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

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Obamacare: Spare Parts for a Book
Maybe these should have been included, but it was decided to leave them out.

Right Angle Club: 2014
New topic 2013-11-19 20:22:11 description

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 between them. All three are superior to "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. (www.philadelphia-reflections.com/topic/262.htm)

Reflections on Impending Obamacare
Reform was surely needed to remove distortions imposed on medical care by its financing. The next big questions are what the Affordable Care Act really reforms; and, whether the result will be affordable for the whole nation. Here are some proposals, just in case.

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Some Brief Examples of HSAs .

SOME BRIEF EXAMPLES, EXPLAINING LIFETIME HSAs .

Obamacare does not include Medicare recipients. However, it is a familiar topic, and its data are fairly accurately available in a unified form. So future Obamacare costs are readily understood by subtraction of Medicare costs from lifetime totals, and future changes can be more readily integrated. The average lifetime medical costs are roughly $325,000, as calculated by Michigan Blue Cross, who devised a system for adjusting costs to year 2000. The results have been verified by several Federal agencies, although the method includes diseases and treatment which we no longer see, and adjusts for inflation to a degree that is startling. Medicare data are more precise, but have the same trouble adjusting for the changes of half a century. By this method, we get the approximation of $209,000 for Medicare. By subtraction we get the data approximating what Obamacare would cover, slightly confounded by including the small costs of children. That is estimated by subtraction to be $116,000. The revenue to pay for these costs is assumed to come entirely from the working years of 25 to 65. In the examples which follow, the Health Savings Account data are the maximum annual allowable ($3350) multiplied by 40, representing the working years, so they represent the maximum contribution, adjusted for compound investment income at 6.5%, and paying for lifetime costs.The aggregate cash contribution is thus $134,000, which without being disturbed by withdrawals, at 6.5% would hypothetically grow to the astonishing figure of $3.2 million by age 93. A more conservative interest rate of 4% would reach nearly a million dollars. The conclusion immediately jumps out that there is plenty of money in the approach, with the main problem remaining, somehow to devise a way to get it out in adequate amounts when the average is adequate but an occasional outlier cost is extreme. In these examples, inflation in revenue is assumed to be equal to inflation in costs, an assumption which is admittedly arguable.

HSA and ACA BRONZE PLAN: A FIRST LOOK. Although a catastrophic high-deductible plan must be attached to a Health Savings Account, and the Affordable Care Act provides a catastrophic category, those plans are not available after age 30 except in hardship cases. Therefore, at the present writing it is necessary to select the plan with the highest deductible and the lowest premium, which happens to be the Bronze plan. "Lifetime" coverage with this, the cheapest ACA plan, would amount to $170,000, or $38,000 more than the most expensive HSA allowed by law. That's about a 22% difference. And furthermore, the bronze plan does not allow for internal investment income accumulation, which could amount to five times the actual premium revenue if held untouched until the end of projected life expectancy.

A more conservative analysis would end at age 65, because that is where the Affordable Care Act presently ends. Stopping the investment calculation at age 65 would lead to the same $170,000 for the bronze plan, compared with an adjusted price of HSA of $132,000, less a 6.5% gain of $xxxx, or $xxxx. To be fair about it, the gain would have to be adjusted for inflation, which at 2% would amount to $xxxx, a xx% difference. Let's make a more dramatic assertion: The difference between the most expensive HSA and the cheapest Bronze plan, would be $xxxx. In a minute we will discuss the reasoning applied to Medicare, but it will show that a deposit of $80,000 at the 65th birthday would pay for the entire average lifetime of twenty years as a Medicare recipient. In a manner of fast talking, you get a lifetime of Medicare coverage free, somehow buried within the HSA approach. That's an exaggeration, of course, but at a quick glance it could look that way. We haven't accounted for Medicare payroll deductions or premiums. Or government subsidies. And we haven't depleted the fund for the medical expenses it was designed to pay.

HSA AND MEDICARE. Medicare Part A (the hospital component) is free, and the system while generous, is pretty ramshackle. Furthermore, it isn't free, since it collects a payroll tax from working people, and collects premiums from the beneficiaries. Almost no one understands government accounting, but it has the unique feature that its debts are often described as assets. That is, transfers from another department are assets, so money which is borrowed, from the Chinese let's say, is placed in the general fund and transferred internally, so such debts are assets. And the annual report (available from CMS on the Internet) shows that 50% --half-- of the Medicare budget is such a transfer asset, otherwise known as a subsidy. Medicare is a popular program, because a fifty percent discount is always popular; everybody likes a fifty-cent dollar. Unfortunately, the elderly Medicare recipients perceived the Obamacare costs were underestimated, and became suspicious Medicare would be raided to pay for it. Therefore, every elected representative regards Medicare as the "third rail of politics" -- just touch it, and you're dead.

