## The musings of a physician who has served the community for over six decades

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The way to make certain you have enough -- is to have too much.

### Lifetime Insurance: Deriving National Health Costs Indirectly.

It's traditional to estimate future health costs by listing the ingredients of cost, then adding them up. How many physicians do we need? How many hospitals? What diseases will have expensive cures, which ones will disappear entirely? And so on. For a century these questions have produced a single answer: It is impossible to foresee the volume or price of ingredients, so it must be impossible to predict overall costs.

Footnote:That isn't quite the case however. Since third-party payers were placed in the middle of the transaction, and particularly after electronic computers arrived, piles of payment data made analysis irresistible. That approach was soon discredited when everyone with a computer found the increased volume of the wrong data never compensates for its lack of relevance. The watchword became GIGO, garbage in, garbage out. Expanding the dataset with large volumes of medical data is a dream lingering on, but eventually runs up against a new stone wall. It makes no sense to shift the clerical data-entry burden to a physician, the most expensive employee in the system. Although the Affordable Care Act mandates something close to that, it is safely predicted it will restrain the impulse when the cost is fully appreciated. Meanwhile, the utility of just applying more advanced mathematics to simple data opened up a vista of revising the health insurance system. In a sense, this book is a product of that sort of thinking. Its difficulty is a radical idea can be developed in six months, but it may take decades to judge if it had the predicted effect.

Let's start with the final answer to the test. In the year 2000 dollars, the average American spends an average of \$325,000 on health care in a lifetime. Women spend about 10% more than men. To ensure the whole lives of 340 million Americans, the cost would be trillions of dollars. That's 110,500 trillion, in fact, give or take a few trillion, or 110 or whatever is one thousand times bigger than a trillion. These mind-boggling figures were developed by Michigan Blue Cross from its own data and confirmed by several federal agencies. By the end of this book, we will have suggested it should be possible -- to cut that figure in half. It is entirely legitimate to be skeptical, since a ninety year lifetime involves a great many diseases we don't see anymore, afflicting many people who would have been readily cured with present medications except they weren't yet invented. It would involve predictions about the health costs of people who are still alive, destined to be treated with drugs we don't yet have. It is roughly estimated that fifty percent of the drugs now in use, were not available seven years ago. Since we have to go back ninety years to get the data about the childhood illnesses of our presently oldest citizens, the unreliability of looking ninety years forward from 2014 is pretty clear. But some things change slowly, so the problem is how to select.

The value of these calculations is considerable, nonetheless. They give us a technique which the statistical community agrees is reasonable, which tells us lifetime insurance would require something like \$300,000 per person. Future trends can be calculated, indicating whether costs are going up or down, and roughly by how much. When you consider they had to account for inflation, you begin to appreciate the achievement. A penny in 1913 money is worth a dollar today, just for illustration. Naturally, we then assume a dollar today will be worth 100 dollars, a century from now. Regardless of numbers games, we have an accepted tool to estimate the general magnitude of health costs, and by how much they will likely change. It's useful, even if its answers are appalling.

Indeed, at first, the health insurance industry skipped the computer details and invented "Risk Adjustment", essentially just basing next year's premium on last year's results. If future medical care changes direction drastically, its payment system might be forced to change. But if health care doesn't change much, the payment system won't need to predict the future. That reasoning reflected the insurance industry's own history, where the marketing department eventually asserted dominance over the actuaries, by declaring it was more important to predict usefully, than with precision. With increasing longevity, all life insurance has to be like that.

The approach has its limits. Insurance did underestimate how much the payment system could warp the medical one over long periods because it gradually misjudged who its customers were. Payment methodology was relentless in affecting its true customers, who were businessmen in the human relations departments of large corporations. Looking back over an expedient system designed for short-term goals, a shocking realization dawns: most current "reform" thinking is about how to twist the medical system to fit some unrelated budget. Even more shocking is that the business customers discovered how modified tax laws could let them buy health insurance with a sixty-cent business dollar. When passed to the employees, another 15 or 20 cents could be clipped off.

Gradually we reach the point of rebellion; if it is legitimate for insurance executives to tell physicians how to practice medicine, it must be equally legitimate for physicians to re-design the payment system. So let's have a go at it.

Footnote: In the thirty years since I wrote The Hospital That Ate Chicago about medical costs, the newspapers report physician reimbursement has progressively diminished from 19%, to 7% of total "healthcare" costs, so perhaps now it's legitimate for some other professions to answer a few cost questions, too.

As patient readers will gradually see, considerable extra money is already in the financial system, leaving difficult problems of how to get it out and spread it around. This isn't snake oil or a mirage. The beneficiaries would scarcely see any difference in medical care if Health Savings Accounts fulfilled their promise. But frankly, the insurance providers would have to make some wrenching changes. Since millions make their living from the present system, it is undoubtedly harder to design a new system which would please them.

Medical care now costs 18% of Gross Domestic Product (GDP) and 18% is pretty surely crowding out other things we might prefer to buy. In a sense, the political beauty of the premium-investment proposal we are about to unfold lies in its primary aim of only cutting net costs by adding new revenue.

### Lifetime Health Insurance: General Idea Behind the Proposal.

Let's get more specific than GDP, which is a pretty vague concept. A new primary goal of the Lifetime Health Savings Account proposal is to collect interest on idle insurance premiums, as has been done for decades whenever whole-life insurance replaces one-year "term" life insurance. If the recovered money flows to the management, it increases profits. If it goes to lower prices, the recovered money flows to the consumer. Since this tension always exists between the two counterparties, the final direction of funds-flow begins with subtle differences in the whole design of the insurance, made right at the beginning of the program.

