The musings of a physician who served the community for over six decades
367 Topics
Downtown A discussion about downtown area in Philadelphia and connections from today with its historical past.
West of Broad A collection of articles about the area west of Broad Street, Philadelphia, Pennsylvania.
Delaware (State of) 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.
Religious Philadelphia William Penn wanted a colony with religious freedom. A considerable number, if not the majority, of American religious denominations were founded in this city. The main misconception about religious Philadelphia is that it is Quaker-dominated. But the broader misconception is that it is not Quaker-dominated.
Particular Sights to See:Center City Taxi drivers tell tourists that Center City is a "shining city on a hill". During the Industrial Era, the city almost urbanized out to the county line, and then retreated. Right now, the urban center is surrounded by a semi-deserted ring of former factories.
Philadelphia's Middle Urban Ring Philadelphia grew rapidly for seventy years after the Civil War, then gradually lost population. Skyscrapers drain population upwards, suburbs beckon outwards. The result: a ring around center city, mixed prosperous and dilapidated. Future in doubt.
Historical Motor Excursion North of Philadelphia The narrow waist of New Jersey was the upper border of William Penn's vast land holdings, and the outer edge of Quaker influence. In 1776-77, Lord Howe made this strip the main highway of his attempt to subjugate the Colonies.
Land Tour Around Delaware Bay 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!
Tourist Trips Around Philadelphia and the Quaker Colonies The states of Pennsylvania, Delaware, and southern New Jersey all belonged to William Penn the Quaker. He was the largest private landholder in American history. Using explicit directions, comprehensive touring of the Quaker Colonies takes seven full days. Local residents would need a couple dozen one-day trips to get up to speed.
Touring Philadelphia's Western Regions Philadelpia County had two hundred farms in 1950, but is now thickly settled in all directions. Western regions along the Schuylkill are still spread out somewhat; with many historic estates.
Up the King's High Way New Jersey has a narrow waistline, with New York harbor at one end, and Delaware Bay on the other. Traffic and history travelled the Kings Highway along this path between New York and Philadelphia.
Arch Street: from Sixth to Second When the large meeting house at Fourth and Arch was built, many Quakers moved their houses to the area. At that time, "North of Market" implied the Quaker region of town.
Up Market Street to Sixth and Walnut 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.
Sixth and Walnut over to Broad and Sansom 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.
Montgomery and Bucks Counties The Philadelphia metropolitan region has five Pennsylvania counties, four New Jersey counties, one northern county in the state of Delaware. Here are the four Pennsylvania suburban ones.
Northern Overland Escape Path of the Philadelphia Tories 1 of 1 (16) 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.
City Hall to Chestnut Hill There are lots of ways to go from City Hall to Chestnut Hill, including the train from Suburban Station, or from 11th and Market. This tour imagines your driving your car out the Ben Franklin Parkway to Kelly Drive, and then up the Wissahickon.
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Philadelphia Revelations
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George R. Fisher, III, M.D.
Obituary
George R. Fisher, III, M.D.
Age: 97 of Philadelphia, formerly of Haddonfield
Dr. George Ross Fisher of Philadelphia died on March 9, 2023, surrounded by his loving family.
Born in 1925 in Erie, Pennsylvania, to two teachers, George and Margaret Fisher, he grew up in Pittsburgh, later attending The Lawrenceville School and Yale University (graduating early because of the war). He was very proud of the fact that he was the only person who ever graduated from Yale with a Bachelor of Science in English Literature. He attended Columbia University’s College of Physicians and Surgeons where he met the love of his life, fellow medical student, and future renowned Philadelphia radiologist Mary Stuart Blakely. While dating, they entertained themselves by dressing up in evening attire and crashing fancy Manhattan weddings. They married in 1950 and were each other’s true loves, mutual admirers, and life partners until Mary Stuart passed away in 2006. A Columbia faculty member wrote of him, “This young man’s personality is way off the beaten track, and cannot be evaluated by the customary methods.”
After training at the Pennsylvania Hospital in Philadelphia where he was Chief Resident in Medicine, and spending a year at the NIH, he opened a practice in Endocrinology on Spruce Street where he practiced for sixty years. He also consulted regularly for the employees of Strawbridge and Clothier as well as the Hospital for the Mentally Retarded at Stockley, Delaware. He was beloved by his patients, his guiding philosophy being the adage, “Listen to your patient – he’s telling you his diagnosis.” His patients also told him their stories which gave him an education in all things Philadelphia, the city he passionately loved and which he went on to chronicle in this online blog. Many of these blogs were adapted into a history-oriented tour book, Philadelphia Revelations: Twenty Tours of the Delaware Valley.
He was a true Renaissance Man, interested in everything and everyone, remembering everything he read or heard in complete detail, and endowed with a penetrating intellect which cut to the heart of whatever was being discussed, whether it be medicine, history, literature, economics, investments, politics, science or even lawn care for his home in Haddonfield, NJ where he and his wife raised their four children. He was an “early adopter.” Memories of his children from the 1960s include being taken to visit his colleagues working on the UNIVAC computer at Penn; the air-mail version of the London Economist on the dining room table; and his work on developing a proprietary medical office software using Fortran. His dedication to patients and to his profession extended to his many years representing Pennsylvania to the American Medical Association.
After retiring from his practice in 2003, he started his pioneering “just-in-time” Ross & Perry publishing company, which printed more than 300 new and reprint titles, ranging from Flight Manual for the SR-71 Blackbird Spy Plane (his best seller!) to Terse Verse, a collection of a hundred mostly humorous haikus. He authored four books. In 2013 at age 88, he ran as a Republican for New Jersey Assemblyman for the 6th district (he lost).
A gregarious extrovert, he loved meeting his fellow Philadelphians well into his nineties at the Shakespeare Society, the Global Interdependence Center, the College of Physicians, the Right Angle Club, the Union League, the Haddonfield 65 Club, and the Franklin Inn. He faithfully attended Quaker Meeting in Haddonfield NJ for over 60 years. Later in life he was fortunate to be joined in his life, travels, and adventures by his dear friend Dr. Janice Gordon.
He passed away peacefully, held in the Light and surrounded by his family as they sang to him and read aloud the love letters that he and his wife penned throughout their courtship. In addition to his children – George, Miriam, Margaret, and Stuart – he leaves his three children-in-law, eight grandchildren, three great-grandchildren, and his younger brother, John.
A memorial service, followed by a reception, will be held at the Friends Meeting in Haddonfield New Jersey on April 1 at one in the afternoon. Memorial contributions may be sent to Haddonfield Friends Meeting, 47 Friends Avenue, Haddonfield, NJ 08033.
A software program for lashing fifty thousand computers together, called Hadoop, is what gave macroeconomics, the study of huge populations, its big push. The aristocratic Maynard Keynes, who invented macroeconomics, would probably not be amused on looking up Hadoop on any search engine, to find it is possible to download it free of charge to anyone who asks. Fifty thousand computers? Anyone can also rent eight hours of time on them from IBM or Amazon, for about ten dollars. Not many great scientific discoveries have become widely available so quickly or so cheaply.
