So we end up funding Medicare mathematically, but with misgivings about both the politics and the economics of it. It would not be the first time America launched an adventure without the money to finance it, as we do almost every time we start a war or face a depression. However, both the ACA is in doubt, and linked with it is the idea of a single payer with Medicare as a model. Although I have grave misgivings about consolidating delivery systems as a first step, it could be a decision that is beyond the suggestion of a citizen.
Under the present uncertain circumstances -- of wishing to put the ideas forward but lacking the ability to control the environment -- it seems better to hold back on grander designs than just saving a little money. The linkage of Medicare and its secondary insurance is both tight and of long standing. By just eliminating the second insurance policy, we might eliminate a large and useless expense as well as suggest a few ways to save more. Isn't saving several billion dollars worth some effort? The factors which would lead America to embark on a financial crusade as radical as suggested here, are not to be found in mathematics, or even in one-man logic. They are cultural and emotional, mostly evolving out of endless simplification and repetition. The public might be persuaded to try something on 20%, which they would be afraid to try out on a whole program, however floundering it might appear to be.
How Would This Particular Approach Make Medicare Solvent? It wouldn't, but it would help. And it would provide a demonstration of the practicality of some of these ideas for worthy motives, and still leave room to back down if they unexpectedly fail. Most people do not trust their own judgment of complicated math, so we have made it simple. It is surely not the case that every single solution is either too complicated to understand, or too simple to be believable. Every grand proposal, from Otto von Bismarck's social security through the European systems to Blue Cross/Blue Shield, followed by Harry Truman, Hillary Clinton's foray into HMO, to Barrack Obama's ACA, has proved to be overambitious at the beginning, and woefully inadequate at the end. It seems there ought to be better ways to do things, but this is our way.
Medicare's original design has become so over-extended it has exhausted conventional insolvency approaches. Like any other proposal that might work, our own plan relies on approaches which are usually thought to be best avoided. So the first fundamental is to keep the core of it simple and be willing to discard the embellishments if circumstances undermine them. The doctors should devise the medical choices, the patients must control the finances, paying only for what pleases them. Government has a limited role in market failures, but a very little role in defining them. The goal is to eliminate the disease, ultimately reducing its cost to a framework of the first year of life and the last year of life. Anything more must defend itself against efforts to improve, then eliminate it.
And there is another idea which needs testing. Alexander Hamilton persuaded George Washington that "A national debt if it is not too large, is a national treasure." In 2006, we may have discovered what is a little too large to be sustainable, by permitting banks to convert mortgage debt to stockholder equity and then watching banks topple over from the sudden shift. Up to that time, it was quite legal to rebalance excess debt that way, which is why no one has gone to jail for doing it. And now we have the uncertainty over whether to encourage more of it (as a safety valve) or punish it (as toppling over the entire economy). It does not help matters for the two political parties to take extreme positions without more evidence. Pre-paying for medical care instead of borrowing to pay for it, is an indirect way of testing this thesis.
First of all, our own proposal depends on such long time periods that unexpected events could be the rule, not the exception. Nevertheless, many Congresses of many political parties would have to understand the basics and leave them unharmed for a century. Secondly, such huge amounts of money are involved that tampering, embezzling and fraud are not merely possible, but inevitable. These problems would confront any reformer. From them emerges the third one. Multitudes of individual Health Accounts would have less risk overall than gigantic single payers because small ones can only be converted into bigger ones, not defeated in a single pitched battle. Inevitably some individuals in charge of any system will prove to be stupid, reckless and venal. The real question is: Compared with What? If you make up your mind in advance that you will rescue everyone who doesn't succeed, the whole system will be no better than a single gigantic reinsurer overseen by either an idiot or a crook, and probably both, from time to time. Index investing is itself a triumph of everyman against the experts, after all. For long periods, single payer systems may be run by saints, but diversity is more resilient in the long run. The more important issue is to define how you will respond when you detect the "imperfect agency". The opportunities for illegal gains will inevitably exceed the individual opportunities for honest managers, in size if not in frequency. Therefore, smaller decision units are better than bigger, simpler is better than complicated, and success should never be guaranteed. The irony of the role reversal between the political party of individualism and the party of diversity is not to be overlooked.
