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

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An originator of Health Savings Accounts describes their advantages over existing health insurance. Several improvements are suggested for the regular HSA. A more dramatic cost improvement emerges from a lifetime HSA version, which substitutes whole-life approaches for pay-as-you-go. This newer version requires legislation, but could reduce health costs dramatically.

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.

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. (

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FOREWARD (Whole-life Health Insurance)

Reader, switch your mental gears. This second Foreword is a summary of a completely different 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. 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 would be surprised to hear the idea of whole-life coverage presented as a money-spinner. After all, it's hard to see how making money for a life insurance beneficiary makes any real difference to him. No doubt, life insurance didn't make much money a century ago. But extended life expectancy gives compound interest so much longer to grow, that it somewhat transforms the whole nature of the proposal. If you want intergenerational cost shifting, you must have some form of insurance, but that's where it ends. This variation is to shift the funds within the account, to a later time in life. That creates a much stronger incentive than to propose your generation should support mine. As a final safety measure, Catastrophic high-deductible is added. It's bare-bones coverage, based on the idea that the higher the deductible, the lower the premium. Cost saving runs through all of these ideas, but lifetime coverage is a cost-saving whopper. It uses the Health Savings Account as a transfer vehicle for the funds from one end of life to the other, forward from the present, in the form of a reduction of Medicare premiums and/or payroll deductions. The last-year-of life is chosen as an example because it comes to 100% of us, and is usually the most expensive year for healthcare. But a ton of money sounds pretty good at any age. A Health Savings Account may also be used as a substitute for day to day health insurance, so to distinguish the two, this particular variation has also been called Lifetime Health Savings Accounts. Another term is Whole-life Health Insurance.

The basic idea is to generate compound investment income -- not presently even being contemplated -- on currently unused health insurance premiums, and then apply the money to reducing the individual's future premiums. Even I was startled to learn how much money it saved. That's pretty much what whole-life life insurance does, so this could be called whole-life health insurance. Since lessened premiums generate lessened investment income, the math is complicated even if the theory is simple, but every whole-life insurer now does it every day. 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 no guarantees about how much.

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.

Summary of HSA Proposals

Proposals related to regular (i.e. one-year term) Health Savings Accounts:

Proposal 1a:Congress should extend comparable subsidies to the poor for Health Savings Accounts as for other health insurance.(2687)

Proposal 9a: Companies which manage health insurance products, particularly Health Savings Accounts, may select the state in which they are domiciled, but must then accept that state's corporate regulations. Such licensed corporations may sell their health insurance products in any other state; but individual products they sell in another state must conform to the regulations of the state in which the customer lives, disregarding conflicting regulations in the state of corporate domicile.(2711)

Proposal 9b: Congress should mandate the licensing to sell health insurance to be widely inclusive, including Health Savings Accounts and Catastrophic Coverage, and subject to regulation in the state of domicile, subject to objection by the state of residence of the insured. When there is conflict, appeal may be federal.(2611)

Proposal 2a: Subscribers to Flexible Spending Accounts should be permitted to roll over unspent balances into HSAs from year to year.(2693)

Proposal 3a:Congress should authorize a definitive study of whether the DRG system is more or less expensive than fee for service. If the two are close, the DRG system should be phased out in favor of a relative-value system for fee for service billing. If DRG can be shown to be more cost efficient, the present version should be replaced by a hybrid variety, in which a small pamphlet contains the codes for a majority of cases, and a national diagnostic relative value system devised like a search engine, to provide coding for the rest of cases. Where even this is insufficient, a national appeal system of experts should be devised for extreme outliers.(2634)

Proposal 4a: Congress should add a new Catastrophic health insurance option, which covers at least 105% of the cost of inpatient hospitalizations (to the extent prices reflect true costs) but which utilizes a revised variant of DRG payment by diagnosis to produce substantially the same result; the Catastrophic policy also covers outpatient costs above the level of a high deductible (with a cap on cash payments by the patient); exceptions must be specified and approved. It is intended that highly similar outpatient items shall set identical prices for the same item used for inpatients, and that a relative value system will be evolved for pricing inpatient items which have no outpatient applicability. When this system is deemed sufficiently perfected, it may be substituted, in whole or in part, for DRG limitations.