Although the news media will probably concentrate on locating spies in Central Asia, or predicting the outcome of national elections, or telling which dot in the sky is really an approaching asteroid, Hadoop will certainly make it easier to make advance predictions in health insurance. Creating 300 million individual policies is do-able, projections of the gross domestic product are much easier, more accurate and can extend farther into the future. Ideas of preserving privacy in this avalanche are simply swept away by the discovery that much of what we thought was privacy was just a matter of being lost in a forest of data. So let us momentarily feel safe in predicting that a system of individually owned health insurance is entirely practical, cradle to grave, or at least need not be rejected as impractical because of size. If the Federal Reserve can manage a portfolio of $3 trillion, a national piggy bank for health care costs is not beyond our ability to manage. Set aside for a moment whether it is desirable to do such a thing, it is definitely possible to do it. Since small-scale tests seem to show potential savings in American healthcare costs in the range of 5% of annual American GDP, development costs need not stop us. Although the plans of Obamacare could bankrupt the nation, it is also a possibility that what is truly wrong with them is the thinking is too small. Bad implementation is expensive, failure to abort a failing program is worse. But getting the wrong design for the program is fatal.
The general process for getting things right in politics is to do something, and see if something bad happens. If not, do even more of it. But if your monitor shows that something bad is really happening, drop the project. Big Data, the process of monitoring huge amounts of data simultaneously, using Hadoop and fifty thousand computers in the desert, could be a monitor for experimental changes in the health insurance system. The trick is to include automatic monitoring alarms as enormous volumes of data flow past. The incentive for alertness is this data will be there anyway, and somebody in the role of trial attorney can go back in retrospect and show you missed a trend.
Presumably, the outcomes to measure are whether health is improving, and costs are going down. Compared with past trends, and other nations. Doing localized experiments, by states perhaps, would allow you to compare that state with others. It's rather like politicians giving speeches, and then watching what happens to their popularity polls. But it can be like counting the number of grains of sand on the beach -- who cares?
When any innovation is this new, powerful and cheap, it is almost impossible to slow the stampede to try it out. Almost anything which can be imagined will be tried out, and a few surprising things will be discovered quickly. But then it can be predicted that things will settle down to using this big machine on statistical issues which were formerly just beyond its reach, leaving acceptance of Hadoop computing to find its niche. Genomics comes readily to mind in medicine. But already a quite different sort of use has appeared in statistics. Statisticians have built up a whole structure around the estimation of large numbers by careful examination of small samples. The science of such approaches is the science of carefully selecting representative samples of a predetermined size, measuring their contents, and then extrapolating the size and composition of the original. Quite often, more time and expense was devoted to assuring the representativeness of the sample, than was spent extrapolating the answer.
Almost overnight, that whole approach has been swept away. With fifty thousand computers, it is easier just to count the whole thing than to bother with samples. The interesting thing for medicine will be the immediate reconsideration of subsets. When a study is conducted, let's say to see if a drug helps high blood pressure, a lot of data is collected. Regardless of whether the drug helped high blood pressure or not, it is possible to see if it helps the blood pressure of Hispanics, or of Chinese, or young women, or old men, or people with diabetes, or, well, you get the idea. In statistics, it is assumed something is true if there is a 95% chance it is true. But 5% of the time, or one time in twenty, it just happened that way by coincidence. So, if you go on splitting the data into a hundred pieces, it will appear to be true in five of them, when it was really only due to chance, and maybe wasn't true in any of them. That error, which is very common, is eliminated by measuring the whole experimental group instead of taking samples and extrapolating from them. So, the long and the short of it is a whole profession of sample analyzers is now out of a job, while the amount of false information is greatly reduced. Now, we can start to see the power of Hadoop emerging, although it is too soon to say what it will be used for.
Percent of Their Hospital Cost Reimbursed: Medicaid 70%, Medicare 106%, Private Insurance 150%, Uninsured 400% (?)
Hospital Cost Shifting
There's lots more; in politics there always is. The Pew Foundation, which now includes public opinion polling in its tasks, has pointed out 80% of the public does not share the polarization now so blatantly agitating the political class. Hence, some commentators have questioned the prevailing opinion of gerrymandering as the main source of it. These observers point to a worldwide decline in party affiliation; "independence" of party affiliation is claimed by nearly half of American voters when asked. Perhaps we have things backward, and gerrymandering is merely one effort, along with growing dependence on financial contributions by wealthy donors, to rescue party power. Television (and especially the Internet) prompts the voter to hang back before making decisions, hoping to decide something without pressure from party leaders. The growing tendency to vote straight party ballots is not taken by a few commentators as evidence of true voter wishes, but rather as evidence of the futility of resisting a two-party system. Some sophisticated observers feel straight ballots result from plurality ("first past the post") counting of votes, but this (unfortunate) trend seems more likely to be stimulated by (too) early voting by mail.
Since a two-party system favors moderate candidates over extremist ones, it may not be a bad system, but rather a good system adjusting to circumstances. A hidden cause of the present crisis in health care financing comes from the Medicaid programs, run by the states, but mostly (and inadequately) financed by federal taxes. A two-party system disciplines the nominating process by raising doubts about the ability of extremists to win the general election. Consequently, the final two candidates are often so similar the chance of a loser bolting the process, becomes small. In a proportional voting process, splinter parties cannot be silenced in the primaries, because political deals take place after the election when the public has become irrelevant to the voting outcome. Threats of public disaffection are therefore disregarded. This hidden feature went unrecognized at the Constitutional Convention, as indeed was the whole party apparatus. But it has to be counted as one of our greatest strengths, placing a much higher value on unity than dogma. If you follow this reasoning, you would have to conclude the present level of divisiveness will not persist. Because each generation has to learn its own lessons, it may recur, but it will not persist.
Nursing homes were not originally included in the 1965 legislation, but most states receive strong pressure to pay for elderly indigents in nursing homes, stranded by running out of savings. Perhaps it would be a good thing to include nursing home coverage in a reform bill, but nursing homes bear too much resemblance to work-houses to generate much demand to be in one. In variable degree, the circumvention has grown up of paying for nursing homes with money intended for hospitals but necessarily underpaying the hospitals. The hospitals make up the deficit by overcharging for outpatient services, as everybody will recognize who has been charged for the same service, both as an inpatient and an outpatient. By prevailing estimates, the Medicaid programs only pay hospitals about 70% of their actual costs. Hospitals escape insolvency to a minor degree by raising reimbursement demands on Medicare (to about 106% of costs) and more appreciably through private insurance (to something approaching 150% of costs). Teaching hospitals have some opportunity to raid funds intended for indirect research overhead, for resident stipends, and for disproportionate shares of an indigent, "self-pay" patients. Various accounting tricks account for the rest. For example, the transfer of schools of nursing from hospitals to universities has emboldened universities to seek the equivalent of traditional hospital reimbursement schemes, merely and mostly triggering new arenas for dispute, because the hospitals had hoped to profit from the transfer. Since Medicare somewhat overpays hospitals for its own patients, in recognition of the underpayment by states for indigents, current jargon blames the "government programs" for underfunding hospitals. A better summary of the situation is: Medicaid under-reimbursement is the largest source of hospital financing problems, but other problems are less resistant to change. That's pretty significant, in view of the Obamacare plan to put millions of uninsured into Medicaid, some of whom never asked to be insured at all, and most of whom have no previous experience with "welfare", so they need to start reading some books by Charles Dickens.
