The musings of a Philadelphia Physician who has served the community for six decades

204 Topics

Health Savings Accounts, Regular, and Lifetime
We explain the distinction between Health Savings Accounts, Flexible Spending Accounts, and Lifetime Health Savings Accounts. Sometimes abbreviated as HSA, FSA, and L-HSA. Congress should make it easier to switch around, between them. All three are superior to the present, "pay as you go", health insurance now in common use only slightly modified by Obamacare. It's like term life insurance compared to whole-life. (

Right Angle Club 2012
This ends the ninetieth year for the club operating under the name of the Right Angle Club of Philadelphia. Before that, and for an unknown period, it was known as the Philadelphia Chapter of the Exchange Club.

Right Angle Club 2011
As long as there is anything to say about Philadelphia, the Right Angle Club will search it out, and say it.

Right Angle Club 2010
2010 is coming to a close, a lame-duck session is upon us, and probably after that will come two years of gridlock. But the Philadelphia Men's Club called the Right Angle, keeps right on talking about the current scene. A few of these current contents relate to speeches given

Right Angle Club 2009
The 2009 proceedings of the Right Angle Club of Philadelphia, beginning with the farewell address of the outgoing president, John W. Nixon, and sadly concluding with memorials to two departed members, Fred Etherington and Harry Bishop.

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Philadelphia Reflections is a history of the area around Philadelphia, PA ... William Penn's Quaker Colonies
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Indemnity and Payment by Diagnosis: Fair Prices For Healthcare

In America, the closest thing to an oriental bazaar is the auto showroom, where a salesman will spend an hour evading the price question, knowing some customers will eventually buy a car rather than spend unlimited time shopping. Lack of price transparency favors the merchant, so prices are higher. So it probably does follow that healthcare prices would be lower if prices were more widely advertised and therefore, more standard.

But healthcare also varies in quality and effectiveness, so prices need to be flexible enough to compensate. Even eminent practitioners therefore squirm at the idea of price transparency. Flexible pricing is in fact a useful thing, without it prices do rise, but not as much as supposed, and not without some justification. The practitioner is tangled in a web of comparisons, with his colleagues, with clinics and institutional salaries, with memories of other prices for nearly the same thing, with all the other alternatives available to a customer who can walk around and shop. Under the circumstances, the patients generally want to have a fond relationship with a doctor they can trust to know what the market is saying, and trust him to make the best guess about what his own services are worth. Therefore, a physician is a fiduciary, expected to put the patient's interest ahead of his own. Insurance is not a fiduciary:Our modern third-partysystem systematically replaces trust with: standard prices, blind faith in low prices as always better than higher ones, and determination that medical quality had better always be top-notch, or else we will sue.

{top quote}
Competitive market solutions are never an even match, once someone takes away your clothes. {bottom quote}
Our system of third-party payment has firmly fixed its goal on a single price for the same service, no matter what its quality may be. By its very nature, a remote third-party payer cannot judge which person wasted the doctor's time, which doctor took extra care, which offices are shabby and which are unnecessarily plush. A surgeon leaves his showroom office empty most of the time he is in the operating room, while a dermatologist barely moves his feet for eight hours in the office; both of them are paid uniform rates. Any effort to modify the price in response to variables, is only listened to, if the outcome is to lower the price. The industry term for this process is "service benefits". A physical exam is a physical exam, a history is a history, a gastrectomy is a gastrectomy. Oh, yeah? If you believe that, said the Duke of Wellington, you will believe anything.

The best way to handle the situation is to pay, in part, by indemnity. In effect, indemnity makes the promise to pay $800 for a gastrectomy. If the surgeon thinks he is worth more than that, it must be agreed to by the patient in advance, and paid out-of-pocket. Not paid in advance, agreed to in advance, with the implicit understanding it can be reduced by sincere dispute, after the fact, and without recourse before the fact. Back at the beginning of the system, this feature was bargained away. I cannot resist telling the story of my father-in-law's advice to me, doctor to doctor, at the time of my wedding. "Never let your wife keep your books," said he. "To you, the patient is a poor old devil down on his luck. To your wife, he just represents a steak dinner, if she can collect the bill." Our third-party payment system has succeeded in projecting the image of protecting the patient against voracious "providers of care", just the reverse of their natural postures, and something my father in law never dreamed of. It's very simple: basic payment by indemnity, extras by negotiated patient supplement. Since consumer representatives are so intransigent about "give-backs", it might at well include a COLA on the basic, and otherwise put inflation into the patient supplement.

{top quote}
It's very simple: basic payment by indemnity, extras by negotiated patient supplement {bottom quote}
At this point, we should probably pause and notice that the imperfect DRG system for inpatients, has nevertheless proved to be an extremely effective rationing tool. It quite effectively put an end to relying on the bed patient to be unable to walk away. In a little research project of mine, the eighteenth century patients were in the hospital bed for exactly the same reason they are today: they couldn't walk, or couldn't be allowed to walk. Competitive market solutions are never an even match, once someone takes away your clothes. If the DRG system could be improved by substituting a better coding system (SNODO recommended), it would answer every objection except one. That objection is the relentless instinct of Society organized as institutions to squeeze payments and quality, once the helpless patient is out of sight of visitors.

At present, DRG is mainly forcing patients out who were once enticed into the hospital by the previous payment system. Once that backlog is exhausted, the DRG pressure will start to hurt, since all rationing systems lead to shortages. Like the Volstead Act, this government mandate was successful in its original purpose, but the unintended consequences were worse. When DRG starts to hurt, a new coding system had better be ready. Because the resultant growth of hospital outpatient services has been so extreme, it will cause a bigger bubble to burst unless attention is given to service benefits inflating the cost of outpatient care. To repeat, the cure for medical cost inflation is not to apply rationing, it is to improve the payment methodology so that rationing is unnecessary. The current repetitious chorus denouncing fee for service, is just a cry of desperation from people too unimaginative to devise any substitute more sophisticated than salaried rationing. The problem here is not fee for service, it is service benefits. And the problem lies, not with the provider, but with the carefree beneficiary -- carefree because he is insured. And furthermore the solution is not salaried practitioners bossed by salaried politicians, it is a hybrid of indemnity with basic pricing. Under Health Savings Accounts, we bring the public into power over its own affairs. The remaining problem is to let the individual control his own monster, by making waste and luxury his affair, not an affair of the public at large. A good beginning would be to forbid the use of collection agencies, forcing the institution to confront its irate customers.

American Exceptionalism Has Something To Do With Compromise

{William Bingham class=}
European Union Map

Let no one suppose I imagine myself an expert in international law. But as a member of a family with newspaper connections, I more readily recognize when someone is conducting a campaign, using a set of plausible arguments in place of the real ones. So, my suspicions are repeatedly reinforced by regular repetitions of the same arguments in different ways, to the effect that America should be more respectful of what is called International Law. Curiously, the same people are of a mindset to oppose European Union, when you would suppose that one argument leads to the other. It is almost a pose that, having won the war as legitimate sovereigns, they are already quashing would-be competitors.

{William Bingham class=}
Rhine River

Nationalism had its formal beginnings in the Treaty of Westphalia, about 1648. At that time, there were about a hundred little countries along the banks of the Rhine River, starting in Switzerland which was broken into four cantons, and south of the Swiss stretching the length of Italy, ending up in the far tip of Sicily. Many of these nations were no bigger than a golf course, and were often leftovers from the robber barons who extorted bribes from passing boats in return for not attacking them. That is, they were protection rackets, which survived as rackets in the far tip of Sicily until 1880 or so, until Garibaldi emancipated them from their evil ways, and unified Italy.

{William Bingham class=}
Treaty of Westphalia

In 1648 the Pope was in nominal charge of everything, and all the rest of the Rhineland behaved the way we now think of the Mafia as behaving, in secret societies. Martin Luther's Protestant reformation had broken the Holy Roman Empire into warring camps, shifting alliances as local politics required. It took a long time to get everyone into an agreement, but the outcome was the Treaty of Westphalia, which essentially made everyone agree to respect the national boundaries of the others, and the religion of the inhabitants of each country would adopt the religion of the local king. There had been nations before there was nationalism, but the Westphalian version operated with national boundaries as the defined beginning, rather than tribes, languages or religions. That sort of agreement displeased the Pope, of course, but it had the utility of lessening the endless warfare and pillage, each one of each other. Offhand, you might not have thought of boundaries as superior to ethnic inhabitants as an organizing principle, but somehow it worked better than the alternatives. Nationalism became the ruling premise throughout the world. If you win, your winnings are limited to the established boundaries. The treaty of Westphalia served essentially as constitution for a majority of western civilizations, and it was pretty short and sweet, essentially downgrading religion as an organizing principle and replacing it with defensible boundaries, seemingly a degrading change.