The basic intent is to set inpatient charges by matching outpatient marketplace prices as much and as fast as possible within the DRG, meanwhile setting inpatient prices of unsuitable items by relative-values to outpatient prices. Because it will take time to develop the technical underpinnings, the tactical transition is accomplished by starting with an arbitrary DRG and gradually substituting a DRG system suffused with market prices. Some residual arbitrariness must be expected, and some system for adjusting the border for changing patterns of scientific care must be provided during transition. It is probably impossible to make inpatient and outpatient prices totally independent of each other, since the system of care will continue to be warped by its financing until similar items are priced similarly. (2634)

Proposal 4b: After the deductible has been established, the upper limits of Health Savings Accounts deposits should periodically be adjusted to cover the cost plus a reasonable markup for: outpatient care plus the premium of Catastrophic coverage for an average lifetime from birth to death. This limit should be divided, not over an entire lifetime, but over the working age from 20 to 65. It should be noted that including the premiums of catastrophic coverage will also extend the income tax deduction to equal that of employed persons. And it should be noted that a compound interest rate must be assumed for compound income from invested idle premiums, and subtracted from the annual deposit limit, as actually adjusted annually for experience. The approximate goal is to fund the lifetime care of beneficiaries (approximated as $350,000 lifetime cost, with approximately $200,000 of contributions, plus $150, 000 of investment income. The preferred method of investment is passive investing in index funds of domestic large-cap common stock, with a small (10%) cash-flow component. And the goal is no more than 1.5% overhead attrition, resulting in no less than 8.5% average total return on standard indices. If these standards cannot be achieved, the portfolio management should be put out to bid.

Proposal 4c: A government agency should be appointed to oversee economic, financial, and medical trends, and be adequately funded to do so, particularly during the transition phases. It should be overseen by thirty prominent institutions in the involved fields, each of whom appoints one of twenty board members on a rotating basis, one each per institution, and ten seats remaining vacant for a year at all times. The creation of ten outside organizations whose seats are vacant on a rotating basis is intentionally designed to provide dissenting opinion, and to offer time to write books about their experiences. The power to make fundamental changes, remains with Congress.

Proposal 4d: New drugs and appliances are constantly being introduced, and are usually at their highest prices as they are first introduced. Insurance prices are set annually, before they can adjust to new items. No insurance should be required to cover items which were not priced into the premium, that is, within the first yearly premium cycle after the introduction of the item. Exceptions for epidemics and catastrophes may be excluded.

Proposal 6b: Congress should permit the sale of excess ("Catastrophic") indemnity health insurance, without service benefit provisions, with a deductible reasonably stretched to exclude most outpatient costs but include most inpatient ones. If future medical science should exclude a burdensome proportion of outpatient procedures, the line may be adjusted downward to include most payment by DRG or its equivalent, even if outpatient; and exclude patient discretionary procedures, even if inpatient. Payment for emergency care should depend on whether the patient is admitted afterward. Reasonable limits may be set on ambulance costs.

Proposal 7a: Congress should remove all upper age limits to opening Health Savings Accounts, and mandate linkage to HSA for all health insurance with front-end deductibles of more than $100 annually unless subsidies are substituted.(2584)