Governor Christie of New Jersey
The outcome of all this is nursing homes are in effect supported by Blue Cross and other private insurers of younger people, raising premiums to employer groups and individuals by something estimated like $900-1500 a year per subscriber. That's because Medicare is busy subsidizing Medicaid's hospital patients, the main source of hospital deficits. Because this juggling lacks straight-forwardness, results are inefficient; only about 42% of hospitals actually break even. As might be expected, knowledgeable employer Human Resources departments and hospital administrations know about and object to this system. They are cooperating with Obamacare more than might be otherwise expected, probably in the hope this cost-shifting can be adjusted more in their favor when it is less in the public eye. Mandating all employers to participate would, of course, increase the base of people sharing this exaction, but would ultimately link corporation treasuries to government deficits. The dream of the service unions would be to use this excuse to mandate the unionization of hospital employees. Governor Christie of New Jersey quickly saw a way to split the Union movement into public and private compartments through this. "Every time they get a raise, you get a tax increase," he told the unions of the private sector.
The participation of physicians in the Obamacare effort is riven by their own politics. For surgeons, the premiums for Malpractice insurance can sometimes run to $200,000 a year. An appalling proportion of obstetricians have been sued by their patients, to the point where women have no doctor to deliver their babies in certain parts of the country. For doctors in this high-risk category, relief from the plaintiff lawyers is the most pressing of all problems. On the other hand, many physician specialties have almost no malpractice risk and are much more exercised about the SGR reimbursement freeze, which has been in effect since the administration of Lyndon Johnson and has been severely undermined by inflation ever since then. With physician ranks divided by two different priorities, the way is open to promise both and reward neither.
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Tenth Amendment
Urban-rural differences remain important in health care. Senators Baucus, Grassley and Snowe come from sparsely settled states. Former Senator Daschle is from South Dakota; there are perhaps twenty states potentially in this category. With a sparse population, it is difficult to develop sufficient insurance business for the law of large numbers to establish actuarial safety; these states need to combine into regional areas to reduce the competitive size of their loss reserves. On the other hand, populous states like New York, California, etc. are often adamantly opposed to regional groupings, for opposite reasons. These population disparities create differing attitudes about modifying the 1945 McCarran Ferguson Act, which limits federal insurance regulation and enables state regulation, thereby making it difficult for small states to agree to interstate health insurance sales and portability. The fact that large employers have already achieved this freedom through ERISA also makes them unwilling to see the problem or waste political capital achieving it for others. And thereby diminishes the power of low-population states to resist national healthcare insurance, which is their natural position.
And finally, Obamacare raises some questions about judicial remedies. Certain Op-Ed commentators have raised a question of the constitutionality of federal mandates or pre-emptions of state laws, depending on how they are phrased. The U.S. Constitution was only narrowly ratified in 1789, in large part because the states were fearful of the federal government getting bigger and more powerful than necessary. In response to this strong feeling, the Tenth Amendment reinforces in no ambiguous words, that anything not specifically assigned to the national government is to be in the province of the state or local governments. If ever there was original intent, it was that one.
One must be sympathetic with the original designers of modern conventional health insurance. They had few models to work with and no advance knowledge of how medical care would evolve in the following century. Most major scientific advances have driven disease costs away from working people. Consequently, retirees expanded in number. The result is employer-based insurance with a little remaining disease in the employees, but which still ends at the time of retirement. Consequently, Medicare developed in part as one way to tax workers to pay for retirees. Longevity continued to expand, but initial revenues became exhausted, and the government quietly resorted to deficit financing. As the balance of payments turned negative after 1965, we resorted to foreign borrowing. It is now revealed by Secretary Sibelius that 50% of Medicare funding is a subsidy, temporarily funded by borrowing (selling them U.S. bonds) from the Chinese government.
This situation cannot continue indefinitely, and it especially cannot be extended to other programs in the form of "single payer" programs. The Health Savings Account retains the spread-the-risk feature of insurance but more or less limits it to hospital inpatients, who are in no position to negotiate prices, by utilizing high-deductible insurance. In the outpatient area, the early adopters have demonstrated a 30% reduction in costs in the outpatient area, while prudent shopping is rewarded by returning the savings to the individual. It helps cost-saving to have a defined incentive, that any unused surplus may be used for retirement. This success prompts another warning: merging Medicare with other health programs would clash with merging Medicare with Social Security.
It seems certain to a doctor that the enormous resources being devoted to medical research will eliminate at least one of the half-dozen remaining expensive diseases within a decade or two. If we are lucky, the ongoing costs of this future cure will be less than the present cost of treating it. That's what happened when we woke up to the preventive value against heart attacks and strokes, of a little aspirin tablet. Even if early costs are high, patents soon run out, competitive products emerge, competition brings down the cost of that disease. Repeat that miracle five or six times in the next fifty years, and the whole cost issue changes. Instead of worrying about the cost of dying too soon, we will gradually worry more about the cost of living too long. Medicare will shrink, but Social Security will get more expensive. What could possibly make more sense than to merge Medicare with Social Security? And, what would be more unfortunate, than to merge Medicare with healthcare programs for other ages, thereby creating more or less direct competition for available funds and program control? Perhaps that could be avoided, but choices would be governmental rather than individual. And they would be wasteful, generating resistance to reducing one part of the program, rather than diverting any unused medical budget toward retirement benefits.
So it seems in the interest of retired people to soften their resistance to the development of programs to shift unused Medicare funds to retirement. That is, to close down Medicare as it becomes unneeded, allowing the individual subscriber to decide the balance between them, in his own particular case. Inevitably, that would provoke resistance, but it need not constitute the third rail of politics: touch it and you are dead.
Accordingly, we examine in this section of the book, just what might be involved in allowing voluntary, gradual, buy-outs of a Medicare program which surely cannot continue on its present course indefinitely. It's just one part, but an important part, of funding about half the cost of healthcare, other than Obamacare.
Knowing how to calculate is less important than knowing what to calculate. Any computer's search engine has several free examples of compound interest calculators. It is also useful to know a few short-cut ways of calculating approximate answers in your head, just to keep a check on computer calculations going off the rails. Be careful, because calculators can have bugs (or the computer's memory cache may not unload), but the commoner mistake is to calculate the wrong components.
The chief short-cut to know is a $100 fund of money earning 7% will double to $200 in ten years. Its related fact is, in fifty years a hundred dollars at 7% will equal (2,4,8,16,-->32) times a hundred dollars, or $3,200. With compound interest, the result is not linear. The 7% in 10 years shorthand is a subset of the "rule of 72", which says you can divide 72 by the compound interest rate, to get the number of years it takes to double. So while 7% doubles in 10 years, 6% doubles in 12 years, 10% doubles in 7 years, etc.
It's true, $100 at 10% will double every seven years, (as in 2, 4, 8, 16,--> 32x) in 35 years, or to $3200, reaching the same value as 7%, but in fifteen fewer years. Our economy contains more examples of 7% interest charges, than of 10%. The difference between 7% and 10% is surprisingly great and surprisingly meaningful in reverse. The 10% figure is often applied to impaired credit, or galloping inflation and therefore higher rates are often a warning signal, not an opportunity. Approximations permit the reader to recognize anomalies or to verify accurate calculations without repeating them.
Both approaches, short-hand and the Internet calculator, are recommended for verifying the following calculations, involving advance predictions which cannot be precise. One method of signaling approximation is to round off the answers to three or more digits of zeroes (2,400,000 is most probably an approximation, for example). We prefer fully calculated numbers, not to imply an accuracy which isn't present, but to allow the reader to follow arguments by recognizing components as they jump from line to line without elaborate identification.