{William Bingham class=}
City Tavern

Eventually, thirteen "sovereign nations" in the Western Hemisphere got together and wrote our new Constitution, which had an additional novelty of being written down and describing how the new United States would be organized. Religion was banished from governance, of course, so the way was open to our own nationalism. Among other features was a bicameral legislature. Pennsylvania in 1787 had just had a lot of trouble with a unicameral legislature, but the main impetus opposing that format was found in the small states. John Dickinson of Dover Delaware drew a startled James Madison of Virginia aside, and told him the small states didn't like being bossed by the big ones (Virginia was the largest, at that time), and they particularly disliked the idea that it would be written down as a permanent arrangement. In the view of the big states, power would naturally go to the biggest and richest, and that infuriated the small states even more. To them, it meant the small states were expected to pay permanent deference to the ideas of their bigger neighbors, and for example no one from a small state could ever expect to be elected President. Dickinson drew Madison aside and asked, "Do you want to have a Union, or don't you?" Dickinson was probably thinking in terms of equal representation for each state, no matter its size, while Madison was thinking of proportional representation like the House of Representatives. Rumor has it that Benjamin Franklin gathered folks into the City Tavern and worked out the present compromise. Which is, a bicameral legislature, one body with two and only two Senators per state, the second body with additional representatives for more population, and the agreement that no law would be passed without the agreement of both houses of Congress. Pretty simple, but it has gradually dawned on most people that the United State has held together (Civil War excepted) for two hundred years by debate and compromise, but meanwhile no other union has survived by any means except military force. Underneath that rule must be an assumption: for every quarrel, somewhere there exists a workable compromise. Even Ben Franklin was a little hesitant about that idea.

{William Bingham class=}
The League of Nations, United Nations

The League of Nations, United Nations, and all of the other national groupings, so far including even the European Union, have unicameral legislatures which follow the traditions of the Treaty of Westphalia. Equal representation for all, and therefore majority rule is expected to leave major groups nursing a grudge. In a bicameral state with different rules for election, the ruling instruction is "Don't you come out of that room until you agree on some compromise which will endure." A bicameral legislature is expected to produce flawed legislation; a unicameral body is expected to produce a victory. Therefore, a unicameral is expected to produce a vanquished foe; a bicameral needs cooperation to justify flawed legislation and keep it workable. As things work out, there is no perfect law, only laws which are more or less imperfect.

"On the whole, sir, I can not help expressing a wish that every member of the convention who may still have objections to it, would, with me, on this occasion, doubt a little of his own infallibility, and, to make manifest our unanimity, put his name to this instrument."

CHAPTER FIVE: Lifetime HSAs, Backwards and Forwards

Health Savings Accounts are a big improvement over traditional health insurance, and this book stands behind them -- as is, without major adjustments. Their secret economy lies in everyone spending insurance money less carefully than he would spend his own. No one washes a rental car, as the saying goes. But when you let the individual keep those savings, millions of HSA owners find ways to save about 30% of average healthcare costs. That is, we hammer health providers to lower prices, while we allow consumers to spend heedlessly. HSAs provide an incentive for the consumer to shop more carefully, and they certainly have that effect. The effect is magnified by being almost entirely out-patient, where an effective shopper can make a serious difference. Inpatient costs are already constrained by using payment by diagnosis (DRG) to pay for them within the Catastrophic Health Policy.

In spite of this brilliant record in about 10 million policies, it has since developed in my mind that Lifetime Health Insurance could be even better. Lifetime Health Savings Accounts (L-HSA) differ from ordinary HSA in two major ways, and the first is obvious from the name. In addition to meeting each medical cost as it comes along, or at most managing each year's health costs, the lifetime Health Savings Account tries to project whole lifetimes of medical costs, and seeks new ways to finance the whole bundle more efficiently. Naturally, compromises have to be made to do that, but that's briefly the concept. Since the proposal requires major legislation to make it work, it is presented here in concept form only, for Congress to think about and possibly modify extensively.

Lifetime Health Savings Accounts are unique in a second way: overfunding their goal at first, they count on mid-course corrections to whittle down toward the secondary goal of precision, that is, "spending your last dime, on the last day of your life". Since no one knows in advance how long he will live, or how much he will spend for healthcare, absolute precision seems too far-fetched to discuss for individuals. Even an averaged goal is difficult, but it is not completely absurd, because young people have small medical costs, while old people generally have big ones, a fact often obscured in a maze of cross-subsidies. If young ones gather compound income on unspent balances, then old ones can spend less on healthcare, because young lives have longer to compound. Saving for yourself at a later age, the incentives are then restored by the law of large numbers during the last year of life, the year of terminal illness. The overall design is to save somewhat more than will be needed, giving back the surplus in the final two decades, and eventually applying insurance for the last year of life. To frame it that way may make it seem feasible, but creates a demand for explanation, why anyone would accumulate funds he will not live to spend. Since people have no way to know if they will gain or lose by throwing in their lot, they will be willing to chance it.

Let's begin at the far end of the process, the day after death, and look backward.

At present costs, statisticians currently estimate average lifetime healthcare costs at about $325,000; we later discuss the weaknesses of that estimate.

Current law permits an individual to deposit $3300 per year in a Health Savings Account, ending when Medicare coverage appears; Congress could certainly change that.

If you deposit $40,000 compounded at 10% tax-free on your 65th birthday, you will have $325,000 on your 86th birthday, and we guess the average life expectancy where things will eventually flatten out will then be about 91. But you would have to be lucky in everything: a very favorable investment climate for the right ten-year period, plus a favorable health situation which avoided expensive illnesses just at the age when they would begin to threaten. Using a goal of $60,000 and assuming an interest rate of 7% is considerably easier to achieve, but the limitation which you might reach first is the $3300 yearly contribution rate, and you might be forced to pay all medical expenses out of pocket in order to make the investment fund stretch. Someone who sells his business at age 63 might have the cash, but he has trouble squeezing in the necessary nest egg before he reaches the present age for termination when Medicare begins. It's conceivable that many people would be able to do this, but it seems pointless to squeeze through a narrow window, and much better if the window were enlarged to permit lump-sum deposits up to, say, $60,000. With that sort of cushion, plus a stretch of reasonably good health at the right time of life, it would become considerably safer to take the risks. At age 65, a lifetime of health costs are already behind you, but the curve of health expenses starts to curve up at age 50, at a time when college expenses for children may be persisting, and the house isn't quite paid for. It seems a pity to cripple a good idea with contribution limits that almost stretch far enough, but make people fearful that health or financial problems may strike them at just the wrong moment. To repeat: $40,000 will suffice if you are lucky, while $60,000 is much safer. But unfortunately it is harder to squeeze $60,000 through the yearly contribution limit. If Congress develops a serious interest in lifetime insurance, the yearly contribution limit should be revisited.

The simplified goal is therefore to accumulate $60,000 in savings by the 65th birthday, based on a rough assumption that savings get a lot harder when earned income stops. With current law, you would have to start maximum annual depositing of $3300 by your 50th birthday, to reach $60,000 by age 65, and you would still need generous internal compounding to make it. But notice how easily $100-200 a year would also get you there, starting at age 25 (see below) and less optimistic income returns until age 65. Many more frugal people might skin by with this; It could rather easily be subsidized for poor people and hardship cases. If you are going to cover lifetime health costs instead of just Medicare, many more will need $80,000 to do it, and have something left to share with the less fortunate. But to repeat once again, that compares very favorably with the $325,000 which is often cited as a lifetime cost.

Starting with the Medicare example. Notice that forty years of maximum contributions, would contribute far more than the necessary $40-80,000 by age 65. We haven't forgotten that the individual is at risk for other illnesses in the meantime, so in effect what we need is an individual escrow fund for lifetime funding intended (at first) only to replace Medicare coverage. (We are examining lifetime coverage, piece by piece, trying to accommodate an extended transition period.) Depending on a lot of factors, that goal could cost as little as $100 a year deposited for forty years, or as much as the full $1000 per year. It all depends on what income you receive on the deposits in the interval. In a moment, we will show that 10% return is not impossible, but it is also true that a contribution of $1000 per year would not be tragic, compared with the present cost of health insurance. I have my doubts about the current $325,000 estimate of average lifetime health costs, but that is what is commonly stated. For the moment, consider these numbers as providing a ballpark worksheet for multi-year funding, using an example familiar to everyone, but not necessarily easy to understand after a quick reading.

The Cost of Pre-funding Medicare. Rates of 10% compound income return would reduce the required contribution to $100 per year from age 25 to 65, but if the income were only 2% would require $700 contributed per year, and at 5% would require $300 per year. Obviously, a higher return would provide affordability to many more people than lesser returns. Let's take the issues separately, but don't take these preliminary numbers seriously. They are mainly intended to remind the reader of the perfectly enormous power of compound interest. Let's go forward with some equally amazing investment discoveries which are more recent.

