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Fort Knox
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Banking is a comparatively recent invention; in its present form, it's only a couple of centuries old. Paper certificates circulated as money, representing precious metals like gold and silver in the bank vaults, eventually concentrated in Fort Knox as Federal Reserves. When the economy grew faster than the supply of gold, silver was also monetized, then diluted by only partial reserving. Finally a couple of decades ago we abandoned precious metal reserving entirely, and resorted to partial reserving leveraged to a virtual concept known as Federal Reserves whose quantity depended on the behavior of American inflation. Almost the whole world soon depended on the American Federal Reserve to stand behind its virtual dollars, formerly redeemable in gold or silver, but now based on inflation targeting. That is, the Fed sets a target of something like 2% inflation a year, and either absorbs currency or floods the world with currency, sufficient to maintain a steady match to the target. It's a little uncomfortable to see the standard of measurement shifting, from inflation as most people understand it, to "core" inflation, which subtracts the cost of food and oil. Especially oil. It's additionally disquieting to realize that the Fed is dependent on its own computers, reading other people's computers, all subject to the frailties of computers. to determine the degree of match to the target. We sort of got into this fix because the supply of precious metals was inelastic; perhaps the present expedient could become a little too elastic because it is so heavily dependent on vast streams of computerized information. Garbage in, garbage out?
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Federal Reserve Bank
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Meanwhile, banks simply had to surrender to the obvious efficiencies of using electronic stored-program calculators. Paper checks, canceled checks, and bank tellers are consequently disappearing. Banks themselves are disappearing, as anyone can see by looking at the abandoned stone tombs on America's main streets. At the moment, the process is one of concentration of smaller banks into bigger ones; eventually, there will be some kind of transformation of the way they conduct business to a point where banking could effectively disappear. Who needs banks, anyway? One significant answer to that question is that, the Federal Reserve Bank needs them. And the rest of us need the Federal Reserve because that's how the value of money is determined nowadays.
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Federal Reserve
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Customers, however, don't need banks for deposits; money market funds pay higher interest rates. There's no need for banks to provide loans; credit cards do that for small borrowers, while big borrowers float bonds through an investment banker. Bank vaults may be useful to store grandmother's pearl necklace, but no one needs vaults to store securities, which are now mainly held as bookkeeping entries in "street" name. People used banks for the origination of mortgages, but other institutions could serve as well. Anyway, home mortgage origination is what broke down in August 2007, when banks eluded Federal Reserve lending constraints by selling mortgages to subsidiary corporations they often owned. To repeat, we need banks because the Federal Reserve needs banks to control the currency, through regulating loan volume, which is achieved by regulating the number of reserves that banks are required to maintain. Reflect on how that matters to currency.
Before a bank makes a loan, only the depositor owns the money in question. After a loan is made, two people have a claim on the money, the borrower and the depositor. Although there is a fine distinction between money and credit, between money and liquidity, the real point is that making a loan effectively doubles the money. If a bank is then only required to keep half of its total loan volume in reserve, the money in circulation is multiplied four times what it was, and so on. Loan volume is also controlled by its scarcity value, which is indirectly affected by setting short-term interest rates. Unfortunately, cheaper money is worthless -- the dollar goes down in relation to the currency of the rest of the world. There are probably other ways which could be devised to control the currency, but a time of frozen credit markets is a dangerous time to consider radical changes in the currency. If the Fed is forced to make such changes, they had better be correct.
It's unfortunately also true that radical changes can only be made when people are scared stiff by a crisis. Is it entirely out of the question that we may soon need to scrap the Federal Reserve system? Just think back to the bitterness when Hamilton and Jefferson, later followed by Biddle and Jackson, fought about whether central banks were necessary at all. Or, more recently in 1913, when Wall Street and the Progressive movement fought about whether there was a need to create a Federal Reserve. Disputes about financial matters have been at the core of most political party disputes, since the founding of the Republic. Decisions made in the past have not always been the right ones. Nevertheless, since the banks anyway appear to be on a long slow slope to extinction as a result of the computers that briefly made them prosperous, maybe we should revise the way the Federal Reserve controls currency. Without the Fed to defend them, banks' prospects look bleak.