THE OUT-OF-POCKET CAP FUND. The Affordable Care Act contains two innovative insurance ideas for which it should be given full credit: the electronic health insurance exchanges which unfortunately caused such havoc from poor implementation, nevertheless have great potential for reducing marketing costs with direct marketing, and should be given full credit. And secondly, the cap on out-of-pocket payments is really a form of re-insurance without the cost of creating a re-insurance middleman. It is this which is the present focus. Three of the "metal" plans have deductibles of about $6000, and two of the plans have $6000 caps on out-of pocket cash expenses by the beneficiary. How these two features will be co-ordinated is not yet clear, and does not concern the present discussion.

The point which emerges is the original Health Savings Account was based on the concept of a high deductible, matched with enough money in the fund to pay it. Effectively, it provided first-dollar coverage without the cost-stimulating effect, and experience in the field showed it worked out that way. However, the forced match of HSA with one of the metal plans interfered to some unknown degree with the comfort of virtual first-dollar, and the cost reduction of a psychological high deductible. The premium is higher, because an increased volume of small claims is covered, and may be exploited. And an increased pay-out means less cash is available for investment. The result could be either higher costs or lower ones. And therefore, the idea arises of a single-payment fund of initially $6000, deposited at age 25 (Since that might well be a hardship for many young people, an additional feature is required). But the power of compound interest is such that this reserve would eventually become seriously overfunded. If the hypothetical client deposited $6000 at age 25, he would have accumulated $80,000 from this source alone. That's enough so that if it were paid to Medicare on the 65th birthday, it would pay for Medicare for the rest of the individual's life. But since it would not be needed from age 50 to age 65, further compounding (at the arbitrary rate of 6.5%) to $320,000 or some such amount, at age 65. Therefore, the following uses can be envisioned: ( 1.) Lifetime health insurance without premiums after 65. (2.) Since Medicare premiums would not be required, the Medicare premiums would not be required and should be waived. Money which flows in from earlier payroll deductions could be diverted to paying off the Chinese Medicare debt. (3.) We have glossed over this matter, but everyone was born at someone else's expense, and should pay off his debt for the first 25 years of his own life. (4.) If circumstances permit, the client should be able to transfer $6000 to other members of his family for the same funding as he got it. (5.) Surpluses might persist in exceptional circumstances, and the option to supplement his own retirement funds might be offered. Eventually, it seems inevitable that the premiums for "metal" plans would be reduced.

At the very least, one would hope that this dramatic example of the power of compound investment income would encourage wider use of the principle.

How Certain Numbers Were Derived

These are important numbers to know, but difficult for most people to understand what they mean. That will of course depend on how they are derived, a subject of much less interest to many people. Therefore, the more controversial numbers are discussed in this chapter, which the reader may skip if he chooses.

WHAT IS THE AVERAGE LIFETIME HEALTH CARE COST, PER PERSON, AT PRESENT RATES?

Most people in the past did not live as long as they do today, so the "average person" is a composite of older people who had illnesses as children which we seldom see today, plus some who may well live beyond recent expectations, but who live beyond the age of death of their parents. One surmises this tends to include among "average" some or many hypothetical people who had both more illnesses as children, and who will have more illnesses as retirees. This would lead to an average with more illness content than the future likely contains.

Prices in the calculation have been adjusted to 2000 prices, slightly less than 2014. Furthermore, there has been a 2% inflation adjustment, which reflects that a dollar in 1913 is now worth a penny, so we expect the penny to be worth 0.0001 cents in 2114. It is hard for most people to wrap their heads around such calculations. There is a $25,000 lifetime difference between the sexes, but the highly hypothetical result is this statement: The Average Person Can Expect Lifetime Health Costs of $325,000. Since most assumptions lead to an overestimate of future real costs, this number is conservatively on the high side. Comparatively few people would think they can afford that much. That is, plenty of people are going to feel stretched to adjust their savings to that level of inflation. It's the best estimate anyone can make, but by itself alone it seems to justify organizing a government agency office to match average income with average expenses, and to make the ingredient data widely available to many others outside the government on the Internet, to maximize the recognition of serious errors, unexpected financial turmoil, the development of new treatments, and changes in disease patterns. Inevitably, these calculations will be applied to other nations for comparison, but that is a highly uncertain adventure.

HOW DO YOU CALCULATE CHILDREN'S HEALTH COSTS?

Like Archimedes announcing he could move the World, if he had a long enough lever and a place to stand, accomplishing this little trick could arrive at impossible assumptions. Our basic assumption is that paying for your grandchildren is equivalent to having your parents pay for you, even though the dollar amounts are different. It's an intergenerational obligation, not a business contract, and you are just as entitled to share good luck as bad luck when the calculation is shaky at best. Since children's costs are relatively small, little damage is anticipated from taking present costs, adjusted for inflation, for both past and future.

