Once again, Sen. Marco Rubio (R-FL) has introduced a bill (S. 380) providing a tax sheltered way to pay for quackery. The bill allows taxpayers to include homeopathic remedies as “medical care” for the purposes of itemizing federal tax deductions. Because Health Savings Accounts (HSAs) use the same rules for allowable medical expenses as itemized deductions, homeopathic remedies will also be a permitted medical expense for HSAs. The bill also adds herbs, vitamins, minerals, and other dietary and nutritional supplements as allowed “medical care” for itemized deductions and HSAs, whether medically necessary or not, as well as exercise equipment, personal trainers, and health coaches, among other goodies.
Regrettably, as you shall see, itemized deductions and Health Savings Accounts are already being used to subsidize healthcare pseudoscience. Sen. Rubio’s bill simply adds to the problem by encouraging the use of ineffective and possibly harmful products with tax incentives. This is yet another example of Legislative Alchemy: instead of protecting consumers from pseudoscience, the law perversely protects pseudoscience by legalizing it and promoting its use.
Today, we’ll briefly review itemized deductions and HSAs and take a look at how they are currently being employed to pay for quackery, a topic I covered on SBM several years ago (also here). Then we’ll see how S. 380, if enacted, would operate to subsidize (as Dr. Gorski aptly calls it) the one quackery to rule them all – homeopathy – as well as supplements and other “natural” remedies.
But first, a few things to keep in mind as you read this post:
Homeopathic remedies do not, and cannot, work. As CAM expert Dr. Edzard Ernst pointed out a just few days ago, (1) homeopathic remedies are dangerous when they contain nothing because they leave illness untreated; and (2) homeopathic remedies are dangerous when they contain something because they may poison patients. Because none of the homeopathic remedies on the U.S. market today have gone through a legally-required FDA review, the agency has announced that all homeopathic remedies on the market are subject to enforcement action, although it is pursuing a risk-based enforcement policy for now. As well, the FTC issued a policy statement that
An OTC homeopathic drug claim that is not substantiated by competent and reliable scientific evidence [in other words, all of them – JB] might not be deceptive if the advertisement or label where it appears effectively communicates that: 1) there is no scientific evidence that the product works; and 2) the product’s claims are based only on theories of homeopathy from the 1700s that are not accepted by most modern medical experts.
Except for certain populations or those with demonstrated deficiencies, the vast majority of dietary supplements have insufficient evidence of safety and effectiveness to warrant their use and may even be harmful.
Tax shelters for quackery
Most U.S. taxpayers are already familiar with itemized deductions, which allow certain expenses (such as charitable contributions and medical and dental expenses) to be deducted from taxable income in prescribed circumstances, although recent changes to the tax laws made them less beneficial for most taxpayers.
You may be less familiar with Health Savings Accounts, which are paired with high-deductible health insurance policies. Consumers make tax-free contributions to their HSAs and the money grows tax-free. (For calendar year 2021, the IRS limits on annual contributions to HSAs are $3,600 for individuals and $7,200 for families.) Consumers pay the full cost of medical care out of their HSAs until the deductible is met, although some preventive services, such as vaccines and screenings, are exempt from this requirement. No tax is paid on the distributions from the HSA either, giving the taxpayer a triple benefit.
(Yes, Canadians, Englishpersons, and residents of other countries with logical healthcare systems, the U.S. really is that screwy.)
When I last wrote about HSAs, then-President Trump was attempting to follow through on his promise to “repeal and replace” Obamacare “on day one”. Various plans were in the making, most of which involved an expansion of HSAs combined with high-deductible health insurance policies. Obamacare is still with us, having recently survived yet another attack by Republicans, but so are attempts to expand the use of HSAs, which are seen in certain conservative circles as requiring consumers to have more “skin in the game” when they purchase health care services and products. If consumers can save money tax-free and decide when to spend that money for health care, the thinking goes, they will make smarter choices and slow rising health care costs. Current research does not support this assumption and some evidence suggests that consumers with HSAs may actually forego necessary medical care.
My particular problem with itemized medical deductions and HSAs is that they avoid the evidence-based medical care requirements imposed by traditional public and private health insurance policies, partly as a means of controlling costs. Although, in my view, public insurance like Medicare and some private insurers are too liberal in covering pseudoscience like acupuncture and chiropractic, the rules for itemized deductions and HSAs pretty much abandon any requirement that medical care be evidence-based.
“Medical expenses” include:
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.
According to the IRS, in addition to physicians and dentists, chiropractors and Christian Science practitioners are specifically included, so there is no question that “medical expenses” incurred by their patients are eligible for itemized deductions or payment via an HSA. Acupuncture is also included among permissible treatments.
The phrase “payments for legal medical services rendered by . . . other medical practitioners” in the IRS’s rules at least implies that naturopaths, homeopaths, acupuncturists and TCM practitioners are covered in states where they are regulated if they have the legal authority to diagnose and treat. Unfortunately, via the magic of Legislative Alchemy, diagnosis and treatment is, to my knowledge, legal in all states where these practitioners are licensed or registered.
According to the non-profit C.H.I.L.D. (Children’s Healthcare is a Legal Duty):
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. (Letter from Congressman Tom Latham to Rita Swan, Dec. 15, 2000) 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.