Buy-and-hold Index Fund Investing. John Bogle of Philadelphia invented and popularized index funds; quite an achievement for a man wearing a heart transplant for fifteen years. His first discovery was that if you buy the whole stock market and hold it, your portfolio will do about as well as the portfolio of an expert stock-picker, and better than at least half of the experts who earnestly try to tell a good one from a bad one. When the broker shares some of the economies of scale with the client, costs go down, and you reach a point where the assistance of an expert adds only questionable value. Such index funds do vary in their returns, and the difference between 0.25% commission and 0.06% is noticeable. But the difference between $7 trades and $300 trades is simply absurd. If an index fund is composed of the stocks of American companies in the same proportions as the stock market, investing in an American index fund is the same as investing in America. Investing in a total world index is comprehensive in a different sense, but I incline to the idea that we owe a part of this success to an American tax exemption, so Americans ought to climb aboard the lifeboat with the rest of the nation. If you do, there is reason to argue you will manage an effort-free 10% return on your money. But remember, high corporate taxes have driven many American corporations to Ireland, Cayman Islands and other tax havens. If this gets out of hand, it may be necessary to use world index funds.

Professor Roger Ibbotson of Yale has produced a Classic Yearbook, compiling the historical returns of the major forms of investment, from 1923 to 2014, and Morningstar shows signs of continuing these yearbooks indefinitely into the future. Covering nearly a century of experience, this data is the most reliable source of historical experience with a bearing on predicting future results. But of course it isn't infallible. Since various asset classes quite narrowly followed long term trends for many decades, most readers would agree with Ibbotson that they probably have some predictive value. Looking back over a century, it is remarkable what tiny blips were created by major cataclysms like the 1929 and 2008 crashes, two World Wars and several smaller ones, and at least one episode of dangerous inflation. All of these events, plus several severe recessions and the invention of the computer, seemed like earth-movers at the time, but in retrospect scarcely affected the long-run relative values of various asset classes. Unfortunately, many of John Bogle's insights were not available for long stretches of this experience, so data is not available for precisely the mixtures we wish had been collected. For example, it seems safe to conclude that Treasury bills will closely follow inflation, and that stocks will do better than bonds. But somewhat surprisingly, small stocks (less than a billion dollars) have consistently done 20% better than the large stocks which you are more likely to have heard of. It raises a question whether large stocks might be too big for their own good.

Since every investment activity requires a certain amount of cash to conduct its business, it would seem prudent to invest in small long-term mixtures of Treasury Bill indexes and indexes of common stock, made up of either America's or the entire world's list of corporations. After experience accumulates, the amount of liquid cash required will become better known, and after that, it should gradually emerge what proportion of longer-term bonds (if any) are desirable to provide for stability. And after that, it might be possible for a huge immortal fund to consider including timber forests and other extremely illiquid assets, in a manner popularized by Swenson at Yale. In time, the precisely optimum proportions should become more obvious, but at first it may be necessary to depend on the judgment of seasoned investment advisors. The reader is invited to review Ibbotson's handbook for himself, but what emerges is a strong suggestion that a 90/10 mixture of common stock to Treasury bills would be a good place to begin, and the mixture of stocks should reflect the mixture of corporations in existence. After extensive experience, commercial index funds have learned they can count on a steady inflow of new funds, and substitute that new cash for cash in the portfolio. Running one of these funds is not child's play, even though individual stock-picking is being superseded. The only reason for investing amateurs to play with such numbers is to get a feel for what size of total return could be expected. The reader is invited to study Ibbotson's yearbook, and see for himself whether he agrees that a 10% total return seems safe to bank on, but that a permanent staff devoted to management of the fund is imperative. Best of all might be to invest in several private funds, and reward the ones that do best for you. To go just a little further, Congress might even consider whether a management which produces less than 8% long-run return is eligible to be replaced. The take-away points are that the better funds can and should produce total returns which are superior to what an ordinary citizen can produce for himself. And, that there is no point to getting into this, unless Congress establishes -- and monitors -- policies which deliver on the promise.

Well, where does that get us? According to the Congressional Budget Office, Medicare currently spends about $500 billion a year, or 3% of the gross domestic product, paying for 50 million persons over age 65. If we expect a fund yielding 10% to pay for it, the fund must contain $5 trillion dollars. (By the way, that's about twice as large as the largest mutual fund in existence, so it is not possible to know everything about its problems in advance. It certainly would require hundreds, if not thousands, of employees, several large buildings, and considerable planning we won't go into. It probably should not be located in Washington DC, which is already outgrowing its transportation capability, and lacks a pool of talent in the required fields of expertise. That level of detail is beyond the scope of this book.)

But from this alone it can be estimated that our 350 million citizens would have to contribute, or have contributed for them, about $1500 a year just to pay for a year's worth of Medicare coverage. That's unreasonable, so let's say at the very most the 175 million of working age (25-75) would on average contribute $4000 a year during their working lives if they are employed, which at least 25% wouldn't be. Since we are proposing compound income instead of "pay as you go", it's a relief to calculate this contribution would total $700,000 at the 65th birthday, or $500,000 more than is needed for Medicare. Therefore, if we reduce or stop deducting their Medicare premiums from Social Security, the old folks would get increased income, and there ought to be enough extra money left to pay for healthcare from birth to age 65. That's our theory in a nutshell. We can then turn to our critics, who assume 10% income return is too generous, or $4000 a year is too burdensome, or that some decimal point is misplaced. Fine. We are still left with the challenge that this approach would pay for a big chunk of lifetime medical care, even if it might not pay for it all. That's our war cry, and that's all we claim.

There are seven times as many working people as retired ones, but if we wait too long, that ratio will probably get more unfavorable. There will certainly be adjustments equal to inflation, and maybe increases due to the rising costs of improved medical care. And that's just for the last 20 years of life; we must find the money to pay for healthcare from birth to 65 as well. And longevity is increasing; the fastest growing age group in America consists of people older than a hundred. There's no need to go on with this, the conclusion was always clear. We are never going to pay for this unless we get some new sources of revenue. Reducing medical costs is fine, but turning out the lights won't be enough. We need more net revenue, and I don't mean taxes, which merely shift revenue from the private sector into the public one.

The power of compounding is brought out by starting really young, possibly even at birth. At 10%, money doubles in seven years; at 7%, it doubles in ten. In 65 years there are eight doublings at 10%, six doublings at 7%. Working backwards from $80,000 at age 65, you need to start with only $60 at birth with 10% working for you, or $600 at birth with 7%. All of Medicare for $60, now that's really a bargain, and $600 is still a trivial price for a retirement with unlimited health care. For illustration, we take it in two jumps, from birth to 65, and then 65 to death. And to be truthful, there is a deceptiveness about the cost of Medicare, because we are so heavily indebted already, and must find some way to pay off the debt. (See below).
Think back on what has already been said, and is already mostly self-evident. We started by showing it would be comparatively painless to assemble $80,000 by the 65th birthday, and that much money on average, would likely pay for Medicare. Remember, Medicare is spending $10,000 a year on the average Medicare recipient, for roughly 20 years, or roughly $200,000 during a 20-year lifetime after 65. We estimate compounding will add more revenue, roughly matching the costs of robust stragglers who live from 85 to 91. We assume a fair number of them will be healthy during most of the extra longevity, with terminal care costs merely shifted to 91 instead of 85. We started at age 65 with 65 years of health costs already paid, we paid down the estimated costs of twenty years, and the interest on the remainder pays five more. We get there with money left over, we haven't collected the premiums from Medicare, and we still have to pay for that last year of life, except we let Medicare calculate the average cost from the people who decline this gamble, and the fund reimburses the hospital or whatever, for average terminal care costs during what is now known to have been the last year of life. If the money from fund surplus isn't enough, the agency can look at raiding the payroll deduction pool. And there can always be recourse to liberalizing or restricting enrollments, to age groups which experience shows will either enhance or restrict the growth of the fund, as predictions come closer to actual costs. And finally, the last recourse is to have the patient pay for some of his own costs, himself, by re-instituting Medicare premiums. Those who feel that paying for all of healthcare with investment income was always a pipe-dream, will feel vindicated. But all this book ever claimed was it would reduce these costs by an unknowable amount, which is nevertheless a worthwhile ton of money.

Whoops, Medicare is Subsidized. A major explanation for this astounding bargain can be traced to a 50% subsidy of Medicare by the Federal government, which is then borrowed from foreigners with no serious provision for ever paying it back. Medicare is :
about half paid for by recipients,
about a quarter paid for by payroll deductions from younger working people, and
about a quarter paid for by premium payments from Medicare beneficiaries, collected by reducing their Social Security checks.