Summary of the Math, With Caveats. This proposal is not free, it mainly substitutes investment income for government borrowing. The government thus benefits, but the patient benefits as well because he ends up owning the investment. This is an essential feature, since without it the consumer may see the proposal as benefitting the government, without benefitting himself. The calculations are necessarily rough ones, and 7% may prove optimistic, but the system is self-balancing. Borrowing is reduced, so in the example, the consumer gets the same product for roughly half its present net cost. "Roughly half" is approximate; the actual saving will be determined by market forces, both when he buys the investment, and later when he sells it.
To be explicit, this proposal involves passing early savings into the individual's own savings account, and immediately investing them. The consumer can measure his savings growth and later can watch his own bills being paid with them. He keeps any savings for his own retirement, and even more, if he is frugal enough to generate extra savings. Furthermore, he lives longer, which is largely only possible if his government has the money freed up to spend more billions on basic research to cure the diseases he might have died of. It is, therefore, possible to describe this whole system as a shrewd investment, growing out of cold, hard self-interest. Which, as the owner of the investment, visibly improves the individual's private benefit. So to return to the point we were making in the last chapter, hold off on ridiculing the idea of a newborn babe contributing money to it, it just looks that way at first.
To resume the arithmetic discussion, a deposit in a Health Savings (and Retirement) Account of $1650 1 yearly from birth to age 20 (from diverted Medicare premiums not yet authorized by Congress to be diverted) would result, invested at 7% in an escrow balance of $72,192 at age 20. If, at age 20, contributions of $825 yearly 2 for 40 more years (Source of revenue: diverted average Medicare withholding tax) were then substituted, both contributions firmly placed in escrow against college expenses and the like, might result in a balance of $1,260,000 at age 60. If investments realize less than 7%, this balance will be less. At age 65, 7% interest alone for five more years, generates a balance of $1,772,351. After subtracting a Medicare buy-out at age 65 of $134,000 3 plus $30,000 (income tax), a balance is left for retirement of $1,608,351. That hypothetical balance could provide a pretty reasonable retirement fund starting at 65, and eliminate additions to the Medicare debt, and by age 84 (average life expectancy) still allow for extraction of $18,000 4 to a designated member of the child or grandchild generation, at birth.
For persons in transition with less than a full lifetime to work this out, a postmortem Trust Fund could continue to earn interest from average age of death (84) to the legal limit of a perpetuity, dedicated to paying Medicare shortfalls even though the subscriber is dead, until the age of 105 5 when further debts are extinguished. Meanwhile, the $18,000 legacy recirculates in a child or grandchild's Health Savings Account, replenishing the fund for a new generation. It should be emphasized this escrow fund is for Medicare, to which major illness is increasingly migrating. (We here suggest Congress waive the Catastrophic insurance requirement during the sixty years when no medical withdrawals are being made.) Current medical costs for younger people, balancing the Medicare migration, should diminish, and be revenue-neutral for the lifetime system. In any event, they do not include either surplus or deficit from Obamacare.
This condensed example is given to answer the question: is there enough money in the system? There probably is, and the trick is to find ways of getting it out. The difficulties are political and cultural, not financial. Other programs can join the system like pearls on a string, so long as they individually remain revenue-neutral, or subsidies are created to make them so. Success depends on achieving 7% returns from passive investing 6 , and revenue-neutrality among newly added programs. In a century, scientific discoveries might even reduce overall costs to the first year, and the last year, of life.
Footnotes.
1 For its own reasons, this is entirely credited to Medicare Part B, and Part A gets none of it. As a further twist, it is deducted from Social Security checks rather than billed. 2 The allowable amount is $700 per year, with an income tax deduction at the end of the year. 3 This is my own guess as to the probable buy-out price of Medicare, age (65) to average life expectancy (84) 4 The is the CMS estimate of childhood costs, birth to age 25. 5 A perpetuity is defined as one "life" plus 21 years. 6 My own portfolio averages 6.7%. I have it from John Bogle personally that 7% is a stretch, selected because of its calculating ease.
Comments.
It is not intended to follow this outline strictly. For example, the transition period to it must be somehow shortened, avoiding transitional bond issues whenever possible. One additional twist would be to take advantage of the population continuing to live longer. Half of Medicare expenses are devoted to the last four years of life, so the transition period can be cut in half by dividing the revenue into two escrow funds, one of which is funded by the compound interest for 84+ years, and reimburses Medicare for the last 4 years of life it has already paid for. This puts the burden in half for the second fund, a particularly useful feature during the transition period.
If the public will not stand for using old-age premium money to fund childcare, or if there is resistance to shifting obstetrics cost from mother to child, either the retirement must be reduced, or new sources of revenue found. If there is significant resistance to other generation-shifting of funds, it is usually less important financially than socially.
Without any government changes, passive investing is gaining on active investing, by almost a trillion dollars a year. The financial community can be expected to resist the shift to passive investing. Whether they will stiffen their resistance or adapt to the change, remains to be seen.
Further, if the ownership of index funds can be tolerated, perhaps a segment could be directed to venture capital funds for cost-reduction of medical corporations, or even to transforming medical industry profits into cost-reduction for its products. When the health industry consumes 18% of the gross domestic product, it must consider new financing methods if it is to avoid either government ownership or a purely for-profit orientation. Perhaps healthcare could consider its place as an export industry.
In the meantime, healthcare must pay its own bills. Almost immediately I would establish a large force of accountants, to throw some light on central issues which are now conducted as either state secrets or business secrets. For example, I do not understand why hospital prices to uninsured patients are allowed to be so unrelated to their underlying costs, frustrating efforts to becoming market-oriented. Insurance companies have almost figured out how to protect themselves, but the public is appalled and unprotected. Perhaps the motive is the protection of indirect overhead as a mechanism of cost-shifting. The only self-interested group I can think of are the trial lawyers, who base their settlements on "seven times the medicals". But I have trouble believing they have enough power over the state legislatures and judiciary to whip-saw the public into tolerating sixty thousand dollar charges which the insurance companies discount to six thousand, and the hospitals write off willingly, knowing their real inpatient cost is limited by the DRG7 . And which I suspect cost the drug company much less than that to manufacture. If sunlight is the best disinfectant, let's have a lot of it.
7 Here, I am quoting my own personal health insurance EOB.
And I would like to see the true costs after taxes, of health insurance to various clients, particularly big business. It is possible to see two tax deductions, one to the employer and one to the employee, leading apparently to incentives for business to prefer high taxes on itself. There must be more to it than that, and one component is overworked congressmen. Each one of them has a million constituents and spends a lot of time on the phone.
Estimated Cost of Medicare Buy-out.
The data in this analysis are usually condensed to a single average individual, in anticipation of use in individual Health Savings (and Retirement) Accounts. The number of individuals enrolled in Medicare (55,504,005), obtained from the Internet figures published for 2015 by Centers for Medicare & Medicaid Services (CMS), is divided into the total 2014 budget of the program ($373 billion) =$6,720 Medicare cost per person per year for 20 years average life expectancy at 65, or restated as roughly $134,400 per person per Medicare lifetime. As a check, Medicare cost is said to be half of lifetime medical costs of $350,000 or $175, 000. This is the ballpark guess of a Medicare buyout cost.
The accuracy of this figure would improve by excluding 9 million recipients under the age of 65 eligible by reason of disability, not by age. However, figures were not provided separately to distinguish costs of the disabled from the 46 million who became beneficiaries by attaining age 65. Assumed here to be roughly the same, disability probably costs more.