The longer we wait to make drastic changes, the more difficult they become, and more proof of benefit will be demanded. In the proposed case of switching health insurance from term insurance to whole-life, almost a century of health insurance development is threatened. But remember, the past fifty years have seen plenty of dissatisfaction come to the surface, only to be dashed by a (generally correct) opinion that the gain was not worth the pain; the old system was working better than the proposed one. So this time, let's start in advance with establishing a monitor center where our control data is extensive -- the cost of terminal illness in the last year of life. It happens that every American has Medicare, and every American must some day die. It also happens that nearly everybody who dies does so as a Medicare recipient. Not quite, but in a population of 350 million people, it's close enough for information needs. Conversely, in a population this large, enough people of younger ages will also die; so we could still extrapolate what difference our proposals are making to costs, for the beneficiary to have attained almost any age. At least then, the public could base its opinion on what is currently happening, and actually happening, instead of having to rely on the anguished pronouncements of political candidates.

Footnote: An experience forty years ago makes me quite serious about this monitoring issue. While I was on another mission, I discovered that Medicare and Social Security are on the same campus in Baltimore, with their computers a hundred yards apart. So I proposed to the chief statistician that the Medicare computers contained the date and coded diagnosis of every Medicare recipient who had, let's say, a particular operation for particular cancer. Meanwhile, the Social Security computer contains the date of everybody's death, with the Social Security number linking the two data sets. So, why not shuffle one data set against the other, and produce a running report of how long people are living, on average, after receiving a particular treatment or operation. He merely smiled at the suggestion, and I correctly surmised he had no intention of following up on it. This time, I resolved to write a book about it, and see if that has more effect.

### SOME BASIC QUESTIONS

No matter what payment system we use, the accounting system has to be clear on a few facts. For example, who produces revenue, who gets subsidized? At least in the healthcare system, it is unwise to assume that everyone pays for what he spends. Even if he does, he may well pay at one age and receive subsidies at other ages.

Answering the revenue question starts out pretty easy, but quickly gets harder. Children under roughly age 25 are subsidized by their parents, and retirees over 65 are living on their pensions and savings. Working people, roughly between the age of 25 and 65, are paying for the entire medical system, directly or indirectly, even though the money comes from the employer, who controls the terms through health insurance family plans. Legally speaking, parents are making an untaxed gift to their children when they pay for the child's healthcare bills. But it often gets further muddled by divorce and orphaning, and divorce at least is getting pretty common. For our purposes here, it is unnecessary to get into biological and legal complexities, to make a broad statement: the whole medical system is in some way supported by people with a paycheck, who are therefore aged 25 to 65. That's the healthiest component of society, so it can be increasingly unstable to base healthcare costs on family values, in a divorce-prone society, further clouded by payment of insurance by employers. Because of the tax laws, employers intrude their wishes, and may sometimes act as pawns for labor unions. But even with all this intrusion, society seems to feel the parent or parents are the best overseers of the kind of healthcare to use for all three living generations, even though effective employer and government control is perilously close to the surface. To some extent, this may reflect the fact that every sick person could become dependent on the assistance of others, and to that extent needs their consent. An employer-based health insurance system may not be the best, so the looser the family control, the more unstable employer-basing may become. Nevertheless, it is also reasonably accurate to say the upper limit of healthy revenue is ultimately traceable to people 25 to 65 and is probably going to remain that way.

Footnote: For children, medical costs can usually be traced to some sort of gift or loan from the pool of working people. And in a general sense, the revenue which pays for Medicare beneficiaries is also indirectly derived from the pool of working people, in this case, themselves at a younger age. In the case of divorce, should the new father or the actual father be assigned these costs? It might simplify things if childhood costs were assigned to the mother. This is the sort of issue we assign to judges in the Orphan's Court, but there is an even more perplexing issue: what do we do with the costs of a pregnancy, share it one way, two ways, or three? If there is a reimbursement, who should get it? Is that a cost to the child, leading to a debt to the mother, or is pregnancy a cost to the mother, unshared by the child? It was not so long ago that all pregnancy costs would have been legally assigned to the father. From the way things are going, it looks as though the insurance ought to regard pregnancy costs as a cost of the child, with a loan or gift coming from one or both natural parents. But in reality, the legislature or the Congress will make the best decision it can, and tell the insurance company what they decided. In considering it, the Congress or Legislature might remember that insurance companies have generally preferred to use family-plan insurance, reimbursing whoever paid for the family insurance at the workplace; and thus it gets back to the employer, even though that is not a socially useful outcome.

Since we confess we are here trying to demonstrate how universal lifetime Health Savings Accounts might support the whole system, let's skip over the sensitive issues and temporarily agree to impose the revenue limits of the maximum HSA deposits permitted under present law. Anyone 25 to 65 are permitted to contribute \$3300 a year to a Health Savings Account. They are also permitted not to contribute that much or even anything but suppose for present purposes that everybody did. Ignoring any periods of illness or hardship, the average person is therefore permitted to contribute a maximum of \$132,000 in a lifetime. Suppose for further example sake, there is no other source of medical revenue. Would that amount of money suffice to carry the entire nation's health costs, from cradle to grave? To that, the astounding but gratifying answer is a qualified Yes. So with that mildly reassuring news, let's look at the issues related to selecting a new HSA account.

Tax Exemption First of all, every bit of HSA deposits, both contributions, and compound income. is tax-exempt to the individual owner. That immediately makes it possible for anyone to claim the discriminatory tax exemption for health costs which Henry Kaiser devised for employees of profitable corporations. True, unless it is contributed by an employer, employer deductions are still omitted, although that is a separate issue. Big solvent business employers can take a 60% corporate tax deduction in addition to what the rest of us non-employees have been denied for seventy years, by purchasing HSAs for employees. If the employer is already struggling to meet the payroll, of course, he won't do it. Extending this deduction to HSAs makes employers more likely to offer them, although the present confused state of the employer mandate under the ACA makes it uncertain. To a certain extent, it continues to be unfair to confer such a huge tax advantage to a corporation based on the number of employees it has, although even this feature can be overlooked during periods of high unemployment.