Medicare financing could possibly be eventually covered by this approach, retirement income financing, probably not. To do the quick math in your head, it is useful to remember money at 7% doubles in 10 years. Current interest rates do not achieve that, but then current rates seldom do. During the eight years of the Obama administration, the low-cost total market index averaged 11% gain. Most people would never have guessed that outcome in advance. Much of it never reached the average stockholder because the government (taxes and inflation) and the finance industry absorbed it, but public restlessness may change things. The pharmaceutical industry may possibly be over-compensated, but that's not necessarily permanent, either. In this proposal, we are proposing to make the average patient become an average stockholder, with little voice in management perhaps, but ultimate ability "to talk with his feet", to buy and sell. Let's take the six components of the proposal:
#1. The co-pay feature. We've offered our opinion that co-pay has a little restraining effect on spending, and is only a device for adjusting the amount of insurance to the buyer's budget. So let's take it like that, and use the amount of the copay as, not 20%, but whatever fits our budget. We advocate the accordion principle for predicting future revenue uncertainty. Furthermore, we would abandon the pretense that it is a second insurance policy, and simply pay the carriers a fee for administrative help in running Medicare. That opens it to a bidding process related to work actually performed, eliminates the State insurance commissioner as an actor in this drama, and eliminates a huge source of confusion with the public. Imagine, one statement of benefits instead of two.
#2. The Contingency Fund. is designed to be overfunded for contingencies, so it is hard to say what its upper limit should be. And although on paper no one gets paid off for ninety years, banks are accustomed to rearranging the terms of a loan to shorten the time period for a fee. Dealing with transition periods is an old story for Congressional staff since otherwise nothing would ever be upgraded. The most conservative investment period would terminate at death, but expand to whatever age is necessary to pay it off, up to age 105. That implies the initial deposit never varies. Congress might, however, decide to vary the initial deposit but devise a shorter fixed time period. It makes no mathematical difference, but its political difference might be considerable and we do not propose to weaken our case by getting into such weedy details.
Eventually, a "sweet spot" should emerge. But let's not drop the argument with a confession of modesty. An officer of a large paycheck company recently declared to be the revenues of essentially all government programs have nothing to do with expenses, and everything to do with politics. True, we operate under a general mandate to balance new appropriations with new revenue sources. But the current payroll deduction for Social Security is five times as high as the deduction for Medicare, with only about 25% difference in expenses between the two programs, for example. The accounting rules for appropriations could be made considerably less political without significant impairment of flexibility. In the long run, it is not good politics for the public to discover you have been doing outrageous things. Over and over, you discover the Constitution is a cultural document, intolerant of judges who are obtuse.
#3. Delay Liquidating the HRSA at death. Although things get a little threadbare beyond this point, there is no reason to hold back borrowing for observed volatility. We are at the point in the compound interest curve, were holding the funds for ten years after death would multiply the original subsidy by 128 instead of 64; even 256 is conceivable. We are paying the Chinese much less than that for the Treasury bonds, and they would probably be relieved to see a way of recovering their investment. #2 may not sit very well with some people, but it would surely guarantee repayment, which at the moment, looks rather chancy.
#4. Investing the Pay as You Go. The problems created for others in the payment process have to be reckoned with. We propose the individuals continue to pay/go temporarily for half of the withholding tax receipts. That's effectively unchanged because half the cost has been transferred, but the withholding tax revenue remains constant. What is essentially involved is to balance the problems of the current administrative staff against the problems of passing acceptable legislation. But once more, the mathematical "sweet spot" is comparatively easy to calculate, but the political effects are more intangible. It is probably impossible for an outsider to have a firm opinion.
Additional unknowns in this equation are how much nursing home costs from state Medicaid plans would eventually emerge in the form of Medicare deficits. It is common knowledge that although custodial costs are not allowable costs, states have found ways to make them a federal responsibility. We also understand the HRSA owner might get less than 7% income on his deposits. Although the Chinese debt would stop rising, past indebtedness remains unpaid. Current Medicare bills would have to be paid for probably another decade, and may well rise in size. Ultimately, the way to balance the books is to raise the contributions. So, privatizing Medicare might or might not make it cost less, but would greatly relieve its present costs. Funding of retirements will have to come from other sources. However, right now contributions from the two contingency funds could easily be increased.
#4. The Last Four Years of Life Half of Medicare costs appear in the last four years of Life. By reimbursing Medicare for the last four years from other sources, Medicare's average cost is cut in half. but the withholding tax remains the same. Therefore, we come closer to breaking even in several decades, although we still probably won't quite make it. The essential feature of carving off terminal care is that it is half the cost of Medicare, and therefore reduces the burden on the other contrivances to reach the final goal of financing it.
