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

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

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

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. (

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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Converting Term Health Insurance Into Lifetime Health Insurance

We start with the lucky circumstance that everyone has belonged to Medicare for half a century, and before that, very large populations had Blue Cross and Blue Shield. The cost of healthcare at various ages is thus pretty well known for large populations. Since lifetime life insurance is cheaper than term insurance, it is safe to assume lifetime health care is cheaper than year-to-year health insurance. To go further, it also seems pretty safe to convert from a more expensive system to a cheaper one, and expect profits. At the least, marketing costs should be reduced, provision would no longer be needed for gallbladder and cataract removals in people who have already had such surgery, and interest could be earned on unused premiums over long periods. The system would become vastly more efficient,and interstate transfers would be facilitated. The methods employed by ERISA would be a good model for a start, and its experience would be useful.

Whole-life insurance has its differences. Whole-life experiences fewer drop-outs, but makes an extra profit from investing the unused premium money for many more years. The additional investment income allows the premium to be lowered, and enhanced health care regularly creates greater longevity than the original estimate. So, whole-life insurance really can withstand careful investigation as safe and sound, even though its past predictions of the future made little claim of precision. This book's present proposal is to do roughly the same thing, converting term health insurance into lifetime health insurance, year by year. That's just the basic revenue source, however. Health insurance has a number of jumbled issues during a long transition period. The purpose of stressing the life insurance model first is to overcome a natural suspicion that we intend to claim magical powers of predicting the future.

Let's start at the far end, with the final answer to the test. In year 2000 dollars, the average American spends an average of $325,000 on health care in a lifetime. Women spend about 10% more than men. The main problem is to take a lump of money at the end, and restore it to different young people as they get sick. When they remain well, the problem of mere balance transfers is fairly simple. To insure the entire lives of 340 million Americans, the cost would be trillions of dollars. That's 110,500 trillions in fact, give or take a few trillion. Or 110 of whatever is one thousand times bigger than a trillion. These mind-boggling figures were developed by Michigan Blue Cross from its own data and confirmed by several federal agencies. By the end of this book we will have suggested it should be possible -- to cut that figure in half, without changing the medical part of it very much. It is legitimate to be skeptical, since a ninety year lifetime history involves a great many diseases we don't see any more. They afflicted many people who would have been readily cured with present medications except the drugs weren't yet invented. As if that weren't complex enough, it also involves predictions about the health costs of people who are still alive, destined to be treated with drugs nobody yet has. To hammer this last point home, it is roughly estimated that fifty percent of drugs now in use, were not available only seven years ago. Since we must go back ninety years to get data about the childhood illnesses of our presently oldest citizens, the unreliability of also looking ninety years forward from 2014 must be clear. And to do that for a population constantly in transition from very young to very old is daunting, indeed. But the facts of life, that people are born, go to school, get jobs, get sick, and then die -- never change. What's new, is it takes longer to run the course, and thus opens up gaps between steps. If we gather the gaps and meanwhile charge premiums on the longer time intervals, we produce a brand new source of revenue. While the intricacies sound complicated, in the end we rely on going from a more expensive process to a cheaper one, assuming the costs can be supported.

The value of attempting it, is considerable. We already have a technique which the statistical community agrees is reasonable, which tells us lifetime insurance would require something over $300,000 per person. Future trends can be estimated well enough, to show whether costs-after-inflation are going up or down, and roughly by how much. A penny in 1913 money is called a dollar today, just for illustration. Naturally, we then assume a dollar today will be called 100 dollars, a century from now. Regardless of numbers games with the value of a dollar, we have a tool to estimate the general magnitude of health costs, and by how much they will likely change. It's useful, even when its answers are surprising.

Theoretically, there is room for a change in expectations. Some people may decide that living eighty years is long enough, and then decline to pay for more. However, I've tried it, and I don't feel eighty is enough. So, for my own benefit if for no better reason, I decided to see what could be done with the cost problem. One solution is to work longer than retiring at age 65. If future medical care changes direction drastically, its payment system might also be forced to change. But if health care doesn't change much, the payment system won't need to predict the future. That reasoning reflects the insurance industry's own history, where the marketing department eventually asserts dominance over the actuaries, by declaring it is more important to predict usefully, than with precision.