Is it reasonable and/or politically possible to lump males and females together, when females include all the reproductive costs, and have a longer life expectancy? How do we apportion the pregnancy costs between mother and child, with or without including the father? What is fair to those who have no children? What costs do we include as truly medical? Sunglasses? Plastic Surgery? Toothpaste? Dentistry? The recent hubub about bioflavinoids threatens to convert what was mainly regarded as a fad, into a respectable therapy for allergy. When allergists and immunologists agree it is a fad, you don't pay for it; if substantially all of them think it is medically sound, pay for it. The opinion of the FDA informs the profession, it does not substitute for that opinion. Quite aside from cost issues, all of these issues affect the statistical ground rules, and may not have been treated identically among investigators. Unverifiable 90-year projections must be thoroughly standardized to be useful, and that's one committee I shall be glad to avoid, because I do not believe the improved accuracy is worth the dissention. When somebody discovers a cure for cancer or Alzheimers, rules may have to be revised, net of the cost of the treatment, and net of the increased longevity. Government accounting, private accounting, and non-profit accounting are three different schools of thought for three different goals; when a government borrows outside of its accounting environment to reimburse providers of care, misunderstandings of the "cost" consequences result, in the three definitions of medical costs. In short, only broad qualitative trends can be credible at the moment.

CRUCIAL FINAL QUESTION: FUNGIBILITY (Shifting money around)

Some of the foregoing examples are lurid, and perhaps a little dramatized for effect. But the effect of compound investment income is so impressive, that there really is little question there is plenty of money to do just about everything which needs to be done in health financing. The problem, however, is how to get enough money to pay the right bills, at the right time. The temptation to steer the money into the wrong places has been present since Isaac and Esau, and while the pooling principle of insurance (and government) solves that problem, excessive use of that flexibility is what mainly got us into the present mess. The intrusion of government can be traced to the "pay as you go" system, which amounts to paying long-term debts with current cash flow. This money has been present right along, but political considerations created pressure to begin the government system, right away, and for everyone right away. The citizens are partly responsible, since they have taught politicians they must respond to people taking off their shoes and pounding the table with them. So, yes it's true that compound interest gives an advantage to frugal people, and to some extent to people who are already prosperous. But egalitarianism doesn't justify refusing to do what is in the general interest of everyone. We are currently in a pickle because we took egalitarian short-cuts in 1965, and have preferred to borrow money for healthcare, ending up paying many times what we need to pay, rather than yield to mathematical principles discovered by Euclid, or perhaps it was Archimedes.

But while Health Savings Accounts, individually owned and selected, have more investment flexibility to take advantage of the necessarily higher returns of the private sector, and the flexibility to choose superior investment techniques as they are invented, and the flexibility to adjust to personal circumstances rather than universal absolutes,-- they lack the flexibility to pool resources between different persons and times. Perhaps this flexibility could be extended to whole families, since there are shared perplexities of pregnancy, age group and divorce which must be addressed in a communal forum, and perhaps churches or clubs could fill that role. But in our system sooner or later you get mixed up with a lawyer, judge or investment advisor. And therefore must contend with moral hazard, and disloyal agents. By this time, I hope we have learned the weaknesses of that new branch of government, the government agencies. As Adlai Stevenson quipped, "It used to be said, that a fool and his money are soon parted. But nowadays -- it could happen to anyone."

So I recognize that although some people in a Health Savings Account system will have barrels of money, while others will be desperately in need, the fact that on average there is plenty of money to fund everybody isn't quite good enough. Somewhere a pooling arrangement must be created, and the fact that the people running it will be overcompensated must be shrugged off as inevitable. But since the people who trust it will be fleeced, they might as well be the ones to create or select it.


FOREWORD

This book was intended as part of a larger volume about the Affordable Care Act of 2010, commonly called Obamacare. However, that whole episode is still vexed with unexpected developments, so I set the longer version aside lest it get still longer. This slimmer one concentrates on what I would offer in place of the ACA. I fully expect any criticism of an American President's plan to be greeted with, "OK, wise guy, what would you suggest that's better? " So, here it is.

It's the Health Savings Account, in two forms. The 1981 version works pretty well, but the passage of time shows the need for a dozen or more tweaks, which are explained individually. The original version has demonstrated a 30% cost reduction among several million early-adopters. So perhaps if we polish a few rough spots, the 30% savings will spread the idea further. Whether it spreads any faster will unfortunately depend on national politics.

Meanwhile, in searching for a way to cut cost, I discovered much less expensive variations of Health Savings Accounts can be developed on a lifetime model. Lifetime insurance makes it possible to eliminate costs like covering gall bladder removal in people whose gall bladder has already been removed. Even more important, it provides a framework for combining several advances like: whole-life insurance, passive investing, direct-pay insurance, and possibly even some Constitutional reconsiderations. Extra complexity worries me somewhat, because although some people will quit trying to understand it, and just adopt it because it works, other people will reject it because it sounds confusing. As it gets more complicated, it just has to get more paternalistic, and opinions differ on whether that is an advantage. There are enough Americans who won't accept anything unless they understand every word of it, so their carefulness will keep it slowed down. Even that has some advantage: a careful approach will upset fewer apple carts.