A quarter paid in advance, a quarter paid at the time of service, and half of it a subsidy from the taxpayers at large. No wonder it is popular; everybody likes to get a dollar for fifty cents.

So I'm sorry but if you want to pay your bills, it might easily cost $80,000 on your 65th birthday, based on the assumption that you want to pay the nation's debts. And to go back further, it will take $200 a year, starting on your 25th birthday, even making the rather optimistic estimate of 10% return, so you might as well call it $500, just to be safe from other rounding errors, and to allow enough time for hesitation about doing such a radical thing. No one says you have to do it my way, but this is how you reach a rough approximation of what it will cost, to do what has to be done, including paying off our debts.

That's indeed how much it will cost if you do it all by raising revenue. You can also do some of it by cutting costs, where fortunately we are well along on the good ol' American way to do things. No one else has the money to do it our way, so everyone else tries to cut costs by turning out the lightbulbs. But without anyone saying a word, notice how we have united in what the rest of the world thinks is madness. Starting about fifty years ago, we began pouring outlandish amounts of money into medical research. In fifty years, we have extended life expectancy by thirty years, through eliminating dozens of diseases, and the cost of caring for them. Just think of the money we have saved in the treatment of tuberculosis alone, by tearing down all those TB hospitals which were seen in every city during my student days. Infectious diseases, particularly typhoid and syphilis, consumed much of the time of a medical student, and much of the budget of every municipality. One of my professors once said we only had two big challenges left: cancer and arteriosclerosis. He was optimistic, because we still have cancer. And the three main mental disorders, schizophrenia, Alzheimers and manic-depressive disorder. But add five more to that list, and do it in twenty years. After that, our main problem will no longer be a matter of dying too soon. Our main problem will be, to outlive our incomes. Financially, these are the same two problems, except one is paying for Social Security and the other is paying for Medicare.

Consider for just a moment, how difficult it is to say how much medical care costs. Remember, a dollar in 1913 is now worth a penny, and a dollar today is very likely to be worth only a penny in 2114. We long ago went off the gold standard, and money is only a computer notation. Looking back over the past century, it is remarkable how smoothly we glided along, deliberately inflating the currency 2% a year, and listening to assurances that this was the optimum way to handle monetary aggregates.

But we now have more than a million people over the age of 100. They got cough drops as a baby for a penny, and now hardly blink when a bottle of cough medicine costs several dollars. But instead of that, they are likely to get an antibiotic which was not even invented in 1913, cost perhaps forty dollars when it was invented, and now can be bought for less than a dollar. If they got pneumonia in 1935, they probably died of it, no matter how much was spent for the 1935 medicine, so how do you figure that? Or someone who got tuberculosis and spent five years in a sanatorium, who today would be given fifty dollars worth of antibiotics. The problems a statistician is faced with are impossibly daunting.

The current practice, which reaches the calculation of $325,000 for lifetime medical costs, is to take today's health costs and today's health predictions, and adjust the average health care experience for it, both backwards and forwards. Every step of this process can be defended in detail. But the fact is average lifetime health cost of someone born today is only the wildest of guesses, no matter what kind of insurance he has, or who happens to be President of the United States. The cost of drugs and equipment go through a cycle of high at first, then cheaper, then they vanish as useless. But adjusting the overall cost of materials and services when only a faint guess can be made about healthcare content, can be utterly hopeless, or it can be quite precise. Unfortunately, even its probable future precision is a wild guess. It's a wonderful century to be living in, unless you are a healthcare analyst. The only safe way to make a prediction is to make a guess that is too high, and count on public gratitude that it wasn't much higher than you predicted. But to guarantee a particular average outcome, which an insurance actuary is asked to do, will be impossible for quite a few decades.


However, it is a fact of life that someone who could only afford $100 a year is likely to be so unsophisticated he could not invest at optimum returns. Nevertheless, it would only require an escrowed deposit of $100 per year from age 25 to age 65, in order to pay the anticipated cost of Medicare for the rest of his life. Even escrowing the full amount without added income would give him Medicare for life. Therefore, he might thus buy himself out of Medicare for $40,000 if the goverment. Since we propose compound investment of total market index funds, tax exempt if you spend it on health care, it can be shown that $40,000 will get you from age 65 to a life expectancy of 86 -- with a fund of $325,000 if you never get sick, but more likely spending the $325,000. by the day you die. These numbers are only back-of-the envelope estimates, but they seem to justify the guess that annual contributions far less than a typical health insurance premium, perhaps $1000 a year (from age 25 to 65) could more than cover average lifetime medical costs in an HSA. I wouldn't advise sixty or eighty years of advance planning on autopilot, because too many things can happen to inflation, to medical care, and to the stock market. But the general approach is to start with 'way more funding than you think you need, and whittle it down as you get closer to the events in question. To do that, someone has to set up a monitoring system of the whole nation's health costs, and using Hadoop and Big Data, tell us what mid-course adjustments must be made. It would seem like a prudent thing to monitor the accumulations of deposits, income and administrative costs, as well. I oversimplify, of course, but general concept is pretty simple, once you understand that plenty of safety padding is built in, and that any surpluses belong to the voting public, who will soon discover they have many competitors for it.

That's enough introduction to a basically simple idea

Of course, of course

But the investment may need some explaining

the finance the whole smooth transition to it at any age by "buying in" at lifetime average costs from that age forward, rather than covering one year at a time out of funds that happen to be in your account. And secondly, it pools several average lifetimes into one virtual pool, thus capturing eighty years of inflation, and at least staying even with it. That's putting it succinctly, and I will try to make it more understandable later, because the first obstacle is to reassure the reader that this is not magic, nor is it hocus-pocus. Quite naturally, a newcomer to this idea asks the suspicious question, "Where does all this money come from?" That's a polite way of saying, "You're not stealing it from someone else, are you?"

The thrust of this proposal is to correct a defect in the original design of health insurance, commonly called "Pay as you go." When your bills are paid by Medicare, let us say, very little of that payment originates with this year's premium, from you or from anyone else your age. The payments for bills of an octogenarian mostly come from premiums contributed this year by people many years younger than he is. During all those intervening years, very little interest or investment income is made on the deposits, because the deposits more or less instantly become someone else's payments. Although the younger person is sort of loaning the money, it doesn't remain idle long enough to give him any return on it. If he took that money and invested it in the stock market, he could make a lot of money. But that's idle chatter, because there isn't anything to give him. He'll probably tell you he doesn't mind because it's legal and patriotic, and furthermore he is scared of losing money in the stock market, maybe even regards investing as a form of gambling. Regardless, utilizing frozen virtual deposits is what generates the "extra" money for Health Savings Accounts.

We are proposing a way to capture some, maybe not the maximum, of the income lost, by depositing it in a Health Savings Account in the private sector in his own name. It gets a tax deduction, because it may only be spent on his own health care. It can be used for buy-and-hold investments because it may not be withdrawn for years. If you take our advice, you will buy total U.S. market index funds at less than 0.25% commission, and otherwise forget about investing. You will thus be investing in the whole United States economy, which is about as safe as things can get. Be consoled that any money possibly lost in the ups and downs of the market, is money the depositor would otherwise not get at all. Present law limits deposits to $3300 yearly. A careful investor should make close to 10%, or $330 total return, and brokerage fees should be less than $10. In addition to being a careful investor, it is important to be a careful patient. A famous surgeon once remarked that the only reason to buy health insurance is to keep the hospital from fleecing you. Experience with several million Health Savings Accounts shows that becoming a careful shopper will save, on average, 30% a year. All of these savings are side benefits to lifetime HSAs, which should save a bundle more. Since we propose to give it back in the form of lower premiums on health insurance, a buyer doesn't have to get sick to get his hands on it. This proposal isn't really a way to make money, it is a way to stop losing money, by correcting a defect in health insurance. It's also a way to invest on behalf of people who never invest, so they may need time to get used to it.

That last point may raise another question: why not just do it all for everybody, like whole-life life insurance? First, because the revenue accumulates gradually in the private sector, while the expenditures are often made in the public sector. Secondly, young people have little health cost; older people tend to have a lot of health cost. To be fair, you have to talk about averages at different ages. Secondly, Americans have resoundingly declared they don't want the government to own voting control of the nation's business. There's even a question whether they want the government involved in health care, but at the moment, about half of them would agree to that. We don't want the feds to own stock or control business. We don't want the feds to run stock brokerages, or investment advisory firms. That's fine, but it has a price. If you are going to take advantage of compound investment income to pay a substantial part of your health care costs, you are asking the private sector to get involved, and have to do it outside of some boundary between public and private sectors. Furthermore, our whole monetary system is based on the assumption that government interest rates will be lower than private industry pays, and banks pay somewhere in between. Violating that assumption would be too shattering to consider. The take-home message is that if someone doesn't want to participate, he doesn't have to. If he wants to pay exorbitant fees to a broker, we can't stop him.