The approach has its limits. Insurance did underestimate how much the payment system could warp the medical one over long periods, primarily because it initially misjudged who its customers were. Payment methodology is now relentless in persuading its true customers, who are businessmen in the Human Relations departments of large corporations. They don't like to hear it phrased that way, but we now have a four-party system, not just a third party, insurance, and its fourth-party directors, big employers. As corporate taxes rose, the system invented by Henry Kaiser in 1944 used corporate tax deductions to fund the third-party system with 60-cent dollars. Looking back over an expedient system designed for short-term goals, a shocked realization now begins to dawn: most current "reform" thinking is about how to twist the medical system to fit some unrelated budget. Even more shocking is the business customers discovered how modified tax laws could let them buy health insurance with a discounted business dollar. When donated to employees, another 15 or 20 cents could be clipped off. Obviously, if health insurance is subsidized by business tax deductions, and Medicare is 50% subsidized directly by tax infusion, health reform can't claim to be a reform effectively until finance is fixed.

Gradually we reach the point of rebellion; if it is legitimate for insurance executives to tell physicians how to practice medicine, it must be equally legitimate for physicians to re-design the payment system. So let's have a go at it.

Footnote: In the thirty years since I wrote The Hospital That Ate Chicago about medical costs, the newspapers report physician reimbursement has progressively diminished from 19%, to 7% of total "healthcare" costs, so perhaps now it's legitimate for some other professions to answer a few cost questions, too.

As patient readers will gradually see, considerable extra money is already in the financial system, leaving difficult problems of how to get it out and spread it around. This isn't snake oil, or a mirage. The beneficiaries would scarcely see any difference in medical care if Health Savings Accounts fulfilled their promise. But frankly, the insurance providers would have to make some wrenching changes. Since millions make their living from the present system, it is undoubtedly harder to design a new system which would please them. We're not going to mention it further in this book, but easiest way to remove big business from the equation, would be to eliminate the corporate income tax, and shift the tax to individual stockholders. It is not corporate revenue which finances the medical system, it is corporate tax deduction, largely because Congress has imposed a system of double taxation of corporate profits. Eliminate one of the taxes, and business might not complain about losing the tax deduction. Meanwhile, health insurers would have a new line of work offered to them.

What about the public? Well, medical care now costs 18% of Gross Domestic Product (GDP) and 18% is pretty surely crowding out other things the public might prefer to buy. In a sense, the political beauty of the premium-investment proposal we are about to unfold, lies in its primary aim of cutting net costs by only adding new revenue.

FOREWARD (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.

The Heirs of William Penn

William Penn

Freedom of religion includes the right to join some other religion than the one your father founded; William Penn's descendants had every right to become members of the Anglican church. It may even have been a wise move for them, in view of their need to maintain good relations with the British Monarch. But religious conversion cost the Penn family the automatic political allegiance of the Quakers dominating their colony. Not much has come down to us showing the Pennsylvania Quakers bitterly resenting their desertion, but it would be remarkable if at least some ardent Quakers did not feel that way. It certainly confuses history students, when they read that the Quakers of Pennsylvania were often rebellious about the rule of the Penn family.


