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

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Right Angle Club: 2014
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Philadelphia Women

Philadelphia Physicians
Philadelphia dominated the medical profession so long that it's hard to distinguish between local traditions and national ones. The distinctive feature is that in Philadelphia you must be a real doctor before you become a mere specialist.

Nature Preservation
Nature preservation and nature destruction are different parts of an eternal process.

Montgomery County, Pennsylvania

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Philadelphia Reflections is a history of the area around Philadelphia, PA ... William Penn's Quaker Colonies
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Barnes Arboretum

If you want to live on City Line Avenue, safely in Montgomery County, you put your entrance on Latches Lane, which is parallel to City Line. It used to be said that the Barnes Foundation was next to Episcopal Academy, but that has moved further West, and St. Joseph's University now owns the property. When St. Joseph's decides what to do with the land, we can possibly describe a better landmark. The Barnes Foundation has always faced away from Philadelphia and is a little hard to find, all of which may have something to do with Dr. Barnes' strong dislike of the City.

When you go there now, the old Museum is still there, but already showing signs of neglect. The house the Barnes family lived in is still, right next door. But it's harder to move an Arboretum than a group of paintings, so the Arboretum School, which was Mrs. Barnes' hobby, is still at the same place, likely to stay awhile. It's still a very nice place to visit, especially right at Labor Day when the very large Franklinia Trees are in full bloom. Like all Franklinia trees, these are direct descendants of the only example John Bartram was able to find, in Georgia or anywhere else.

We're going to have to leave the decision to former Governor Rendell, about what you do with an empty museum, since he is said to have had a lot to do with making it that way. We came to see the Arboretum.

The first thing which strikes you is that many of the big old trees are much older than the Barnes Foundation would have been. The brochure helpfully explains that a 19th Century tree fancier started it in 1880, and the Barnes acquired it in 1922. That still wouldn't account for a massive tree which is lying on the ground all cut up, opposite the Medicinal Garden. The base of the tree must be three or more hundred years old, so perhaps there was a grove of old oaks, just over the line of William Penn's city, which every owner tended carefully, until the bugs got it. There are a considerable number of Chinese trees that look about right for 1880, but without a guide it's pretty conjectural.

Ever since someone imported the Japanese beetle along with some plants, to Moorestown, New Jersey, there have been laws prohibiting the importation of plants from abroad, but there must be some regulatory rigamarole which allows museums to do it. Korea and Japan are at the same latitude as Philadelphia, and the glaciers spared some ancient dinosaur food in those regions, so quite a few strange plants have come here from that source. Since the Barnes is a school, and since it only has a few acres, many if not most of the specimens in the gardens are one or two of a kind. That either means they have a feeder garden somewhere to store backups, or a good relationship with government officials. Like all Arboretums, it attracts insects, so be prepared to do some swatting if you go. The school is said to be outstanding and quite conveniently located, but even just a stroll around is quite a nice way to spend a Sunday afternoon.

Bring Your Own Hammer

Stonehenge in England is a ring of big stones standing on edge, but only recently has it been discovered that they chime when you hit them with a hammer. The British didn't discover the phenomenon, however. Long ago the Quakers of Pennsylvania knew they had ringing rocks in a moraine dumped at the edge of a receded glacier in Bucks County. The County has made it a recreation park which is mostly deserted, except when a drove of cars appears, bearing dozens of Cub Scouts or other excursionists.

Just what makes these boulders chime when you hit them with a hammer, isn't entirely clear. It's certainly a good topic for a geologist to use for a thesis, but right now none of the visitors to the park cares very much. It can easily be seen that the moraine marks the edge of the fertile plain surrounding Philadelphia, to the north of which the ground breaks up and has mining as its main industry. The farms suddenly become smaller and less prosperous on the moraine plateau, and fancy exurban restaurants yield place to auto dumps and parks of pickup trucks. In certain seasons, it is possible to imagine the gun racks above the front seats. Some of the area suits itself for summer cottages in the hot weather, usually close to a stream or lake. This is the area where the Shenandoah Valley extended, narrowing down to the Delaware Water Gap. George Washington didn't just cross the Delaware once near here, it was a sort of a Ho Chi Minh Trail out of reach of the British Fleet during the Revolutionary War. The main arsenal of the Revolution was in Reading. The valley meets what used to be an industrial area along the Delaware, coming up from Philadelphia. Before that, the Seneca Indians had made it their headquarters, and after that, people like Stephen Girard discovered and exploited the minerals once exposed by the glaciers to the north. There's a "wind gap" (cleft in the mountain without water at the relatively high base), and the water gap. William Penn terminated his line separating East from West Jersey at Dingman's Ferry within this region, and later his sons' agents cheated the Indians with the Walking Purchase nearby. The politics of Bucks County are easily imagined by looking at prosperous Doylestown, and comparing it with nearby rundown Easton. This is really just the center of Bucks County, half of which extends to the North, and all of which must have an interesting political history.