When medical care was entirely a private two-party arrangement, the patient and doctor negotiated what was to be done, and often the price; if the patient could not pay, some embarrassed workaround was figured into the equation, including a vague promise to pay the doctor when he could. A surprising number of patients did pay later, and because the doctor's bill contained very little overhead, even partially paying it off created an unspoken promise that the patient would now be welcomed back.
It was the appearance of insurance forms which created secretarial overhead, even though of course it also brought along some revenue. Skeptics may doubt the extent of this, but at my advanced age as a patient I now visit four doctors of different specialties. Collectively, they seem to have fourteen assistants and fourteen computers I can count. That remains the situation even if a patient delegates decision-making to members of the family, or a hospital wants to know what is being given away to charity patients, or a bewildered patient seeks a second opinion. It changed abruptly when third-party payment seemed to entitle a government or an insurance company to be reassured that claims were legitimate. This uneasy and often resented intrusion into a private matter began to cause friction even in the 1920s, soon after third-party reimbursement made an American appearance, and as physicians gradually recognized that "utilization review" generated more overhead cost than simple claims submission. At first, health insurance companies were restrained from brisk business-like behavior, by the realistic possibility that the patient might switch back to paying bills in cash. Somehow that possibility now seems so remote that when the owner of a Korean auto manufacturing company tried to pay his hospital bill with hundred-dollar bills, the hospital simply had no procedure for handling such an unexpected request.
As long as a secretary was sitting there filling out forms, she might as well answer the phone for appointments. In this way, appointment systems became routine, including hidden extra revenue loss generated by broken appointments. Insurance pre-payment is always complicated by the realities of emergency care, where considerable expense must sometimes be incurred before the third-party has a chance to review the facts; in this lies the origin of the term "reimbursement". The third-party acquired the ability de facto to delay or deny reimbursement, an action immediately regarded as high-handed, since expenditures had already been made in good faith and could not be recovered. The right to deny such claims was implicit, and at first it was used gingerly by insurance companies trying to establish themselves. Now that insurance is considered normal, any incurred costs must be handled in some way, so other subscribers are charged extra to keep the hospital solvent. The cost to the system is exactly the same this way, but no other way has been suggested to maintain the credibility of insurance oversight. When I once told the owner of a department store that I had 2% bad debts in 1955 (ten years before Medicare) he replied that my bad debts were less than his and my bookkeeping was far more elaborate. True, some hospitals could not survive without the insurance system, but if others in better locations examined their experience extensively, they might discover their accident rooms are net losers for the insurance. Third-parties slowly retreated, hospital prices crept upward and the system readjusted, but no one is entirely satisfied with this showmanship masquerading as a balance of terror. When you see a sick or injured person turned away from an emergency department for lack of insurance proof, you can be sure there is either not enough slack in the system, or not enough administrative imagination.
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Senator Wallace Bennett
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Early in the 1970s, Senator Wallace Bennett of Utah devised a solution to this problem, and persuaded the rest of Congress to endorse a nation-wide system of Professional Review Organizations (PSRO), run by the medical profession but paid for by Medicare. Although many physicians muttered about the "creation of new elites", and hospitals were particularly uneasy about the migration of power, the new system worked reasonably well. If the physicians in the local PSRO approved a service, it was paid for. If payment was denied by a local PSRO, an appeal to a state-wide body of physicians was provided. In that way, prevailing local standards were respected, while appeal to distant physician judges was also provided, to guard against local vendettas ganging up on someone they disliked. Inevitably, a few localities would elect an unsatisfactory PSRO, so a voluntary national organization was formed to educate, inform and defend the process, and better able to discipline it with peer pressure than might be supposed. The national organization was pleasingly benevolent, sometimes apologizing for its role as a necessary one to weed out constituent PSROs whose bad behavior might discredit the others and start up the usual chatter about professional self-government: The foxes were guarding the hen house, and must be replaced by wolves. The PSRO gradually adhered to an unspoken rule of rarely boasting of success; it saw its role as redirecting unsatisfactory behavior, not vanquishing wrong-doers. It soon became evident that successful PSROs were of two types, rural and urban. In localities where a single hospital served a county or more, physicians were of all types mixed together, and the need was to strengthen the emergence of the natural leaders, often by placing them on the PSRO board. In large cities, however, a sorting-out process had usually resulted in strong hospitals and weak ones; birds of a feather flew together. The weaker hospitals were soon identified and urged to elect stronger leadership; sometimes it was necessary to suggest that the institution might serve better as a nursing home. Throughout the process ran the threat of exposure; successful PSROs usually relied far more on peer pressure than the threat of withholding payment.