Such resentments probably accelerated but do not completely explain the growing restlessness between the tenants and the landlords. The terms of the Charter gave the Penns ownership of the land from the Delaware River to five degrees west of the river -- providing they could maintain order there. King Charles was happy to be freed of the expense of policing this wilderness, and to be paid for it, to be freed of obligation to Admiral Penn who greatly assisted his return to the throne, and to have a place to be rid of a large number of English dissenters. The Penns were, in effect, vassal kings of a subkingdom larger than England itself. However, they behaved in what would now be considered an entirely businesslike arrangement. They bought their land, fair and square, purchased it a second or even third time from the local Indians, and refused to permit settlement until the Indians were satisfied. They skillfully negotiated border disputes with their neighbors without resorting to armed force, while employing great skill in the English Court on behalf of the settlers on their land. They provided benign oversight of the influx of huge numbers of settlers from various regions and nations, wisely and shrewdly managing a host of petty problems with the demonstration that peace led to prosperity, and that reasonableness could cope with ignorance and violence. When revolution changed the government and all the rules, they coped with the difficulties as well as anyone in history had done, and better than most. In retrospect, most of the violent criticism they engendered at the time, seems pretty unfair.

John Penn

They wanted to sell off their land as fast as they could at a fair price. They did not seek power, and in fact surrendered the right to govern the colony to the purchasers of the first five million acres, in return for being allowed to become private citizens selling off the remaining twenty-five million. Ultimately in 1789, they were forced to accept the sacrifice price of fifteen cents an acre. Aside from a few serious mistakes at the Council of Albany by a rather young John Penn, they treated the settlers honorably and did not deserve the treatment or the epithets they received in return. The main accusation made against them was that they were only interested in selling their land. Their main defense was they were only interested in selling their land.

As time has passed, their reputation has repaired itself, and they bask in the universal gratitude which is directed to their grandfather and father, William Penn. Statues and nameplates abound. Nobody who attacked them at the time appears to have been really serious about it, except one. Except for Benjamin Franklin, who turned from being their close friend to being their bitter enemy. Franklin tried to destroy the Penns, traveled to England to do it, and after twenty years seemed just as bitter as ever. Something really bad happened between them in 1754, and neither the Penns nor Franklin has been open about what it was.

Lifetime Health Savings Accounts:How Much is Enough?

The Duchess of Windsor was reported to say, a woman can never be too rich or too thin. Perhaps, but with insurance you state -- in advance -- how much insurance you can buy, best not expect more. In healthcare, it's my hunch something drastic would have to change before the American public voted an assessment for more than $3300 per person, for every working year from age 26 to age 65. In fact, if it went much higher, many people would probably look for a way to escape the burden. Perhaps we could supplement 3% per year, the historical rate of inflation for the past century. That's fair, because although it would reach $10,000 at age 65 instead of $3300, everything else would have readjusted to give it the same financial impact. Similarly, asking people 26-65 to pay for all ages is more palatable if it's arranged as your own childhood and retirement to be supported.

Excluded: Past debts, and Custodial Care. In any event, any payments for past debts, for health or otherwise are not envisioned in the following plan. The term "fixed income" reminds us debt and equity obey different rules, and the premise is the income supplement of this calculation will be based on equity, common stock. Furthermore, we know the National Debt, but how much of it once paid for health services, is fuzzy. When I started this analysis, I really never dreamed all of current healthcare costs might be covered by investment income from common stocks, and it's going to take some experience to be sure even that is reasonable. It allows us to take a stance: if it won't pay current costs, at least it will pay for some of them. If it more than pays for them, annual deposits should be reduced, never confiscated. To avoid circumvention by changing definitions, it might be well to state custodial care costs are not included, either, because they are treated as retirement income.

Medicare. Making it easier to explain, let's begin at the far end of the process, the day after death, looking backward. This proposal didn't initially include a Medicare proposal, but the accumulation of its unpaid debt has become so alarming, considering Medicare within Health Savings Accounts could fast become a national priority having no other solution. In addition, most factual health data come from Medicare, so the reader gets accustomed to hearing about it. So, while the Medicare situation is fraught with political obstacles, we might have to risk them. While debt overhang from earlier years continues to grow, Health Savings Accounts cannot be confidently promised to rescue Medicare by itself. But perhaps at least the Savings Account discussion could put a stop to going deeper into debt. Even a stopgap would have to get started pretty soon, but there is also a chance an improving economy might partially reduce the indebtedness.