Proposal 7b: Congress should impose transparency rules on fees and net returns for Health Savings Accounts, and if necessary impose an absolute limit of double the fees available from the least expensive, legitimate, competitor.(2584)

n fact, some enterprising insurance company could easily produce the same policy with a $10,000 deductible, which would reduce the premium still further, and improve an already exhilarating experience. That's what banks normally do by maintaining a constant pool of funds coming in and going out, but essentially the rest of the pool is undisturbed. Let's forget that, and stick with what is currently available on the market. It's true that a second major illness would wipe out the deductible. In that unhappy event, the cost of the package would rise to $16,300, still a dandy investment for a $15,000 pension. After that, the logic begins to peter out. You would have to have ten major illnesses to begin to doubt the wisdom of it, but people who have ten major illnesses are not likely to be worrying much about their pensions. This analysis quickly loses traction as medical disasters become unusually frequent, and gets you into reinsurance issues. But the example is mainly offered to illustrate the destructive effect of brokerage fees, which must be minimized in any way available. Besides, more is to come, which improves the projection.

Which Obamacare Plan Fits Best With Health Savings Accounts?

Health Savings Plans were designed over thirty years ago, well before the Affordable Care Act. The ACA does include pure catastrophic coverage. But it inexplicably limits such coverage to persons under the age of 30, and over that age, only in hardship cases. The paradox exists: Obamacare in fact imposes high-deductible features to every one of its products, but includes so much baggage, the catastrophic options are far overpriced for such a limited use. The regulations should be changed to remedy that awkwardness. Later in the book, it is of central interest to see how lifetime coverage compares in cost, against a "naked" catastrophic policy costing about $1000 a year. (see below)

Proposal 6p: Congress should permit the sale of excess ("Catastrophic") indemnity health insurance, without service benefit provisions, with a deductible reasonably attempting to exclude most outpatient costs but include most inpatient ones. If future medical science should exclude a burdensome proportion of outpatient procedures, the line may be adjusted downward to include most payment by DRG or its equivalent, even if outpatient; and exclude patient discretionary procedures, even if inpatient. Payment for emergency care should depend on whether the patient is admitted afterward. Reasonable limits may be set on ambulance costs.
Furthermore, the ACA introduces the interesting concept of an annual upper limit to patient out-of-pocket costs, which really means a quasi re-insurance is at work. That seems like a useful innovation, which would eliminate the need to design a special re-insurance program for Health Savings Accounts. The unknown person who devised this idea is to be congratulated for simplifying the problem. Commercial catastrophic insurers are urged to take a look at imitating it, and the Secretary is urged to write regulations which permit the use of it. This is one area where the use of dollar limits (indemnity) is clearly preferable to enumerating all the ways the dollars must be spent -- and probably neglecting to mention a few. When bills are large enough to exceed the deductible threshhold, they are surely paid to institutions, where subsequent non-medical use is easy to define and detect.

{top quote}
None of the Obamacare "metal" options is entirely suitable for a Health Savings Account. {bottom quote}
A high deductible is itself a desirable feature, while co-pay or coinsurance, is undesirable. The typical 20% co-pay feature has proven too small to have any restraining effect, and would have been dropped as useless, except for one thing. A 20% co-pay will reduce the premium by 20%, a 34% co-pay would reduce premiums by 34%. Therefore, in the heat of a salesman making a pitch, it is useful to be able to adjust the premium to just about anything requested, so the marketing departments usually press for inclusion of a "flexible" co-pay feature. But that is really just a smoke-screen. The effect of a deductible on premiums, on the other hand, is rather tedious to calculate, but its effect on patient behavior is striking, because a host of small claims are swept away when their price is too low to justify expensive claims processing. Just think for a moment of the effect: the higher you raise the deductible, the lower you make the premium. I seem to remember a time when the AMA offered a $25,000 deductible for $100 yearly premium. If we had stuck with that approach during the following fifty years, we might be in less of a pickle about rising health care costs.

{top quote}
But, the bronze plan has the highest deductible and the lowest premium. {bottom quote}
So the bottom line is this: even the Obamacare "metal" plans demonstrate that the higher the deductible, the lower the premium. Since the bronze plan has the highest deductible and the lowest premium, it is definitely the one to choose for linking to a Health Savings Account. It's nowhere close to a $100-dollar-a-month premium, however, and is not at all what I would have designed for the purpose. But if you must have an ACA high-deductible, take this one. And indeed, you probably must. The U.S. Supreme Court decision that it isn't a penalty, it is a tax, has been worked around by saying you have to pay a penalty of 1% of your income, unless the small tax penalty is larger, which it probably seldom will be. A young person might be able to pay the small tax penalty with his first job, but we hope it will soon creep up on him that he actually has to pay 1% of his income, when the happy day arrives he is so unlucky as to get a lamentable raise in salary.