Let's turn to a natural question which has somewhat more substance: If the bulk of the money generated by this system comes from the improved investment performance of the private sector compared with the public sector, how about the seed money? After all, if the seed money used to be lost in the cracks between young people who contribute and old folks who spend, it is gone none the less. You can't spend money twice. That's true enough, but we are comparing two curves with different shapes, revenue and expense. Both curves start at zero and end with zero, but if you subtract the expense curve from the revenue curve, you will get a lot of bumps, because the shapes of the two complex curves are different. Some bumps can be predicted, but for the most part they are generated by unexpected medical expenses and unexpected investment happenings. For this reason, it seems best not to go on autopilot, but to create a transition agency to make mid-course corrections, and if necessary to arrange for transfers and loans between age groups. There should be plenty of money after a while, but during the transition there may be occasional cash shortages. Once a comfortable cushion is established, the uses for a permanent agency can be re-examined. As a general principle however, new enrollments to the plan should be young working people who generate a cash surplus, while older people who consume funds can be enrolled as the cash balance justifies. When the balance grows to a comfortable level, enrollments can be unlimited. This differential enrollment approach should make use of the expected reluctance of many people to take a chance on something new. On the other hand, there are people who will try to game the system with adverse selection.

There is one last point about inflation. Because the Federal Reserve adopted inflation targeting long ago, our currency has an intentional goal of 2% inflation per year. This slow but steady attrition explains why a dollar in 1913 (when the Fed was founded) is now worth a penny. Rather than bemoan this policy, lifetime health insurance takes advantage of it. If someone invests a dollar as a child, that investment will pay for nearly a hundred dollars worth of medical care if he lives a normal life expectancy before he has his terminal illness. Of course, the cost of medical care will go up, too. But if substantially all of medical care is eventually paid for with this sort of investment, inflation pressures on medical care can be differentially controlled. The wisdom of doing so deliberately, is above my pay grade. But it should be monitored,

It was my intention to write a critique of the Affordable Care Act, followed by a proposal for what to put in its place. That's about what emerges if you read the first four chapters of this book. John McClaughry of Vermont and I were the originators of the Health Savings Account in 1980, and original HSA still seems superior to the proposals so far enacted into law and regulation. It is true there is awkwardness in the 1787 Constitutional limitations of the Federal structure of government, but the ERISA (Employee Retirement Income Security Act of 1974) demonstrated the Constitution was probably flexible enough to form a workable platform for interstate medical standards, and the medical needs of national corporations. The Supreme Court had assured us the Constitution is not a suicide pact, but no collision has arisen to justify the conclusion that modern medical requirements are in serious conflict with essential Constitutional exclusions. The essential strategy employed by ERISA was to establish pensions and healthcare plans as freestanding corporations, independent of the employer.

While waiting for the Obama Administration to demonstrate why they believed present structures justified increased medical costs, or increased regulation, I had thought of seven or eight possible improvements to the act, during the three decades after Bill Archer of the House Ways and Means Committee got Health Savings Accounts enacted into Law. However, none of them changed the nature of the issues. The most radical idea to occur to me was not to right wrongs or overturn injustices. Chiefly, the idea grabbed me that Health Savings Accounts might readily become lifetime insurance, and save a great deal of money without injuring medical care in the slightest. That is, individually owned and thus portable polices, might well generate long-term compound investment income. Because of medical science and a thirty-year extension of life expectancy (and hence, investment compounding) the potential new revenue is enormous.

The Affordable Care Act and this revised new Health Savings Account could both be viewed as responding to the 1787 Constitution's lodging of health insurance regulation inside the fifty states. Furthermore, The Constitution rather definitely excludes healthcare from federal regulation, reinforces the point with the Tenth Amendment; and the McCarran Ferguson Act is implacably explicit a third time. This creates difficulties for interstate businesses, and for people who get new jobs in new states. Many smaller states do not have a large enough population to support more than one health insurance company, thus creating monopolies in many states, and consequent resentment of monopoly behavior.
In a sense, Obamacare attempts to solve the difficulty by fragmenting national health insurance, whereas lifetime Health Savings Accounts would solve it by consolidating yearly fragments into a single, portable, policy owned by the individual. Industrial corporations once solved the same difficulty by permitting the corporation to select its "home state" for incorporation. Lifetime HSAs solve it by letting the individual select a managing organization, and indirectly if he chooses, select a home state for its regulatory climate.

While this idea had initial appeal to me, it was soon pressed forward by discovering that computer-driven innovations in the investment world had made lifetime coverage far easier, less chancy, and considerably more financially attractive, than coverage in annual slices. Added to recent astonishing increases in life expectancy, internally compounded investment income came pretty close to paying for lifetime health costs. That comes about, because compound interest grows most near its ending, roughly matching healthcare costs, and our increased longevity comes from living long at the end, not merely on average. You could never be sure of that, because the science of medical care is constantly evolving and you don't know where it will go.

The one thing you can be certain of, is that restructuring health insurance in this way results in a considerable reduction of health insurance premiums. They might skyrocket, or they might largely disappear, but in any event they will be a lot cheaper than using any other method of paying for them. No doubt critics will find large numbers of nits to pick. But no matter what else turns up, it is going to be pretty hard to match the cost reduction, which ten minutes of simple math can demonstrate. In fact, the great obstacles to an effective system, like "job lock" and "pre-existing conditions" present no obstacle at all to lifetime HSA, and thus stand exposed as artificial creations of existing health insurance, modeled on term life insurance. Just change to a more natural system, already tested for a century as whole-life insurance, and such technical problems simply vanish. Even slow adoption, based on public wariness about a new idea, is an advantage. A change this massive really ought to be adopted slowly and tentatively, so we don't cause chaos by blundering ahead into unexplored territory. If we do it, let's do it on purpose.

Thus the original idea of modestly improving the original Health Savings Accounts, continues to stand on its own two feet. It's what I would offer right away as a supplement to the Affordable Care Act, or to ERISA plans, simply providing comfortable little ways for individual subscribers to ease from annual HSAs into parts, or all, of lifetime HSAs. Right now, anybody under 65 can start an HSA, and any insurance company can offer a product containing little variations of the idea. Any one of the fifty states can change its regulations to make itself attractive as a "home state", as James Madison originally envisioned when he described the laboratories of the states.

And if someone finds a fatal flaw, why shouldn't I thank him, rather than try to bluff past him. So, right off, what are the disadvantages of lifetime coverage? They would seem to be:

1. At the moment, persons receiving Medicare are excluded from starting Health Savings Accounts. During the debate about Obamacare, seniors were therefore remarkably uninterested in a topic which didn't affect them. Very few seem to realize that Medicare is 50% subsidized by the federal taxpayer, and therefore few realize they are quite right to be uneasy Medicare might be "robbed" to pay for Obamacare. No politician is comfortable discussing this issue, for fear his party will be blamed for injuring a perfectly blissful status quo. Naturally, everybody likes the idea of buying a dollar for fifty cents, and everybody likes to imagine payroll deductions and premiums create an impregnable entitlement. The sad truth is the 50% subsidy, paid for by borrowing from foreigners, practically guarantees Medicare will be eyed as a victim, using the "fairness" argument. Seniors on Medicare, of which I am one, should be immediately in favor of a proposal which forestalls such pressure. Unfortunately, right now every one of them is looking toward the sunset, counting on not outliving a threat which isn't going away.

2. The computer revolution, which makes lifetime health insurance even imaginable, has already severely impacted the investment community. It is still difficult to foresee which branch of the existing financial community would be natural allies, or natural enemies, of Health Savings Accounts. A remarkably large segment of the investment community already has HSAs for their personal affairs, and the banking community sees a chance that Bank Debit Cards could displace the huge industry of insurance claims processing. Meanwhile, the insurance industry is uncertain whether HSAs are a new revenue source, or a threat to existing lines of business. Meanwhile, the Dodd Frank legislation confuses everyone about winners and losers. Investment advisors have been hit hard by the recession, and are forced to charge $250 per trade when their competitors charge $7.50 for the same service. Just about everybody in the HSA business is uncertain whether HSAs are insurance policies with an attached savings account, or whether they are are investment vehicles with stop-loss insurance attached. It takes time for HSAs to achieve profitable size, so industry leadership hangs back to see what they look like when bigger.

3. There are lots of small advantages, but one big disadvantage. The transition from one system to another takes a long time, perhaps a lifetime for some.

How can we navigate a transition that might take a century to complete?