A related mathematical issue is that a deposit when you are young is much more valuable than the same deposit later. Since young people are relatively healthy, while older ones are relatively sick, a deposit by a young person has many decades to grow before it is used for health care. True, young people have colleges and cars and houses to compete for their savings but just listen to this: If it were allowed by the fund managers, you could pay for a 90-year lifetime with a deposit of less than \$100 at birth. The contrast is so staggering, that even raging hormones cannot compete with it in any rational analysis. Therefore, pay for administration and trivial medical expenses from some other account (in order to build this tax-sheltered one up), whenever you can do so without running up high-interest charges. By the same reasoning, discounted tax-exempt bonds might lock it up until an investment manager would charge reasonable fees to manage it as a fair-sized HSA. But let's not exaggerate. The main financial differences between an HSA and an IRA, are that an HSA is tax-exempt when you withdraw it for health purposes, whereas the IRA has a top limit of \$6000 (for persons over age 50, \$5000 below that age), not \$3300, for annual contributions. The big obstacle is that IRA contributions are limited by the amount of money paid by an employer in that year, something a newborn obviously cannot match. Therefore:

(Proposal 7a) Waive the limit to annual HSA contributions for underaged subscribers, for single-premium contributions of less than a thousand dollars. While resistance to this provision might focus on class distinctions, the subsequent benefit to Medicare and/or Medicaid might ultimately be so large as to overcome it.

Portable, without Job-lock. No matter where you move, or where you work, this fund moves with you. Or leave it where it is, and communicate by mail.

Individually owned and selected. If you don't like one advisor or his results, choose another.

Investment Control. Here, we advise caution. If you surrender control of investments, there is some danger the broker could select an investment that gives him a kickback. Although they should be, stockbrokers are not fiduciaries. A common overcharge is an excessive commission for liquidating withdrawals, which ought to be no more than \$7.50 per trade. Your goal should be to get a 10% annual return, safely, before making withdrawals to pay medical expenses, which will be discussed separately. (Unless you control fees, or deal with a fiduciary, you will be lucky to get 1%) Even during an economic recession with negligible interest rates common stock total return is 5%, and a recession is an especially good time to buy stock and hold it, where 30-50% becomes conceivable. In a tax-exempt fund, ignore dividends. Buy and hold, is the thing, with no commissions above \$10 a trade (either buy or especially on sale), highly diversified for safety, index funds of common stock. Either hold back a little cash for medical issues or pay small medical bills with other funds. At least until you are sixty, try not to spend HSA money unless you have no other source of funds.No advice is absolute, but the reasoning behind this little homily appears in other sections of the book.

(Proposal 7b) Limit eligible investment agents who handle HSAs to legally defined fiduciaries. Needless to say, the brokerage industry will oppose this, and should be asked if they can suggest alternatives.

Pooling of funds. Pooling is what you only partially get with the present H.S.A as provided by present law. The law requires that an H.S.A. be accompanied by a high-deductible or "catastrophic" health insurance, which is expected to pool the experience of subscribers. But really suitable low-cost high-deductible policies are not provided by Obamacare. For cost comparisons, we initially pretend that you do not have Catastrophic re-insurance, although in real life and for the present, the best available alternative is the Bronze plan. For outpatient expenses, you are expected to pay out of your own funds, or else draw on the H.S.A. to cover them. When the law was written, the big expenses were hospital expenses, but the prepayment system enacted in 1983 limited their profitability, so hospitals have tended to shift from inpatient toward outpatient care where profits are more unconstrained. There was a time when fixing hernias and removing gall bladders as an outpatient was unheard of, but that has changed, so a pooling system for outpatient costs would be a desirable addition. There might be plenty of money in this approach which could be pooled, but a comfortable average will still be disrupted by an occasional high-cost outlier. For example, major auto accidents might run up a very high accident room cost which would not be covered, even though the average was well in surplus. A credit card would cover such eventualities, but their interest rates are high, and it might be better if investment houses provided loan funds for this purpose at a lower cost. If you must borrow, liquidate the loan at the earliest possible moment.

Compound Investment Income. Here, we have the heart of the whole arrangement. It's not a bonus, it is the source of the new revenue to pay for burdensome health care expenses. Call it the Ben Franklin approach, that allowed him to retire at the age of 41 and live comfortably for another forty years. John Bogle's discovery of buy-and-hold index fund investing is safe and effortless. It makes it unnecessary to rely on a high-commission stock picker to achieve first-class results. So trust, but verify. If you are prudent, a cash deposit of \$132,000 spread over 40 years, can pay for \$325,000 of lifetime health care, the present national average. That's not exactly free, but it represents an average saving of \$192,000, multiplied by 350 million people, which seems to mean \$68 trillion in health revenue released for medical use. These back-of-the-envelope calculations are so dizzying that, pick all the nits you please, and the same conclusion would emerge. We'll return to that after going into more description of how the proposal should work.

Caution About Averaging. Remember, it does you no good at all to have \$10 in your account and receive a bill for a \$1000. That is just as true if the national average of HSAs contains \$50,000, which unfortunately isn't yours. Money to pay your bill is in the system, but you can't get at it. The first thing to point out is that the national curve of health accounts shows most expensive illness takes place after the age of 60, when chronic diseases and terminal disease makes an appearance, and where funds in HSAs ought to be ample. Therefore, you are cautioned to pay medical bills from any source of money you have, in order to avoid depletion of the HSA later in life, when it really ought to have money to spare. And within reason, even borrowing (short-term, and at low-interest rates) is usually better than depleting the account for diseases that won't kill you soon. Since most high medical bills are caused by hospital care, the catastrophic insurance requirement was added. Ordinarily, that feature has been fortuitous, but the migration to outpatient surgery caused by DRG payment is threatening, and the inflation of normal outpatient prices, as well as monopoly new-drug pricing, threaten to upset the payment system before it can adjust. Short-term loans from a premium pool, or else a new layer of semi-catastrophic insurance inserted between the two existing classes appear to be a coming necessity. In the meantime, short-term borrowing at what we hope are bearable rates, seems to be the only available expedient.

