There is no more reason for an employer to provide his employees with medical care than there is for him to provide them with food or clothing or housing… The best reform would be to eliminate the tax deduction of any medical care expenses. There is no more reason for medical care expenses to be tax deductible than for food, clothing, and housing expenses to be tax deductible.” (Milton Friedman Nov. 2004 – personal correspondence with David Gratzer published on page 186 of The Cure: How Capitalism Can Save American Health Care).
Put health insurance on a level playing field with other goods and services within our economy. Other things promote or preserve health and are not tax exempt. For example, large SUV’s are safer than small less expensive vehicles but don’t get a tax exemption under FSA’s, HRA’s, or HSA’s.

In addition, these tax gimmicks give policy wonks and university professors a tax advantage over self-employed lower middle class folk (the kind that pay for services post-tax at my medical practice) like carpenters, mechanics, farmers, and beauticians. The law currently excludes them from such benefits. In addition, they don’t keep up with the arcane minutiae of health insurance tax policy – most have not even heard of HSA’s, HRA’s, or FSA’s much less be able to distinguish among their provisions. Why should employees of large organizations and policy wonks benefit at the expense of kind of people who pay full price for their medical care but are less able to do so?

Simply the tax code by eliminating the tax exemption for health insurance completely so that the well connected and knowledgeable don’t benefit at the expense of people who build our houses, fix our toilets, and cut our hair.

In an ideal world I’d like to see migration toward a flat 20- to 25-percent tax credit toward premiums for health insurance that follows roughly the same rules as today’s employer-provided insurance, and a 10- to 12-percent tax credit toward HSA contributions (to split the difference between insurance-paid expenditures and non-health spending).

Its not that FSAs are bad, because as you say many users know their costs. However done correctly they could revelutionize the consumer driven health market as Dr. Goodman points out.

I suppose that it is just a consequence of the institutions of the American republic that “reformers” very seldom have the oportunity to wipe the slate clean and start over, like they might in a parliamentary system. Rather, as the shortcomings of previous “reforms” become evident, new bells and whistles are added to the machinery, without eliminating the incumbent shortcomings.

Look at how needlessly complex defined-contribution retirement savings is: 401(k)s, 403(k)s, IRAs, Roth IRAs, Rollover IRAs,…..

Because FSAs were the first attempt to give employees pre-tax dollars to spend on health goods and services of their own choice, I suppose they have the greatest shortcomings.

Employers should embrace the proposal of “FSA-Plus”, if only because it would allow them to motivate more employee loyalty.

To make it perfect, everyone putting money into an HSA should get a 30% tax credit. It irks me that you get a higher tax rebate. (Professors, of course, are in a lower marginal tax bracket.)