The answer to the long transition period lies in providing more than one method to close the transition gaps. Start from both ends, and find one or more methods to break into the middle. If lifetime insurance saves money, use some of it to overfund parts of the system as an incentive. When you find people are gaming the system, drop the feature which permits it. If the goal is accepted to speed up the transition, calculate what it is worth to accomplish it, and limit the feature as the transition speeds up. The method proposed in the previous chapter will certainly work out, but a newborn baby will be a Medicare recipient before children's insurance is complete for everyone. The rest of us have already lost some years for compounding, while some of us are already on Medicare and are, as they say, entitled. Therefore, we propose two other ways of getting to the goal. Reducing the cost of healthcare is one, to be taken up in Chapter Six. That one works for everyone's finances at any age.

The other method, which suits people of working age, is the present topic. It has two possible solutions, the issuance of special bonds, and as an inducement for dropping Medicare. In the present environment, using Medicare as a transfer vehicle is unthinkably unwise, politically. It can only be brought up as a voluntary exchange, long in the future when the financial attractiveness of the HSA approach is so well established it has no political downside, and can be used to pay for non-medical retirement costs after HSAs can comfortably cover medical ones. At that point, it would no longer have the stigma of "robbing" Medicare, but might be acceptable as making use of unspendable double coverage.

The safer approach is therefore to issue bonds to smooth out the bumps in what is essentially an equity investment; that's something to do with only the utmost care, and as rarely as possible. To match present cultural patterns, it must be recognized that working parents now fully assume the medical costs for their children, but only have a contingent liability for the medical costs of their retired parents. Therefore, our culture would probably readily accept bond indentures with similar structure, and resist bond issuance which differs significantly. In fact, it is a little difficult to imagine how we could devise any proposal which does not generally follow this pattern. An important feature would be to start the HSA at a very early age, adding as much as 26 years to the duration available for compounding. At 10%, that would be almost four doublings of the investment, and a fairly good start toward the initial goal of $40,000 in the account by age 65, but starting with relatively small investments. True, a bond issue would have interest to pay, but since the interest payment stays within the family it might be made less burdensome than taxes. As a practical demonstration of the superiority of equity investing, its invisible psychological value cannot be overstated. If our nation intends to rely increasingly on investment rather than salaries, it must increase its experience with sensible risks. Whether we like the idea or not, we are collectively taking long strides toward a rentier culture, where our main hope of advancement lies in greater willingness to understand and accept the reasons for market volatility. One of the features of even this attenuated risk-taking, is to recognize that some people will start their investing at the bottom of a dip, while others will start at the top of a peak. The long-term result will smooth it out, but some people are destined to make more profit in an equity market, than others. And some people are destined by the timing of their illnesses to end up with less money in the account than others, too. It may not seem fair, but tampering with investment cycles will not improve it. By establishing a system of buy-ins, both as a transition step and for late-comers, the opportunity of market-timing is created. Almost nothing is more discredited as an investment strategy than market-timing by amateurs, but it probably cannot be avoided here, and will probably exaggerate the differences in account size achieved by members of the same age cohort. Somehow, the attitude must be made general, that nobody would make anything at all in the accounts if we returned to annual premiums; all money in these accounts is "found" money. The books almost certainly will not balance completely at all stages, so it becomes a political question whether to forgive the difference (as Lyndon Johnson did in 1965), or to define it as a subsidy (as Barack Obama seems to be planning for his start-up insurance system.) Perhaps in accounting for residual medical costs, a way can be found to equalize outcomes, but it seems very unwise to tamper directly with such large amounts which are mainly responding to inherent volatility.

There are several other serious matters. They will be briefly noted, and then an omnibus solution presented, the IIOO. Let's answer one inevitable jibe immediately: How can poor folks afford this? Answer: They have to be subsidized, that's all, just as they are in every other proposal including Obamacare. It's important to face this, because neglecting it is the route by which every deficit has been incurred, every budget unbalanced. The term generally applied is, rationing. People who spend other people's money characteristically have higher than average health costs, but on the other hand Health Savings Accounts have proved to reduce costs by 30%. When both factors operate at the same time, result are not reliably predicted, but can be monitored. Miscalculations are usually paid for by debts, dropped options and dropped amenities. A politically appointed board would be wise to refuse the assignment to address this, unless contingency instructions are clear, and remain out of their hands. The group responsible for constraining unofficial solutions should be the same one responsible for paying the national debt, since the incentive is the same. When Congress eventually decides how to put a ceiling on the national debt, effective answers to this related issue may become more apparent.

Most of the transition problems (shifting from one-year coverage to lifetime coverage) have to do with whether you are a child, whether your children are gone and forgotten, or whether you are supporting everybody else in your family. As the old saying goes, how you stand depends on where you sit. The unique borrowing problem here, is complete transition takes so long that groups will differ significantly on whether to unify forward (child to grandparent) or backward (grandparent to child), until the bright idea occurs to borrow as a child and borrow a time as a grandparent, depending on what your situation is. The benefits of invested premiums are otherwise obvious to all groups, but the arrangements must be as flexible as possible. Since shifting payment from youth to old age could potentially affect compound investment return for sixty or eighty years, the savings potential to younger people is even more enticing. Don't forget the possibility a third generation might intervene -- their own children, as well as their parents and grandchildren. Since the modern use of index funds puts on the table the potential of diversified investment, without stock-picking, at ten percent interest -- issues like this simply must be explored. America seems to need increased fertility, and the compound income might make it possible, but if it is not carefully examined, it might act as an inducement for women to delay their first child even longer than they presently do. As long as you don't get overwhelmed by too many transition issues at once, almost any such intergenerational problem would likely be eased by generating more revenue. At ten percent, money compounds to double itself every seven years, and the resulting sums can boggle the mind. But if they are not planned for, the extra money will induce people to act like a deer frozen in the headlights.

Making ten or twelve percent on safe investments may seem impossible to those who have recently lost thirty percent on the stock market, and of course it is not guaranteed. That is why lifetime health insurance cannot be presented as guaranteeing payments for future services; only fixed-income securities (bonds) can do that, and even they, mostly don't succeed in real terms, or net of inflation. Lifetime health insurance only promises to supply a major portion of future health costs, and has little hope of doing more except by deliberately overfunding the accounts. We are decades into a fiat currency without semblance of backing by monetary metals, and must feel our way. However, the bright side of our new finance system is that transaction costs are steadily declining for reasonably safe passive investing. Professor Ibbotson has demonstrated that total market averages have been remarkably steady for asset classes over the past eighty years, and probably will safely remain so for another century, unless someone devises another Treaty of Versailles. When you invest in the total domestic stock market of America, your investment is guaranteed by the full faith and credit of America, just as surely as if you invested in U.S. Treasury Bonds. In view of the present uncertainties of the Federal Reserve unwinding Quantitative Easing, these are only relative matters, but they are the best anyone can offer.

Still another question comes from people who rightly believe there is no free lunch: Where does the extra money come from? A fast answer is that it comes from correcting a blunder of long standing, called the "pay as you go" system. To some extent, this problem began with the original Blue Cross plans of the 1920s, but it was elevated to its present stature by the Medicare and Medicaid proposals of 1965. By the pay/go approach, this year's premium money is spent for this year's sick people, not the people who paid the premiums. That ruse helped get the program started, but it means current unspent premium money is quickly gone, and thus it means no compound interest or investment income is generated by rather huge revenue collections in the future. Since health expenses rise with advancing age, a great deal of floating premium money might be invested for many decades, if only it had not already been spent. Actual projections are surprisingly large, but I would prefer that others announce their calculations, employing the motto of "Underpromise, but over-perform."

Other substantial sources of reserves exist, nevertheless. Health Savings Accounts now in operation are reporting 30% savings; since it is unlikely this record can be maintained with inpatients, who are generally older, overall savings may well turn out to be closer to 15%. Inflation helped a lot to pay off the original startup costs of 1965, but at least nominally it is true the debt has been paid. We are now free to invest that old transition cost, so to speak, but there is considerable squeamishness about the public sector acquiring equity in the private sector, so Treasury bonds are about the only public sector investment the public will allow. Investment experts are however almost unanimous in feeling that equities provide greater long-term income (see graphs by Ibbottson) and security against inflation. On the other hand, if private individuals invest in common equity with index funds, much less resistance is encountered. Any way you look at it some investment income is better than no income, and for long-term investment, equity is better. For political purposes, it would seem best to restrict investments to U.S. companies, and index funds are less controversial ("gambling with my money") for most small investors than actively managed funds because the savings mostly come from investment expenses. Fifty percent of investors would do better than average, fifty percent would do worse, but not much worse, because total index diversification is at a maximum. Meanwhile, compound interest would be at work, and most people would be astonished to learn how large the long-term appreciation would grow. Tax-free, diversified, and long-term.