### SOME BRIEF EXAMPLES, EXPLAINING LIFETIME HSAs .

HSA and ACA BRONZE PLAN: A FIRST LOOK. Although a catastrophic high-deductible plan must be attached to a Health Savings Account, and the Affordable Care Act provides a catastrophic category, those plans are not available after age 30 except in hardship cases. Therefore, at the present writing, it is necessary to select the plan with the highest deductible and the lowest premium, which happens to be the Bronze plan. "Lifetime" coverage with this, the cheapest ACA plan, would amount to \$170,000, or \$38,000 more than the most expensive HSA allowed by law. That's about a 22% difference. And furthermore, the bronze plan does not allow for internal investment income accumulation, which could amount to five times the actual premium revenue if held untouched until the end of projected life expectancy.

A more conservative analysis would end at age 65 because that is where the Affordable Care Act presently ends. Stopping the investment calculation at age 65 would lead to the same \$170,000 for the bronze plan, compared with an adjusted price of HSA of \$132,000, less a 6.5% gain of \$xxxx, or \$xxxx. To be fair about it, the gain would have to be adjusted for inflation, which at 2% would amount to \$xxxx, an xx% difference. Let's make a more dramatic assertion: The difference between the most expensive HSA and the cheapest Bronze plan would be \$xxxx. In a minute we will discuss the reasoning applied to Medicare, but it will show that a deposit of \$80,000 at the 65th birthday would pay for the entire average lifetime of twenty years as a Medicare recipient. In a manner of fast talking, you get a lifetime of Medicare coverage free, somehow buried within the HSA approach. That's an exaggeration, of course, but at a quick glance, it could look that way. We haven't accounted for Medicare payroll deductions or premiums. Or government subsidies. And we haven't depleted the fund for the medical expenses it was designed to pay.

HSA AND MEDICARE. Medicare Part A (the hospital component) is free, and the system while generous, is pretty ramshackle. Furthermore, it isn't free, since it collects a payroll tax from working people, and collects premiums from the beneficiaries. Almost no one understands government accounting, but it has the unique feature that its debts are often described as assets. That is, transfers from another department are assets, so money which is borrowed, from the Chinese, let's say, is placed in the general fund and transferred internally, so such debts are assets. And the annual report (available from CMS on the Internet) shows that 50% --half-- of the Medicare budget is such a transfer asset, otherwise known as a subsidy. Medicare is a popular program because a fifty percent discount is always popular; everybody likes a fifty-cent dollar. Unfortunately, the elderly Medicare recipients perceived the Obamacare costs were underestimated and became suspicious Medicare would be raided to pay for it. Therefore, every elected representative regards Medicare as the "third rail of politics" -- just touch it, and you're dead.

THE OUT-OF-POCKET CAP FUND. The Affordable Care Act contains two innovative insurance ideas for which it should be given full credit: the electronic health insurance exchanges which unfortunately caused such havoc from poor implementation, nevertheless have great potential for reducing marketing costs with direct marketing, and should be given full credit. And secondly, the cap on out-of-pocket payments is really a form of reinsurance without the cost of creating a re-insurance middleman. It is this which is the present focus. Three of the "metal" plans have deductibles of about \$6000, and two of the plans have \$6000 caps on out-of-pocket cash expenses by the beneficiary. How these two features will be co-ordinated is not yet clear, and does not concern the present discussion.

The point which emerges is the original Health Savings Account was based on the concept of a high deductible, matched with enough money in the fund to pay it. Effectively, it provided first-dollar coverage without the cost-stimulating effect, and experience in the field showed it worked out that way. However, the forced match of HSA with one of the metal plans interfered to some unknown degree with the comfort of virtual first-dollar and the cost reduction of a psychological high deductible. The premium is higher, because an increased volume of small claims is covered, and may be exploited. And an increased pay-out means less cash is available for investment. The result could be either higher costs or lower ones. And therefore, the idea arises of a single-payment fund of initially \$6000, deposited at age 25 (Since that might well be a hardship for many young people, an additional feature is required). But the power of compound interest is such that this reserve would eventually become seriously overfunded. If the hypothetical client deposited \$6000 at age 25, he would have accumulated \$80,000 from this source alone. That's enough so that if it were paid to Medicare on the 65th birthday, it would pay for Medicare for the rest of the individual's life. But since it would not be needed from age 50 to age 65, further compounding (at the arbitrary rate of 6.5%) to \$320,000 or some such amount, at age 65. Therefore, the following uses can be envisioned: ( 1.) Lifetime health insurance without premiums after 65. (2.) Since Medicare premiums would not be required, the Medicare premiums would not be required and should be waived. Money which flows in from earlier payroll deductions could be diverted to paying off the Chinese Medicare debt. (3.) We have glossed over this matter, but everyone was born at someone else's expense and should pay off his debt for the first 25 years of his own life. (4.) If circumstances permit, the client should be able to transfer \$6000 to other members of his family for the same funding as he got it. (5.) Surpluses might persist in exceptional circumstances, and the option to supplement his own retirement funds might be offered. Eventually, it seems inevitable that the premiums for "metal" plans would be reduced.

At the very least, one would hope that this dramatic example of the power of compound investment income would encourage wider use of the principle.

