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

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HSA BOOK
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.

Health Savings Accounts, Regular, and Lifetime
We explain the distinction between Health Savings Accounts, Flexible Spending Accounts, and Lifetime Health Savings Accounts. Sometimes abbreviated as HSA, FSA, and L-HSA. Congress should make it easier to switch between them. All three are superior to "pay as you go", health insurance now in common use, only slightly modified by Obamacare. It's like term life insurance compared to whole-life. (www.philadelphia-reflections.com/topic/262.htm)

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

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Introduction

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

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

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

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

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

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

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

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

George Ross Fisher, MD

Philadelphia

November, 2014


Good Ol' Health Savings Accounts

In 1981 at the Reagan White House, John McClaughry of Vermont and I created the Health Savings Account, at that time called the Medical Savings Account. It was much like the tax-deductible IRA (Individual Retirement Account) which Senator Bill Roth of Delaware brought out the following year. With two major exceptions: it contained the unique feature of a second tax exemption, given on condition the funds were spent on health care. Otherwise, a subscriber must pay the usual income tax on withdrawals, and get only one tax deduction. It can be noticed that Bill Roth's IRAs had to be two plans: the original IRA gave a deduction when you contribute, but the Roth IRA gives a tax deduction when you withdraw funds. Although John McClaughry and I got the idea from Bill Roth, we did him one better by giving a deduction at both ends, providing only, you spent the money on healthcare. Since the higher the deductible gets, the lower the insurance premium becomes, a really low premium results from a really high deductible. Thus a desirable feature became a requirement: to purchase a high-deductible health insurance plan as a "stop loss", was required.

Other than these two variations (double tax deductions, and a cap on out of pocket costs), a Roth IRA would be nearly the same thing. But the addition of some high-deductible insurance added another valuable feature at low cost: big expenses could be shared with many people, and big expenses were mostly hospital bills. So, the two conflicting needs of health insurance were addressed -- by having an individually owned account, linked to a community-shared insurance policy. With the individual account, we introduced the notion of frugality for your own old age. And by having catastrophic insurance we added the ability to smooth out the bumps, and if necessary to subsidize the poor. As the physician in the room, I pointed out a pretty general fact: either you have a lot of sickness, or you have trouble paying for your old, old age. Seldom does anyone have both problems. But including both of these conflicting needs in one package allowed some flexibility between them -- something badly needed for a century. Health Savings Accounts balance an incentive to save for your own future health costs "at the front end" with an effective cost reduction "at the time of later service". That's obviously superior to merely increasing the subsidy at the time of service. If tax reduction goes too far at one time, it amounts to an incentive to spend carelessly. A tax deduction is a tax deduction, but this one has two: An incentive to save, and a later incentive to spend the savings on healthcare. The IRA up in Canada has both front and back features, but in the United States the HSA is the only savings vehicle which has dual deductions, so it's an extra feature.

So, this simple harnessing of two familiar approaches made a deceptively simple package. In most public policy proposals, the deeper you dig, the more problems turn up to require patching. In this one, the proposal already had an answer to every concern we could raise. It's possible to fall in love with an idea that does that for you, and lets you sleep at night, secure in the idea that you aren't mucking things up.

I soon persuaded the American Medical Association to endorse the plan, John Goodman of Texas wrote a popular book about HSA, which persuaded Bill Archer, the chairman of the House Ways and Means Subcommittee on Health to push a law through, enabling it. Today, it is reported 12 million people have Health Savings Accounts, mostly in states without mandatory coverage laws to hamper the use and pricing of deductibles. One clarifying example would be mandatory birth control pill coverage, which not only undercuts a large deductible, but is politically inflammatory as well. Health Savings Accounts are popular in Indiana where Patrick J. Rooney was a heavy early supporter, but HSAs are almost unknown in New York and California, which have extensive mandatory benefit laws, sometimes dozens of them. The Affordable Care Act has probably helped sales of HSAs overall, since all four "metal" plans of the ACA have high deductibles. But they are an expensive way to get high-deductible coverage. The Bronze plan is the cheapest, therefore the best choice for those who choose to go this way. But uncomplicated, plain, indemnity high-deductible, would be still cheaper if its status could be clarified. The good part is, current rapid spread of high deductibles suggests mandatory coverage laws may, in time, slowly go away.