Finally the question arises: how can you tell whether income from this source would equal the terminal care costs of fifty years from now? You don't, of course you don't. But this transfer and invest scheme would generate a whole lot of money that presently isn't being generated. If it isn't enough, we will have to do something in addition to it. The monitor and mid-course correction system is expected to detect that more money is required to balance the books, and therefore more money will have to be invested in the Health Savings Accounts. If savings are insufficient, either subsidies or borrowing will have to be resorted to. Experts sometimes will be wrong, so revenue should be raised somewhat higher than the experts think we need. And if it all goes wrong, if we have an atomic war or an expensive cure for cancer, there is always the national debt. Which is where we were to begin with, isn't it?. The extra risk is zero, but the total risk is unchanged.

Independent and Impartial Oversight Organization. (IIOO)After reviewing the complexities, it seems best to create an oversight body with more time and expertise than can be expected of elected representatives. However, Congress must make it clear that it retains ultimate authority to break from normal routine, occasionally concentrating its attention on conflicts between expert opinion and public opinion.

Working backwards, a mixed public/private system needs an official backer of last resort, a function which cannot be delegated, and an experienced crisis management team in place with the authority to act within defined limits, most of the time. The last resort has to be the full credit of the United States, just as it unfortunately now is with Medicare. What's mainly needed is a sort of Federal Reserve in the very narrow sense of an independent management team, under the direct governance of a Board whose composition is half public, half private. To be useful, it needs a monitoring authority provided by a mandate from Congress, a comparatively limited amount of regulatory authority of its own, intentionally limited by adequate board representation from all stakeholders. It needs to know what is going on, and it needs general authority and trust to act in an emergency. Many proposals may require a system of mid-course corrections particularly in the first decade of operation, at the same time the Board must not usurp Congressional authority.

Congress, on the other hand, must have the restraint of private oversight by technical experts who can appeal to the public, to make very certain it does not feel it has a new piggy-bank. Trends in medical care persist for a long time, but it requires experience to project what trends are emerging for large populations, since wildly deviant trends for particular individuals could appear at almost any time. Experience has shown that such agencies do tend to wander from original intent; we need a strong professional private-sector oversight for the public oversight, much more resembling the Supreme Court than Fannie Mae. Readjusting revenue collection may well prove necessary as the investment pool approaches a size when reasonable projections can be made; meanwhile collecting somewhat overgenerous payments to be safe from short-term volatility. This requires a monitoring system and a monitor board who can be trusted not to spend the revenue for unintended purposes, and who will enforce agreements for intended goals by having relatively long periods of tenure.

It also requires a backup plan in case something goes wrong, which the public can review without surprise. In this case, the ultimate fallback is into Federal indebtedness, the same as unfortunately is the case at present. Since it is impossible to imagine a single person or institution with every needed quality, it is here recommended that specific constituencies be represented independently, with group power balanced to assure overall balance of self-interest in the final decisions. Several months of deliberation are probably required to make a workable beginning, and a stream of technical amendments can be anticipated within the first ten years.

Let's summarize this summary:

1. The original idea of a Health Savings Account persists. There seems no reason to link the calendar years of deposit and investment to the calendar years of healthcare, except to assign the cost of the employee to his present employer. If lifetime sources of money can be found, there is no reason why an HSA could not begin at the day of birth, and end with the day of death. If exceptional circumstances are found, then change the age brackets. Regardless of those limits, deposits receive tax deductions, income accumulates tax-free.

2. Withdrawals are limited to medical expenses; by implication, the limitation is total lifetime health expense, but if scientific progress continues, it may be desirable to switch surpluses to retirement income.

3. If Congress favors subsidies to the poor, they may be deposited in HSA accounts on behalf of the poor, and allowed to compound. About 20% of the population shifts between the top and bottom quintile during their lifetime.

4. Investment of the accounts is limited to index funds of domestic common stock and US Treasury bonds. If corporations increasingly shift headquarters between nations, world index funds may become preferable. Individuals may select their own index fund, but if a three-year trailing average performance is within the bottom quarter, it can be redirected by the IIOO into a fund within the top quarter.

5. Experience may show that certain age groups consistently run deficits, others run surpluses. The IIOO may facilitate intergenerational loans between the two groups. Once patterns have been established, it is probably better to organize intergenerational loans in the form of tailor-made bond issues than to be constantly organizing bank loans.

6. Deposit limits are at present $3300 per year. If the group average performance falls, the IIOO may raise the deposit limit, define exceptional limits for new accounts, or otherwise respond to evidence of changed circumstances.

7. The IIOO may regulate fund management fees and practices, within limits set by Congress.

8. Medical outpatient costs are paid by bank debit cards and monitored by IIOO; institutionalized patients will be reimbursed by a revised DRG system based on SNOMED; the IIOO will assure that reasonable balance is maintained between the two systems, avoiding incentives to affect the location of patients for the same condition.

9. Selection of membership for governing bodies within the IIOO shall be based on special training within the field of activity, as in investments, medical care, etc. Nevertheless, membership should be half-public, half private-sector, with the chairman subject to Senatorial approval.

CHAPTER FOUR: Proposals to Extend Regular
Health Savings Accounts

Initial Improvements in Regular Health Savings Accounts: Summary

Health Savings Accounts have always been a good idea, and could be vastly improved by six simple amendments. Right now, without any new legislation, they are producing 30% savings by providing incentive to their subscribers to spend frugally on medical expenses. Alone of the options available in American health insurance, they permit investment compounding of unused premiums and return the investment to the subscriber. By being linked to a high-deductible insurance policy and using a bank debit card to pay small medical expenses, they reduce the premium of the insurance by eliminating the most expensive component of claims processing administration. They, alone among insurance alternatives, permit the lucky few who remain healthy throughout their working years to transfer any insurance surplus into an ordinary IRA, where they help finance retirement. They thus help the people who live too long, just as much as the people who die too soon.

If they are so attractive, why doesn't everyone choose HSAs for their health coverage? Primarily, the answer is that the individual owns his own policy, which would ordinarily be an advantage. In this case, they do not receive the income tax deduction which is available when their employer buys the insurance for them. The disadvantage is a tangible one, while the advantages are more long-term. We suggest this disadvantage could be easily remedied by paying the insurance premium in two steps: to the HSA, which is itself tax-exempt (Proposal #1), and then passed on to the insurance company. Whether this change could be made by regulation, or would require legislation is not clear.

Furthermore, enrollment in HSAs would be immensely stimulated by permitting Flexible Spending Accounts to roll over into HSAs from year to year (Proposal #2).

Thirdly, the electronic insurance exchanges proposed by the Affordable Care Act are perhaps somewhat too ambitious, but it does seem like a good idea to reduce administrative costs with direct marketing of the insurances, direct premium payments, and direct payment of claims to providers. When these features are implemented, they should be extended to Health Savings Accounts (Proposal #3).

Because of societal conflict over who is responsible for obstetrical costs, the father, mother or child, there is some uncertainty in health insurance about similar matters. However, if obstetrics and child care could be considered the responsibility of the child for health insurance purposes alone, it might clear the way for Health Savings Accounts to add an additional 26 years to the duration of internal compounding of reserves. This change alone would place the solvency of HSAs beyond all question. (Proposal #4).

The linkage of Health Savings Accounts to a high-deductible insurance creates a logical distinction in payment, of using bank debit cards to pay outpatient, and the high-deductible insurance to pay inpatient costs, especially where payment is based on diagnosis. Since hospitals may well differ in their preferences, this matter should be clarified in regulations. There is also the problem of emergency room payments, which are often treated as inpatient costs if the accident victim is later admitted. (Proposal #5).

One of the great muddles of present healthcare payment, is the translation of Diagnosis-Related Groups into indemnity equivalents. The DRG should be completely revised, utilizing the SNOMED code rather than ICDA, and relating these services into their indemnity equivalents. It is suggested that DRG payments should be nationwide, but adjusted to the individual institution through audited direct and indirect overhead supplements. (Proposal #6).

These six, fairly simple, proposals would greatly enhance the Health Savings Account, and make it reasonably able to compete with the advantages which have been patched into one-year term health insurance, over the past century. If lifetime healthcare insurance then begins to demonstrate its real attractiveness, a demand will arise for enhanced features which may require more preparation and debate. In Chapter Six, we speculate about some of the potential for using HSAs to reduce Medicare indebtedness, finance retirements, and essentially pay for all healthcare with investment income. Most of the problems which bedazzle the newcomer are related to the century-long transition period imposed by everybody being of different ages. Our solution is to have more than one solution, some more suitable for different age groups than others.

Decline and Fall of Philadelphia

{William Bingham class=}
1929 Crash

We talk high finance here, so perhaps a simple story from Wall Street is needed to introduce the topic to a non-Wall Street audience. Following the 1929 crash, and consequent to the Glass Steagall Act, Morgan Stanley was the only American investment bank in existence. It was the first of a new kind, and barely in existence, doing something like $300,000 worth of business in 1933. As finance adjusted to the new ground rules, Morgan Stanley grew in size, commonly referred to as the "White Shoe" investment bank. That term was an allusion to the Ivy League background of its partners, who came from colleges which affected white buckskin shoes among their more elite students. It also referred to the fact that almost all Morgan Stanley partners were pretty rich and fairly young, entirely able to live by a code of behavior which might be summarized as, "We don't find it necessary to cheat." Buried within that motto was the idea that Morgan Stanley was as good as its word, and tried very hard to avoid doing business with anybody who did cheat. In a business where a great deal of business was transacted too quickly for written contracts, or vetting by law firms, that meant a lot.