An important side point is not the exact amount of cost, but rather that this composition includes everyone, rich or poor, who is over 65. These figures therefore definitely include the indigents, and if anything includes a disproportionate number of them. This should be attractive to single-payer enthusiasts, who wish to extend Medicare coverage to everyone, and who find that employing extra eligibility based on age rather than income simplifies their task of persuasion. The calculations which follow are therefore not a "rich man's proposal" at all because Medicare is not a rich man's proposal. Its fault is being funded by pay-as-you-go for several decades.
A second non-obvious fact of regional variability is readily inferred by comparing $6,720 per year (the overall Medicare average cost) with the $18,000 annual premium for New York employer health plans cited in the newspapers. Quite obviously New York prices are higher than those in a small rural district, but not three times as high. The New York employees, like the Medicare beneficiaries, must include a large subsidy of non-paying clients by paying ones, because of New York laws and demography, and are thus "conservative" estimates of revenue requirements in a limited sense. That the average is an overestimate is still further suggested by the $5700 annual premium charged for Medicare Part F for the highest income bracket, including a profit margin for the contractor. (Medicare sells coverage at wholesale prices and allows the Part F vendors to discount them, while still making a profit by constraining provider reimbursement.) Counting on the tacit reinsurance of the "risk corridor", some contractors lost money, but evidently, not all of them did. It should be comparatively easy to calculate a more accurate estimate of costs by excluding under-65 beneficiaries, but the prediction-- that wholesale is less than $6720-- will almost certainly be borne out.
The underlying principle of our proposed example is equality with the present Medicare public charges. That's a rhetorical boundary, not an actual one. And an example, not a rule. Congress can set these charges where ever it pleases. Eventually, the charges must reflect an underlying need for them. For the present, current charges will suffice as an example.
Current revenue comes in two approximately equal components. The first comes from the withholding tax on the employment of people aged 25-65, the amount of which is specified as 2.9% of the wages, 1.45% from the individual paycheck, and 1.45% from the employer. From the Medicare annual report, it comes to an average of $700 per year for 40 years = $28,000. The other half, comes from the Medicare premiums (applied to reduce the benefits of Social Security checks by $1400 a year) from age 65 to the date of death, on average of 20 years = another $28,000. Some accountant should explain attributing all this to Medicare Part B, and why Part A is not attributed to hospitals at all. It seems entirely arbitrary, but you never know. Since contributions to Health Savings Accounts are tax-deductible, their value increases. We use the 18% flat-tax figure offered as a weighted average of real income taxes, so the HSA annual deposits are effective $825 and $1650, ignoring the attributions. That's another example; does it make sense? To repeat, total average lifetime spending by Medicare is $6720 per year times 20 years = $134,000 ($2580/yr left for retirement). Is this a reasonable price for a buy-out? I doubt it, but even this figure is surmountable.
Investment Income.
There are two ways to increase investment income: invest the same at a younger age, or invest more over a longer period of time. Depending on the sequence of investing, these previously collected sums should produce enough to buy out Medicare, with some left over to finance a moderate retirement -- without increased debts to bondholders. Of course, you can't spend it twice, but this is in an escrow account. The alternative is to have a separate account, and it is hard to say which is simpler. Although its internal distributions and cross-subsidies remain perhaps a little unclear, the over-65 retirement benefits are likely overestimated. The reader must weigh these approximations for himself, keeping one principle foremost. If the approximation does not comfortably dwarf the projection, it is too close for comfort.
Transition Costs.
In any event, the entire Medicare program must at most borrow $78,000 times 55,500,000 beneficiaries divided by 20 years of the collection -- each year -- or roughly $200 billion of a 373 billion budget -- for a transition from one system to a better one. Moreover, alternative proposals for transition are suggested in later chapters. Even Wall Street veterans concede the U.S. Treasury has an outstanding reputation in bond issues for wars and depressions, so their advice is worth consulting. Once again, that figure is high to the degree the 9 million disabled on average have different costs than the 46 million elderly, low to the degree inflation becomes rampant and largely unpredictable in sum. As far as frightened investors are concerned, the escrow rules should actually lessen the risk of panic illiquidity. Whether they see it that way or not, they are investing in the durability of the entire long-term American economy by investing in total stock market indices. It is safe to respond the Medicare deficit is made wildly unsustainable by pay-as-you-go financing, whether privatized, or not, and the proposed approach might actually help quite a bit. Furthermore, starting with a contingency fund of only $100 yearly from birth calculates to reach the same number with a little margin of error built in. But it includes no pension, and probably less elimination of debt.
The Health Saving Account law already provides potential revenue relief to the beneficiaries in two main ways: a tax deduction for deposits, and the freedom to invest deposits, tax-free, in any way agreeable. Furthermore, it collects no tax on withdrawals for medical purposes. (There is one exception which might be changed: taxes are not collected from medical expenditures, but are collected on HSA to IRA conversions.) Medicare, on the other hand, collects an average of $700 yearly for 40 years (25-65) in salary withholding, and $1400 a year for 20 years in Medicare premiums. That's about half its cost, another half is a deficit which must be borrowed. Using the rule of thumb of 7% doubling in ten years, an investment return of 7% in an HSA of the same money which resulted in an unsustainable deficit by pay/go, would be worth $825 per year (700 from Medicare + $126 extra value from the tax exemption) or $185,000 at age 65 (or even more, if Medicare costs are substantially less than $6720 for over-65 subscribers). That would buy out Medicare with $161,459 or so to spare, which after taxes would be $132,396 by subtracting the real average income tax of 18%. That much ought to provide approximately $8,000 annual retirement for the 20 years 65-85, the average life expectancy at birth. We can do better than that, but some money will have to be spent on the transition costs, so it's a maximum, providing an individual HSA can earn 7% on its investment. And worse than that if it can't. At least, we can sustain the point that, alone among health insurance programs, HSAs transform any surplus after taxes into retirement income in the form of Individual Retirement Accounts, (IRA), and provides a way to generate potential surplus which is then likely to be under-stated.
Future Projections.
It will be noticed we have left two features of HSAs unexploited, and one fly in the ointment unmentioned. In the first place, you have to be younger than 25 to take full advantage of what we have described, and you have to wait 40 more years to receive any tangible benefits. Secondly, the $3400 per year voluntary contribution deposit limit to HSA is unused and we suggest those who can afford it, spend it all on looming transition costs. These are both artificial limitations on the simplified example, a standing invitation to exploit new features. For example, look at what a hundred or so dollars would do, if deposited at birth. Of course, you can add more, up to a $3400 limit per year. The result would probably be in the millions. Age and contribution limits should first be expanded, and the employment requirement eliminated. By expanding the time available for recovery, these features would actually enhance the safety of the investment.
An important stickler is, the law requires a high-deductible Catastrophic backup throughout the life of the HSA but makes scant mention of overlapping insurance. When age and employment limits are removed, this needs to be addressed by "or it is equivalent", and possibly then more specifically, since it leaves the HSA at the mercy of ambiguities its competitors can manipulate.
The Importance of Solving Childhood Health Costs.
The HSA act was originally intended to appeal to young people, whose current medical needs were often small ones, and whose distant retirement looked utterly remote. Since the Affordable Care Act has considerably confused matters for this age group, we have decided to avoid discussion of the working age group, at least until after the 2016 Presidential elections give us some indication of where things are likely to go. The proposal does cover Medicare, retirement, and newborns -- substantially everything except what Obamacare covers. When the future of ACA becomes clearer, it will be necessary to write another book to integrate the issue of filling in such gaps. The HSA law does permit individuals to contribute up to $3400 annually to the accounts, but solvency seems temporary unless the age group 25-65 can produce a surplus to subsidize other groups. Here, we only contrast the HSA with about 100 to 250 dollars per year, from birth. That makes calculation easy, and small, but it grows relatively slowly and well might have to be supplemented at later ages, particularly during the transition period.