No doubt the two versions of Health Savings Accounts could be described in fewer pages. But greater density often hinders comprehension, seldom helps it. Furthermore, presenting an alternative without a critique would leave the reader uncertain whether I believe the Affordable Care Reform presently goes too far, or not far enough. (In fact, both things are true, because it seems so likely both government and business employers will abandon the patient in pursuit of other agendas.) At the same time, the present system seems unsustainable. It needs more balance between benevolence and fiscal prudence, and it needs more restraint to both sides protesting the other will ruin us. Of course we must do what we can for the poor. But we also need to stop promising more than we can deliver. In the very long run, it won't be politicians, it will be scientists who seriously reduce the cost of disease for everyone, by eliminating diseases. Until that happy day arrives, we need to maintain a lowered tension of attitudes. When government and business operate as partners, that's nice, but somehow it doesn't sound like a level playing field for the rest of us.

The Affordable Care Act contains at least two innovative ideas which I certainly endorse. The idea of direct payment of insurance from client to insurance company (replacing employers as absentee brokers), is good, since it reduces the temptation for financial intermediaries to abuse the role of umpires. Rent-seeking is the technical term for this, I believe. Most office and outpatient claims could be paid by a bank credit card, streamlining the slow and expensive claims processing approach. Sadly, we may never know the full benefits of direct payment, because public dismay at the fumbling introduction of computerized insurance exchanges could poison direct-pay indefinitely. And secondly, to go on with my diplomatic message, the ACA use of a "cap" on out-of pocket payment seems like a simple, clever way to avoid adding another costly layer of re-insurance. The system already requires three levels of insurance (basic, supplementary, and major medical) to pay simple claims completely; it doesn't need more layers. These two features, translated as -- more business efficiency, and less mission-creep -- could easily be allied with Health Savings Accounts, which already bring financial pragmatism to several million Americans, voluntarily. Remember, this country responds poorly to almost anything with the word "mandatory" in it.

However, two points of agreement are not enough innovation to balance the remaining unevenness. I regret how the Affordable Care Act continues to push the square peg of "service benefits" into the round hole of casualty insurance. That sort of incompatible mixture befuddled things for a century, and I look for little good to come of it. Except for helpless hospital inpatients with a tube in their nose, service benefits generate rent-seeking, because service benefits blur the boundaries and create loopholes. Later on, we describe the confusion and exploitation created by service benefits (renamed Diagnosis-Related Groups) as a method of reimbursement. If sharpened and refocused, they ease the problem of negotiating prices with people too sick to cope with finances. But wide implementation of that approach without thoughtful pilot testing, has resulted in bewildering chaos in outpatient pricing. Even dropping DRG and returning to the old system would now pose a daunting risk, for one main reason. The DRG system has made hospital outpatient prices -- totally meaningless. As a goal, the role of service benefits should be revised for inpatients, but eliminated for outpatients, who are generally alert for better bargains. Two systems of payments, for two entirely different requirements. As it happens, this is neither the fault of Obamacare nor inherent in Health Savings Accounts. So we must break off with the essential moral: one size fits all is a poor approach, and mixing two fairly good approaches into one approach for everyone, leads into the wilderness.

The Health Savings Account is a mixture of two approaches which leaves the choice flexible enough, for the patient to go either way. It's a mixture of cash payments with insurance coverage. It can be viewed as cash with insurance standing behind it, or it can be viewed as insurance with cash to fill in the gaps. That may be a problem for Congress to decide which committee has jurisdiction, but in practice it is a useful incentive to be frugal. The tendency should be resisted to specify that one is to be used for inpatients, and the other for outpatients. That's the way it mainly works out, but there are plenty of exceptions. My friends in administrative positions will have to forgive me for saying no one really likes uniformity -- except administrators. What has evolved is to make a hybrid of the two approaches and apply the hybrid to everyone. Admittedly, individually owned accounts create some technical difficulty for tax-free cross-subsidy, and I thoroughly understand the nation's attachment to pooled insurance as a way to subsidize the poor and helpless. But technical difficulties can be overcome, whereas pooled insurance, totally under political control, will usually impoverish a good-hearted nation; and that's where we are heading. I'm not going to explain further, because it's not the main topic of the book. The main topic is how to save money. No matter how complicated it sounds, at least it's easy to measure the result.

Regardless of chapter markings, there are only two topics: regular Health Savings Accounts, as they exist today. And Lifetime Health Savings Accounts, as I hope they will evolve, tomorrow.

George Ross Fisher, MD

Philadelphia

November, 2014


SECOND FOREWORD (Whole-life Health Insurance)

Reader, switch your mental gears. This second Foreword is a summary of a radically modified proposal. The Health Savings Account idea was originally created in 1981 by John McClaughry of Vermont, jointly with me, as a form of health insurance and now has subscribers numbered in the millions. While its progress has been fairly slow, it's jarring to have it portrayed as a spoiler when it's been around for thirty years longer than the President's plan. His plan was probably rushed too fast, and mine hasn't been pushed hard enough. On the other hand, the revised proposal, called Lifetime Health Savings Accounts, really is brand-new.