So the way we would advise using the HSA has three components: 1. Choose the cheapest plan with the highest deductible. 2. Try to build up the HSA to $6000 as quickly as you can, by contributing the full $3300 limit even when you otherwise don't need to. 3. Try not to spend the funds in the tax-sheltered account, unless you don't have any fully-taxed funds at your disposal when you get sick. If your Health Savings Account contains a $6000 special-purpose fund for unexpected medical costs, compound investment income will make it grow considerably faster when you are young. That's a time when mathematics will make it grow fastest in the long run. Remember, you aren't required to do this, but take my word for it; it will make for much easier lifetime health financing, if you can spare the funds.

CHAPTER TWO: Looking for Loopholes

Investments Pay the Bill: Obstetrics Lengthens Duration, Deductible Reserve is the Kernel.

The present state of healthcare legislation is, to put it delicately, immature. Both Health Savings Accounts and the Affordable Care Act are the law of the land, but the Obama Administration quietly slipped in a regulation that no new HSA may be started for someone over the age of 30. True, you must have a high-deductible health policy to be eligible; but health insurance is mandatory and every one of the governmental "metal" plans has at least a $1250 front-end deductible, going up to $6300 for full coverage. Unless a person is eligible for subsidy, a deductible that large makes the insurance useless unless the individual has saved up the cash somewhere. Therefore, with apologies to the millennials, for families with a child or someone else under the age of 30, we urge absolutely everyone who can, to start a Health Savings Account immediately, pretty much without consideration of health insurance. Different people would look at HSAs in different ways. Here, HSAs will be described as a piggy-bank from birth until the attainment of Medicare eligibility, when you can turn it into an IRA and spend what you please. For the moment we won't go on further about retirement, except to mention that if you haven't spent anything, nobody else is going to spend any of your HSA either. So you can have it all back with investment income added as you start your retirement. In a way, an HSA can be seen as a savings vehicle, to which accumulating savings is the only available alternative until age 59.5, with optional medical spending permitted at any time. It's sort of a loophole, but without it, it's pretty had to see how Obamacare is usable for most people.

A piggy-bank for Millennials. Whatever you may think of Obamacare, the front-end deductibles provide a pretty substantial incentive to maintain a $1250 cash reserve somewhere, and an HSA is a wonderful place to keep it. If you have avoided spending it, it's returnable to you as a regular IRA, with accumulations, when you retire. Up to that time, you even get a second tax exemption on what you spend for healthcare. Calculating a 10% investment return, and assuming no medical expenses, it would then amount to up to $90,000 taxable, depending on your age when you start it, or it starts paying you retirement income of over $5000 a year.That's pretty good for an investment of $1250. The main uncertainty you should have revolves around the ability to get 10% investment return, which is therefore our next discussion issue. There are two issues: whether such a return can be safe and consistent; and whether hidden fees will undermine the return.

We mentioned earlier, Roger G. Ibbotson, Professor of Finance at Yale School of Management has published a book with Rex A. Sinquefield called Stocks, Bonds, Bills and Inflation. It's a book of data, displaying the return of each major investment class since 1926, the first year enough data was available. A diversified portfolio of small stocks would have returned 12.5% from 1926 to 2014, about ninety years. A portfolio of large American companies would have returned 10.2% through a period including two major stock market crashes, a dozen small crashes, two World Wars and half a dozen smaller wars involving the USA. And even including a nuclear war, except it wasn't dropped on us.The total combined American stock market experience, large, medium and small, is not displayed by Ibbotson, but can be estimated as yielding about 11% total return. Past experience is not a guarantee of future performance, but it's the best predictor anyone can make.