Let's be frank about projections so far in advance. They are meant only to distinguish areas where funds are "comfortably adequate" from other numbers which are more dangerously "barely adequate". The imagined precision is retained as a way of following particular numbers through the argument. Combining the two, a modest sum of $100 added to the account at birth would slowly grow to $542 (at 7%) by age 25. But that relatively small amount would be added to the withholding tax contribution at age 25, and even singly might grow to be $8,127 by 65. By age 84, without any withdrawals, it would grow (single) to $31,450. Combined with $825 a year , however, starting at age 25 with $825 (withholding tax equivalent) added yearly, it would grow to $180,500 at 65, and subsequently without withholding tax addition, might re-grow (without withdrawals for retirement) to $166,000 by age 85. It would be in an escrow fund for Medicare, so it could not be spent for other purposes until age 65. There would be a withdrawal, however, to buy out Medicare at age 65, of $134,000. So the reduced value to $41,500 might re-grow in 20 years (age 65-85) to be $166,000. Using it up for retirement, however, would provide an annual pension too small to depend on for distant calculations. For the retirement to be a real incentive, it would have to last as long as projected longevity. The person would have to supplement it with private savings and investment along the way, a normal situation for rich people, but a frightening novelty for most people. Another step is required before such a lifetime venture is undertaken. Therefore, what is presented is not the best case. It will be improved upon later, especially with cutting the numbers in half with the Last Years of Life approach.
That venture would be a rearrangement of revenue streams. The earlier a sum is invested, the larger it will grow; in meaningful terms, it is worth far more for retirement if you start the same contribution twenty to sixty years earlier. In order to get the most out of the same investment, Congress might remove the employment requirement and extend the age limits, both up to death and down to birth. Maximum revenue could then be extracted if the financial equivalent of the Medicare premium began at birth, and twenty years later was followed by forty years of payroll deduction. Essentially, this means moving the equivalent of Medicare premiums to some form of a trust fund, and re-directing the payroll deductions to the Health Savings Account as described. These sixty years of investment leave five years unfunded, so if the Medicare age limits remain fixed at 65, the trust fund could begin as late as the fifth birthday.
Such rearrangement of the payment stream would generate a fund in the millions at age 65, allowing for much more comfortable slack in the investments, and supplying ample funds to transfer to a grandchild. Funding the health needs of children is the greatest single unaddressed problem in all health planning. It gets little attention because it seems so impossible to pre-fund the birth costs of a newborn. And it even stimulates misinformation, such as the mistaken belief that health costs of newborns are trivial. They are not as great as the cost of dying, but the financial resources of the parents are more strained. They spill over into grievances about the higher health premiums of women, in an era where feminism has had hidden effects on politics and even Supreme Court decisions. The transfer of Medicare premium funds to grandchildren has synergy with grandparent funding of obstetrics, and the Health Savings Account provides a vehicle to do them both. This particular caper is a political issue, requiring Presidential leadership; it is definitely not a financial issue just waiting around at the end of a lifetime of compound interest.
Any greater results would have to rely on additional donations to the contingency fund, or spectacular good luck in the stock market. This is therefore just about the limit of what a favorable arrangement could provide; except for outside contributions, any other arrangement would provide less. For example, switching Medicare premiums to fall between 65 and 85 (the current arrangement) would reduce the benefits by a third, as might a bad decade in the stock market. Suffering both reverses at once might wipe out all retirement benefits. But short of an atom bomb attack, it is hard to see how the average investor would lose money by doing it. Most of this plan requires changes in present law, although the growing national debt will create pressure to do something major to change the future trajectory of Medicare. The finance industry, already under strain, may resist. Consequently, the opportunities and drawbacks of Medicare Part F for employers also ought to be scrutinized, particularly as long as large employers recoup so much from their various unshared tax exemptions.
Long periods of unemployment could destroy this tempting dream, as could a protracted poor investment experience. The ordinary person would have trouble finding an institution which would accept amounts smaller than $100 without long-term contracts allowing the institution to trade short-term losses for long-term benefits. In the next section, we must, therefore, take a moment to reflect on the finance industry. And then we will return to this lifetime plan, by adding the Ends of Life approaches.
The following interview with George Ross Fisher, M.D., is presented to give specific answers to questions relating to the organization of the Foundation for Medical Care which is being developed by the Pennsylvania Medical Society. Dr. Fisher is a member of the Medical Care Appraisal Committee of the Pennsylvania Medical Society.
Q. Why are Foundations for Medical Care called Foundations?
A. Well, you will recall that Henry Kaiser started a closed-panel salaried group practice which he called the Kaiser Foundation. When the doctors in California, who felt threatened y Kaiser, started a rival organization, they wanted to use the word foundation, too. So the term has stuck to most similar organizations, even though it is a little confusing.
Q. Does the foundation offer a tax shelter?
A. Not at all, and you will see that the team is difficult to understand. Some foundations are chartered as non-profit corporations, and others as ordinary corporations. The ordinary corporations avoid taxes by avoiding profits, so there isn't much difference except in state regulation. The Pennsylvania Medical Care Foundation is a non-profit corporation.
Q. Now, slow down and be a little clearer. Suppose you give a one-sentence statement definition of what a foundation does.
A. It takes two sentences. A medical care foundation is a sort of insurance company. And it's also an organization for medical peer review. You might not think these two functions should be fused, but it really does make sense to do so.
Q. You have the microphone make sense out of it.
A. The foundation offers the patient unlimited medical care for a fixed insurance premium. It offers the doctor unlimited income on a fee-for-service basis. Obviously, there has to be peer review to prevent bankruptcy, just as there has to be an insurance pool in the middle. Of course, there must be a qualifying phrase when you talk about "unlimited" care and "Unlimited" physician income: It's unlimited if it's "necessary and reasonable." It's also limited if you run out of money.
Q. That seems to be pretty clear, but how does it get mixed up with the Bennett Amendment?
A. The Senate Finance Committee was very impressed with the Sacramento, Peer Review Plan, and the Bennett Amendment would make a similar nationwide plan. Senator Bennett noticed that, while you can't have prepayment without peer review, you can have peer review without pre-payment. So the paradox: there might be a great many foundations which limited themselves to peer review.
Q.What are the plans of the Pennsylvania Foundation?
A. The Pennsylvania Foundation has to go through some procedural steps before it can do anything, and it will not be ready to operate until the October 1972 meeting of the House of Delegates of the Pennsylvania State Society. At about that time, it ought to be ready to respond to whatever legislation is passed, whatever peer review contracts the hospitals sign with Blue Cross, and whatever spontaneous demand there is for peer review.
Q. What about the prepayment function of the Foundation?
A. It seems likely that this aspect will be slower to develop, although you can't be sure. This is an election year, and the Democratic State administration in Harrisburg gives signs of developing legislation affecting health delivery system. Since the history of foundations has been that they are a defense of the private practice, it seems likely that they will flourish to whatever degree that private practice feels threatened. There are a number of closed-panel pre-payment groups trying to start up in Pennsylvania. Probably the private practitioners in their neighborhoods will be the ones most interested in the foundation approach. The legal and administrative mechanism will be available if they are wanted.