Medicare-HSA Overlaps. At present, Catastrophic coverage is required for Health Savings Accounts, but its premiums are not tax-exempt. To extend HSA for the life expectancy therefore, requires an additional average of 18 years of after-tax premiums. We have split lifetime HSA into two parts at age 65 and assume a single-premium ($80,000) exchange for Medicare, possibly traded for partial forgiveness of premiums and rebate of payroll taxes. It is important not to count the $80,000 twice, if it assumed to be self financed. One quarter from payroll taxes, one quarter from premiums, and half from the $80,000 which used to be from the taxpayers. If pre-payment begins at an early age, Medicare costs might be quite modest after growth from income. Even when we show all the costs, including double payments, using an HSA at conservative rates like 4% will reduce the Medicare cost by 75%. Better performance depends heavily on approaching 12.7% by passive but hard-boiled investing. To pay down the existing debt back to 1965, is not contemplated by this proposal. At present, it grows by 50% of annual costs by addition; and an unknown amount by compounding. The amount of debt service is probably going to depend on the national ability to pay it down, regardless of its written terms. The same is likely to be true of subsidies for the poor. Ultimately, both of these decisions are political, limited by ability to pay. Because of the long time periods, comparatively modest interest rates could convert this impending disaster into a manageable cost, but it should not be contemplated until net investment returns approach 12.7 %. The outcome of these intersections is that the terms and benefits become largely a matter of political choice. That has been true for a long time, yet no effective corrections have been made. It is perhaps unbecoming of a citizen to say so, but the political system needs some steps taken to increase its sense of urgency.

Disintermediation of Investment Returns. By this reasoning, the rescue of Medicare depends on the political choice to do it, and the avoidance of a collision with the financial industry. Without a solution to the Medicare problem, a solution to paying for healthcare at younger ages becomes quite feasible, but it would be useless. Conversely, solving Medicare would be possible if the problems of younger people were ignored, but that is equally unlikely. To solve healthcare financing for all ages depends on introducing some new feature, and the easiest solution to imagine is to raise effective net interest rates. Interest rates are unusually low at present, and the Federal Reserve probably feels it would be dangerous to raise them. However, that's the easy part, because interest rates are certain to rise, eventually. What's much harder to envision is to flow the improved rates and the transaction-cost efficiencies through the financial system without wrecking it. What's hard to imagine is not hard to seem feasible, however. It is to take investments averaging 12.7%, flowing 10% past the intermediaries to the investor; and keeping it up for a century. Disintermediation, so to speak.

Rationalizing Fragmented Payments The transition to a solvent system could be greatly eased by the present premiums and payroll deductions, which are largely age-distributed, and can therefore be forgiven in a graduated manner for late-comers to the program. Most redistribution of high-cost cases should be handled through the catastrophic insurance, which is well suited for invisible and tax-free redistribution. Because of hospital internal cost-shifting, inpatients are overpriced, rapidly heading toward underpricing. This distortion of prices is achieved by squeezing inpatient prices with the DRG to shift costs and overpricing to hospital outpatients. In the long run, distorting prices has the effect of raising them. This will more immediately affect the relative costs of Catastrophic and Health Savings Accounts, and should be more carefully monitored, with an eye toward re-achieving equilibrium.

Dual Reimbursement Systems are Better Than One At present costs, statisticians estimate average lifetime healthcare costs at about $325,000 in year 2000 dollars; we could discuss the weaknesses of that estimate, but it's the best that can be produced. Women experience about 10% higher lifetime health costs than men. Roughly speaking, how much the average individual somehow has to accumulate, eventually has to equal how much he spends by the time of death. At this point, we must work around one of the advantages of having separate individual accounts. On the one hand, individual accounts create an incentive to spend wisely, but it is also true that pooled insurance accounts make cost-sharing easier, almost invisible, and (for some) tax-free. Therefore, linking Health Savings Accounts with Catastrophic insurance provides a way to pool heavy outlier expenses, while the incentive for careful money management resides in the outpatient costs most commonly employed (together with a special bank debit card) to pay outpatient costs. Such expenses are much more suitable for bargain-hunting anyway, because dreadfully sick people in a hospital are in no position to bargain or resist.