During that most recent prior century, we had a lot of crisis events, which normally bump the stock market up and down. A standard deviation is the amount it jumps around; and one standard deviation plus or minus, includes by definition two thirds of all variation. During the past ninety years, the standard deviation has been xx percent. As statisticians would say, the total return has been 11%, plus or minus xx%. Throughout this book, we will repeatedly describe it as 10%, for a simple reason: money compounded at 10% will double every seven years. Using that quick formula, it is possible to satisfy yourself what 11% can do if you hold it long enough. Since no one knows what will happen in the next 100 years, it is futile to be more precise than that. We may have an atomic war, or we may discover a cheap cure for cancer. But 10% is about what you can reasonably expect, doubling in seven years if you can restrain yourself from selling it during short periods when it can deviate less or more. The most uncertain time is immediately after you buy it, before it has time to accumulate a "cushion".

Expecting it and getting it, can be two different things however. Most expenses for a management company also come in its first few years, on the first few dollars. Wide experience with a cagey public therefore teaches experienced managers to get their costs back as soon as they can. Until most managers get to know their customers, in this trade, charging fees which amount to 0.4% annually is considered normal for funds of $10 million, so charging 1-2% for accounts under a thousand dollars is common practice. These things make it understandable that brokers are slow to lower their fees, or 12(1)bs, or $250 charges to distribute some of your proceeds. But our goal as customers is to negotiate fees reasonably approaching those of Vanguard or Fidelity, which have fees of about 0.07% on funds amounting to trillions of dollars. Such magic can only be had by purchasing index funds from a broker who aggregates them, and also develops a smooth-running standardized service with minimal marketing costs to cover the debit card, help desk, hospital negotiating, and banking costs. Remember, stock brokers are not fiduciaries; that means they are not expected to put the customer's interest ahead of their own. One of the better-known brokerage houses advertises charges of $18 a year for accounts over $10,000, but only after it reaches that size will it permit the customer to choose a famous low-fee index fund. You really have to feel sorry for an industry experiencing such a decline of net worth, but the incentive it creates is obviously to get the account to be over $10,000, as fast as you possibly can. To many people, those sound like staggeringly large amounts, but they are realistic at this stage of the market, if not acceptable.

Proposal 7a: Congress should remove all upper age limits to opening Health Savings Accounts, and mandate linkage to HSA for all health insurance with front-end deductibles of more than $100 annually unless subsidies are substituted.(2584)

Proposal 7b: Congress should impose transparency rules on fees and net returns for Health Savings Accounts, and if necessary impose a limit of double the fees available from the least expensive competitor.(2584)

There needs to be an added layer of investment in government securities, to provide liquidity to all HSAs, in the general range of 10%. In the case of Obamacare insurance, the first purchase in the fund might well be $1250 in indexed Treasury Bills, reverting to total stock market index, thereafter. Other liquidity needs are an individual matter, always remembering that cash reserves lower the overall return of the fund and slow its growth. At the moment, interest rates are so artificially low, leaving the reserve in cash is nearly as good. For the good of the country, however, that needs to change fairly soon.

The investment alternative of purchasing in-house stock-picking funds, or funds with a concealed kick-back to your broker, is probably the riskiest of all alternatives available, and to be avoided. The real goal here is to get your 10% long-term return as cheaply as you can, or else as soon as you can. With an index, 50% of the customers do better than the average, and 50% do worse. For health costs, just be sure you aren't in the bottom 50%, and the rest becomes fairly easy. There is one other common hazard: the tendency of all investors, small and large, to buy high and sell low. Just don't ever sell.

First Example, single payment of relatively small deductible. The smallest deductible in the Obamacare Insurance Exchanges is $1250. If a deposit in the HSA is made at age 26 to cover this contingency, but never used, it should rise to $10,000 if invested in U.S. Treasuries at 3.7% -- at age 85. That won't get you where you want to go, but it may be the least that can be afforded.