What ultimately defeated the PSRO was its success, not its failures. Many pre-existing elites were content to see a new governance structure fumble, but felt highly threatened by a successful one. Moreover, the AMA leadership seemed particularly concerned about the direction of "regulatory capture", and was not completely certain whether the PSRO was beginning to dominate the Washington bureaucracy, or the AMA House of Delegates, or a little of both. The PSRO fraternity was definitely a large national organization of doctors who knew and respected each other, and many of its leaders were in the AMA House. Matters finally came to a head in a famous vote opposing the PSRO, by 105 to 100. The opinion of organized medicine meant a great deal to Congress. When representatives of the PSRO next testified before the Senate Finance Committee, the Chairman of the Committee wryly announced the next speaker from the AMA was one who was "presumably here to explain to us the difference between 105 and 100." The PSRO law was soon amended, and insurance review took its place.
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AMA House of Delegates
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For the time being, utilization review in the future is apparently currently limited to Medicare, under the Medicare Accountable Care Act. With the foregoing bit of history to warn the Accountable Care Organizations about what they are getting into, a simple set of principles can be stated. Utilization review encounters two components of cost: the volume of care, and the price of the services. Doctors control the volume, hospital administrators control the prices. Determining the proper volume of services is a job for practicing physicians, alone and unhampered. To some extent, under the new law an incentive to keep it that way was created by sharing with the provider members a portion of any cost savings associated with the patient group. But the ability to change the sharing will probably be a a one-sided government decision unless the physicians fiercely insist that it remain negotiable. Agreeing that the physician voice should be dominant in the issue of service volume should not imply agreement to exclude their inspection of the prices of services. When physician income becomes linked to their choosing less expensive alternatives, physicians must not continue to be blinded to what the true cost of components truly is. While it remains conceded that hospitals and vendors must retain some flexibility in adjusting the ratio of charges to costs, any deviation from a standard bandwidth must be negotiated with the physicians affected. Past experience should be ample proof of the fairness of this demand.
The volume of most medical services at present is about right, but prices will keep rising when they bear little relation to the underlying direct costs. Furthermore, the Medicare (or similar) Cost Report of every hospital must annually report the ratio of cost to charges, probably by item rather than department. And this ratio must be monitored. Complexity is no argument against doing so; the Chargemaster system has never been resisted because of its complexity. It has been no secret for thirty years that a twenty-dollar aspirin tablet has a very high ratio of charges to its actual cost. Other items are provided at a loss, and the mixtures are highly variable between hospitals. Everyone concerned knows this situation is unsustainable, but everyone recognizes that total denial of reimbursement is entirely too destructive if no slack remains in the system. If it is successful an appeal mechanism will become necessary, because new treatments can be resisted by old treatments, but the optimum rate of change will vary by local situation.
Rather than overcomplicate matters, the goal should be total denial of reimbursement for denied services, because the public will demand it. It must however, be coupled with an adequate profit margin on approved services, to service the costs of retrospective review. Designation of the optimum ratio of cost to charges is a critical decision, much like the function entrusted to the Federal Reserve, of picking the best average interest rates for the national economy. If the agencies selected by Obamacare get this point very wrong, very often, the public must quickly be in a position to let everyone know of its displeasure.
The other source of circumvention is the hospital system of enforcing a physician hierarchy reporting to a physician chieftain, but insisting that the chieftain himself be financially beholden to the hospital administration. In that way, financial health of the institution sometimes dominates the health of the third parties, who then find a way to retaliate. if this issue is neglected a deadlock could affect the health of the patients. Since a three-way balance must be preserved, governance must be fairly shared three ways. Those who believe this is a minor issue because the third party obviously has final power, have a great deal to learn.
