Heath Savings Accounts: a tax-sheltered way to pay for quackery

Posted by Jann Bellamy on February 18, 2016 If you want money to pay for pseudoscience, but your pesky health insurance company is getting in the way, a Health Savings Account might be just the solution. And if the Health Savings Act of 2016, sponsored by the Big Supplement’s own Senator Orrin Hatch, becomes law, your opportunities will be greatly expanded. First, let’s take a look at Health Savings Accounts and explore how they can be used to pay for quackery. Then we’ll see how Hatch’s Senate Bill 2499 (and companion House Bill 4469) would essentially force taxpayers to fund…

Posted by Jann Bellamy on February 18, 2016

If you want money to pay for pseudoscience, but your pesky health insurance company is getting in the way, a Health Savings Account might be just the solution. And if the Health Savings Act of 2016, sponsored by the Big Supplement’s own Senator Orrin Hatch, becomes law, your opportunities will be greatly expanded.

First, let’s take a look at Health Savings Accounts and explore how they can be used to pay for quackery. Then we’ll see how Hatch’s Senate Bill 2499 (and companion House Bill 4469) would essentially force taxpayers to fund consumer purchases of unproven and potentially unsafe dietary supplements and “The One Quackery To Rule Them All,” homeopathy. Finally, we’ll look at how all of this might affect the presidential race.

What are Health Savings Accounts?

A Health Savings Account (HSA) is a personal account created exclusively to pay for current or future health care expenses. They have significant tax advantages:

• Contributions to HSAs are tax deductible;
• Withdrawals are tax-free as long as they are used to pay for qualified medical expenses;
• Interest earnings accumulate tax-free and the balance in the account at year’s end can be rolled over into the next year with no tax penalty.

HSAs predate the Affordable Care Act but survived its individual health insurance mandate as a means of paying for health care costs not covered by a high deductible plan. Here’s how it works: An individual pays his own medical expenses out of his HSA until he meets the calendar-year deductible of his high-deductible plan. Once that coverage kicks in, the HSA can still be used to pay for non-covered expenses. There are limits on yearly tax-deductible contributions to an HSA, and eligible high deductible plans must also meet certain limits, all set by the IRS each year. For example, in 2016, an individual HSA holder under 55 years of age is limited to $3,350 in deductible contributions to his HSA.

(At this point, SBM’s Canadians are rolling their eyes at the insanity of the U.S. healthcare system and thinking how glad they are they don’t live here.)

HSAs are touted for their tax advantages as well as, in combination with high deductible plans, being lower in cost than traditional health insurance. They also allow the consumer to pay for health care costs that are not covered by other insurance plans, such as vision and dental, a feature we’ll return to shortly. While this post is not a debate on the pros and cons of HSAs, I should note that the HSA/high deductible insurance plan combination has its critics, including Consumers Union and the American Public Health Association. Critics say that HSAs favor the wealthy and healthy at the expense of those with lower incomes and in poorer health. These plusses and minuses are reflected in consumer opinions.

Tax-free distributions from an HSA must be used for “qualified medical expenses.” (If not, you have to pay taxes on the distribution and, possibly, a penalty.) What qualifies as a “qualified medical expense?” Here’s where it gets really interesting.

Eligible Health Savings Account expenses

Eligible HSA expenses are defined by the IRS. You can use your HSA for some expenses that are not direct medical care, such as long-term care premiums and some other types of health-related medical insurance premiums. For healthcare itself, the expense must be for “medically necessary” purposes only. According to the IRS, “qualified medical expenses” are those expenses “that would generally qualify for the medical and dental expenses deduction.” In other words, you go by the same rules as if you were taking medical expenses as an itemized deduction on your tax return.

As it turns out, in some respects, those rules are much more generous than your average health insurance company’s limitations coverage of medical care. For example, the list of allowable deductions (and therefore allowable distributions from your HSA) includes contact lenses, contact lens solutions, and radial keratotomy, all of which are typically not covered by traditional health insurance without a purchase of a specific vision plan, and are not required by the ACA (for adults), although some companies do offer discounts.

This liberality extends to so-called “complementary and alternative medicine.” According to the IRS, amounts you pay to acupuncturists, chiropractors and Christian Science practitioners for “medical expenses” are eligible for payment via HSA tax-free disbursements. “Medical expenses” are defined as

the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.