Abruptly, turning a corner amidst the summer cottages, is a neat little park, the Ringing Rocks County Park. At times it is deserted, at other times you can hardly find a place to park your car. Fields of boulders, three to ten feet in diameter, extend down the hill to the river. It's easy to go down, not so easy to get back up to your car. People pile out of their cars, carrying brand-new hammers, and you can see dozens of (probably disappointed) pock marks on the rocks near the parking area. If you thought it was going to be easy, you are quickly disappointed.

But the legions of cub scouts, happily swinging their hammers, swarm down on the rock piles, hitting every rock as they go. If there are enough of them, you hear plenty of clunks, but also an occasional ringing chime is heard, and the other cubs soon swarm around. At a rather daunting distance from the edge of the rock field, one cub scout after another discovers a rock that chimes like a cowbell. He attracts his friends, who have a whack at it. The chimes never quite outnumber the clunks, but the music rises as the scouts swarm over the property on agile little feet that soon defeat their elders' lumbering climb. A sudden thundershower made the rocks too slippery even for kids, and the place quickly emptied out. When we got back to he top of the hill, soaking wet, there were only a few cars still there.

Healthcare Reform for Lobbyists

In the construction of a major legislative package, the White House and significant Congressional committees maintain strong control over the major concepts and compromises. To get this into legislative language, lawyers and officials of involved executive departments supply the meat to put on the bones, so to speak. But in the obscure technicalities of the industry under consideration, particularly those with no particular political weight, experts and lobbyists from the industry itself have considerable ability to shape things. They may even go so far as to provide "suggested" language. Here are a few significant areas where the lobbyists have considerable influence:

Is Preventive Medicine always and everywhere less expensive? As heads nod vigorously in support of prevention, notice that in general usage it suggests several different things. The almost invariable implication is that small interventions for everyone are less expensive to society, less expensive, that is, than large expenses for a few who get the disease. That is clearly not invariably true, and unfortunately in a compulsory insurance world, it may seldom be true.

Take for example a tetanus toxoid booster, which ten years ago cost less than a dollar for the material. Recently, I was charged by my corner drugstore $85 dollars for the material in preparation for a vacation trip. If you do the math, I feel it is rather likely that $85.00 times millions of Americans is a far greater number than the present aggregate cost of Americans actually contracting tetanus, especially after multiplying by ten for the conventional advice to have a booster shot every ten years. This becomes more certain if one adds in the cost of administration. The vaccine is quite effective, we had almost no cases in the Far Eastern Theater in World War II whereas the British who did not vaccinate routinely had large numbers of often fatal cases. Furthermore, even if the tetanus patient survives, the disease is hideously painful. Is it better to immunize routinely? Yes, it is. Is it cheaper? I'm not entirely sure, because I have no access to production costs of tetanus toxoid. But it certainly seems possible that it isn't cheaper. Malpractice costs, which are a different issue entirely, may complicate this opinion.

Something unsatisfactory has transformed an undeniably effective preventive procedure from clearly cost effective to -- probably not cheaper for a nation which no longer has horses on the streets, but still has many horses on farms and ranches. This is presently mostly a malpractice liability problem for the vaccine maker, not a preventive care issue. To take another well-known example, In the case of smallpox vaccination, it is now clearly more expensive to vaccinate everyone in the world than to treat the few actual cases. The waffle currently being employed is to limit vaccination to countries where there are still a few cases, hoping thereby to eradicate the disease from the planet. Over and over, examination of individual vaccinations shows the answer to be: better, yes, cheaper, no; with the ultimate answer depending on accounting tricks in the calculation of cost, cost inflation because of third-party payment, and related perplexities. To be measured about it, the profitability of preventive measures may act as a deterrent for finally calling off prevention, by taking on a briefly more expensive campaign to achieve final eradication. Somewhere in this issue is the whisper that "natural" gene diversity of any sort must not be totally eliminated, a viewpoint which even the philosopher William James never openly extended to include virulent diseases.