That's about as concise a summary of Health Savings Accounts as can be made, but of course there is more to it. For example, there is an annual limit to deposits in the Health Savings Account of $3300 per person, and further deposits may not be added after age 65. They can be "rolled over" into regular HSAs when you get Medicare coverage, where you supposedly have no further financial health needs. There are plenty of salesmen who will gladly supply other details. These plans are absolutely not exclusively attractive to rich people, but it is true that poor people start with such small accounts that companies can't make a profit until the client sticks with them a long time. If people possibly can, they should scrape together one $3300 maximum payment to get started. If poor people only got subsidies for HSA to the same degree the Affordable Care Act gives them, Health Savings Accounts should prove at least as popular with poor people as with the Administration plan. It's probably the unfamiliarity of poor people with investing, which mostly prevents them from choosing better options for themselves, even when they can afford them. So that's our first proposal:

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

Although what seem to the poor to be amounts that could never apply to them, 2% inflation soon creates amounts which really do apply. Although it might make some poor people gasp with disbelief, a full payment of $3300 a year from age 25 to age 65 would then total $132,000; that's the highest you are allowed to spend on a Health Savings Account in a lifetime, except for the Catastrophic Coverage, which should be about $1000 a year more. That's $173,000 tops per working lifetime, not average. By contrast, the cheapest ACA (Obamacare) plan would total $240,000, or 40% more. But note this: it only covers 60% of your bills, so the Obamacare cost is about double. That's before government subsidy, to be sure, but there is no reason why the Health Savings Accounts couldn't be subsidized equally. The government is going to have trouble affording the subsidy, and it may not last. But if it can subsidize one plan, it can subsidize the other. We are later planning to make the reader dizzy with numbers, but a fair summary is that HSA would be the cheapest health plan you could possibly find, by at least 50%. Note this: The government would therefore save 50% by inducing destitute people to use HSA as an alternative option, equally subsidized. In case you think it's a freak accident, the government bluffed for fifty years, borrowing to continue Medicare deficit financing, and some people expect the same department to try it again. Other people also point out that Medicare was financed after we had won some wars, but now we seem to be losing wars.

Let's just skip away from that. If the concern is health care is too expensive, why in the world wouldn't everyone favor the cheapest plan around? There's no answer to that, but they might not. Part of the answer, politics aside, is that young people have comparatively little illness cost, while old folks have a lot. Since Medicare skims off the most expensive segment of the population, and subsidies are everywhere abundant in government plans, the question of which system is inherently least expensive is too seldom asked.


Front Stuff for Health Savings Accounts:

...Also by the same author:

The Hospital That Ate Chicago, Saunders Press, 1980


Summary for the Book Jacket

Summary: This book presents a dual proposal for reducing Healthcare costs, both of them variants of Health Savings Accounts. Thirty years of experience with the regular version has resulted in a dozen tweaks, but it's essentially ready to go. Lifetime Health Savings Account is the really big cost saver and requires legislation, but here's the real goal of reform, achieved gradually. Just by substituting multi-year, or even lifetime coverage for single-year("term") policies, the following get accomplished: Young healthy people shift unused funds to their later sickly years, while investing idle prepayments at higher long-term rates; moving jobs between employers without disturbing the tax exemption; and eventually rebating left-over surpluses for retirement. Some other advantages appeared unexpectedly. In particular, adopting the new investment approach of "passive" or index investing adds safety, for minor reduction of income. Life insurance recognized long ago, "whole life" insuring greatly reduces costs. "Passive investing" multiplies the result. And there you almost have it all.