Internal Borrowing. Furthermore, there is significant difference between mismatches of aggregate revenue-to-expenses of an entire age group, and outliers within the same age cohort, the latter much likelier to be due to chance. To put it another way, somebody has to pay these debts, and the plan has been designed to break even as an entirety. Surely we must have a plan about who should pay them when enough revenue is not yet present in a new account. Surely some groups are always in surplus, other groups are always in arrears; the two should be matched, at low or zero interest rates. Borrowing between sick outliers and lucky well people within the same age cohort should pay modest interest rates, and borrowing between different cohorts for things characteristic of the age (pregnancy, for example) should pay none. Unfortunately, some people may abuse such opportunities, and interest must then be charged. Until the frequency of such things can be established, this function of loan banking should be part of the function of the oversight body. When it's limits become clearer, it might be delegated to a bank, or even privatized. While it is unnecessary to predict the last dime to be spent on the last day of life, incentives should be identified by the managing organization, separating structural cash shortages from abusive ones. Much of this sort of thing is eliminated by encouraging people to over-deposit in their accounts, possibly paying some medical bills with after-tax money in order to build them up. Such incentives must be contrived, if they do not appear spontaneously. User groups can be very helpful in such situations. People over 65 (that is, those on Medicare) spend at least half of that $325,000 lifetime cash turnover, but just what should be counted as their own debt, can be a matter of argument (see below.)

Proposal 12d: Current law permits an individual to deposit $3300 per year in a Health Savings Account, starting at age 25, and ending when Medicare coverage appears. Probably that amount is more than most young people can afford, so it would help if the rules were relaxed to roll-over that entitlement to later years, spreading the entire $132,000 over the forty-year time period at the discretion of the subscriber.

Bifurcated Health Savings Accounts. When Health Savings Accounts were first devised, it never seemed likely that Medicare might be supplanted. However, Medicare has grown both highly popular and severely under-funded, probably running at a loss. The rules should be modified to permit someone who has health insurance through an employer to develop a Health Savings Account which he funds but does not spend while he is of working age. The funds would then build up, enabling him to buy out Medicare on his 65th birthday or thereabout, with a single-premium exchange at present prices, (exchanging about $100,000 funded by forgiveness of Medicare premiums and some portion of payroll deductions from the past). He would have to purchase Catastrophic coverage at special rates. If this approach proved popular, it might supply extra funds for loaning to HSA subscribers in the outlier category. While there is no thought of phasing out Medicare against the subscribers' will, Congress would certainly be relieved to have subscribers drop out of a program which must be 50% subsidized.

Proposal 12e: The present closing age for HSA enrollments at the onset of Medicare should be extended a few years older. And single-premium buy-outs of Medicare coverage, including the possible return of payroll deductions where indicated, should be permitted as an option.

Proposal 12f: Congress should create and fund a permanent Health Savings Account Agency. It should have members representing subscribers and providers of these instruments, with power to hold hearings and make recommendations about technical changes. It should meet jointly with the Senate Finance Committee and the Health Subcomittee of Ways and Means periodically. It should be involved with the appropriate Executive Branch department, to review current activity, detect changing trends, and recommend changes in regulations and laws related to the subject. On a temporary basis, it should oversee inter-cohort and outlier loans, leading to recommendations concerning the size and scope of this activity.

Single-Premium Medicare, age 65 Hypothetically, if anyone could live to his 65th birthday without spending any of the account, a prudent investor would have accumulated $132,000 in pure deposits on his 65th birthday. He only needs $80,000 to fund Medicare as a single-payment at age 65, however, so he can even afford to get sick a little. If he starts later than age 25, he has already paid for Medicare somewhat, with payroll taxes. That could be considered payment toward reduction of the Medicare debt.