{William Bingham class=}
Morgan Stanley

Morgan Stanley soon climbed to the top of a very tough heap, and stayed there for fifty years. Many of its partners were millionaires in their twenties, but so what, they were mostly pretty rich before they joined the firm. The company ran as a partnership, with the capital they leveraged coming from the personal fortunes of the partners. Under these circumstances, it is not surprising that many partners retired in their forties, taking their enhanced capital with them. The Glass-Steagall Act (now being imitated by the Volcker Rule within the Dodd-Frank Law) made it illegal for a depository bank to be under the same roof with an investment bank. Much of the capital in the pre-1929 days had been supplied by the deposits in the depository bank, but Glass Steagall cut that off when it created depository insurance, on the theory that deposit insurance was a Federal gift, and its "moral hazard" should not flow through to the speculation of investment banking. That comment was tinged with a little populism, with the dubious implication that those who are two generations off the farm are less likely to cheat than those who are five generations off the farm. So the depository bank of Morgan Guaranty was split away from the investment bank of Morgan Stanley, which was the three-step process by which Morgan Stanley eventually grew so big it could no longer be sustained by leveraging the personal wealth of the partners.

{William Bingham class=}
Buy And Sell

Eventually, the pressure to raise money by selling stock to the public could no longer be resisted. The rich partners became even richer by selling stock on the stock exchange, the company did grow enormously, and a lot of new stockholders got rich, too. Unfortunately, when you sell stock you also sell voting rights, so the sale transferred voting control of the company to the new stock purchasers. It did not take many years before the white shoe atmosphere was a thing of the past, along with the discipline that atmosphere imposed on the rest of corporate America. When the 2008 crash came along, there was enough questionable behavior on Wall Street to justify a populist President of the United States to tolerate, or even encourage, a witch hunt of Wall Street bankers for ruining the country. Even so brilliant an economist as Paul Volcker has encouraged the idea that separating the two forms of banks was an unmitigated blessing which must be restored, while in fact it is only justified by the gift of Federal Deposit Insurance to the depository arm, not the Investment Banking Arm. It seems only a matter of time before there will be agitation to extend the insurance to the investment arm, so we will be chasing our own tail, of extending insurance to encourage risk-taking, instead of using demand deposits to do so. And thus inviting another crash.

{William Bingham class=}

No matter. The point of the story is not the value of Glass Steagall, but rather the enormous power of Wall Street to force a partnership to become a stockholder company, even so mighty a company as the House of Morgan. Because I have become persuaded, and hope to persuade the public, that this is the main mechanism which humbled Philadelphia from being the mightiest industrial engine in the world, in less than twenty years. Like the perfect storm, it took three other forces to make it quite so violent, and quite so swift. They were the first World War, the 1929 stockmarket crash, and Prohibition. The central operational lever of force was exerted by converting industrial corporations, from partnerships into stockholder corporations. That was the tool which destroyed the old Philadelphia, the other three forces simply made it happen in certain ways and at certain times.

{William Bingham class=}

One way or another, converting partnership or family businesses into stockholder organizations was a universal outcome of both World Wars, all over the world. The phenomenon can be looked at as one way of extracting frozen wealth to pay war debts. It is accompanied by an increase in national indebtedness, so it makes civilizations less stable. Scraps of partnership control do continue to persist in remote developing countries, and in tiny principalities like Luxembourg, but it seems only a matter of time before the public buys them out. Tightly held countries are tightly held by force, as in Russia, Saudi Arabia, and Monaco, usually because of a monopoly grip on oil or other natural resources. But even those governments could probably be toppled, except for fear of ensuing chaos, just as did happen to many former dictatorships, and was a source of fear in Philadelphia. A case can be made for populism, if it be kept small and under control. Hardly any case at all can be made for chaos.

{William Bingham class=}
Brewerytown Map

For those of us who love Philadelphia and wonder what happened to it, let me point out three defining local peculiarities. Prohibition was more of a factor than we like to think, because Philadelphia's Tenderloin was the former Brewerytown, filled with Beer Gardens, refrigeration plants (Lager beer is brewed in the cold) and beer distributors. The passage of the Volstead Act suddenly transformed the largest alcohol-production center in the country into the largest alcohol-consuming area, from River to River, from Franklin Square to the Schuylkill. It was concentrated in the Brewerytown by being illegal, and somewhat secret. Brewerytown soon turned into the Tenderloin, and the Tenderloin into Skid Row, cutting off North Philadelphia from law and order, but in time it was alarming in a different way to see speakeasies spread into other sections of the city. Much as it tried, even the Mafia couldn't control the influx of amateur criminals, when the Tenderloin essentially cut the city in half. When the great migration from the South occurred after WW II, the immigrants turned North Philadelphia into a slum. Cutting I76 along the same center-city lines helped shrivel North Philadelphia and hustle its flight to the suburbs. Some misadventures of Philco and Ford, Baldwin and Stetson hastened the process, and may have caused some of it.

{William Bingham class=}
Pennsylvania Railroad

America grew into a mighty industrial nation as a result of becoming the Arsenal of Freedom in the Civil War and two World Wars. The nation needed to expand its industrial base from the essentially monopoly corridor of the Pennsylvania Railroad, and it had the money to do so. Land was cheaper elsewhere, labor was nonunion elsewhere, and air conditioning made the South bearable. Wall Street saw an enormous opportunity to buy stock from the family partners of Philadelphia industries, and sell it again to the world. These new owners had no interest in preserving lovable Philadelphia; they wanted to reap the harvest of expanding what we had, to the rest of the country, maybe even the rest of the world. Once a spiral like this gets started, it runs by itself. The owners of the mansions on the hills, proprietors of what were big businesses by Victorian standards, sold their partnerships, their children were converted into coupon clippers, and their grandchildren into trust-fund babies. If you really have nothing much to do, why not do it in California next to the beaches? Hollywood made trust fund babies seem glamorous on the Main Line, just as Madison Avenue had once made expatriots on the left bank seem fatally attractive. Those movies and novels made somebody pretty rich, but whoever it was, doesn't live there, any more.

Dr. Fisher, The name Philadelphia University was adopted in 1999, as you write, but the institution dates to 1884 and has been on School House Lane since the 1940s. It acquired the former properties of the Lankenau School and Ravenhill Academy, but it did not "merge" with either of them. I hope this helps when you update your site.
Posted by: David Breiner   |   Jun 11, 2014 10:05 PM
Hello Dr. Fisher, I was looking for an e-mail address and this is what I could find. I must tell you my Mother who you treated for years passed away last May. She was so ill with so many problems. I am sure you remember Peggy Marchesani. We often spoke of you and how much we missed you as our Dr. You also treated my daughter Michele who will be 40. I am living in the Doylestown area and have been seeing the Dr's there.. I just had my thyroid removed do to cancer. I have my fingers crossed they get the medicine right. I am not happy with my Endochronologist she refuses to give me Amour. I spoke with my Family Dr who said he will take care of it. I also discovered I have Hemachromatosisand two genetic components. I have a good Hematologist who is monitoring me closely. I must say you would find all of this challenging. Take care and I just wanted to convey this to you . You were way ahead of your time. Thank you, Joyce Gross
Posted by: Joyce Gross   |   Apr 4, 2014 2:06 AM
I come upon these articles from time to time and I always love them. Is the author still alive and available to talk with high school students? Larry Lawrence F. Filippone History Dept. The Lawrenceville School
Posted by: Lawrence Filippone   |   Mar 18, 2014 6:33 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
George, Mary Laney passed away last November. I was one of her pall bearers. She had a bad last year. However, I am glad that you remembered her and her great work. I will post your report at St Christopher's and pass this along to her husband Earl. Best wishes Peter Hunt
Posted by: Peter Hunt   |   Mar 28, 2013 7:12 PM
Hello, my name is Martin. I came across [] and noticed a ton of great resources. I recently had the honor of becoming a part of a new non promotional project on We decided to put together a brief guide about cirrhosis, and the dangers of drinking. We have received a lot of positive feedback and I wanted to suggest that we get listed on the above mentioned page under The National Institutes of Health. Let me know what you think and if you have any further requirements or suggestions.
Posted by: Martin   |   Jan 1, 2013 8:51 AM
Posted by: SUSAN WILSON   |   Aug 12, 2012 12:49 AM

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