So much for expecting foreigners to help us. They remain grateful to America for winning World War II, but that was seventy years ago. Forget about reserve currencies, a declining surplus of gold bars, the Marshall Plan, Truman Plan, and all that. After seventy years of thanking us, foreigners quite rightly expect us to pay for our own health care without monetary subsidies from them. Or protectionist trade policies, either.
To begin with healthcare basics, lifetime medical costs over the past century have progressively migrated toward the end of life, and the end of life has itself moved later. Lifetime earnings remain concentrated near the middle of life, so a gap widens. Collectively, the population accumulates wealth during its working years, spending its savings for healthcare after it retires. If lifetime health costs could be pre-paid and funneled into savings, with the savings professionally invested, a large proportion of medical costs might be paid out of investment income. It could be called the difference between pre-payment, and insurance, except whole life insurance, employs the same principle. Considerably expanded, this insight could markedly reduce the cost of healthcare, making it more affordable without changing it. Because medical care is undisrupted, the hidden cost of disrupting it might vanish, too. It creates what the Japanese call a virtuous cycle. (It wouldn't hurt to read this last paragraph a second time.)
If lifetime health costs could be pre-paid and funneled into savings, with the savings professionally invested, a large proportion of medical costs might be paid out of investment income.
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The average American healthcare costs we are discussing are in the neighborhood of $10,000 a year, surely somewhat less for younger peopleFootnote . They are about double that for the last year of life, somewhat less than that for the first year of life. Medicare is about 50% paid for by subscribers, 50% subsidized by additions to the national debt. Ignoring inflation and tax effects, the net average real lifetime health cost at such rates would be at most $800,000, of which $400,000 would be additions to the national debt. Remember, projecting healthcare costs seventy years in advance is a very hazy business. We certainly hope these projections prove to be a gross over-estimate, but to remain on the safe side the proposal here is to make a lifetime investment to cover only the first and last years of life because the heavy costs of birth and death affect 100% of the population. The projected cost of these two benefits would be $30,000, from which $15,000 could possibly be subtracted as the national debt, or else subtracted as double-counting the cost-shifted expenses of indigents. Meanwhile, removal of the first-and-last year costs would reduce annual costs by about 4%, or $30,000 lifetime. So it seems safe to start with a $ 15,000-lifetime goal, which could be achieved by investing $8 at birth at 7% tax-free return. That's right, eight bucks. Different assumptions produce different answers; the only purpose of the example is to demonstrate easy feasibility of the approach. Multiply the initial contribution by five or ten times, and you reach the same conclusion.
Scientific advances during the last century greatly changed the shape of two curves, of lifetime income and lifetime medical expenses; future advances will surely do the same. The life expectancy of Americans roughly lengthened by thirty years and continues to increase. The logic of compound interest demands that money at 7% will double in ten years; the longer you live, the more times it will double; that's pretty old stuff. What is new and unique is the way adding three extra doublings helps the virtuous cycle, maybe changes it significantly, because 2,4,8,16,32 keeps getting a lot bigger at the far end. Three more doublings make the difference between 32 and 256, and that's a drastic difference.
But, whoa, on the other hand, the longer you keep money in a bank, the more opportunity there is for financial crashes, inflation, "moral hazard", mismanagement, changes in political philosophy, wars and a thousand other things. Eighty years is a long time from now; who says the money will be there when you need it? And even if all the 19th Century nightmares are merely pipe dreams, an awful lot of Americans remain mistrustful of financial institutions. Presidents Jefferson, Jackson, Van Buren and an equal number of nearly-successful candidates for president were even in favor of abolishing banks. A large and possibly growing number of Americans distrust the Federal Reserve, and with some reason. After all, a dollar in 1913 when the Federal Reserve was founded, is now worth a penny. Pause for a moment, reader. You have now heard both sides of the argument, the opportunity and the risk. Everything from here on details. At some point in the next century, investing a few dollars at birth will generate enough income to pay for both being born and dying, the two medical conditions which are 100% certain. It might even generate enough to pay for lifetime medical care, and more, but that isn't the point. What matters is for us to have the wit, and the courage, to take advantage of something which sort of crept up on us.
Footnote The data used here are rounded-off and approximated 2011 data obtained from HHS reports. It is intended that a later edition of this book will contain an appendix of actual 2013 statistics, the last year before the Affordable Care Act became operational.