Q. If the various government authorities don't raise problems, will that end the insurance matter?
A. Possibly, You have to ask yourself how much the public wants pre-paid medical care. The argument goes like this: The average citizen may want to budget his health expenses, having them deducted from his health expenses, having them deducted from his pay-check or however another manner. A pre-paid comprehensive health program allows the subscriber to spend his residual income without worrying about a rainy day. No doubt this argument has some attractiveness to some average citizens, but whether it has enough clout to overcome suspicions and conservatism is open to question.
A more serious stimulus might just come from industry, as surprising as that may sound. You will recall that may sound. You will recall that Blue Cross got its big push during the wage freeze of World War II. The industry was not allowed to raise wages, so it gave fringe benefits. This was the wage equivalent of a black market when labor was scarce. Well, we have another wage freeze today, as of course, you know.
Q. Would it be fair to call the foundation a contingency plan?
A. It might be accurate, but it wouldn't be fair. It takes an enormous amount of time and money to get a foundation organized. You don't make that sort of investment in a solution unless you think there is a reasonable danger that you will develop the problem it would solve. Rightly or wrongly the people active in it really think the foundation may have to be used.
Q. Well, our discussion has given me a fair idea of what the Pennsylvania Foundation for Medical Care is trying to do, but I now have lots more questions.
A. So do we.
How do you know it will succeed?
A. We were enormously impressed by a field trip to California Foundations. There are twenty-two of them, and the oldest has been running for 16 years. You never saw such enthusiastic cohesiveness among doctors as you find in the Stockton Medical Society for example.
Q. Maybe so, but how does the public react?
A. Public enthusiasm is what generates doctor enthusiasm out there, Over and over they proudly tell you of a recent subscription drive by Kaiser in the Foundation's area. Only 2% of the public signed up for Kaiser. The foundation approach is a way of presenting a legitimate alternative to closed panel threats to private practice, an alternative which the public usually prefers. The private practitioners have no need to form a union or to indulge in dubious competitive reactions.
Q. So, the foundation is a way of combating physician unions, too?
A. Let's get something straight. The foundation isn't against anybody. It merely seeks to provide an alternative for those who want an alternative. for those who want an alternative. Any doctor who wants to join the union is free to do so. We are talking about preserving legitimate options, with the faith that free competition will favor the best system. While we are on the subject of hostility, the foundation does not hamper group practice if the doctors want to practice that way within the foundation, nor does it hamper teaching hospital systems.
Q. It sounds that way to me.
A. Not at all. There is a portion of the public who wish to budget their health costs through payroll deductions or annual premiums. The Foundation sets up an insurance pool to make this possible. The foundation does not care whether the doctors are in group practices, medical schools, or solo private practice.
Q. If that's the case, what's all the fuss about?
A. There are probably only two principles on which the foundation must do or die. The first is that reimbursement is on the basis of fee-for-service at some point in the chain from subscribers to doctor. The Mayo Clinic, for example, collects fee-for-service from the patients and pays its doctors salaries. There is no objection to the doctors choosing to receive salaries as long as the payments mechanism has squeezed through the fee-for-service keyhole at some point. The second essential issue is physician domination of the foundation. We have no objection to competing with identical systems which are consumer domination, stockholder-dominated, or government-dominated. We merely wish to provide a physician-dominated alternative for those who wish to enjoy it. We have faith that a physician-dominated foundation will flourish in such open competition because we have faith that the premium will be wrong to offer the public a physician-dominated system without a free choice of systems with other types of domination. We are putting our faith in competition to achieve the greatest good for everyone, and since we are for competition, we have to have it.
Q. The foundation must have a competitor?
A. Certainly, and for a variety of reasons. First, to achieve the public image of being in favor of a free economy rather than, let us say, a non-free one. Secondly, the vulnerability of the premium. As everyone in Pennsylvania has come to realize, the insurance commissioner has to approve your premium or your request for premium increases. If you are running the most expensive system, you are apt to be badly squeezed. We are willing to risk the gamble that other plans will be more expensive. The exposure of being the only insurance scheme of this type is what is too dangerous to risk.
Q. All right, if you like the competitors so much, what's wrong with them?
A.Probably more through accident than design, the competitors have some features we would rather not embrace. Compulsory salaried practice, for example. As I mentioned, we have no objection to the group being paid fee-for-service and then paying salaries to their members. What seems objectionable to entrepreneur psychology is the use of compulsory salaries as a mechanism of cost control. Doctors on salary forgo the opportunity t work as hard as they please and thus, to make as much money as they can. Having less incentive to work, the salaried doctors have to be supervised, watched, suspected, threatened. Since most of the public receives salaries they see nothing abnormal about this, but most doctors selected medicine as a profession in order to escape it. So the entrepreneurial doctors have sort of a bargain with the public. They say they will work all kinds of ridiculous hours in return for being left alone. The converse of this is this is that universal doctor salaries lead to instant thirty-hour weeks. If you are already neglecting your family to work a sixty-hour week, you aren't very happy about the prospect of an instant doctor shortage.
Q. Why not build more medical schools?
A. Because the public won't adequately fund the schools we already have. And probably, it would be cheaper to have the doctors work longer hours than to build more schools. After all, a great deal of the overtime returns to the public as income taxes. But the foundation can't solve that issue, and we are talking about foundations.
Q. Sorry to digress. What's wrong with consumer-dominated plans?
A. From our point of view, there is nothing wrong, and I told you we need them as competitors. The flaw from the competitive point of view is that public-dominated plans are likely to be more expensive and to emphasize the wrong services. That is, they may well overspend on amenities and underspend on medical advances. It seems more likely that a doctor-dominated plan would recognize and drive toward new methods and new equipment, possibly sacrificing amenities to achieve it. It seems to me that this type of competitive tension is in the public interest.
Q. What's wrong with leaving things the way they are?
A. Not much, and it seems very likely the public will be very slow to enroll in any prepayment scheme. The public now has the choice of Blue Cross plus Blue Shield as a prepayment scheme, as well as self-insurance. By self-insurance is meant you save your money and pay your bills when they are due. A few people do what I do, which is to skip the Blues and buy a major medical plan with a low deductible.
Q. How does the foundation differ from the Blues?
A. In two ways. The first is to offer comprehensive ambulatory coverage, which includes everything done in a doctor's office, including routine check-ups. The second is to try to include the Blue Cross coverage under the umbrella of risk.
Q. Why include Blue Cross?
A. You have now touched on the most difficult issue of all. Everyone recognizes that public concern is aroused by the disproportionate rise in hospital costs. If we didn't have a cost-plus situation with Blue Cross and the Hospitals, we probably wouldn't be worried about delivery systems. By including the hospital cost in the package, we hope to provide an incentive for the doctors to reduce hospital utilization.
At the same time, it is important to recognize that the cost-plus feature of Blue Cross created some very important advantages. The first was that expensive medical advantages could be buried in the budget for later reimbursement by Blue Cross. You didn't have to fight with the insurance commissioner every time a new drug came along, or a new x-ray machine. Blue Cross completely ignored the hospital bill and paid actual costs. It was a free ticket for waste, but it was also a way of keeping up with progress.
Now, there was a second advantage to the system. It paid for expensive features which one hospital provided and another hospital didn't, but which the community in general needed. A good example would be nursing schools. If hospital A had a school and hospital B didn't, in effect hospital A was training nurses for both of them. And the cost was shared by all subscribers in their premiums, regardless of where they were hospitalized or even if they were never hospitalized or even if they were never hospitalized. You hear it said that it is unfair to make the sick patient pay for nursing education, but that isn't what happens. All subscribers pay for it in their premium, and Blue Cross distributes the money where it is spent.