(I have not been able to verify that this is the IRS’s current position although, even if it’s been amended, quackery is still very much deductible.)
Companies offering HSAs have differing takes on the scope of CAM eligible for payment via an HSA. (For a fee, these companies manage the money in your HSA and provide a debit card or on-line account for disbursements.) For example, HSA for America takes a liberal view of coverage:
Only health insurance policies that allow to [sic] you open a health savings account give you tax deductions to offset the cost of therapies not covered by traditional health insurance. You can use HSA funds for acupuncture, aromatherapy, Ayurvedic Medicine, homeopathy, nutritional consulting, and Traditional Chinese Medicine (TCM), among other therapies.
Unsurprisingly, naturopaths have an expansive view of HSA coverage as well. Per the California Naturopathic Doctors Association
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). . . . You may ask your [naturopathic] doctor for a Letter of Medical Necessity detailing your dietary supplement prescriptions for reimbursement.
In contrast, private health insurers exclude most quackery from policy coverage. For example, Aetna substantially limits coverage for acupuncture and chiropractic and excludes a long list of diagnostic methods and treatments “because there is inadequate evidence in the peer-reviewed published medical literature of their effectiveness”, including naturopathic favorites like (potentially dangerous) IV infusions of curcumin, micronutrients, and Vitamin C, applied kinesiology, bioidentical hormones, chelation therapy, ozone therapy, colonic irrigation, Gerson therapy, live blood cell analysis, and visceral manipulation, among others.
In any event, while taking disproportionately large itemized deductions can be a red flag for the IRS, the chances of being penalized for an unauthorized itemized medical deduction or payment from an HSA are vanishingly slim. The IRS audited only 0.4% of all individual tax returns in 2019.
Which brings us, finally, to S. 380. In addition to Sen. Rubio, whose press release fails to mention the parts about homeopathy, dietary supplements, and exercise equipment, the bill has one co-sponsor, Sen. Tim Scott (R-SC). Sen. Scott serves as co-chair of the industry-controlled Congressional Dietary Supplement Caucus. (You can see who else is a member here, although note that the list is undated and may not be current.)
S. 380 would supplant the IRS’s (already liberal) position on the deductibility of supplements. In its most recent publication on deductible medical expenses (and therefore expenses eligible for use of HSA funds) the IRS states that
You can’t include in medical expenses the cost of nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc., unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.
Unfortunately, this still leaves a lot of wiggle room for quackery: in some states, naturopaths and chiropractors can legally call themselves “physicians”. And one can have, say, one’s cancer diagnosed by a real physician (that is, an MD or DO) and still be “treated” for cancer by a naturopath or acupuncturist.
In any event, S. 380 would effectively overrule the IRS’s current interpretation by allowing an itemized deduction for, or the use of HSA funds to pay for, any herbs, vitamins, minerals, meal replacement products and “other dietary and nutritional supplements”, as well as homeopathic remedies, up to a limit of $1,000 annually. This accomplishes two things. First, it will remove any impediment to paying for these products with HSA funds or claiming a medical deduction when recommended by a naturopath, acupuncturist, chiropractor, or other medical practitioner, even in the absence of “a specific medical condition diagnosed by a physician”. Even more expansively, it will allow consumers to purchase these products with HSA funds off the shelf, or deduct their cost, without any recommendation from a practitioner and without having to show medical necessity.
Interestingly, while “meal replacement products” are defined to jibe with FDA rules, there is no legal definition provided for herbs, dietary and nutritional supplements, or homeopathic remedies.
In a boon for another industry, the bill also expands “medical care” to include amounts paid (again with a $1,000 annual limitation):
(i) for equipment for use in a program (including a self-directed program) of physical exercise or physical activity,
(ii) to participate, or receive instruction, in a program of physical exercise, nutrition, or health coaching (including a self-directed program), and
(iii) for membership at a fitness facility.
Again, none of these terms are defined. Outside of established professionals like physical therapists and registered dietitians, jobs like personal training, nutrition counseling, and health coaching are largely unregulated and evidence-based standards are lacking. (“Certification” programs are no guarantee of safety or effectiveness.) And how many NordicTracks and Pelotons sit gathering cobwebs in the basement?
To be complete, I should note that a similar Senate bill has been introduced by Sen. Kevin Cramer (R-ND), S. 1654, to make amounts spent on dietary supplements tax deductible (and therefore allowable HSA expenses). Unlike Sen. Rubio’s bill, there is no annual limit and it does not cover homeopathic remedies or exercise equipment, health coaching, and the like. This bill has no co-sponsors.
GovTrack gives both bills a 1% chance of being enacted, although I don’t know how reliable their methodology is. While I am happy to see this, it does not make it any less important to call the Senators out. The law should protect consumers from quackery, not subsidize it. It is especially appalling to see the disconnect between Sen. Rubio’s bill and the two federal agencies charged with protecting consumers from ineffective and unsafe products: the FDA and the FTC. The latter basically acknowledge homeopathy is pseudoscience and are doing something (albeit far too little) about it. Sens. Rubio and Scott, on the other hand, want to encourage consumers to use homeopathy by providing a tax sheltered way to pay for it. That is inexcusable.