Elements of it have been around for a century, but even the life insurance industry might be dubious to hear whole-life coverage presented as an investment. After all, life insurance makes little real difference to the donor, after he is dead; it's primarily for transferring benefits to someone else. That's why the concept of "cash value" was added. As the level of income taxation rose, tax-free internal transfers assumed new value. No doubt, life insurance didn't generate as much money a century ago as it does today, mostly because longevity is so much increased. Extended life expectancy gives compound interest so much longer to grow, it transforms the practical uses of the vehicle. If you desire intergenerational cost shifting for health costs, you probably must incorporate some form of insurance as a pooled transfer vehicle. This newer variation also enables shifting funds within the account, to a later time in life. That adds up to a much stronger individual incentive for savings than proposing your generation might support mine.

As a final feature, Catastrophic high-deductible is here added, providing stop-loss protection. It's single-purpose coverage, based on the idea that the higher the deductible, the lower the premium. Cost saving runs through all these multi-year ideas, but lifetime coverage is a cost-saving whopper. It transforms Health Savings Accounts into a transfer vehicle for funds, from one end of life to the other, forward from the present. And backwards from the future in the form of reduced Medicare premiums and/or payroll deductions. The last-year-of life could be chosen as an example because it comes to 100% of us, and is usually the most expensive year for healthcare. But needs differ, and a ton of money sounds pretty good at any age. A Health Savings Account can also be used as a substitute for day to day health insurance; so to distinguish the two, this particular variation has been called Lifetime Health Savings Accounts. Another term might be Whole-life Health Insurance, although multi-year health insurance is probably more precise. The idea behind presenting this concept piecemeal it to provide flexibility for both overfunding and underfunding, since the time periods for coverage can be so long (and the transitions so variable) that both eventualities might occur at some point.

The simple idea is to generate compound investment income -- not presently being collected -- on currently unconsumed health insurance premiums. And eventually, to apply the profit to reducing the same individual's future premiums. Even I was startled to realize how much money it could save. It's essentially a scaled-up version of what whole-life life insurance does. Since lessened premiums generate lessened investment income, the math is complicated even when the theory is simple, but every whole-life insurer has experience with it. For example, if someone had deposited $20 in an HSA total market Index fund ninety years ago, it would now be worth $10,000, the average present healthcare cost of the last year of life. Neither HSAs nor Index funds existed ninety years ago, and of course we cannot predict medical costs ninety years from now. This is therefore only an example of the power of the concept, which we can be pretty certain would save a great deal of money, but skips the guarantees about how much. Investment problems are discussed in Chapter Four.

Furthermore, people would be expected to join at different ages, so the ones who join at birth in a given year have accumulated funds which must be matched by late-comers. In our example, if a person waited until age twenty (and most people would wait at least that long), he would need to deposit $78 to reach $10,000 at age 90. It's still within the means of almost anyone, but the train is pulling out of the station. Participation is voluntary, but no one saves any money by delaying subscription, and learns a bitter lesson when he tries. Notice, however, that no one pays extra for a pre-existing condition; it costs more to wait, but it does not cost more to get sick while you wait. If the government wants to pay a subsidy to someone, let the government do it. But nothing about the whole-life system compels increased premiums for bad health, or justifies lower premiums for good health.

Whole-life health insurance takes advantage of the quirk that the biggest medical costs arise as people get older, whereas health insurance premiums are collected early in life, when there is considerably less spending for health. The essence of this system is to reform the "pay as you go" flaw present in almost all health insurance. Like most Ponzi schemes, the new joiners do not pay for themselves, they pay for the costs of still-earlier subscribers, a system that will only work if the population grows steadily. When the baby boomers bulge a generation, they bankrupt the system when they themselves start to collect. Everybody knows that. What is less generally known is that "pay as you go" systems fail to collect interest on idle premium money; this system does that, and it turns out to be a huge saving unless the world collapses. Medicare and similar systems necessarily can't collect interest during the many-year time gap between earlier premiums and later rendered service; potential compound interest is therefore lost. "Pay as you go" is only half of a cycle; adding a Health Savings Account converts it into a full cycle like whole life insurance, and furthermore restores the savings to the individual, not the insurance company. Allow me to point out that a subscriber doesn't even lose money if he drops the policy, thus avoiding one of the regularly uncomfortable features of life insurance. Whole-life life insurance is more than a century old, but health insurance somehow got started without half of it, the half which could lower the premiums. Nobody stole those savings, they just never appeared, because unused premiums in Pay-as-you go are immediately spent for someone else and therefore, never invested. Adding one feature already enabled by Congress, the Health Savings Account effectively permits tax-free saving, and passes it back as reduced premiums (but only if your health insurer agrees to it.)