#5. Simplicity, Simplicity. To begin with the opposite of simplicity, two quite unacceptable new ways to manage the medical payment system have been suggested by others. One alternative is to consolidate the whole industry, with one corporate administrative arm assuming the payment tasks for everybody, along with the whole delivery system. That scarcely seems appropriate management for a health complex which is already too big to manage. But it seems to generate many current proposals, especially those coming from the bureaucracy itself. Another idea, based on its resemblance to whole-life insurance, proposes a giant company or government department to concentrate on health finance, doing it for everybody. It might seem suitable for an insurance company, a medical school, a computer company, or a medical society. That seems to be what these organizations would like, but it immediately creates additional complexity, because computers only work if you specify some response to every contingency in advance. In a sense, this version of "Single Payer" would be a throw-back in thinking to the days when only a big company or a big government could afford to own a computer.
Is medical finance really so complicated most people couldn't handle it by themselves? Let's remember the anguished words Tzar Nicholas: "I don't run Russia. Ten thousand clerks run Russia." What the Tsar was saying, was the problem isn't individual complexity, the problem is the huge volume of simple problems. For example, if we proposed to butter everybody's bread, it wouldn't be hard to do, it would be hard to manage.
#6. Linking the New Medicare with Health Savings Accounts.. Probably the most important feature of putting pearls on the string is to avoid tangling the string for the convenience of the pearl. The purposes of the linkage are to acquire a connection to the retirement feature and its incentives to save and to lengthen the time period of any compound interest. It is not to generate inter-plan borrowings or conveniences, particularly for the early entrants to the string of pearls, at the expense of the later ones.

Is medical finance really so complicated most people couldn't handle it by themselves?
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For Health and Retirement Savings Accounts --- Transfer Slips, and Monthly statements, Only. So, yes and no to computers, which is what all this amounts to. Abundant cheap computers tempt us to use them for simple tasks, at the risk of making the simple task complex and losing the truth in a huge pile of statistics. (In another generation, a self-correcting code may conquer this problem, at the same time it will widen the opportunity for vandals.)
The proposal made here instead is a confederation of otherwise free-standing organizations (The Pearls), each hiring its own experts, feeding into a common channel of Health Savings Accounts owned by individual patients (The String). Individuals could hire consultants if they pleased but the decisions should be so simple the average high school graduate could cope with them.
One consolidated lifetime account form, which serves as a transfer vehicle for a single person's various balances. Sort of like a lifetime check-book. It provides a common incentive to be frugal for future retirement, and a common way to multiply such savings.
If that won't suffice for some tasks, we are traveling down the same path as the income tax and should re-consider such high-handed laziness.
There might be many networks, as long as their balances are uniformly transferable and they each link ultimately to a transferable retirement fund (The Goal) and a transferable investment fund (The Multiplier). Such networks might grow very large, but still, remain quite simple, and decisions which belong to the patient would remain within his control. The only outward purpose of such paperwork would be to transfer credits of the owner, to debts of the same owner or vice versa, with the adjusted balance ultimately coming to rest in his retirement account, creating a common incentive to be medically frugal. This would maintain adequate "records" (which mostly no one ever reads), an information source, and a designated HSA representative, but their outward form and unit would remain a transfer slip. You are striving for a good retrieval system, not a good archive system. If you want a simple system, give it to individuals who have an incentive to keep it simple. Don't give it to people who have a graduate degree an incentive to make it complicated.

If you want a simple system, give it to individuals who have an incentive to keep it simple.
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This particular feature has a political element. The American public now imagines it gets a bargain with Medicare, somehow getting a dollar of healthcare for fifty cents, and therefore a treasure they are unwilling to surrender. In all probability, no organization except the government could function long with such a deficit, so taking the deficit away from the government necessarily places it in the hands of someone who must balance his books. Somehow, legal protections for the patients against the debts of organizations which participate in the confederation must be established, so they can occasionally provide benefits at a loss, but only within stated limits. Called a "loss leader", the situation is a common one, but the effect is quite different from making the government a payer of last resort. Two additional savings multipliers must be added, although they will be explained shortly, along with two important investment designs.
Investment Mechanisms.We promised to discuss two investment mechanisms which might help matters. The first is the tendency of compound interest to rise with time. We have already shown above that adding another decade to the example will have an exaggerated effect on the outcome. This is an inherent quality of compound interest which crept up on us as science has conquered early death, and should have wide application in the future. As we learn how to avoid borrowing and learn how to be successful creditors, it should become a commonplace to rearrange financing to optimize it.
The second new model is index investing. As international borrowing has vastly increased the money supply, interest rates seem to have settled at a new low. Bonds have always been a zero-sum investment, but recent trends seem to set an even lower boundary. Common stock has more risk and volatility, but John Bogle and others have shown that it is practically useless for an ordinary person to buy anything but low-cost total-market common-stock index funds ("passive investing") since the fees charged by intermediaries tend to wipe out the profit from active investing. We recommend a heavy emphasis on this method. Beyond that basic approach, other strategies may be considered as a way to add fractions of a percent to total returns, but best avoided by people without experience, or lifetime years to recover from investment misjudgments.