Routine cervical pap tests, routine annual physical examinations, routine colonoscopies and a host of other routines are in general. open to question as to cost effectiveness. The issue is likely to increase rather than go away. Much of the current denunciation of "Cadillac" health insurance plans focuses on the elaborate prevention programs enjoyed by Wall Street executives, college professors, industrial unions, and other privileged health insurance classes. A more useful approach to a borderline issue might focus on removing such items from health insurance benefit packages, particularly those whose cost is subsidized, either directly or by Henry Kaiser income tax deductions. Those preventive measures which demonstrate cost effectiveness can have their subsidy restored. The inference is rather strong that unrestrained substitution of community prevention for patient treatment can escalate costs rather considerably, and certainly needs to demonstrate cost effectiveness before subsidy is considered. While self-interest is a possibility if only physicians are consulted, total reliance on bean-counters could be far worse. Community cost effectiveness is a ratio, and both sides must be fairly argued.

In the final analysis, without some form of patient participation in the cost, this issue may possibly be unsolvable. To launch a host of double-blind clinical trials to find out the truth will lead to answers of some sort, which will quickly be undermined by price/cost confusion, leading to increasingly futile regulation. Including preventive costs in the deductible could at least allow public participation in the decisions and true balance to begin; which is to say, even universal preventive care admiration cannot be adequately assessed except in the presence of a substantial open market for the product. The fact is that much "preventive" care is really "early detection" or "early management". When the goal changes so subtly, it is often not possible to judge what is worthwhile, except by placing some price on pain and suffering. The abuse of the monetization of pain and suffering in the malpractice field by the trial bar, ought to be a gentle reminder of that. Preventive colonoscopy has clearly caused a decline in deaths from colon cancer; that's a medical judgment. Whether the cost of catching those cancers early was cost effective is largely a matter of colonoscopy cost, and on digging into it, will be found to be as much an anesthesia issue as a colonoscopist one. In any event, it is not one where the opinion of insurance reviewers should be decisive. If the litigation industry moves to make omission of prevention a new source of action, it will surely be past time to caution the public about the direction of things.

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Average Hospital Profit Margins: Inpatient 2%, Accident Room 15%, Satellite Clinics 30% {bottom quote}
Payment By Diagnosis

Outpatient Care is Not Necessarily Always Cheaper Than Inpatient Care. Because hospital inpatient care is reimbursed at roughly 106% of cost, while hospital outpatient care is reimbursed at roughly 150% of cost, hospitals favor outpatient care, while reimbursement third-parties favor inpatient care. So, go figure. Hospital management is resistant to wage increases in the inpatient area, less resistant in the outpatient and home care programs, so true costs are steadily rising in the outpatient area. Personnel shortages follow, as does friction between hospitals and office-based physicians. Wherever the balance currently happens to be, it is likely that in time outpatient care would inevitably be more expensive than inpatient, as it was in 1751 when Benjamin Franklin founded the Pennsylvania Hospital and raised funds on this plea. If to this is added the cost-shifting of administrative costs, it is now uncertain just where we stand, but a good place to set a baseline would be to find the highest-cost hotel room in the vicinity, adding nursing costs, and subtracting something for putting two patients in a semi-private room. The one thing which is very clear is that the present pushing of truths of the past will lead to distortions in the future. Even addressing these shifts on a continuing basis while destroying market mechanisms with third-party reimbursement will lead to continuously bizarre situations. Those who propose universal third-party reimbursement for every cost and for every person will some day be doomed to perpetual ridicule unless they find a way to display a reasonable relationship between hospital costs and charges. The monstrosity of the present charging system will be discussed later in more detail, but we can at least establish one truism: hospital charges have become totally useless as guides for physician case management.

The Return of a Discharged Hospital patient Within 30 Days is not Necessarily a Sign of Bad Care. Early re-admission can of course be an indication of premature discharge or careless coordination with the home physician. But it can also mean the convalescent center is convenient to the hospital, making it reasonable to move the patient without much loss of continuity of care, treating his return to the acute facility as a matter of small consequence. It is also a matter of cost accounting; when you are claiming a hundred dollar hotel cost to be worth thousands of dollars, many distortions are possible. If a hospital essentially shuts down on weekends, for example, there really can be better care available at home. Imposing a penalty for returns to the hospital post-discharge has certainly changed behavior, but it is far from clear which institutions are better for it. Without a detailed study of longitudinal effects and costs, this rule is no more than an untested experiment.