Individuals own their own Health Savings Accounts, but most people would probably be wise to pool the funds in a general custodian account. We propose an index fund as a way of solving the investment issue. If government sponsorship is expected, the index fund would be wise to include the stock of every American company above a certain size. An apparently paradoxical transfer backwards in time is made possible: by matching it with Medicare's already reverse process of paying for current terminal-year costs with some other subscriber's currently collected "premiums" (usually payroll deductions). Both the individual subscriber and Medicare then benefit from completing the cycle and harvesting the income. To the extent that investment income has been generated by the passage of time, the subscriber gets cheaper insurance and the insurer gets lower costs. For the most part, this system would be almost invisible (once the agreements are established): by using Medicare regional average costs, instead of individually itemized costs. Notice it make no difference which health insurance actually covers the bills, although the presumption is that for most people it would be Medicare. At the most, it is about as simple as buying life insurance to pay for your coffin.

In the meantime, something or somebody must pay those last year of life expenses as they occur, never knowing whether this is a final year or not. That will probably be Medicare, but it could be anybody, so the Health Savings Account could also reimburse other payers, including secondary payers. Please notice that an enlarged or "accordion" plan starts paying out at the far end of lifetime expenses. It could then work forward to paying the second or third or more years before the last one, if there is excess money in the fund -- just the reverse of what you might expect. It could then also reduce coverage if contributions don't match the average. Current healthcare insurance is nicknamed "pay as you go"; I suppose I must resign myself to "die as you go" describing this proposal to round it out.

At first there must be transition costs, but nothing approaching what appeared in 1965. When Medicare began, the taxpayers just wrote off the costs of those who were already aged 65 or older, and by skipping withholding taxes for part of the woking lifetimes of everybody up to forty years younger, must have run a very sizeable deficit for a very long time. This proposal should have no such burden, since (by working in reverse) it needn't pay twice for all of the costs which have already been paid once. This peculiar surplus might be applied to the huge unfunded debt obligation which Medicare has already incurred, in part because of free-riders who were born before 1900 and are all dead, and partly because in 1965 we had a positive international trade balance and thought we could afford anything. Although it has the potential to become a political football, no one seriously expects such windfall profits to go entirely to the subscribers.

Some people say 60% of Medicare costs are now paid out for health expenditures of someone during the last year of his/her life; thirty percent sounds more plausible, even taking co-insurance and self-insurance into account. Nor can anyone predict what such costs will be, fifty or sixty years into the future, so someone has to calculate continuously what they actually are, from ongoing Medicare statistics. But let's say they really are 60%, which I rather doubt. That would mean premiums and taxes could be reduced by 60% in the meantime. The idea is to make certain to pay for the last year of life, making annual adjustments for what the costs are actually proving to be. Extending the idea is probably best delayed until some experience accumulates.Someone must calculate the annual inflation in average healthcare expenses, matching it with investment returns, and possibly adjusting the contribution levels if things do not point to a good outcome. If life expectancy continues to lengthen, the amount of investment income could be larger than anticipated. On the other hand, if an expensive cure for cancer makes a dramatic appearance, perhaps the individuals haven't put enough money into the investment fund. Someone will have to be empowered to respond to circumstances, in either case.

All this creates an incentive to overfund the Health Savings Account. Surplus which remains after death is a contingency fund, probably useful for estate taxes or other purposes; but on the other hand the uncertainty of estate taxes creates an incentive not to overfund by much. Most people would watch this pretty carefully, and soon recognize the most advantageous approach of all would be to pay a lump sum at the beginning, at birth if possible. Before someone roars in outrage about the uninsured, let me say this would work for poor people with a subsidy, and it begins to look as though the Affordable Care Act won't work unless it is subsidized. In that case, a downward adjustment doesn't reduce premiums, it reduces the subsidy.

This proposal envisions starting with last-year-of life coverage, making provision for two accordion-like extensions: at the beginning for early, late or skipped payments. And at the other end for more, or fewer, years before the last year of life. There is no doubt that dual accordion-like flexibility creates an arithmetic problem, but most of this could be reduced to look-up tables. In this way, most of the initial complexities become surprisingly manageable because: the expectation of death is 100%, almost all deaths are covered by Medicare, and the bulk of Medicare revenue comes from payroll deductions earlier in a working life, rather than premiums from current recipients. Maybe these advantages are overestimated, but over and over again it has to be repeated: this plan may not save as much as I hope, but it will save a lot. In the meantime, the quirks of Obamacare will become clear enough to see what can be done with the same concept for people now under the age of 65. Meanwhile, I feel this book will never get published if I wait to find out.

Investment It seems best to confine the investments of a nation-wide scheme to index funds of a weighted average of the stocks of all U.S. companies above a certain size, and thus offering pooling for those who are (rightly) afraid of investing. This will disappoint the brokerage industry and the financial advisors, but it certainly is diversified, fluctuates with the United States economy, and has low management costs. In a sense, the individual gets a share in a nation-wide whole-life health insurance which substitutes long-run equities for conventional fixed income securities. It removes the temptation to speculate on what is certain to occur, but on dates which are uncertain. Treasury bonds might be added to the mix, but almost anything else is too politically vulnerable to political temptations. Even so, it will have downs as well as ups, and therefore participation must be voluntary to protect the index manager from political uproar when stocks go down, as from time to time they certainly will.