The accuracy of predicting future longevity, future health costs, and future stock markets -- is individually very low, so aggregated numbers can be (at least) equally misleading. However, they are the best available guides to the future. The purpose of deriving them (Mostly from CCS data) is to surmise whether it is safe to proceed with a trial of concepts. While the differences are great their direction is nevertheless pretty clear: Substituting the HSA would surely save a great deal of money, compared with Obamacare or Medicare. Why not substitute it for both Obamacare and Medicare? Transition costs are not estimated, and no doubt would be considerable, even if one plan replaced several others. Overall HSA cost is inversely related to investment income; three levels of income are presented, but a conservative conclusion is argued.
In short: HSA could just about replace both ASA plus Medicare, with a long transition period. But one must be more hesitant to suggest they can stretch to reducing accumulated Medicare debts from past spending. My guess is preventing more international debts is all we can promise. Someone else must figure out how to pay the existing debts. Why include Medicare, then, if predictions are sketchy? Two main reasons: my opinion is that funding Medicare is a worse problem than insuring younger people; it is not fixed, nothing else can be successfully fixed.
Second, it is such a political third rail of politics to talk of revising Medicare that someone with nothing personal to lose, like myself, must start the discussion. Some other funding source must probably be found to eliminate the existing Medicare debt, but there's not much risk of needing the money very soon. I am also a little apprehensive about the decline of existing Treasury bonds when interest rates rise because so many of them have been issued to cope with the recession. Any appreciable reduction of Medicare costs could accelerate a rise in bond interest rates, which would send the market price of existing bonds downward. Therefore, even a move in the right direction must include a reverse button, and be coordinated with the Federal Reserve. It is most unfortunate that Medicare is both more serious and more manageable, while at the same time it is so politically dangerous.
Paying to Replace Medicare and Debts with Health Savings Accounts. At least, savings to the consumer for the combined ASA and Medicare replacement would be returned to the subscriber as payroll-deductions and premiums-eliminated, (i.e., About half of the Medicare cost.) Savings from replacing Obamacare would be even greater, but from my viewpoint, such savings would all be poured into rescuing Medicare. That's ironic because it is the reverse of what the elderly are fearing. Even Obamacare advocates should welcome the elimination of Medicare because its losses are dragging everything else down. Unfortunately, this is not well understood by the public, who love Medicare. (Everybody loves to get a dollar for fifty cents.) Somebody has to say this can't last, and I guess I'm it.
To be confident Medicare's costs plus its debts would actually be manageable, the average subscriber would have to contribute about $1600 a year for 40 years to an escrow fund at 6% annual income. That's to achieve a total of $246,000 on his 65th birthday, paying his ordinary health debts from 25 to 65 with the other $1700 of his allowed Health Savings Account deposits, to pay average medical expenses for age 25-65. In my opinion, it can't be done.
You might subsidize poor people in the name of fairness, but this is how much you have to find, somewhere, to pay present costs. You might try raising the annual limits for deposits into Health Savings Accounts, but this would prove futile if too few people could afford to pay it. If you please, health expenses would then have to be cut enough to pay for the subsidies, unless the subsidies are cut to pay the health expenses. With that and a continuation of 6% return as long as the paying subscribers live and the fund remains solvent, we might make it. It is my hope that using private markets rather than Treasury rates, pay down of the debt can be accomplished with higher interest rates, but it is uncertain even this can be done. High rates like that are only likely to appear if inflation starts to gallop, or some other cataclysm intervenes, with the following result: the virtual value of the Medicare debt erodes, and the creditors lose much of their loan in real value. Some individuals might be able to manage their cost, but it's very hard to believe it could be an average performance for the whole nation. This is not an easy problem, and it becomes impossible if disillusioned Democrats block it.
And yet, the nation has already made it official it is going to spend nearly twice that amount, while only getting Obamacare in return. If the President is right about his side of it, then getting Medicare free in addition, is do-able by this Lifetime Health Savings Account alternative. If not, then both have to be scaled back. Big business is about the only hope, using a cut in corporate taxes as bait. This would be a big step since if they don't pay corporate taxes, they don't need a tax exemption for healthcare; they already have cut their tax bill.