While chiropractic “wellness care” probably wouldn’t make the grade, chiropractic “adjustments” for all manner of health conditions (otitis media, allergies, asthma, ADHD) would seem to qualify, as would acupuncture and Christian Science prayers. (Sadly, dancing lessons are specifically excluded, although, to my mind, they would be far more beneficial to one’s health than chiropractic, acupuncture, or Christian Science.)

In contrast, chiropractic services are not considered essential health benefits under the ACA, and health insurance plans that do offer chiropractic coverage generally limit the number of visits, the conditions covered (usually musculoskeletal pain) and require demonstrated improvement of the patient’s condition. For example, Blue Cross/Blue Shield of Alabama specifically excludes spinal manipulation for any non-musculoskeletal condition. Coverage of acupuncture is similarly limited, although, as with any coverage that is not deemed an essential benefit under the ACA, plans can vary.

As explained in a CHILD (Children’s Healthcare is a Legal Duty) newsletter, the IRS takes the position that the providers’ qualifications are irrelevant to deductibility. If, as the IRS states, it is importing its standards for medical expenses deductibility into the rules on HSAs, we can assume the same is true of payments for medical care from an HSA.

Since the 1950s the IRS has allowed bills sent by Christian Science practitioners for their prayers to be deducted from federal income tax as medical care expenses. . . . In 2000, the IRS wrote that the “experience, qualification, or title” of the person rendering the services is irrelevant to whether they are allowed as a deductible medical care expense. Whether anyone besides the person paying for the service thinks it is medical is also irrelevant. . . . Thus, the only real criterion was that the person paying for the service believes its primary purpose is to heal, prevent, relieve, or diagnose disease. If the customer believed that, then the service was deductible medical care.

Homeopathy and naturopathy are not specifically mentioned by the IRS, but would certainly be eligible if you could get a physician to sign a letter of medical necessity. (One can quickly see the potential for a mutually-beneficial referral relationship here between an “integrative” medical doctor and a naturopath or homeopath.) Health insurer Cigna’s interpretation of the IRS’s HSA regulations is:

Expenses paid to alternative providers for homeopathic or holistic treatments or procedures are generally not covered unless to treat a specific medical condition. Naturopathic procedures or treatments using natural agents such as air, water or sunshine are generally not reimbursable. Member’s explanation of necessity required.

Not surprisingly, homeopaths and naturopaths take a more liberal view of the matter. According to the California Association of Naturopathic Doctors,

Money in your HSA can be used to pay for qualifying medical expenses, including medical appointments with your naturopathic doctor, lab tests, prescribed supplements, over-the-counter products, and other medically necessary prescribed services (for instance, massages for back pain). Some HSAs provide a debit-like card, others require you to submit receipts for reimbursement. You may ask your doctor for a Letter of Medical Necessity detailing your dietary supplement prescriptions for reimbursement.

Thus, the CAND is of the opinion that not only office visits, but also lab tests ordered, and dietary supplements prescribed, by the naturopath, would be covered the same as for a medical doctor. As well, they believe that the naturopath’s signing a Letter of Medical Necessity would be sufficient to support the legitimate use of HSA funds if questioned by the IRS. Given that naturopaths make fake diagnoses, use a number of quack lab tests, and prescribe (and sell) dietary supplements of questionable efficacy, the HSA would appear to be a real boon to naturopathic practice, paying for diagnostic tests and treatments that would never be covered under traditional health insurance.

Individual naturopaths appear to agree with this expansive reading of the IRS rules. One Connecticut naturopath, who practices “functional medicine“, “encourage[s] patients to use HSAs for lab tests as well as natural medicines provided by your doctor.” In contrast, she says, “functional lab testing is often not covered by your [conventional health] insurance.” (Which is undoubtedly true, since it is considered quackery by responsible medical practitioners.) This Minnesota naturopath offers similar advice, as does a California naturopath. At least one HSA guide, HSA Resources, takes the position that “homeopathic care” can be paid for out of an HSA, while “homeopathic treatment” is covered if used to treat a “specific illness.”

But who’s looking anyway? You decide whether any particular expense is appropriate. While the taxpayer must attach a form to his 1040 showing his HSA contributions and deductions, and is required to keep (but not file) documentation of expenses, nothing will be questioned unless the taxpayer is audited by the IRS. And the chance of that is minuscule, especially if your income is less than $200,000 per year.