### How Certain Numbers Were Derived

These are important numbers to know, but difficult for most people to understand what they mean. That will, of course, depend on how they are derived, a subject of much less interest to many people. Therefore, the more controversial numbers are discussed in this chapter, which the reader may skip if he chooses.

### WHAT IS THE AVERAGE LIFETIME HEALTH CARE COST, PER PERSON, AT PRESENT RATES?

Most people in the past did not live as long as they do today, so the "average person" is a composite of older people who had illnesses as children which we seldom see today, plus some who may well live beyond recent expectations, but who live beyond the age of death of their parents. One surmises this tends to include among "average" some or many hypothetical people who had both more illnesses as children, and who will have more illnesses as retirees. This would lead to an average with more illness content than the future likely contains.

Prices in the calculation have been adjusted to 2000 prices, slightly less than in 2014. Furthermore, there has been a 2% inflation adjustment, which reflects that a dollar in 1913 is now worth a penny, so we expect the penny to be worth 0.0001 cents in 2114. It is hard for most people to wrap their heads around such calculations. There is a \$ 25,000-lifetime difference between the sexes, but the highly hypothetical result is this statement: The Average Person Can Expect Lifetime Health Costs of \$325,000. Since most assumptions lead to an overestimate of future real costs, this number is conservatively on the high side. Comparatively few people would think they can afford that much. That is, plenty of people are going to feel stretched to adjust their savings to that level of inflation. It's the best estimate anyone can make, but by itself alone it seems to justify organizing a government agency office to match average income with average expenses, and to make the ingredient data widely available to many others outside the government on the Internet, to maximize the recognition of serious errors, unexpected financial turmoil, the development of new treatments, and changes in disease patterns. Inevitably, these calculations will be applied to other nations for comparison, but that is a highly uncertain adventure.

### HOW DO YOU CALCULATE CHILDREN'S HEALTH COSTS?

Like Archimedes announcing he could move the World if he had a long enough lever and a place to stand, accomplishing this little trick could arrive at impossible assumptions. Our basic assumption is that paying for your grandchildren is equivalent to having your parents pay for you, even though the dollar amounts are different. It's an intergenerational obligation, not a business contract, and you are just as entitled to share good luck as bad luck when the calculation is shaky at best. Since children's costs are relatively small, little damage is anticipated from taking present costs, adjusted for inflation, for both past and future.

Is it reasonable and/or politically possible to lump males and females together, when females include all the reproductive costs, and have a longer life expectancy? How do we apportion the pregnancy costs between mother and child, with or without including the father? What is fair to those who have no children? What costs do we include as truly medical? Sunglasses? Plastic Surgery? Toothpaste? Dentistry? The recent hubbub about bioflavonoids threatens to convert what was mainly regarded as a fad, into a respectable therapy for allergy. When allergists and immunologists agree it is a fad, you don't pay for it; if substantially all of them think it is medically sound, pay for it. The opinion of the FDA informs the profession, it does not substitute for that opinion. Quite aside from cost issues, all of these issues affect the statistical ground rules, and may not have been treated identically among investigators. Unverifiable 90-year projections must be thoroughly standardized to be useful, and that's one committee I shall be glad to avoid because I do not believe the improved accuracy is worth the dissention. When somebody discovers a cure for cancer or Alzheimers, rules may have to be revised, net of the cost of the treatment, and net of the increased longevity. Government accounting, private accounting, and non-profit accounting are three different schools of thought for three different goals; when a government borrows outside of its accounting environment to reimburse providers of care, misunderstandings of the "cost" consequences result, in the three definitions of medical costs. In short, only broad qualitative trends can be credible at the moment.

### CRUCIAL FINAL QUESTION: FUNGIBILITY (Shifting money around)

Some of the foregoing examples are lurid, and perhaps a little dramatized for effect. But the effect of compound investment income is so impressive, that there really is a little question there is plenty of money to do just about everything which needs to be done in health financing. The problem, however, is how to get enough money to pay the right bills, at the right time. The temptation to steer the money into the wrong places has been present since Isaac and Esau, and while the pooling principle of insurance (and government) solves that problem, excessive use of that flexibility is what mainly got us into the present mess. The intrusion of government can be traced to the "pay as you go" system, which amounts to paying long-term debts with current cash flow. This money has been present right along, but political considerations created pressure to begin the government system, right away, and for everyone right away. The citizens are partly responsible since they have taught politicians they must respond to people taking off their shoes and pounding the table with them. So, yes it's true that compound interest gives an advantage to frugal people, and to some extent to people who are already prosperous. But egalitarianism doesn't justify refusing to do what is in the general interest of everyone. We are currently in a pickle because we took egalitarian short-cuts in 1965, and have preferred to borrow money for healthcare, ending up paying many times what we need to pay, rather than yield to mathematical principles discovered by Euclid, or perhaps it was Archimedes.

But while Health Savings Accounts, individually owned and selected, have more investment flexibility to take advantage of the necessarily higher returns of the private sector, and the flexibility to choose superior investment techniques as they are invented, and the flexibility to adjust to personal circumstances rather than universal absolutes,-- they lack the flexibility to pool resources between different persons and times. Perhaps this flexibility could be extended to whole families since there are shared perplexities of pregnancy, age group, and divorce which must be addressed in a communal forum, and perhaps churches or clubs could fill that role. But in our system sooner or later you get mixed up with a lawyer, judge or investment advisor. And therefore must contend with moral hazard and disloyal agents. By this time, I hope we have learned the weaknesses of that new branch of government, the government agencies. As Adlai Stevenson quipped, "It used to be said, that a fool and his money are soon parted. But nowadays -- it could happen to anyone."