The legitimate reasons for re-admission to the hospital are many and varied, and collectively they may constitute a general attitude on the part of a particular hospital that it is reasonable to send many patients home a little early in order to achieve greater overall cost savings in spite of sustaining a few re-admissions. But all of this is somewhat beside the point. The insurance companies suspect the real motive for favoring readmission might be that it is the only way for a hospital to increase reimbursement under a DRG system. More or fewer tests, longer or shorter stay have no effect, but readmission can double reimbursement. Consequently, re-admission has been stigmatized as invariably signifying careless treatment, justifying a penalty reduction of reimbursement. This is high-handed, indeed. It would require a research project to determine which of the alleged motives is actually predominant.

The Donut Hole: Deductibles versus Copayments. To understand why the donut hole is a good idea, you have to understand why copayment is a flawed idea. In both cases, the purpose is to make the patient responsible for some of the cost in order to restrain abuse. The question is how to do it; the donut has not been widely tried, but the copayment approach is very familiar: charge the patient 20% of the cost, in cash. This idea finds great favor with management and labor in negotiations, because the savings are immediately known. If the copayment is 10%, then the employer cost will be decreased 10%; if it is 50%, the cost is reduced 50%. In midnight bargaining sessions, such simplicity is much appreciated. However, the donut hole was not devised to make negotiations simpler for group insurance, it was devised to inhibit reckless spending, once the initial deductible is achieved.

Health insurance companies like it, too. It affords the opportunity to sell two insurance policies for the two pieces, adding up to 100% coverage, thus doubling the marketing and administrative costs, an advantage only to the insurance intermediary, but totally undermining the idea of restraining patient overuse. In practice, having two insurances for every charge has led to mysterious delays in payment of the second one, even though they are often administered by the same company. Physicians and other providers hate the system, not only because it involves two insurance claims processes per claim, but because it often makes it impossible to calculate any residual after insurance until months after the service has been rendered. Patients often take this long silence to imply payment in full, and disputes are common.

So, the idea of a donut hole was born, after observation about what was owed on two levels, one for small common claims, and another for big ones. The patient either paid cash in full or was insured in full, and arriving at the Paradise of full coverage must be purchased in cash within the first deductible. Unfortunately, once that threshold was crossed, the sky was the limit. Some way had to be found to distinguish between extravagant over-use, and the use of highly expensive drugs, particularly those still under patent protection. The idea was generated that if the two levels of the donut hole were calculated from actual claims data, there often might be a clear separation of minor illnesses from major ones. Since the patient would ordinarily be uncertain how far he was from triggering the donut hole, the restraint of abuse might carry over even into areas where the facts were not as feared. It is too early to judge the relative effectiveness of the two patient-responsibility approaches, but it is not too early to watch politicians pander to confusion caused by an innovative but unfamiliar approach.

Plan Design. The insurance industry, particularly the actuaries working in that area, have long and sophisticated experience with the considerations leading to upper and lower limits, exclusions and exceptions. Legislative committees would be wise to solicit advice on these matters, which ordinarily have very little political content. However, the advisers from the insurance world have an eye to bidding on later contracts to advise and administer these plans. They are not immune to the temptation to advise inclusion of provisions which invisibly slant the contract toward a particular bidder, and failing that, they look for ways to make things easier for whichever insurance company does get the contract. The donut hole is a recent example of these incentives in action; no member of any congressional committee was able to explain the donut for a television audience, so it was ridiculed. The outcome has been a race between politicians to see who could most quickly figure out a way to reduce the size of the hole. The idea that the size of the hole was intended to be an automatic adjustment to experience, seems not to have occurred to any of them. Asking industry experts for advice is fine, but it would be well to ask for such advice from several other sources, too.

SECOND PROPOSAL:Flexible Spending Accounts

Just about everybody employed by a fairly large employer knows a lot about Flexible Spending Accounts, while most others know essentially nothing. That's stimulated by the attention FSA requires every November, involving family discussion, discussion with colleagues at work, reading brochures, etc. Indirectly, it reflects the linkage between FSAs and health insurance companies, with the advertising power of offering them on a checklist of insurance options. In practice, FSA design is pretty much the same as a Health Savings Account attached to a special debit card, except at the end of the year. If there is any balance left, you lose it, so are tempted to spend any remaining balance wastefully. It's now mostly your own money (formerly it was mostly the employer's), but use it, or lose it is one thing, forfeiting your own money is quite another. In fact, most economists agree that fringe benefits are always the employee's own money, in the sense that the cost of fringe benefits is quickly absorbed by an equivalent reduction in the pay packet. At the beginning of each year there must be a declaration of how much to deposit, but most people have no clue how much medical spending they will have eleven months later. That quickly becomes a very big disadvantage, so we propose to ask Congress to enlarge employee options to include what they will need in later years. Not everybody will take the useful option, but at least the prudent ones will.