Present law permits $3300 annual HSA deposits to age 65, or $132,000. With only 6% compounded interest income included to reduce the cost, Health Savings Accounts could only have a net lifetime out-of-pocket cost of $58,000, no matter what healthcare expenses are actually incurred. By my estimation, this is only half of enough. Sometime in the future, inflation will force this limit to be raised, and it should be linked to some external inflation measure like the Cost of Living Index, although a healthcare cost of living index would be closer to what is needed. Inclusion of tax exemption for the premium of catastrophic high-deductible policy which is required by law, would not only be more equitable but perhaps could provide both a superior COLA and an external measure of average Catastrophic premiums for marketplace judgments. It is probably undesirable to create an arbitrage opportunity between taxable and after-tax choices with infrequent, steep-step, changes in the deposit limits, so these limits should somehow be adjusted annually. Annual limits should be supplanted with lifetime limits whenever the account is depleted below a certain fraction of the buy-out price, which should be maintained and upgraded for this purpose. Since expenditures are limited to healthcare, a liberalization of this catch-up limit is urged.
There is thus room to spare, here, as well as for increasing 6% return in the direction toward 10%. Since the investment scene is in flux, more experience may be necessary for better guidelines. Depending on the interest rate actually achieved, and the choice between maximum allowable, or less out-of-pocket, lifetime Health Savings Accounts could cost somewhere between 58 and 132 thousand dollars, lifetime total average, in the year 2014 dollars. The Medicare escrow part of that would be $10,000, and Catastrophic coverage for 58 years of Medicare life expectancy would add $58,000. The deposit costs for the Obamacare years 25-65 would themselves total $10,000, and estimated Catastrophic insurance would add $16,000, to a total lifetime cost of $26,000. If contributions are raised, there's room for it under the $3300 yearly limit. The hard question is whether we could get $3300 on average for forty years, and I'm not sure we can. Please note: HSA deposit costs should remain linked to the 40 working years 25-65, but investment income would be realized over the entire 58 years. For the purpose of extending interest income, HSA coverage could be extended another 40 years, but this would mostly be an illusion. Real wealth is only generated during the working years. Depositing extra money in an HSA is not entirely a bad thing, because if you deposit more than you need for medical care, you will get the excess back, multiplied by tax-free investing. However, if people can't afford to do it, they won't. Obviously, the same cannot be said of buying too much insurance, where the insurance company profits from those who drop their policies..
Compared With the Affordable Care Act. Now, compare: the cheapest bronze Obamacare cost (covering 60% of healthcare, age 26 to 65) is $288,000, accumulated and paid for over a 40-year span. Adding Medicare adds $95,400, made up of $23,800 of payroll deductions, $23,800 of premium collections, and $47,700 of debt, accumulated over 18 years, paid for over 40 working years. Obamacare followed by Medicare is what we are officially destined to get. Total average lifetime costs are thus projected to be $383,300, plus the 40% estimate of uncovered ACA costs under the Bronze plan. Considering different inflation assumptions and rounding errors, that's pretty close to the $325, 000 which was calculated by Michigan Blue Cross and confirmed by federal agencies, for year 2000. To repeat, this is what we will get unless it is changed. Restating the calculations in words, healthcare is, therefore, being treated as if it were entirely self-funded, generating no losses but also generating no income on the sequestered premiums. The hidden restatement would be: the present and projected healthcare system is running at a loss, it generates no net income on what ought to be very large reserves, and nothing is being done to make it break even, to say nothing of generating income.
This outcome makes me absolutely confident we can do better. The lifetime Health Savings Account would create immense savings, which by rough calculations would be somewhat less confidently stated to be savings of $190,000, in year 2014 dollars, per lifetime. Multiply that number times 340 million citizens, and you get a result in the trillions of dollars. It's pretty staggering to confess that even this much improvement may not be enough.
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Comparisons of Health Savings Accounts Escrow for Medicare Costs (est.)
Lifetime Health Savings Account (68 yrs.)............vs................Medicare alone.
..............$80,000 single payment(40 yr. deposit of $850 =$32,000 cost, 68 yrs.@4% cmp. Interest)..*(+$18,000)
..............$160,000 single p. plus existing-debt service (40 yr. annual deposit of $1700=$68,000 cost, 68 yrs.@4% cmp. Interest)*(+$18,000)..