If someone makes a single deposit of $80,000 on his/her 65th birthday, there will accumulate $190,000 in the account over the next 18 years, the present life expectancy if he spends nothing for health and invests at 5%; and $190,000 is what the average person costs Medicare in a lifetime. Since the average person spends $190,000 during 18 years on Medicare, enough money will accumulate in Medicare to pay its expenses, and after some shifting-around, this should make Medicare solvent, in the sense that at least the debt isn't getting bigger because of him. Furthermore, index funds should be returning 10-12% over the long haul, so there should be some firm discussions with the intermediaries about some degree of dis-intermediation. Please don't do the arithmetic and discover that only $40,000 is needed. That seems plausible, but that's wrong, because the costs remain the same , and previously the government has been borrowing half the money from foreigners. In effect, the subscribers have been paying the government in fifty-cent dollars, while claiming the program is entirely self-funded. There has been an exchange of one form of revenue for another, so the required revenue actually does demand $80,000 for a single deposit stripped of payroll deductions and perhaps premiums. An end would be put to further borrowing, but the previous debt remains to be paid. I have no way of knowing how much that amounts to, but it is lots. All government bonds are general obligations, mixed together, while access to Medicare reports back to 1965 is not easily available. What we can more confidently predict is the limit young working people can afford for the sole purpose of paying off the Medicare debts of earlier generation. If there are other proposals for paying off this foreign debt, they have not been widely voiced. And the debt is still rapidly growing.

Escrow the Single Premium A young subscriber would have to set aside an average of $850 per year (from age 25 to 64) to achieve $247,000 on his 65th birthday, assuming a 5% compound investment income and relatively little sickness. This might seem like an adequate average, but occasional individuals with chronic illnesses would easily exceed it in health expenditures. Assuming a 10% return, he would have to contribute $550 yearly. It is not easy to estimate the size and frequency of expensive occurrences in the future, so someone must be designated to watch this balance and institute mid-course adjustments. As an example, simple heart transplants costing $200,000 are already being discussed. To some unknown extent, the cap on out-of-pocket expenses would have to be adjusted to pass these cost over-runs indirectly through the Catastrophic insurance. Insurance does greatly facilitate sharing of outlier expenses, but usually requires a time lag whenever new ones appear.

It does not require much political experience to know taxpayers greatly resent paying debts that benefitted earlier generations. They complain, but complaining does not pay off the debts of the past. To double required deposits in order to pay off past debts, as well as using forgiveness of payroll deductions and premiums, would require an additional $120,000 per year escrow, for each year's debt accumulation. At present, roughly $ 5300 per beneficiary, per year, is being borrowed, and there are roughly twice as many current beneficiaries as people in the tax-paying group, but for only 18 years, as compared with 40 years as a prospective beneficiary. So that comes to liquidating roughly $1300 a year of debt to balance the two populations, or $2600 a year to gain a year. That's for whatever the debt happens to be, which surely someone can calculate. To accomplish it, one would have to project an average of ??% income return. That's definitely the outer limit of what is possible, and it probably over-reaches a little. Therefore, to be safe, one would have to assume some other sources of income, a change in the demographic patterns, or an adjustment with the creditor. Assuming inflation will increase expenses equally with inflation seems a possibility. And it also seems about as likely that medical expenses will go down, as that they go up. You would have to be pretty lucky for all these factors to fall in line over an 80-year lifetime.

Medicare: Optional, Mandatory, or Third Rail? It is this calculation, however rough, which has made me change my mind. It was my original supposition that multi-year premium investment would only apply up to age 65, and that would be followed by Medicare. In other words, it should only be implemented as a less expensive substitute for the Affordable Care Act. It seemed to me the average politician would be very reluctant to agitate retirees by proposing a plan to eliminate Medicare. They would feel threatened, the opposing party would fan the flames of their fears, and the result would be a high likelihood of undermining the whole idea for any age group, for many years. Better to take the safer route of avoiding Medicare, and confining the proposal to working people, where its economics are overwhelmingly favorable.