Second Example, single payment of $6300.The largest deductible in the Obamacare Exchanges is $6300. A single deposit of this size at age 26 will reach $10,000 at age 40. At that point, we can hope that 10% is available in the market, and thus would reach $24,000 at age 65. An IRA of $24,000 will start paying pensions at the minimum distribution rate of $960 a year. In a sense, that's not a bad investment of $6300, but everything has to go smoothly (in health as well as finances) for 39 years to achieve it. The point of these first two examples is to demonstrate that HSA is probably not able to overcome current abnormally low short-term interest rates enough to be used solely as a place to park small deductible reserves. At $10,000, it becomes feasible, and when interest rates return to normal levels, it may again be feasible for small savers.

Third Example, single payment of $10,000 (deductible reserve of $6300, plus $3700 cash), at birth. This cash contribution at birth will not only match the $10,000 minimum demanded by brokers for unrestricted investment (i.e. for eligibility for 10% long-term investment return), with an added bonus of reducing premiums for paying a higher deductible. Now, this one is far less accessible, but it illustrates some important points.

At one time, a $25,000 deductible health insurance policy was available for an annual premium of $100, but while times have changed, it still remains true, the higher the deductible, the lower the premium may be. Secondly, the lower the premium, the more is left for investment. This deposit, if placed in an IRA at age 26 at a 10% income rate, would generate a fund of $411,000 at age 65, making possible an annual pension of $15,000. Quite a contrast! The third feature is that starting the compounded income at birth instead of 26, adds nearly five doublings to its investment horizon. The ultimate consequence would be a millionaire's retirement fund of $480,000 a year. What's mainly standing in the road of this windfall, is all the current dissension about the place of the family in American life. If it is the parent's duty to supply healthcare for their children from the moment of conception, then the cost is an obligation, and should confer ownership of the benefits. If the child didn't ask to be born, his costs are his own and, while the parents may make a gift or a loan, the benefits are the child's. And if there is a divorce or illegitimacy, the support costs are probably the determining factor. Quite obviously, we are at quite a distance from the basis for settling this issue. If you throw in the costs of an abortion subtracted from the cost of being born, you go off on another tangent, one you probably never return from.

Should we treat Obstetrics and Pediatrics as a loan from parents to child?After all, the insurance location of Maternal/Childhood Coverage Could Add 26 Years of Compounding and solve several problems which are now beyond the scope of this book. It seems like a problem which could reserved for a later time, since lifetime coverage can be addressed without it, no matter that it would be simpler to include it. This is a book about healthcare finance, with every incentive to avoid thorny society problems. However, a collision occurs when we attempt to include the rather considerable costs of obstetrics and/or abortion, and the comparatively minor medical costs of children under the age of 26. The goal is not so much to protect against these costs, as to add 26 years of compounded investment income to the calculations, and the problem is that our society has not completely decided whose financial responsibility such costs belong to. Judges make expedient decisions in divorces and illegitimacy; but issues like this, for them to stick, must really be made by society in general. For purposes of long-term prediction, we will therefore assume that a child is responsible for his own birth and subsequent medical costs, and that someone else in the family is responsible for reimbursing the child. Treating costs as the infant's responsibility is something of a fiction, like pretending each child has a trust fund to pay everybody back at age 26; but it will have to serve.