( Proposal #2) Meanwhile, enrollment in HSAs would be immensely stimulated by permitting Flexible Spending Accounts to roll over unspent balances into HSAs from year to year. Some other small but questionable features of FSA are discussed separately in For now it is important to realize they are not the same thing, but they could, and should, be combined by permitting rollovers of the employee's own money to Health Savings Accounts. In the cases where the employer provides the money, his permission is of course required. But it should not be overruled by a rule that has adverse cost consequences.

What are Flexible Spending Accounts? For those who don't already know, let's explain. In the fall of every year, employees of a company offering health benefits are offered a choice for or against FSAs, and those who accept are asked to select how much to deposit for the coming year beginning two months later. If they remain employees for a full year, it is their own money they are pledging; in the meantime, the employer advances it and loses a portion of it if the employee quits before the end of the year. They are also given options about how the plan is to be paid for, creating some interesting scam opportunities to be discussed later. To go on, the law specifies a list of approved choices for healthcare, which the insurance company limits further to what they may, or must, offer in their insurance. That effectively leaves a band of healthcare choices (what else would you call them?) which are not vital or eligible for subsidy, and definitely not welcome as mandatory coverage. This level of health products contains borderline health care, like sunglasses, which are clearly desirable for a few people, but which readily transform into extravagant cosmetic goods for fashionable people to hold their hairdo down. The list is much more extensive than just sunglasses, which have morphed into a code reference to the whole class of "FSA eligible" items. Enterprising websites with a Google page rank of 4 prepare attractive catalogs of such services, along with advertising or even delivery systems. Such catalogs may also subliminally suggest to insurance companies how they might expand their business to include this borderline healthcare as a paid option, which almost invariably contain a wider markup than truly essential services would be permitted to charge, and who certainly understand the principle of reciprocity. In time, experience teaches subscribers to reflect carefully on their health expectation for the coming year.

What are the Drawbacks? The word spreads around the water cooler that even with an annual "use it or lose it" feature, FSAs can be a good "deal" if they are gamed a little. Older employees advise they found FSAs didn't save enough to bother with, so they dropped out, knowing they could always rejoin later if something attractive appeared on the list of eligibles. New employees tend to sign up to try it, and tentatively join the residual group of employees self-selected for willingness to seek out discounted extravagances. That's a process known in insurance circles as "adverse selection," and although it's not a zero sum game, everyone who wins something worthwhile is balanced by several others who throw money away. Insurance companies are universally tempted to expand their business into a market the public will pay for, but are restrained by the unwillingness of employers to pay for extravagance openly. When employers are coaxed into paying the bill, such resistance is felt less strongly, and gradually merges into what is shrugged off as the "moral hazard of insurance". The insurers balance the value of expanded markets against the business-school wisdom of subscriber "skin in the game". If the marketing department gets its way, things like co-payments get added to the list of available options. The list of undesirable features expands from "imperfect agency", to offering the sadly common temptation to run up the "medical" bills in January, with a stretched-out repaymenr schedule extending well beyond the date of secret intention to quit the job. In this scheme, it is possible to stick the employer with a medical bill that was not intended to be reimbursed. As professors of insurance will recognize, this accumulation of little trimmings can aggregate into a considerable addition to rising medical costs.

In regular insurance, adverse selection hurts the insurance company, who then seeks recourse to the employer; in this case, the employee bears the risk. Each year, the employee must declare in November how much of his own money he wishes to deposit in the Account for the following year, beginning January first. Therefore, if the knowledgeable employee anticipates a gallstone removal or other elective procedure, this is a good time to take out an FSA to cover the deductibles, present an advance bill in January, and quit work as soon as it is paid, leaving ten months of unreimbursed cost for the employer to pay. Employees are remarkably well informed about the details of this little caper, just as most of them have learned how to rob a bank, from the movies. If an employee is even more insightful, he could drop his supplemental policy to cover this. Since the price from the hospital is probably the same, the losers are diffused through the system. The losers include the employees of companies who experience truly "adverse" selection by not having the same opportunity, and the Internal Revenue Service, but hardly anyone can accumulate enough provable damage to gain standing to sue somebody. Isn't this fun?