One danger seems almost certainly predictable. This book has chosen 7 percent assumed return, mostly because it happens to make examples easy to calculate. The actual required return is probably closer to 4% plus inflation. Supposing for example that 7 % is the right number, there is little doubt a steady investment return is only achieved on an average of constant volatility, sometimes returning 20% in some years, and sometimes declining as much or more in other years. Judging from past experience, there will be a temptation for some people to make withdrawals in years of bull markets, which could reduce average returns to 3 or 4 percent in bear market years, and fall short of the 7% average at the moment it is needed. In addition, the officers of Medicare are likely to be tempted to pay Medicare more than a 7% average in windfall years, leaving the running annual average to decline below 7%, just as the trust officers of pension funds once deluded themselves by temporary runs of bull markets. Ultimately this issue reduces itself to a question whether a temporary surplus is really temporary, and if not, whether the subscribers should benefit, or the insurance company. After that is decided, extending or contracting the accordion would get consideration. It seems much better to negotiate these philosophical questions of equity in advance, and establish firm rules before sharp temporary fluctuations are upon us.

Insuring the Uninsured. Because universal coverage has great appeal, I have gone through the exercise of calculating whether the impoverished uninsured might be included by using subsidy money to provide a lump sum advance premium on their behalf. It would work, in the sense that it would be less costly, but I do not recommend beginning by including it. Reliable government sources have calculated that even after full implementation, the Affordable Care Act will leave 31 million people uninsured. That is, there are 11 million undocumented aliens, 7 million people in jail, and about 8 million people so mentally retarded or impaired, that it is unrealistic ever to expect them to be self-supporting. In my opinion, it is better to design four or five targeted special programs for these people. Better, that is, than to include them in any universal scheme that the mind of man can devise. But to repeat, the mathematics are adequate to justify the opinion that it would save money to include them in this plan with a front-end subsidy of about five thousand dollars, adjusted backward for fund growth since birth. I refuse to quibble about investment size, since no one can be certain what either investments or medical science will do in the future. It seems much better to make annual recalculations for inflation and medical discoveries, and then make adjustments through an accordion approach for coverage . There seems no need to make precise predictions, since any benefit at all is an improvement over relying on taxpayer subsidies, which now run 50% for Medicare itself. This plan will help somewhat, no matter what the future brings, and as far as I can see, it would make the presently unmanageable financial difficulties, more manageable.

George Ross Fisher, M.D.

Appendix: Smothered to Death in Greenbacks

Here's my macroeconomic nightmare, brought on by thinking too much about paying for health care costs, and supposing, just supposing, we were successful in doing it. The equivalent nightmare would be to imagine that some multi-billionaire walked into the offices of Vanguard or Fidelity, and said he would like to speak to the manager. After he had a cup of coffee, he would explain that he wanted to make a deposit of $5 trillion dollars in a total-market index fund. After an initial reaction resembling a Grade B comedy movie, the manager would begin to see the idea was pretty disruptive.

In the first place, $5 trillion is more than twice the size of the largest index fund currently in existence. We're getting there, but at the moment no one can be entirely certain what it would do. It might take months or even years to feed that much money into the markets without creating violence. That one buyer alone would dominate the stock markets of the world, bankrupting some, enriching others. In the Grade B movie I envision, dozens of beautiful starlets would be sent around for the sole purpose of learning what our buyer was buying next week. And what would he care, he would tell them. If he decided to make a big sale, markets would tumble, maybe crash.

Now, assuming this money was honest and not "dirty" as they say, the consequence of steady buying in huge amounts would be to flood the markets with liquidity. There might well be spurts of both directions, but in general the addition of this much money concentrated in the stock market, would send the price of stocks up, in response to supply and demand. If the price of stock is generally raised without underlying business transactions to justify it, earnings per share would go down. In the long run, that could send the value of stocks down, resulting in inflation, because it would be possible to sell more stock without raising prices. In any event, reducing the scarcity of stocks would lessen the value of capital, compared with the value of labor. Reducing the value of capital would itself cause disorders in the economy before the markets regained equilibrium. Prices of labor-intensive goods would rise, prices of things which could be automated by using capital, would fall. It would create new winners and losers; new elites.

For these reasons, students of economics generally hate macroeconomics. It's important, but it's hard to make final conclusions. In our Grade B movie, the bald-headed little manager ends the scene by jumping out the window.


CHAPTER FOUR: Passive Investing Increases Yield.