Q. Yes, I just recently learned that Blue Cross does not pay hospital charges, but rather on some cost formula of its own. But why is this a problem for the foundation?
A. Because it leads to a vast difference in costs, they will very likely destroy the teaching hospitals and community hospitals. If you give the doctors an incentive to reduce hospital costs, they will very likely destroy the teaching hospitals by shifting their patients to cheaper institutions. The Pennsylvania Hospital has already announced the closing of its nursing school, and no doubt others will have to. In five years this sort of thing would totally disrupt medicine.
Q. Shouldn't the government pay for these things?
A. The nursing schools happen to be a discrete component of what we call quality medicine; no doubt you could isolate them and get federal funds even in an era of serious federal deficits. But how are we to pay for cardiac surgery? The prospect of total federal involvement in all expensive medical advances is too hideous to contemplate. There is an appalling serenity to the way a great many people are talking about this. For an era that has become alarmed about disturbing the forces of nature, this would be major pollution of medical ecology.
Q. What's to be done about it? No one wants to destroy teaching hospitals.
A. Unless you simply exclude hospital costs from the foundation package (as HIP in New York has done), two major strategies seem available. They are complicated to explain.
Q.OK, go ahead.
A. The first approach would be to recognize that a certain portion of the premium dollar isn't insurance at all, but a donation. That proportion could be put into an Education and Development Fund, which would be distributed for the purposes we mentioned, and which when exhausted could not invade the remainder of the pool for health care insurance. You still have the battle with the Insurance Commissioner when an unbudgeted medical advance appears, but at least everyone knows what is under discussion. And there is no scapegoat to hang it on.
Now, the second approach is experience rating. That's a fancy insurance term for saying that the premium will be less if all your subscribers, through experience, cost less than the standard plan. An underwriter is a person who pockets the profits in return for the risk that he will have to pay for deficits. Perhaps you begin to see that a consumer-dominated plan means that the consumer is the underwriter. And why, we believe, the physician-dominated plans will turn out to be cheaper. Because doctors are in a much better position to hold costs down.
Q. But if the doctors are the underwriters for the Blue Cross experience rating, don't they continue to have an incentive to shift their patients out of teaching hospital?
A. Yes, indeed. Although, if you isolate the education and development costs into a fund, it might not be entirely a bad thing to put pressure on the teaching hospitals to get their straight patient-care into line.
However, hospital cost accounting is so difficult that the teaching or metropolitan hospital is probably always going to cost more. A plausible solution would seem to be to divorce experience-rating from dollars and put it on a point-system of relative values. In the simplest possible terms, a ten percent reduction in patient days would result in a ten percent experience rating in dollars.
Q. How could the Blue Cross cope with a situation where there were more points than dollars? Where would the dollars come from?
A. You are assuming that the teaching hospitals are infinitely elastic and that every patient prefers them. On the contrary, the big move is from the city to the suburbs. Since the teaching beds are fixed, for every foundation patient into one of them there would have to be a non-foundation patient out of them. In the rather unlikely event that there was a net movement of all patients into teaching hospitals, only one solution is possible. The higher total cost of medical care to the community would have to be paid for by a Blue Cross premium increase. We've had them before. In this case, however, the public would be asked to pay for something it was asking for.
Q. Who asked for the recent 40% rise in Philadelphia Blue Cross premium?
A. I'm afraid we are wandering off the subject of foundations again, but let me make an example of that. Since 70% of hospital costs are personnel costs, we have to ask whether it is likely that either salary rates or the number of employees increased by 40% in two years. Since that obviously isn't the case, the Philadelphia Blue Cross situation has something special about it. That special thing was an extension of benefits to outpatients. The idea was that paying for x-rays and lab for outpatients would reduce the incentive to hospitalize. There was in fact no subsequent decrease in hospital admissions, and the out-patient benefits killed the Blue Cross finances. This experiment was mandated by the Insurance Commissioner of Pennsylvania two years earlier (Mr. Denenberg predecessor).
The whole thing illustrates the pollution-of-the-ecology theme. We are all in the medical space-capsule together, and we must all involve ourselves in disturbances of the environment by anybody. There is nothing for anybody to gain by slandering the closed-panel groups, the teaching hospitals, the full-time doctors, or the American Hospital Association. To the degree that we get polarized, we are going to lose the atmosphere of goodwill which is essential for everyone's survival.
Q. That sounds like a good curtain speech to me, but I have some more questions.
A. I can take it if you can.
Q. You haven't' talked much about peer review.
A. . Maybe not, but perhaps you can see why effective peer review is absolutely essential to the financial survival of the foundation, and the public will like that. Conversely, the risk feature of the insurance plan is a big help to peer review. One of the great surprises of the visit to California was to find how little friction the peer review system generated among the doctors subject to review. They had a very good reason to want effective peer review (on others, of course) and so they acquiesced to it for themselves. After all, the best way you have of knowing that the others are under control is to see how review touches your own practice.
Doctors commonly share the suspicion that, while their own practices are clean, there are a lot of other guys who may be abusing things. I happen to believe that there is a very minor degree of conscious abuse at the present time in Pennsylvania and that an effective peer review mechanism will prove it. If the reviewer isn't finding much abuse, he has to be quite an egomaniac to create much friction. We have a few doctors of that variety, of course, but we can cope with them. What we can't cope with is an enormous book of rules and regulations formulated by people remote from the problems. The methods and procedures of peer review can change with the times, but they need to meet only one standard: keep the premium cheaper than Kaiser. If the salaried systems, with their rulebooks and time clocks, can't keep their costs under control, you have demonstrated all that the public wants to know. Everybody in the foundation then gets a year-end bonus, and please keep out of our hair.
Q. Are the . unions going to let you get away with this?
A.You seem to need to learn what Mr. McGovern discovered: organized labor has become pretty conservative lately. Surprisingly, one needs to be a little concerned about big corporations. When a company gets bigger than a certain size it is run by managers, not entrepreneurs. Many of them had Mr. Kenneth Galbraith as a stimulating teacher. My hunch is that the fear of higher taxes is what will make friends of the corporation managers, not a commitment to free competition. The unions are beginning to see that closed panel groups have some of the features of a company store.
Q. What future would you personally like to see?
A. Like every other doctor, I wish the whole problem would go away and let me tend to my patients. Maybe the international money crisis will divert the government to other concerns. But very likely the pre-payment idea will slowly gather a small constituency, and I believe the public is entitled to choose pre-payment if it likes. I would hope that we could depolarize the consumer-dominated and doctor-dominated plans. Since you are entitled to dominate to the extent that you are at risk, I would hope that we can devise intermediate situations between all-or-none. (Again, allowing for the free option of all-or-none for those who want all, or none.)
109 Volumes
Philadephia: America's Capital, 1774-1800 The Continental Congress met in Philadelphia from 1774 to 1788. Next, the new republic had its capital here from 1790 to 1800. Thoroughly Quaker Philadelphia was in the center of the founding twenty-five years when, and where, the enduring political institutions of America emerged.
Philadelphia: Decline and Fall (1900-2060) The world's richest industrial city in 1900, was defeated and dejected by 1950. Why? Digby Baltzell blamed it on the Quakers. Others blame the Erie Canal, and Andrew Jackson, or maybe Martin van Buren. Some say the city-county consolidation of 1858. Others blame the unions. We rather favor the decline of family business and the rise of the modern corporation in its place.
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.
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