At the moment, everybody does have some mechanism for paying Obstetrical costs, even while that mechanism is only to rely on charity. The costs have already been assigned to someone. For the most part, Obstetrics is now part of the parents' health insurance policy. It must be admitted that the true costs are not readily available, since the whole matter is tangled in internal cost-shifting by hospitals and insurance policies. However, they are determinable by someone, and eight thousand dollars seems adequate. Two hundred dollars a year seems right for average childhood costs from birth to age 26 but obviously, better data would improve the precision. We take a guess at $8200 for obstetrics and pediatrics combined, or $5200 for pediatrics alone. At 10% investment income, the fund would overtake the pediatrics in 26 years, and possibly allowi the fund to break even on the Obstetrical costs over the 26 years. For awhile at least, policies like this should allow the managers to gain experience; if the investment pays the medical costs, then enough of the obstetrics will be double-paid by existing sources to make the whole experiment escape insolvency A pilot study of four or five years, in four or five states, might clarify the issues. After that, it should be possible to establish profitable levels for the package. Somewhere mixed up in this are the inordinately concentrated malpractice costs of obstetricians. We look longingly toward the Chief Justice and the Judicial Council to rationalize this wasteful situation, and then for the ensuing savings at 10% for 26 years to get most Health Savings Accounts off to a profitable level by age 26. This complicated sentence structure may seem a round-about way to streamline transaction costs for HSA brokers, but something like that will have to be done to reduce transaction costs, which are probably roughly equitable in the first and second examples. But nevertheless costs must be reduced, because the tremendous jump in gains in the third example are too attractive to be ignored. In summary, in this discussion we regard the initial high obstetrical costs and the low pediatric costs which follow, as a wash. We can come back later and tinker with details. But the important point at the moment is to stress that we can garner 26 years at 10% compounded investment income, by simply declaring them to be manageable break-even costs.

Fifth Example: Deductible Reserve, Generous Returns, for Twenty-Six Additional Years. All of this begins to merge with the idea of lifetime health insurance, which is the subject of the next Chapter. So we need to add at least one new idea, which is whole-life health insurance. We end this term-insurance line of thought with the stockbroker's hard-nosed assessment that he can't make a profit with this idea, unless he starts with a $10,000 nest egg, or else charges hidden fees. The first $6300 gets provided by Obamacare's discovery they can't make health insurance work without a $6300 deductible. Matching that is my own assertion that no one should risk using $6300 deductibles, unless he can see some source for the money, whether it is a government subsidy or his own personal savings, of enough ready cash to cover one year's deductible. Even so, we have to find another $3700 to get to the safe harbor of ten percent. If such a thing as $10,000 deductible became available, it would close this gap without borrowing, because higher deductibles make lower premiums possible, and eventually you break even. But right now, the individual has to borrow $3700 to make this work. Because the new father and mother are young, they are going to have to pay a higher interest rate, and we might as well assume a loan-rate of 10%. But it's 10% on $3700 of it, which makes the whole fund eligible for 10% return. In round numbers, that's $1000 minus $370, or a net gain of $630 a year; reducing the loan balance to $3100 the second year, $2500 the next, etc., You would have to be working with real Obstetrical costs to know how much it would cost, but this is the general idea behind calling the initial cost a wash.. Now, where does that leave us, with essentially $10,000 to prime the pump, and starting with a growing income of $1000?

Well, it leaves us with $80,000 at age 26, and literally millions when we are aged 65. The numbers are so generous we see no need for precision. We can now see a clear path from a cash contribution you must make, to quite enough money to pay all average lifetime medical costs by the age of 65. All medical costs, so no 6% payroll deduction, no premiums, become a possibility. And with enough extra cash emerging from the calculation to make it unnecessary to use a calculator to be reassuring. Only by getting another 26 years of income does it become possible, but it does make it unnecessary to have quite so many assets when you start being a capitalist at birth.

As a footnote, we find it unnecessary to tell bankers how to smooth out repayment of $10,000 from people who are pretty much guaranteed to have millions before they die; it's what bankers do for a living and they are good at it. But there is one other risk inherent in this discussion: the risk that any particular individual could get very sick several times. In some circles the solution to that contingency would be called "re-insurance", and in other circles it implies "subsidy". But, otherwise, this system has only one remaining difficulty. It would take 80 years to prove itself. That might seem like a great handicap, until it gets compared with the risk of taking on too many complex tasks, too rapidly. One of the great advantages of taking this approach is that its several steps force major readjustments to be gradual.

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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