 223 held savings accounts about 2 pages down in small print). Now, Dear Reader, what are these "qualified medical expenses," who is the qualifier of these entities, and if you don't agree with this qualification, what can you do about it? It turns out, if you read the small print repetitively and in detail pedantically, you eventually come to "(as defined in section 213)" . . . . I spent a lot of time trying to find this particular 213(d) section and eventually found it – guess where? In the Internal Revenue Service Code! There it is spelled out (C) for foods for special dietary use, dietary supplements . . . . and don't miss this one! . . . . only if such foods and supplements comply with the applicable good manufacturing practices prescribed by the Food and Drug Administration or with other comparable standards. Well, Dear Reader, now you have it, or do you? Stop for a moment. What is not included in this qualified list?

Not included, that I can think of, are: 1) The use of vitamins as we ordinarily now use them which do not meet the good manufacturing practices criteria (because of the impracticality and expense imposed by the FDA). 2) Chelation therapy which protects hoards of us from premature vascular disease in spite of the objection of the establishment, which of course support the expensive coenzyme-A reductase inhibitor drugs which are toxic which support interventional cardiology which is expensive and potentially dangerous. 3) Prolotherapy which protects the working members of the middle-aged population from chronic ligamentous injury such as back pain after injuries.

The adjustments of natural hormones such as in menopause, items being natural are not regulated by the Food and Drug Administration. Do you notice how by slight of hand these important tools used by alternative medicine are excluded. You, Dear Reader, may spend your money on these things through your health savings account, but here comes the catch.


The regulations specify that money spent from a health saving account inappropriately (and clearly this is to be defined by the auditor from the IRS in due course and this may be 30 years later), of course, may be returned to the health savings accounts of course from your personal funds plus interest and with a 10% penalty.


When you reach age 65 and are dropped into the Medicare disposal bucket (excuse my impolite language), you may not have a health savings account. Any moneys left over in this account you may use for "qualified" services, but these are covered by Medicare anyway. Why would you want it? And if the funds are used for anything other than these specified uses, you pay taxes on them as you would on income, of course plus the penalty of 10%.


Well, if you think this is the sum total of the misery connected with these health savings accounts let me share with you some of the agony I suffered as I researched this subject. It is not extraordinarily difficult if you go on the government legislative web page and then conduct a search, you will find many dozens of laws relating to the health savings account phenomenon. When you look up the references and the detailed cross connections between these laws, you will find that many pages are absent.

As Bismarck is reputed to have said. "You don't wish to see a sausage factory or a legislature at work; they are both disgusting." Clearly what is happening is that the legislative, let alone the regulatory process of modulating these health savings accounts, is in active progress, even though the legislation was ostensibly completed and signed in October 2003 by your famous president. In other words all the details of the disaster are still to be defined. My mother used to speak of buying a pig in a poke.


In summary, if you are independent minded and intelligent, stay away from these things. If you need preventative measures such as chelation, prolotherapy, nutrient support, hormone manipulation, and a host of other alternative medicine techniques, pay for them out of pocket. Yes, you're spending about four times more than you would have if we lived in a free society where money was not a token owned by the Federal Reserve Government on behalf of the rich controllers of our society, but celebrate. You have at least 25% freedom with your own money. The citizens (that is a true word) of the European Soviet or the Russian Soviet or the Asian countries have to resort entirely to the black market and, of course, most of them are unable to do so. Many of their lives are short, dirty and brutish, only to be relieved by death. Here in America, the spark of freedom is still a light. Who knows if I will be targeted by the Homeland Security Administration for writing this article? But at this time write it, I can, and you, Dear Reader, at least can read it without anyone looking over your shoulder.

Our society is still immensely productive. Most of us still have money to spend, and when all is said and done, if we spend money on credit (after all these are tokens belonging to the Federal Reserve system) and if we do not pay it back before our demise or if we default, we will aggravate the process of money creation, i.e., inflation, only a little bit as individuals.

February 5, 2005