In Final Summary of Privatizing Medicare. The public sector has been allowed to turn "privatization" into a term of contempt, when in fact it is a goal for the public sector to emulate. Very few people begin their careers in the public sector without spending their whole career there. In that sense, they are natural monopolists and act like them. We should strive for more varied career paths.
Even with considerable twisting, Medicare is so underfunded, no way can be found to self-fund it without adding several hundred dollars per person as a pump-primer. Of course, that's a great bargain compared with a hundred thousand dollars of medical care later on, but it will meet far more resistance than five hundred dollars is worth. Even then, it might require forty or fifty years at the most optimistic, to show a profit. In the Pearls on a String concept, the deficit might be made up by surplus generated by other programs, but Congress is unlikely to be willing to identify such a donor, and indeed it is a slippery path. The Affordable Care Act does not look as though it is going to generate a surplus, for example.
Overview. To be brief about it, spending for healthcare now crowds toward the end of life, mostly after age 65, while the money to pay for it is generated well before 65. Disregarding the complicated history of how we got here, in effect, we borrow from an interest-free account at Medicare to pay Medicare for Medicare, without earning interest on the money idled in the meantime, sometimes for as long as forty years. Potentially, the two age groups could unify their finances and get more or less dual savings. That's the dream advanced by the single-payer advocates, but on examination, the cost, politics, and complexities of actually unifying entire delivery systems would soon overwhelm total- merger enthusiasts. Unfortunately, the revenue has fallen too far behind the costs to make this completely possible. It is nevertheless contended here, only the financial transfers need to be unified, using Health Savings Accounts as a transfer vehicle, and allowing compound interest to extend beyond the boundaries of insurance programs. Such simplification, while not easy, would achieve most of the savings of unifying whole insurance programs, particularly the incentive to keep what you don't use, for your retirement. Among other things, it would solve most of the Constitutional problems, and avoids most of the delivery system obstacles. Indeed, a financial network is about all we could manage, but it is adequate for the need. Because of its towering cost components, even integrating the financial transfers might take longer than we anticipate.
But massive numbers are only part of the health financing problem. At the beginning of life, medical expenses concentrate forward, toward the very first day, leaving absolutely no way for the child's own income to pre-pay his expenses. No matter how it is rearranged, someone must give children some money. Indeed, this second issue seems so unsolvable, everyone has stopped trying to notice it. It only makes people uncomfortable to suggest that adding children to a new HSA system might add twenty-some years to the compound interest in Health Savings Accounts if they only had some money. They don't, so be quiet.
But on the contrary, if someone always gives children the money for their healthcare, why not acknowledge it? Frank acknowledgment seems pre-destined if you aspire to serve lifetime financing. You require two systems, roughly the opposite of each other. One delivery system faces toward the beginning and the other faces toward the end of life. (Even this conception finds the working class in the middle, largely funded by employers who change frequently and have other concerns foremost in their minds.) If the realities of life will never change, then it is the payment system which must adjust, with the finances of each system facing in opposite ways. The reader is therefore urged to toy with the eventual outline of a circular system, far down the line. For now, existing programs would alter their interface to accommodate a new funds flow, while changing their program as little as possible. There's still a big gap left unfilled: Those working people aged 25-65 who largely support the whole system, unfortunately already have so many constraints on their financing it is not feasible even to discuss their needs until the politics subside a little. Connecting, yes; unifying, only as much as you can. Therefore, this book passes over single payer as fundamentally over-reaching and concentrates on lower-hanging fruit.
Essentially, it is proposed: The Health Savings Account to expand to be a unifying financial bridge between programs, one account per individual lifetime, serving many disparate programs. Designed to be implemented in phased-in pieces, it continues to aspire to minimize changes in the delivery system itself. The reader will probably be surprised at how simple some dilemmas are likely to become, once it is conceded the individual patient ought to decide what others now decide for him.

Extended retirement costs are a predictable outcome cost of Medicare.
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Prepare yourself for one big rearrangement of thinking, however. Extended retirement costs are a direct consequence of superior healthcare. They could become five times as expensive as healthcare itself, and still be fairly described as a predictable outcome cost of Medicare. The only way budget shifts could be avoided is if science cures a few expensive diseases, quickly. That's not impossible, but it's unwise to depend on. It's also conceivable Medicare beneficiaries could be persuaded to allow HSAs to borrow from Medicare, but only after a titanic struggle, and only after Medicare revenues improve appreciably. New revenues for retirement must nevertheless be found, sooner rather than later, because of the ever-growing retirement crunch. It's a devastating realization, but the seed of solving the problem is contained in it. Where are the new revenues to come from?