..............$150,000 both + subsidy (40 yr. annual deposit of $1600=$32,000 cost, 68 yrs.@4% cmp. Interest)*(+$18,000)..
..............$246,000 stretching (40 yr. deposit of $1600=$64,000 cost, 68 yrs.@6% cmp. Interest)*(+$18,000)..
..............$706,000 workplace insurance (40 yr. deposit of $3300=$132,000 cost, 68 yrs.@10% cmp. Interest)*(+$18,000)..
..............*$18,000 (Catastrophic Insurance, est. @$1000/yr for 18 extra years)
--->Total Extra Cost per Individual including Catastrophic for 18 yrs. estimate: $98,000 (18-118,000)<---
--->Present Medicare Pre-payment Costs: $196,200 plus 196,200 in debt.<---
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Yearly Personal Expense for Forty Years, Age 25-64 (HSA vs. Obamacare) |
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| Health Savings Account Deposits | |
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| @ 10%.....$65 per year (plus $1000 for Catastrophic coverage.) | Lifetime Cash:$2600 plus $58,000=$60,600
| @6%......$400 per year (plus $1000 for Catastrophic coverage.) | Lifetime Cash:$1600 plus $58,000=$76,600
| @ 2%......$2200 per year (plus $1000 for Catastrophic coverage.) | Lifetime Cash:$88,000 plus $58,000=$146,000
| ....$3300(Maximum Legal Limit)............ | Lifetime Cash:$132,000 plus $58,000=$190,000
| Affordable Care Act "Bronze" Premiums: $5500-$7200 (for 60% coverage of Healthcare costs)Lifetime Cash:$220,000-$288,000 |
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Medicare Advance Payments, Age 25-83 Under Two Systems (HSA Escrow vs. Medicare Costs)
Health Savings Account,Escrow Deposit............||||||...................................... Medicare Yearly Program Costs......................................
@10%...............@6%...................@2% ..|||||...............Payroll tax...................Premiums......................Debt............
$45.................$250.00..................$1400...........|||||||............$1320......................$2640 (x18yrs).............$2725 (x18yrs.).............
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Total Cost per Individual including Catastrophic for 68 yrs. estimate: $127,500.
Total Cost if health insurance were tax deductible including Catastrophic for 68 yrs. estimate: $88,800.
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Limit per Individual, Exclusively used for Medicare Pre-payment: ($3300/yr x40= $132,000, realizing $1,460,000 at age 65 @10%.)............................
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Multi-year Health Savings Account (40 yrs.)............vs..............60% of Affordable Care alone.
...............$56,000 (1800-58,000)............................$288,000
....................($83/mo)...................................................
Total Cost per Individual, median estimate.
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Multi-year Medicare Escrow Deposits (40 yrs.)............vs..............80% of Affordable Care alone.
...............$80,000............................$288,000
Multi-year Medicare Escrow Deposits (40 yrs.)............vs..............60% of Affordable Care alone ("Bronze").
...............$80,000.($850/yr @4%, 150/yr @10%, contributing from age 25-65 ). ..........................$288,000
Estimated $18,000 Catastrophic Coverage Escrow (18 yrs.), escrow released at age 65
...............$ 8000 ($200/yr @4%, $40/yr @10%, contributing from age 25-65)
Total Medicare Escrow Cost per Individual, median estimate: $89,600 ($1050/yr @4% investment income, $190/yr @10%)
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Lifetime HSA plus Medicare............vs................Affordable Care plus Medicare
.........$120,000 (1800-58,000)............................$484,000 plus 196,000 in debt.
................($166/mo}..........................................................................
Total Savings per Individual, median estimate: $190,000
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All costs assuming age 25 to start depositing. Transition costs at later ages are not calculated.
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Lifetime Health Savings Accounts generate surprising amounts of money, and therefore solve lots of problems. However, they leave three problems unsolved, all of them having to do with the administrative agent. The first is trusting some stranger to hold most of your assets for a century, acting supposedly on your behalf in the meantime. The second is to obtain a fair return on your investment, which is to say, you must not overpay for honest service. The remaining problem is a transition from an old system to a better one, for hundreds of millions of different ages, different-wealth, different health. It seems to me Senator Cruz' proposal might ease all three issues, although it lacks details.