The details are thus not illegal, but not included within the spirit of compulsory subsidies, either. People are motivated to avoid losing the money they deposit, so if the end of the year approaches with an unspent balance, they can buy overpriced prescription sunglasses, or even a spare set of overpriced regular glasses. In case they don't grasp this point, there is plenty of advertising which helps guide them, and plenty of other excluded services that might be attractive to try. Taken all together, there is every reason to believe this process stimulates unnecessary national expenditure at mostly the subscriber's own expense, as well as the tax collector's, who of course doesn't matter. Various other trades are subject to similar temptations, but at the moment, sunglasses are the most generally accepted code word example. We haven't reached the point where an item's exclusion from insurance deems it immoral, but whenever an insurance company profits from financing a specifically excluded item, eyebrows do get raised.

What is Suggested? These plans are too popular to dismiss as social evils. What is lacking is a socially useful alternative outlet. If an employer chooses or is forced, to pay for employee health insurance, and if the government is unable to rectify the tax advantage which encourages it, the employee is presently forced to a difficult choice. He may, so to speak, leave an unclaimed hundred-dollar bill on the sidewalk, which is considered stupid behavior. Or, he may buy some extravagant nonsense, which is also considered stupid behavior. He needs a third choice which no one could quarrel with. We here suggest that the third choice should be: he can deposit unspent balances in a roll-over Health Savings Account, if he chooses that option. It has advantages of adding to his lifetime medical revenue, gaining investment income in the background, and ultimately being available to supplement his retirement, if his lifetime health requirements prove to be modest. Others can buy prescription sunglasses if they choose to, but I doubt that is much of a risk.

CHAPTER FOUR: Proposals to Extend Regular
Health Savings Accounts

Improvements in Regular Health Savings Accounts: Introduction.

Health Savings Accounts have always been a good idea since their enactment in 1996 and reaffirmation by Congress in 2003. But they could be vastly improved by six simple amendments, plus one moderately complicated one, to be described shortly. Right now, without such new legislation, they produce roughly 30% savings (for an estimated 12 million subscribers) by providing subscribers an incentive, to use insurance frugally for medical expenses and keep the savings for themselves. That's by contrast with regular health insurance which actually encourages more health spending, as the only available way to get something back for the money. Alone of the options available in American health insurance, HSAs invest "unused" premiums and credits them to the subscriber. Ultimately, it rolls over any surplus to a regular IRA retirement account, at age 65 or whenever Medicare supplants it.

It is mandatory to link HSAs to high-deductible insurance for big medical expenses (so-called "re-insurance"), whereas the Affordable Care Act aims at the same goal by placing a "cap on out-of-pocket expense", in addition to the deductible limit. The approaches are not completely comparable, however, because the cap approach forces the basic insurance to re-absorb such costs, while a high deductible approach actually pays the bill. It is not clear whether there is any resulting cost difference to the subscriber, on this feature. However, the overall net cost is appreciably less for HSAs than traditional health insurance, while with the "metals" plans of the Affordable Care Act, the price differential is even wider because of the subsidies it extends. It is too early to judge whether these subsidies will have to be cut back to maintain solvency.

Traditional insurance requires the complexity of filling out and processing millions of claim forms, whereas the HSA approach has generally been to use a bank debit card for small expenses. For large hospital costs, each high-deductible plan has its own approach, but generally seeks to apply Medicare's DRG approach where the hospital will agree to it. DRG stands for Diagnosis-Related Groups, paying by the diagnosis rather than itemized charges.

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The higher the deductible, the lower the premium. {bottom quote}
Small-cost Items Are Expensive to Process
Alone among insurance alternatives, HSAs permit the growing number who remain fairly healthy during their working years, to transfer any remaining surplus from unused insurance into an ordinary IRA at age 65, where they help finance retirement. Essentially, this means the restriction to use them for medical purposes is lifted. Thus, they can reward healthy people who live too long, just as surely as other people who seem to spend most of their time in a doctor's office. Better stated, the real distinction is between the (shrinking) number who develop serious illnesses while young. And the (growing) number who delay developing serious illnesses until they are elderly.

Before we plunge into the weeds of compound interest, notice the feature which started the idea: high deductibles. The higher the deductible, the lower the premium -- in any kind of insurance. Several decades ago, there was once sold an extreme illustration, of a twenty-five thousand dollar deductible health insurance. Its premium was a hundred dollars a year. That dramatizes the idea, but it was never very popular. Insurance is seldom purchased, as they say; it is sold. There can't be much profit in a hundred-dollar premium.