So I recognize that although some people in a Health Savings Account system will have barrels of money, while others will be desperately in need, the fact that on average there is plenty of money to fund everybody isn't quite good enough. Somewhere a pooling arrangement must be created, and the fact that the people running it will be overcompensated must be shrugged off as inevitable. But since the people who trust it will be fleeced, they might as well be the ones to create or select it.

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### How Do I Pay My Bills With These Things?

To summarize what was just said, on the revenue side of the ledger, we noted the evidence that a single deposit of about \$55 in a Health Savings Account in 1923 would have grown to more than \$300,000, today in the year 2014, because the economy achieved 10% return, not 6.5%. Therefore, with a turn of language, if the Account had invested \$100 in an index fund of large-cap American corporate stock at a conservative 6.5% interest rate, it might have narrowly reached \$6000 at age 50, which is re-invested on the 65th birthday, would have been valued at \$325,000 at the age of 93, the conjectured longevity 50 years from now. No matter how the data is re-arranged, lifetime subsidy costs of \$100 can be managed for the needy, the ingenuity of our scientists, and the vicissitudes of world finance-- within that 4% margin. We expect that subsidies of \$100 at birth would be politically acceptable, and the other numbers, while stretched and rounded, could be pushed closer to 10% return. Much depends on returns to 2114 equalling the returns from 1923 to 2014, as reported by Ibbotson. At least In the past, \$55 could have pre-paid a whole lifetime of medical care, at the year 2000 prices, which include annual 3% inflation. An individual can gamble with such odds, a government cannot. So one of the beauties of this proposal is the hidden incentive it contains, to make participation voluntary, and remain that way. No matter what flaws are detected and deplored, this approach would save a huge chunk of health care costs, even if they might not be stretchable enough to cover all of it.

And if something does go wrong, where does that leave us? Well, the government would have to find a way to bail us out, because the health of the public is "too big to fail" if anything is. That's why a responsible monitoring agency is essential, with a bailout provision. Congress must retain the right to revert to a bailout position, which might include the prohibition to use it without a national referendum or a national congressional election.

This illustration is, again, mainly to show the reader the enormous power of compound interest, which most people under-appreciate, as well as the additional power added by extending life expectancy by thirty years this century, and the surprising boost of passive investment income to 10% by financial transaction technology. The weakest part of these projections comes in the \$300,000 estimate of lifetime healthcare costs during the last 90 years. That's because the dollar has continuously inflated a 1913 penny into a 2014 dollar, and science has continuously improved medical care while eliminating many common diseases. If we must find blame, blame Science and the Federal Reserve. The two things which make any calculation possible at all, are the steadiness of inflation and the relentless progress of medical care. For that, give credit to -- Science and the Federal Reserve.

Blue Cross of Michigan and two federal agencies put their own data through a formula which creates a hypothetical average subscriber's cost for a lifetime at today's prices. All three agencies come out to a lifetime cost estimate of around \$300,000. That's not what we actually spent because so much has changed, but at such a steady rate that justifies the assumption, it will continue for the next century. So, although the calculation comes closer to approximating the next century than what was seen in the last, it really provides no method to anticipate future changes in diseases or longevity, either. Inflation and investment returns are assumed to be level, and longevity is assumed to level off. So be warned.

The best use of this data is, measured by the same formula every year, arriving at some approximation of how "overall net medical payment inflation" emerges. That is not the same as "inflation of medical prices" since it includes the net of the cost of new and older treatments and the net effect of new treatments on longevity. Therefore, this calculation usefully measures how the medical industry copes with its cost, compared with national inflation, by substituting new treatments for old ones. Unlike most consumer items, Medicine copes with its costs by getting rid of them. Sometimes it reduces costs by substituting new treatments, net of eliminating old ones. It also assumes a dollar saved by curing disease is at least as good as a dollar saved by lowering prices, and sometimes a great deal better, which no one can measure. Our proposals therefore actually depend on steadily making mid-course corrections, so we must measure them.

Our innovative revenue source, the overall rate of return to stockholders of the nation's largest corporations, has also been amazingly steady at 10% for a century. National inflation has been just as non-volatile, and over long periods has averaged 3%., perhaps the two achievements are necessary for each other. Medical payments must grow less than a steady 10%, minus 3% inflation, before any profit could be applied to paying off debt, financing the lengthening retirement of retirees, or shared with patients including rent seekers. But if the profit margin proves significantly less than 10%, we might have to borrow until lenders call a halt. No one can safely say what the two margins (7% + 3%) will be in the coming century, but at least the risks are displayed in simple numbers. Parenthetically, the steadiness of industrial results (in contrast to the apparent unsteadiness of everything else) was achieved in spite of a gigantic shift from control by family partnerships to corporations. Small businesses (less than a billion dollars annual revenue) still constitute half of the American economy, however, and huge tectonic shifts are still possible. Globalization could change the whole environment, and the world still has too many atom bombs. American Medicine can escape international upheavals in only one way -- eliminate the disease. Otherwise, the fate of our medical care will largely reflect the fate of our economy. To repeat, it is vital to monitor where we are going.

Revenue growing at 10% will relentlessly grow faster than expenses at 3%. Our monetary system is constructed on the gradations of interest rates between the private sector and the public sector. It would be unwise to switch health care to the public sector and still expect returns at private sector levels. Repayment of overseas debt does not affect actual domestic health expenditures, although it indirectly affects the value of the dollar. Without all its recognized weaknesses, a fairly safe description of present data would be that enormous savings are possible, but only to the degree, we contain last century's medical cost inflation closer to 3% than to 10%. The simplest way to retain revenue at 10% growth is by anchoring the leaders within the private sector.

### How Do You Withdraw Money From Lifetime Health Insurance?

Four ways should be mentioned: Debit cards for outpatient care, Diagnosis pre-payment for hospital care, Transfers from escrow, and Gifts for specified purposes.