Two things remain to be addressed: the cost of the catastrophic insurance, and the sort of agency which should sell the HSA service. Because both of these issues contain a strong political flavor, and because of the uncertain cost of the Affordable Care Act without subpoena power which the incoming administration will possess if it needs it, it is not possible to integrate these two features just yet. The power to delay action, inherent in the federalized system of governance, makes it difficult even to predict when these obstacles will be cleared away. Presumably, the Scalia vacancy on the Supreme Court will clarify much of this, but a time table is difficult to predict. Nevertheless, it is possible to outline the shape of what is needed.
Catastrophic healthcare insurance is "term" insurance, both in the sense its premium can be changed yearly, and in the sense that individual policies can negotiate their premiums to the degree, the agent is allowed to discount part of his sales commission in order to lower the premium. Thus to be fair, it must be admitted a general premium is difficult to state for a lifetime. The closest I have been able to find for a national insurance company is an offer of a $2000 yearly deductible, for $55 a month premium. But is it automatically renewable? The agent didn't know. What is covered? The agent didn't know.
To explain the (index-fund) connection between gold standards, and Health Savings Accounts, a passive investment can support entirely unrelated payment requirements. Index funds held in escrow would be tangible stores of value for unspecified future expenditures, earning substantial income from otherwise idle money, but taking up little storage space. At the other extreme, their collective prices might merely provide non-subjective price discovery to replace the subjectivity of central bankers on the honor system. Obviously, market-based prices are subject to occasional panics but might serve for short-term experiments. A mixture of the two, some in escrow, some immediately salable, might serve both price discovery and as stores of value.
Medical expenditures are commonly stated to be nearly 18% of the gross domestic product (GDP). That's a lot of idle money, which if capitalized might give a meaningful boost to the national, or even total world economy, by expanding borrowing capacity. The experience with gold was you didn't need to match the entire money supply. Less than 20% provides adequate price discovery, even employing a useless metal like gold. Since passive investing is a by-product of computers, there has been too little experience to predict exactly where so much extra capital would take us, but there is every reason to foresee generally favorable results. Unfortunately, there is also every reason to fear some unexpected harm might pop up somewhere, to make us wish we hadn't done it. Therefore, widely watched experiment seems appropriate.
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Health Savings Accounts seem highly desirable in themselves, particularly under the urgent circumstances of backing off from Obamacare and substituting Trumpcare, without exactly defining either one of them. HSA has been in existence for thirty years, have jumped through the numerous legislative hoops, and have been at least temporarily adopted by millions of people. Major businesses have apparently recognized this feature and changed their earlier resistance to an endorsement of voluntary trials within the health benefits system. People old enough to have Medicare are largely indifferent to this topic because they believe their medical financing is secure, but even this group is beginning to perceive that better health has created a much greater need for retirement reserves. Younger people for their part, have now received small accounts as an unexpected employer gift, and are asking each other what it's all about. The administrators of such accounts vary widely incompetence, with health insurance companies cautiously steering people to account managers, and account managers steering customers to high-deductible insurance managers. It is the nature of things that commissions of some sort are paid for referrals of business, which in turn reduce the effective income of customers. The McCarran-Fergusson Act pushes in the direction of control by fifty states, while the Constitution places the currency in the hands of a national government; it's only a guess which way things will fall.
Finally, the health financing crunch has added an element of urgency to a decision which would ordinarily take much longer. The casualties of the Civil War shifted sympathy away from states rights, but the health crisis forces re-examination of that decision. One glance at weekend traffic congestion around the nation's capitol convinces anyone that centralized control may be outgrowing its blood supply. United States congressmen are sleeping on cots in their offices rather than face the cost and strain of transcontinental commuting; this heart of centralized government has already become convinced that centralization has created big problems. Eventually, something must break this logjam, and devolution of powers to the states might be part of that solution. So, the problem is big, complex, and urgent. And the healthcare financing problem might well force a speedier resolution. The nation, however reluctantly, is about to address this issue at its roots, understands that any solution may go wrong, and probably is willing to tolerate some experimentation with fundamental structures like monetary standards, which would have international consequences. A monetary standard is so fundamental that experiments must be meaningfully large and inclusive, but they must also remain voluntary, in order to be modifiable or abandoned. The atmosphere of near-crisis is necessary even to come to a decision, and health financing happens to supply that ingredient.