Health Savings Act of 2016

The ostensible purpose of The Health Savings Act of 2016, Senate Bill 2499 (and companion House Bill 4469) is to greatly expand the use of Health Savings Accounts. But tucked in at the very end of the bill are some big-ticket goodies for the multi-billion dollar dietary supplement and homeopathic remedies industries, as well as the sporting equipment and weight-loss industries.

First, the main event. The bill would rename “high deductible health plans” as “HSA-qualified health plans” and remove a number of restrictions that prevent consumers from creating and using HSAs. It would also allow consumers who use health care sharing ministries to use HSAs, a move that is curiously at odds with the whole idea that such arrangements place one’s health care choices outside government purview. (Ironically, HSAs can be used to cover abortion costs.) Users of direct primary care service arrangements could also use HSAs.

Unfortunately, the appeal of these provisions might propel Senate Bill 2499 and House Bill 4469 to passage, although Gov.Track actually gives both poor odds of being enacted. Still, it is a valuable addition to Sen. Hatch’s rap sheet of offenses against the public’s health through his unwavering support of the dietary supplement industry, which are well documented in the press (also here and here), the medical literature, by advocacy groups, here on SBM, and over at our good friend Orac’s Respectful Insolence. As is the industry’s generous support of him in return.

Which brings us to the offending provisions. If you flip way back to the end of the bill, starting on page 35, you’ll find the following:

(13) Nutritional and dietary supplements.

(A) In general. The term ‘medical care’ shall include amounts paid to purchase herbs, vitamins, minerals, homeopathic remedies, meal replacement products, and other dietary and nutritional supplements

In other words, all consumer purchases of these products (up to a generous limit of $1,000 annually) would be treated as medical care, without a prescription and without any demonstration whatsoever that they are “medically necessary,” and HSA funds could be used for their purchase. (A feature this extremely complementary Forbes piece on the bills failed to note.) This would be true even though

In fact, about the only time “medical care” has any relationship to dietary supplements, herbs and homeopathic remedies is when these products are used in lieu of real medical care, with some unfortunate consequences, or they actually create the need for medical care because of their unsafe contents.

Naturally, if you will, the supplement industry is tickled pink with this latest gift from Sen. Hatch. In this nearly fact-free statement, Daniel Fabricant, who went out the revolving door of the FDA and into his current position as CEO and Executive Director of the Natural Products Association, a trade industry organization, said,

The Health Savings Act would make necessary changes to dietary supplement coverage, allowing families to lead healthier lives, provide more freedom in Americans’ personal healthcare choices, and lower overall healthcare costs.

In another tax-payer funded boondoggle for a specific industry (and also found at the very end of the bill, starting at page 31), the term “medical care” would be redefined to include

• Equipment for use in a program of (including a self-directed program) of physical exercise or physical activity;
• Instruction or participation in a program of physical exercise, nutrition, or health coaching, again including a self-directed program; and
• Membership at a fitness facility

As with dietary supplements, there is a $1,000 annual limit and an item of sports equipment can’t cost more than $250. You can’t include your Air Jordans or your lululemons either – footwear or apparel does not qualify.

So, what might this have to do with the presidential election?

One of the sponsors of Sen. Bill 2499 is current presidential candidate Sen. Marco Rubio. Could it possibly prove an embarrassment to Sen. Rubio that he is supporting such obvious corporate welfare? Or alternative medicine? As to the latter, it is unlikely. Bernie Sanders is a longtime proponent of naturopathy and Hillary Clinton is in the thrall of Functional Medicine guru Dr. Mark Hyman, but no one seems to think a thing about it. On the other hand, Ben Carson did get a drubbing over his shilling for a supplement company, but I imagine he was going to flame out anyway. And Donald Trump’s anti-vaccination nonsense was duly criticized, although he doesn’t seem to have suffered any ill effects from it (or anything he says, for that matter). Rand Paul and Chris Christie also pandered to the anti-vaccination movement, but they’re out of the running now.

Back in the day, Congress investigated quackery as a social ill. Today, Congress pushes tax deductions for its purchase. And presidential candidates freely support medical pseudoscience. What a shame.

Source: Heath Savings Accounts: a tax-sheltered way to pay for quackery : Science Based Medicine