But when the calculations show how close this proposal under optimistic projections would come to failure, and when nothing remotely close to it has been proposed by anyone, the opportunity runs the risk of passing us by. So, I changed my mind. The moment of opportunity is too fleeting, and the consequences of missing it entirely are too close, to worry about the political disadvantages of doing the right thing. The transition to a pre-funded lifetime system will take a long time to get mature, and the political obstacle course preceding it is a daunting one. However, there is another way of saying all this, which is perhaps more persuasive that Medicare must be changed. It begins to look as though the unfunded and accumulated debts of Medicare are such a drag on our system of government, that very little can be accomplished by anyone, until this central problem is addressed. In that sense, our problem is not the uninsured or the illegal immigrants, or an expensive insurance system. Our problem has become Medicare underfunding, and our second problem is that everyone loves Medicare.

The "simplified" goal is therefore for everyone to accumulate $80,000 in savings by the 65th birthday, remembering that savings get a lot harder when earned income stops, and definitely remembering that people approaching retirement are not likely to part readily with $80,000. With current law, you would have to start maximum annual depositing in an HSA of $3300 by your 52nd birthday, to reach $80,000 by age 65, and you would still need 10% internal compounding to make it. With 5% return, you would have to start at age 48. But notice how easily $200 a year would also get you there, starting at age 25 (see below) but it immediately gets questionable to assume $700 a year deposit for a 25 yr-old receiving 5% returns. We are definitely reaching a point where the ideas proposed in this book will no longer bail us out of our Medicare debt. Because -- the most optimistic of these projections are achieved by assuming there will be no contributions at all from people aged 25-65, for their own healthcare, babies, contraceptives and whatever. Many frugal people might skin by with looser rules; But the universal goals of the past are just that, the goals of the past. If we are going to cover lifetime health costs instead of just Medicare, many more will need $80,000 to do it, and have something left to share with the less fortunate. But to repeat, that still compares very favorably with the $325,000 which is often cited as a lifetime cost. Unfortunately, that just isn't enough, the Chinese will have to wait for repayment. This book was not written to propose a change in Medicare, but in writing it I do not see how we get out of our healthcare mess without addressing Medicare. If politicians can be persuaded of that, at least we will no longer need to invent reasons for urgency.

Starting with the Medicare example. Notice that forty years of maximum contributions, would amount to far more than the necessary $40-80,000 by age 65. We haven't forgotten that the individual is at risk for other illnesses in the meantime, so in effect what we need is an individual escrow fund for lifetime funding intended (at first) only to replace Medicare coverage. (We are examining lifetime coverage, piece by piece, trying to accommodate an extended transition period.) Depending on a lot of factors, that goal could cost as little as $100 a year deposited for forty years at high interest rates, or as much as the full $1000 per year with low rates. It all depends on what income you receive on the deposits in the interval. In a moment, we will show that 10% return is not impossible, but it is also true that a contribution of $1000 per year would not seem tragic, compared with the present cost of health insurance (now averaging over $6000 a year). I have unrelated doubts about the current $325,000 estimate of average lifetime health costs, but that is what is commonly stated. For the moment, consider these numbers as providing a ballpark worksheet for multi-year funding, using an example familiar to everyone, but not necessarily easy to understand after one quick reading.

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

Escrow Accounts for Future Needs.

When a subscriber faces a medical expense costing more than his account balance, he has three choices. He could forego the medical service, he could pay cash out of pocket, or he could borrow the money. Sometimes he will have enough money in the account, but is saving it for some later purpose; in that case, he might be both a borrower and an investor at the same time. When it comes time to pay off his loans, that obligation should have a higher priority than investing new money, since otherwise the subscriber is in the position of investing on margin. Margin investing is generally a bad idea, but sometimes it just has to be done. So, he may divide his account into three escrow accounts, and the managers may decide they need even more.

Borrowing Escrow. The first thing is to pay off debts, and it should require permission to do anything else with a new deposit. Not all managers of HSA will advance overdrafts, but some will, probably at rather high interest rates. More commonly other subscribers will have surplus money they would like to lend like a savings account, because deposits up to their annual limit are tax deductible, and they would be reluctant to pay the taxes to redeem them.