Special Debit Cards, from the Health Savings Account, for Outpatient care. Bank debit cards are cheaper than Credit cards, because unpaid credit card payments are a loan, whereas the money is already in the bank for a debit card. Some pressure has to be applied to banks or they won't accept debit cards with small balances. Somehow, the banks have to be made to see that you start with a small account and only later build up to a big one. So it's probably fair, for them to insist on some proof you will remain with them. The easiest way to handle this issue is to make the first deposit of \$3300, the maximum you are allowed to deposit in one year. That's difficult for little children and poor people, however, so some way must be devised to have family accounts for children. At the moment, you just have to shop around, that's all.

After that, you should pay your medical outpatient bills with the debit card, although we advise paying out of some other account if you can, so the balance can more quickly build up to a level where the bank quits pestering you for more funds. Remember this: the only difference between a Health Savings Account and an ordinary IRA for practical purposes, is that medical expenses are tax-exempted when paid with money from an HSA. Both of them give you a deduction for deposits, and both collect income without taxes. If you can scrape together \$6000, you are completely covered from Obamacare deductibles, and since co-payment plans are to be avoided, an HSA with Catastrophic Bronze plan is your present best bet. If you have a bronze plan, you probably get some money back if you file a claim form, but those rules are still in flux at this writing. The expense of filing and collecting claims forms is one of the reasons the Bronze plan is more expensive, but that's their rule at present.

There are some other important things to say about outpatient vs. inpatient care, but it seems best to describe how inpatient care is envisioned to work in this system, before returning to the tension between the two. As will then become apparent, increasing the ease of use might create the problem of making it a little too easy to spend money.

Payment by Diagnosis Bundles, for Outpatient care. In 1983 a law was included as an unnoticed part of the annual Budget Reconciliation Act, which nevertheless later proved to have a huge effect on the health financing system. The proposal was to stop paying for Medicare patients on the basis of the itemized services each patient received as a bill, but to pay a single lump sum for the main diagnosis of each patient, using the argument that most cases of a given diagnosis were pretty much the same, and what variation there was, would soon average itself out after a few cases. Such a meat ax approach to the complexity was justified by the argument that a patient sick enough to be in bed in a hospital, was too overwhelmed by his frightening situation and too uneducated in its issues, to be able to dispute what was done to him. Market mechanisms, in short, were futile is situations with such imbalances of information and power. Consequently, a great deal of money was being wasted on accounting systems to arrive at prices which were ultimately set in an arbitrary way.

This argument prevailed in Congress, which was becoming desperate about relentless cost increases in Medicare, even sweeping aside the grossly primitive details of a system defining the solvency of vital institutions. The misgivings from economists that the accounting system was a large part of the internal hospital administrative information system, were also treated like mutterings of pointy-heads. To the extent these objections were valid, they would probably lead to a collapse of the experiment, so why worry about it. In fact, the expedient emerged that the prices of the DRG ( diagnosis "related" groupings) were simply revised to result in a 2% profit margin on the bottom line, no matter what the medical issues happened to be. It was a highly effective rationing system, not terribly far removed from a lump sum payment with a 2% markup, so live with it. Since the Federal Reserve targets 2% annual inflation, 2% profit is no real profit at all.

The hospitals might have rebelled, or might have collapsed. Instead, they accepted 2% for inpatients and set about adjusting the subsidies, aiming for a 15% profit margin on the Emergency Room, and a 30% profit on outpatient services. Subsidies from such accounting were difficult to achieve at first, so Emergency rooms were enlarged, and much-expanded outpatient facilities were built, requiring hospitals to purchase physician practices to keep them filled. The entire healthcare system was put under strain, and hardball was the game of the day. New lifesaving drugs were priced at \$1000 per pill, institutions were merged out of existence, the office practice of medicine was in turmoil, and a year in business school could make you a millionaire if you could appear calm in the midst of confusion.

I tell this story to explain why, with great reluctance, I advise the management of Health Savings Accounts to base their inpatient payment system on some variation of Diagnosis Related Groups. It's a terrible system, designed by rank amateurs, which results in distortions of a noble profession. But there is no other rational choice. It does protect the paying agency from being fleeced, once it gets past negotiation of a small list of prices which aggregate to a profitable bottom line. By protecting the payment system, it protects the patients from a chaotic price jungle which, unchecked, will rapidly destroy health care. If we experience more than 2% inflation, the destruction will be quicker.

Resolving Tension Between The Two Payment Systems. Evidently, some clear thinking by some smart people have brought them to the ruthless conclusion that a two-class system of medical care is preferable to the way we are otherwise going. Rich people will have their way if their own health is at stake, and poor people will have their way if they exercise their votes. Both of these conclusions are correct, but they lead to Medieval monks retreating into monasteries. The cure for cancer and a few brain diseases might make monasteries unnecessary, and so would a drastic reduction in health care costs. Huge research budgets and major regimentation are big-government approaches, of willingness to accept some loss of freedom to achieve equality of outcome.

But we can't completely depend on either choice, so the remaining choice is to undermine a lot of recent culture change, by devolving back to leadership on the local level of small states and big cities. This is a small-government approach, willing to accept wider inequalities in order to seek freedom to act. Mostly using the licensing power, the competition will reappear if retirement villages and nursing homes are licensed to be hospitals. If not, nurses and pharmacists can be licensed as doctors. Some of this could become pretty brutal, and all of it leads to patchy results. But of its ability to restrain prices, there can be little doubt.