Reform Proposals for Regular Health Savings Accounts

If they are so attractive, why doesn't everyone choose HSAs for their health coverage? Legalistically, although deposits into an HSA are tax deductible, the high-deductible reinsurance portion must come from after-tax income. That is, the law specifies, HSAs are not permitted to pay the premiums of health insurance, even though high-deductible insurance is required as a condition for buying an HSA. In practice, the insurance portion is denied a tax deduction unless it is purchased separately by the subscriber's employer . No reason has been advanced for this strange unfairness, but the only party visibly gaining by it would be its insurance competitors, who mostly sell conventional large-group insurance through the Human Relations departments of big-business sponsors.

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A 35% Federal Corporate Tax Reduction, plus State Tax. {bottom quote}
Understanding Big Business
Probably a more satisfying explanation is that maximum American corporate taxes (state and federal) are stated to be the highest in the world, varying from 15% to 48%, depending on the state of domicile and the size of the earnings. The number of employees is quite unrelated to either the earnings or the state, so the tax deduction for health insurance is also unrelated to those factors, probably more related to the type of business. Generally, corporate behavior is more influenced by differences between competitors than absolute costs. Let's take the average employee health insurance premium as published by the government to be somewhat more than $5000. Let's say the employer has 10,000 employees and pays $50 million a year for the insurance, with a business deduction of $25 million reduction in taxes. Quite often, an employee is asked to pay 30-50% of the cost, sometimes not. Economists are unanimous in the opinion that employees eventually pay all of an insurance benefit themselves, through gradual reduction in take-home pay. If the corporation is profitable, it is very likely the cost of insurance is reduced at least 40% by tax abatement and an unknown amount by the employee absorption of the cost into his paycheck. In good years, it would not seem impossible for an employer to calculate he pays nothing at all for the insurance. It is safe to say that in a high-tax state with many employees contributing, the employer cost is very little. Even if he fails to make a profit on the transaction, he certainly becomes less sensitive to the rising cost of health insurance. This cannot be a useful ingredient in the battle over health costs. In fact, it even creates a motive to be indifferent to high corporate tax rates, which might even lead to a worse effect on the economy than rising health costs. A major employer thus is faced with some major ambiguities in his stance on these public issues, and very likely feels pressure to resist the idea of even opening up the issue for discussion.

(Proposal #1) We therefore suggest this unfair differential could be most easily remedied by providing HSA owners the option of paying the mandated insurance premium of catastrophic high-deductible insurance in two steps: first to the HSA, which is itself tax-exempt, and secondarily transferred by the HSA to the re-insurance company without hindrance or tax. Whether this change could be made by regulation, or would require legislation is not clear, because reasons behind the existence of this discriminatory prohibition are not entirely clear. Treasury's revenue loss from extending a tax exemption to unemployed people must of course be very small. And since now the Affordable Care Act contains almost no policy without a high deductible, there begins to be legal standing at the Supreme Court for those who are forced by law to pay differentially higher premiums for it.

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1. Tax deduction.
2. FSA/HSA RollOver
3. Direct Pay
4. Obstetric cost
5 Inpatients=DRG, Outpatients=HSA 6..Un-disable Catastrophic Insurance {bottom quote}
Six Small Changes

(Proposal #2)Meanwhile, enrollment in HSAs would be immensely stimulated by permitting Flexible Spending Accounts to roll over unspent balances into HSAs from year to year. Some other small but questionable features of FSA are discussed separately in For now it is important to realize they are not the same thing, but they could, and should, be combined by permitting rollovers of the employee's own money to Health Savings Accounts. In the cases where the employer provides the money, his permission is of course required. But it should not be overruled by a rule that has adverse cost consequences.

(Proposal #3) The electronic insurance exchanges proposed by the Affordable Care Act were perhaps begun too ambitiously, but it continues to seem like a good idea to reduce administrative costs by direct marketing of insurance plans, direct premium payments, and direct payment of claims to providers. When such features are implemented, they should of course be extended to Health Savings Accounts. As discussed later, small-balance accounts of any sort are an expensive nuisance for banks and investment companies. Perhaps freezing withdrawals until the accounts reach $10,000 would accomplish this, as would the issuance of discounted bonds in lieu of opening accounts until they reach a minimum size. Brokerage houses which issue super-low-cost index funds might consider issuing single-purpose bonds to buy them on a sort of "lay-away plan". The whole issue of reducing administrative costs might need to be deferred until interest rates return to normal levels, and the transition from teller windows to electronic banking is more complete.