CHAPTER ONE: Good Ol' Health Savings Accounts


I'm overwhelmed. I'm thinking of a one-line poem by William Blake: "Enough or too much" " stragglers who live from 85 to 91." Sorry to be a burden, but soon to be 91 I can still go a couple of rounds without huffing and puffing. You remind me of Dr. Melvin Konner.... professor.... anthropologist..... physician.
Posted by: Martin   |   Sep 27, 2014 5:16 AM
I want to thank you for this wonderful resource. I find it fascinating. May I offer one correction? In the section "Rittenhouse Square Area" there is reference to the Van Rensselaer home at 18th and Walnut Streets and its having a brief fling as a club. I believe in 1942 to about 1974/5 the Penn Athletic Club was located in the mansion. The Penn AC was a good club, a good neighbor and a very good steward of the building - especially the interior. It's my understanding that very unfortunately later occupants gutted much of the very well-preserved original, or close to original, interiors. I suppose by today's standards the Van Rensselaer-Penn Athletic Club relationship could be described as a fairly long marriage. The City of Philadelphia played a large role in my life and that of my family, and your splendid website brings back many happy memories. For me and many others, however, there is also deep sadness concerning the decline of so much of the once great city and the loss of most of its once innumerable commercial institutions. Please keep-up your fine work. Your's is a first-class work.
Posted by: John D. Mealmaker   |   Aug 14, 2014 2:24 AM
Dr. Fisher, The name Philadelphia University was adopted in 1999, as you write, but the institution dates to 1884 and has been on School House Lane since the 1940s. It acquired the former properties of the Lankenau School and Ravenhill Academy, but it did not "merge" with either of them. I hope this helps when you update your site.
Posted by: David Breiner   |   Jun 11, 2014 10:05 PM
Hello Dr. Fisher, I was looking for an e-mail address and this is what I could find. I must tell you my Mother who you treated for years passed away last May. She was so ill with so many problems. I am sure you remember Peggy Marchesani. We often spoke of you and how much we missed you as our Dr. You also treated my daughter Michele who will be 40. I am living in the Doylestown area and have been seeing the Dr's there.. I just had my thyroid removed do to cancer. I have my fingers crossed they get the medicine right. I am not happy with my Endochronologist she refuses to give me Amour. I spoke with my Family Dr who said he will take care of it. I also discovered I have Hemachromatosisand two genetic components. I have a good Hematologist who is monitoring me closely. I must say you would find all of this challenging. Take care and I just wanted to convey this to you . You were way ahead of your time. Thank you, Joyce Gross
Posted by: Joyce Gross   |   Apr 4, 2014 2:06 AM
I come upon these articles from time to time and I always love them. Is the author still alive and available to talk with high school students? Larry Lawrence F. Filippone History Dept. The Lawrenceville School
Posted by: Lawrence Filippone   |   Mar 18, 2014 6:33 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "...blog/1588.htm" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "...blog/1588.htm" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
George, Mary Laney passed away last November. I was one of her pall bearers. She had a bad last year. However, I am glad that you remembered her and her great work. I will post your report at St Christopher's and pass this along to her husband Earl. Best wishes Peter Hunt
Posted by: Peter Hunt   |   Mar 28, 2013 7:12 PM
Hello, my name is Martin. I came across [http://www.philadelphia-reflections.com/blog/1705.htm] and noticed a ton of great resources. I recently had the honor of becoming a part of a new non promotional project on AlcoholicCirrhosis.com. We decided to put together a brief guide about cirrhosis, and the dangers of drinking. We have received a lot of positive feedback and I wanted to suggest that we get listed on the above mentioned page under The National Institutes of Health. Let me know what you think and if you have any further requirements or suggestions.
Posted by: Martin   |   Jan 1, 2013 8:51 AM
I FIND THIS VERY INTERESTING, INDEED. I AM HOWEVER, SEARCHING FOR THE ANCESTOR WE HAVE BEEN TOLD WAS JOSEPH M. WILSON OF JORDAN TOWNSHIP IN WHITESIDE CO. IL USA. MY HUSBAND WAS ORPHANED AND WITH LITTLE CONTACT WITH HIS FATHERS SIDE OF THE FAMILY THE 9TH OF 10 SURVIVING CHILDREN SINCE ALL ARE DECEASED BUT, ONE). I HAVE HOPED TO FIND HIS CONNECTION AS TO THE STORIES RELATED BY SEVERAL OF HIS DECEASED RELATIVES THAT WE ARE CONNECTED TO THE WILSON MILL FAMILY HISTORY. OF JOSEPH AND FRANCES. MY HUSBAND WAS ALSO, FAMILY TO: GRANDFATHER RANSOM (ISABELLA)WILSON & HIS BROTHER WILLIAM; OF ELKHORN GROVE CARROLL CO. IL USA AND HIS SON JOSEPH WILSON(NANCY). I?WE( MY SONS AND NEPHEWS NEICES AND GRANDDAUGHTERS IN COLLEGE... WERE HOPING THAT NOW THAT I AM ON THE COMPUTER AND WITH YOUR HELP THRU THE GENELOGICAL SOCIETY TO YOUR ADDRESS WE MAY FIND THE FAMILY WE SEEK. MY LATE HUSBAND AND I DROVE PAST THE SITE OF THE FIELD WHERE JOSEPH AND FAANCES ARE BURIED , THE CEDARS ARE GONE AND IT IS NOW FIELD. I HAVE BEEN HOPING TO FIND THE LINK FOR OVER 30 FAMILY TO PAY TRIBUTE TO THOSE WHO HAVE GONE BEFORE AND PERSEVERED TO BRING US THE LIFE WHICH WE ENJOY AND SERVE, TODAY. I RECEIVED ONLY THIS WEEK BY A FLUKE AN EMAIL WITH PHOTOS FROM A 3RD COUSIN THAT FOUND MY EMAIL ON A COUSINS EMAIL ADDRESS AFTER INQUIRING AND INTRODUCING HIMSLEF: AND HE TOOK THE TIME TO SEND MANY PHOTOS AND HISTORY OF GRANDPARENTS AND FAMILY AS WE HAVE HAD NONE. WE STILL DON'T HAVE A PHOTO OF HIS MOTHER AND FATHER. WHAT I HAVE OF THE TREE, I AM ANXIOUS TO SHARE WITH FAMILY THAT IS SEEKING HISTORY, AS I STILL AM HOPEFUL TO FIND IT IN TIME FOR THE DEADLINE AUG. 30 TYPED AND DELIVERED TO MY MARTIN HOUSE MUSEUM WHERE I AM A MEMBER. MY HUSBAND WAS A MASTER MASON WHILE IN LODGE WITH THE COUPLE THAT DONATED THE HOUSE TO BE A MUSEUM. THANK YOU FOR YOUR TIME AND THE GRAT WORK YOU HAVE ALL DONE ON THIS HISTORY. WE WERE LIFE MEMBERS OF THE LUTHERAN CHURCH BUT , THERE IS NOT ONE IN OUR TOWN, SO I FOUND THE REFORMED CHURCH,OF WHICH, I AM VERY HAPPY TO BE A PART. THANK YOU .
Posted by: SUSAN WILSON   |   Aug 12, 2012 12:49 AM

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