It's easy to imagine some gaming with arrangements of differing tax liability, so Congress must decide what circumstances permit it. With insurance, considerable pooling of resources happens without tax consequences, but when accounts are individually owned, pooling is not allowed without legal provision. Depositing unencumbered money in the escrow account is the same as investing it, except its presence indicates availability for loans in certain circumstances. Nevertheless, it is inevitable that gaps between the two curves, revenue and expense, will develop, even though the hills eventually exceed the valleys.

My suggestion is to limit structural borrowing at low interest rates to smoothing out the valleys which are characteristic of entire age levels, rather than provide individual banking arrangements between subscribers. Over time, these variations will standardize. And since the accounts will collectively grow, the quirks will eventually stabilize the investment accounts, possibly even augmenting income. However, if a surplus or deficit is exhausted, it should not be perpetuated with outside financing. The accounts operate under the general principle that they come out right at the end. It therefore ought to be possible to adjust age-determined structural imbalances in bulk, while attempts by subscribers to game such variations should be countered by modifying interest rates.

Proposal 12j: Congress is urged to permit pooling (at low interest) between the accounts of an age group in consistent surplus, and other age groups in consistent deficit status, occasioned by divergences between revenue and medical withdrawals at different ages. If there are consequent imbalances created by differential depositing, they should be corrected by adjusting interest rates. (2735)

Medicare Escrow. There are a number of reasons why some people would want to buy their way out of Medicare, whereas others would be terrified of any mention of changes in their Medicare plan. The incentive for the government to permit Medicare buy-outs would lie in ridding itself of huge deficit financing, with secondary borrowing from foreign nations. And the advantage for the plan itself is that it provides a cushion for the transition to lifetime accounts, ultimately a cushion for revenue misjudgments.

By noting the average annual cost of Medicare, the number of Medicare beneficiaries, and the average longevity of subscribers, the average lifetime Medicare costs of Medicare can be calculated. Assuming inflation to affect both revenue and healthcare expenses equally, inflation is ignored. Then, with various compound investment assumptions, a range of future income can be estimated. All of this can be estimated as requiring a lump-sum payment of $40,000 at the 65th birthday in order to make a fair exchange for the Medicare entitlement, and guessed at $80,000, if accrued debts are serviced. However, the individual would have paid about a quarter of that with previous payroll deductions during his working life, and by buying out of it at age 65, would be relieved of Medicare premiums which amount to about another quarter. However, that leaves half of it to be made up by Federal subsidy from the taxpayers.

The biggest issue is the foreign debt to be paid back for financing Medicare subsidies in past years. Consequently, in order to put a stop to further borrowing, the buyout price must be raised. Obviously, if past debt is serviced, more contribution is needed. Unfortunately, information about prior indebtedness is not readily available, so the entirety is here guessed to require a single-payment premium of $80,000 at the 65th birthday, for a full Medicare buyout. If the entire Medicare program, past and present, is to be paid off, there very likely will have tobe a tradeoff between increased revenue from HSA deposits and diminished service of foreign debts. As a guess, the elasticity of HSA revenue of $3300 per year, from age 26 to 65, has already more than reached its limit. For this purpose, we have accepted the present Congressional limit, which was presumably rather arbitrary. While it is possible to imagine this arbitrary limit could be made to stretch to cover lifetime health costs, more likely it will only cover a portion. But to cover the Medicare unfunded debts of half the past century in addition to current costs, will require some new concept, as yet undevised.

"All-other" Escrow. It is difficult to foresee which escrows will prove so popular they will require limits, and which others will be so unattractive they will require minimums. /Moreover, it can be anticipated some people will wish to use account surplus as an estate-planning tool, while others will have no estate. The provision in law directing the uses of account surplus at death may thus appeal to the majority of subscribers, but actually may be highly unsuitable for others. Therefore, while it seems harmless to provide a vehicle for such individualization, too much should not be expected of it.

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 "" - 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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