I'm overwhelmed. I'm thinking of a one-line poem by William Blake: "Enough or too much" " stragglers who live from 85 to 91." Sorry to be a burden, but soon to be 91 I can still go a couple of rounds without huffing and puffing. You remind me of Dr. Melvin Konner.... professor.... anthropologist..... physician.
Posted by: Martin   |   Sep 27, 2014 5:16 AM
I want to thank you for this wonderful resource. I find it fascinating. May I offer one correction? In the section "Rittenhouse Square Area" there is reference to the Van Rensselaer home at 18th and Walnut Streets and its having a brief fling as a club. I believe in 1942 to about 1974/5 the Penn Athletic Club was located in the mansion. The Penn AC was a good club, a good neighbor and a very good steward of the building - especially the interior. It's my understanding that very unfortunately later occupants gutted much of the very well-preserved original, or close to original, interiors. I suppose by today's standards the Van Rensselaer-Penn Athletic Club relationship could be described as a fairly long marriage. The City of Philadelphia played a large role in my life and that of my family, and your splendid website brings back many happy memories. For me and many others, however, there is also deep sadness concerning the decline of so much of the once great city and the loss of most of its once innumerable commercial institutions. Please keep-up your fine work. Your's is a first-class work.
Posted by: John D. Mealmaker   |   Aug 14, 2014 2:24 AM
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 "...blog/1588.htm" - 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 "...blog/1588.htm" - 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 [http://www.philadelphia-reflections.com/blog/1705.htm] and noticed a ton of great resources. I recently had the honor of becoming a part of a new non promotional project on AlcoholicCirrhosis.com. 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
I FIND THIS VERY INTERESTING, INDEED. I AM HOWEVER, SEARCHING FOR THE ANCESTOR WE HAVE BEEN TOLD WAS JOSEPH M. WILSON OF JORDAN TOWNSHIP IN WHITESIDE CO. IL USA. MY HUSBAND WAS ORPHANED AND WITH LITTLE CONTACT WITH HIS FATHERS SIDE OF THE FAMILY THE 9TH OF 10 SURVIVING CHILDREN SINCE ALL ARE DECEASED BUT, ONE). I HAVE HOPED TO FIND HIS CONNECTION AS TO THE STORIES RELATED BY SEVERAL OF HIS DECEASED RELATIVES THAT WE ARE CONNECTED TO THE WILSON MILL FAMILY HISTORY. OF JOSEPH AND FRANCES. MY HUSBAND WAS ALSO, FAMILY TO: GRANDFATHER RANSOM (ISABELLA)WILSON & HIS BROTHER WILLIAM; OF ELKHORN GROVE CARROLL CO. IL USA AND HIS SON JOSEPH WILSON(NANCY). I?WE( MY SONS AND NEPHEWS NEICES AND GRANDDAUGHTERS IN COLLEGE... WERE HOPING THAT NOW THAT I AM ON THE COMPUTER AND WITH YOUR HELP THRU THE GENELOGICAL SOCIETY TO YOUR ADDRESS WE MAY FIND THE FAMILY WE SEEK. MY LATE HUSBAND AND I DROVE PAST THE SITE OF THE FIELD WHERE JOSEPH AND FAANCES ARE BURIED , THE CEDARS ARE GONE AND IT IS NOW FIELD. I HAVE BEEN HOPING TO FIND THE LINK FOR OVER 30 FAMILY TO PAY TRIBUTE TO THOSE WHO HAVE GONE BEFORE AND PERSEVERED TO BRING US THE LIFE WHICH WE ENJOY AND SERVE, TODAY. I RECEIVED ONLY THIS WEEK BY A FLUKE AN EMAIL WITH PHOTOS FROM A 3RD COUSIN THAT FOUND MY EMAIL ON A COUSINS EMAIL ADDRESS AFTER INQUIRING AND INTRODUCING HIMSLEF: AND HE TOOK THE TIME TO SEND MANY PHOTOS AND HISTORY OF GRANDPARENTS AND FAMILY AS WE HAVE HAD NONE. WE STILL DON'T HAVE A PHOTO OF HIS MOTHER AND FATHER. WHAT I HAVE OF THE TREE, I AM ANXIOUS TO SHARE WITH FAMILY THAT IS SEEKING HISTORY, AS I STILL AM HOPEFUL TO FIND IT IN TIME FOR THE DEADLINE AUG. 30 TYPED AND DELIVERED TO MY MARTIN HOUSE MUSEUM WHERE I AM A MEMBER. MY HUSBAND WAS A MASTER MASON WHILE IN LODGE WITH THE COUPLE THAT DONATED THE HOUSE TO BE A MUSEUM. THANK YOU FOR YOUR TIME AND THE GRAT WORK YOU HAVE ALL DONE ON THIS HISTORY. WE WERE LIFE MEMBERS OF THE LUTHERAN CHURCH BUT , THERE IS NOT ONE IN OUR TOWN, SO I FOUND THE REFORMED CHURCH,OF WHICH, I AM VERY HAPPY TO BE A PART. THANK YOU .
Posted by: SUSAN WILSON   |   Aug 12, 2012 12:49 AM

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