The Federal government could seem like an ideal immortal to handle long-term deposits until you look at its record. Watering the currency, shaving the edges of gold coins, and spending money earmarked for one thing, but spent on another, are things which pepper a history more attuned to getting votes than providing service. The motor vehicle office is a symbol of it. In a century, the Federal Reserve has turned a dollar into a penny of value and bought a lot of battleships with money held in trust for pensions. Politicians constantly accuse banks of stealing, but their own record is no better. Private institutions are expected to hold money for a century, but the person in front of you will probably retire, quit or retire in twenty years, to be replaced by a succession of strangers. Mergers, corporate raiders, and outright bandits teach the only generality you can trust is diversification, not consolidation. Insurance is a mixed blessing. In six corporate embezzlements I have been forced to watch, all six were overlooked by management who were easily satisfied with the insurance benefits. What that means is the insurance premiums are too high, mostly designed to save the directors from embarrassment.
In this way, most sane people eventually come to the conclusion the only person you can trust is yourself, and protections will probably only make you careless. Somewhere, this cost is built into the system, and it is hard to say how much it costs. The ancient Quaker doctrine is only a variant of it, "The way to make sure you have enough, is to have too much." Working backward from present longevity, the average person needs to save for retirement, tax-free, about 3% of average income, for about fifty years. And he needs to compound those savings at an average of 6-7% per year, so the first fifteen years are the crucial ones. That goal should accumulate enough to pay for a lifetime of healthcare, plus thirty years of retirement, plus a Quaker cushion of too much. But it needs to reckon with a general obligation of 10% unemployable, plus a one-time transition cost which might be as much a 50% of one lifetime's accumulation. There are other variables, like Korean bombs and Wall Street crashes, minus cures for cancer and automation, but we simply cannot predict all that. It's bad enough without such variables, implying the American public gets serious sooner than its history suggests. Let's project a doubling of savings, or 6% for fifty years, average savings including hardship cases. Actuaries can arrive at more precise calculations, but this is close enough to know it will be a struggle but achievable.
The struggle part is to navigate the jiggles of a continuation of the 12% average annual rise of the stock market over the past century smoothed out for annual volatility, and to assume we can wrench 6% from the finance industry out of limiting inflation to 3% inflation and their own retention factor to 1% . The first step in that process is to transfer the 3% inflation risk to where it belongs, with the customer, not his agent, by isolating and constraining storage costs. Another step is to see what we can wrench from the undeveloped 80% of the world becoming developed, minus the part they can wrench from us. That is profit growth averaging 3% per year for a century. There will be bumps on this road, you can be sure.
The other industry with which the customer must contend is the insurance industry. Their profit is also the customer's loss. It may turn out that the services of the insurance industry are quite fair, and any lessening of producer profit will eventually lead to shortages of their consumer product. But the European taunts at our costs, plus staggering glimpses of insurance reserves, suggest transaction costs plus insurance costs are appreciably overpriced and have been so for decades. Perhaps they are over-regulated, perhaps overpaid, but it seems likely a percent or two can be squeezed away. It is a certainty they over-insure the risks. We should be earning interest on what we now pay interest for, only ensuring what we cannot afford to spend. That may well imply we should spend less on some things, and our problem is to identify which ones they are. To some extent, this is a universal struggle. But most of its excess would surface after a two-year study by impartial experts.
The alternative to this steady grind is to create a market-place and then let the competitors wring the wet washcloth of costs on their own terms. What does the customer care about the technical details, he knows what he wants and for a while will be satisfied with it. The profit margin of a healthcare supermarket defines the cost of doing things that way, providing the signals for change of emphasis when the environment inevitably changes. The chances are good this approach will prove cheaper than continuing down the present path, hoping for a miracle without knowing where it might come from: funds administrators, investment administrators, insurance administrators, hospital administrators, or government administrators. Essentially, we have specialized ourselves into this mess, and the agents have themselves prospered excessively from the design. Whether they were always good at math or not, individuals have been given thirty years of new longevity to cope with the mess their institutional specialist agents have created.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.