(Proposal #4) Because of societal conflict over who is responsible for obstetrical costs, the father, mother or child, there is some uncertainty in health insurance about the same matters. However, if obstetrics and child care costs could be clarified as joint investments by the parents and the child, it might clear the way for Health Savings Accounts to add an additional 26 years to the duration of internal compounding for HSA reserves of all three persons. More professional legal consultation might be advisable, but the intent is to make a change of ownership cast a long but inexpensive benefit through distant enhancement of HSA value for whoever eventually uses it. The child will usually outlive the parents, eventually narrowing the scope of the adjustment. This change alone might make small single-premium gifts at birth more attractive to people who had never before considered them. With additional 26 years to compound, discounted lifetime health costs at birth could be in the astonishing range of a hundred dollars. Narrowing the scope to a bond with limited transferability might also help. In the long run, we can expect health costs to narrow down to the first and last years of life. Early recognition of this trend might reduce the cost of migrating to it.

(Proposal #5)The linkage of Health Savings Accounts to a high-deductible insurance creates a logical division of payments, into using bank debit cards to pay only outpatient costs, but the high-deductible insurance to pay only inpatient costs, especially where pre-payment can be based on diagnosis. Since hospitals may well differ, this matter should be clarified in regulations. There is also the problem of emergency room payments, which are often switched to inpatient costs if the accident victim is later admitted to the hospital. Remarkably, this often lowers the payment.

One of the great muddles of present healthcare payment, is the translation of Diagnosis-Related Groups (DRG) into indemnity equivalents. The present tendency to collapse many medically unrelated disorders into the same "diagnosis-related" code, should be reversed. The DRG code should be completely revised, utilizing the SNOMED code rather than ICDA, then reconnecting them to indemnity equivalents. At the very least, this would reduce the number of "all other" diagnoses, which are not diagnoses at all. It is suggested that each basic DRG payment should be uniform nationwide, but subsequently adjusted to the individual institution, through audited direct and indirect overhead supplements. This might reduce the reluctance to post base prices on the Internet for competitive reasons, thus expanding their detail without significant cost, and facilitating prompt "pre-payment".

(Proposal #6) Add some stripped-down Catastrophic Plans to the "Metals" Plans of ACA. For mysterious reasons, Catastrophic health insurance is one of the options for the Affordable Care Act, but is limited to persons under the age of 30, unless they are hardship cases. There may be some conflict between the authors of the legislation and the authors of the regulation, which will require Supreme Court interpretation of the intent of Congress. To use even the cheapest plan available, the Bronze Plan, adds considerable premium expense, and therefore reduces the amount available for producing investment income. At one time, $25,000 deductible policies were available for a $100 annual premium, although that was decades ago. Nevertheless, they illustrate the principle that the higher the deductible, the lower the premium can be. That intention may be in conflict with some other intention.

(Proposal # 7) Segmental, Single-Premium, Advance Payments for Lifetime Health Savings Accounts (L-HSA)

Unlike the first six proposals which are almost self-explanatory, the seventh proposal would provide spectacular cost savings, but at a price of considerable rearrangement, and probably incremental introduction. The first six, fairly simple, proposals would greatly enhance existing Health Savings Accounts and make them able to compete with the awkwardness which has been patched into one-year term health insurance, over the past century. If Lifetime Healthcare Savings Accounts begin to demonstrate attractiveness, demand will rise for enhanced features which may require further preparation and debate.

{top quote}
Lifetime Health Savings Accounts: Biggest cost reduction, greatest disruptiveness. {bottom quote}
...and one big one.
In the next chapter, 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, if the reader can believe such a thing, which sounds almost too good to be true. It is certainly too ambitious to undertake without careful study and adversary debate. Most of the problems which bedazzle the viewer, relate to the century-long transition period imposed by everybody being of a different age at the beginning of the transition. Our solution is to have multiple solutions, some more suitable for different age groups than others. To this end, our illustrations adopt the convention of imagining single-premium policies, beginning at the start of each natural age period with a different single payment to cover all of the healthcare within the segment, and possibly the rest of the life. Segmentation makes it possible to split lifetime coverage into several layers for transition and illustration purposes. But it is not imagined that very many people would elect single-premium as an actual payment mechanism. As one example, Medicare is not included in the Affordable Care Act at all, but it remains necessary to demonstrate the effect of its isolation, on the economics of the rest of the same life.

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 "" - 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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