Escrow Subaccounts within HSA Accounts. Whether anything can restrain reckless spending of "found" money, is quite a different matter, however. It may be that supply and demand will balance, even if it takes generations. There is some hope to be gained from watching reckless teenagers become penny-pinching millennials, but there remain dismal reminders of improvidence to be found in ninety-year-old millionaires marrying teen-aged blondes, further reinforced by watching the blondes run off with stable-boys. The net conclusion is that if certain portions of a Health Savings Account must be set aside for mandatory later expenses, then the money should be set aside within partitions, like an escrow account. Even that will have limits to its effectiveness, as I have noticed when trust-fund babies in my practice worked around the restraints their grandfather's lawyer took care to put in place.

Specified Gifts to be Encouraged. Only limited restraints on spending the client's own money can ever be justified, but certain types of gifts can still be better justified than others. One of them would be the special \$6000 escrow fund for deductibles and caps on out-of-pocket spending. Particularly in the early transitional years, the fund's solvency may be threatened by leads and lags, where these escrow funds could save the day. Therefore, if someone accumulates large surpluses in his account by the fortuitous conjunction of events, he should be encouraged to consider donating a \$6000 escrow to one of his grandchildren or other impecunious relatives. Quite often, a prudent gift to a grandchild can lighten the burdens of his parents or other members of the family. If they wish, any number of \$6000 transfers to the escrow funds of others should be encouraged.

Spending Health Savings Accounts. Spending Less. In earlier sections of this book, we have proposed everyone have an HSA, whether existing health insurance is continued or not. It's a way to have tax-exempt savings, and a particularly good vehicle for extending the Henry Kaiser tax exemption to everyone, if only Congress would permit spending for health insurance premiums out of the Accounts. To spend money out of an account we advise a cleaned-up DRG payment for hospital inpatients, and a simple plastic debit card for everything else. Credit cards cost twice as much like debit cards, and only banks can issue credit cards. Actual experience has shown that HSA cost 30% less than payment through conventional health insurance, primarily because they do not include "service benefits" and put the patient in a position to negotiate prices or be fleeced if he doesn't. Not everybody enjoys haggling over prices, but 30% is just too much to ignore.

No Medicare, no Medicare Premiums. We assume no one wants to pay medical expenses twice, and will, therefore, drop Medicare if investment income is captured in lifetime Health Savings Accounts. The major sources of revenue for Medicare at the present time fall into three categories: half are drawn from general tax revenues, a quarter come from a 6% payroll deduction among working-age people, and another quarter are premiums from retirees on Medicare. All three payments should disappear if Medicare does, too. Therefore, the benefit of dropping Medicare will differ in type and amount, related to the age of the individual. Eliminating the payroll deduction for a working-age person would still find him paying income taxes in part for the costs of the poor, as it would for retirees with sufficient income.

Retirees would pay no Medicare premiums. Their illnesses make up 85% of Medicare cost, but at present, they only contribute a quarter of Medicare revenue. However, after the transition period, they first contribute payroll taxes without receiving benefits, and then later in life pay premiums while they get benefits, to a total contribution of 50% toward their own costs. But the prosperous ones still contribute to the sick poor through their income taxes. There might be some quirks of unfairness in this approach, but its rough outline can be seen from the size of their aggregate contributions, in this scheme. At any one time during the transition, working-age and retirees would both benefit from about the same reduction of money, but the working-age people would eventually skip payments for twice as long. Invisibly, the government subsidy of 50% of Medicare costs would also disappear as beneficiaries dropped out, so the government gets its share of a windfall, in proportion to its former contributions to it. One would hope they would pay down the foreign debt with the windfall, but it is their choice. This whole system -- of one quarter, one quarter, and a half -- roughly approximates the present sources of Medicare funding and can be adjusted if inequity is discovered. For example, people over 85 probably cost more than they contribute. For the Medicare recipients as a group, however, it seems like an equitable exchange. This brings up the subject of intra- and extra-group borrowing.

Escrow and Non-escrow. When the books balance for a whole age group, the managers of a common fund shift things around without difficulty. However, the HSA concept is that each account is individually owned, so either a part of it is shifted to a common fund, or else frozen in the individual account (escrowed) until needed. It is unnecessary to go into detail about the various alternatives available, except to say that some funds must be escrowed for long-term use and other funds are available in the current year. Quite often it will be found that cash is flowing in for deposits, sufficient to take care of most of this need for shifting, but without experience in the funds flow it would be wise to have a contingency fund. For example, the over-85 group will need to keep most of its funds liquid for current expenses, while the group 65-75 might need to keep a larger amount frozen in their accounts for the use of the over-85s. In the early transition days, this sort of thing might be frequent.

The Poor. Since Obamacare, Medicaid and every other proposal for the poor involves subsidy, so does this one. But the investment account pays 10%, the cost of the subsidy is considerably reduced. HSA makes it cheaper to pay for the poor.

Why Should I Do It? Because it will save large amounts of money for both individuals and the government, without affecting or rationing health care at all. To the retiree, in particular, he gets the same care but stops paying premiums for it. In a sense, gradual adoption of this idea actually welcomes initial reluctance by many people hanging back, to see how the first-adopters make out. Medicare is well-run, and therefore most people do not realize how much it is subsidized; even so, everyone likes a dollar for fifty cents, so there will be some overt public resistance. When this confusion is overcome, there will still be the suspicion that government will somehow absorb most of the profit, so the government must be careful of its image, particularly at first. Medicare now serves two distinct functions: to pay the bills and to protect the consumer from overcharging by providers. Providers must also exercise prudent restraint. To address this question is not entirely hypothetical, in view of the merciless application of hospital cost-shifting between inpatients and outpatients, occasioned in turn by DRG underpayment by diagnosis, for inpatients. A citizens watchdog commission is also prudent. The owners of Health Savings Accounts might be given a certain amount of power to elect representatives and negotiate what seem to be excessive charges.

We answer this particular problem in somewhat more detail by proposing a complete substitution of the ICDA coding system by SNODO coding, within revised Diagnosis Related Groupings,(if that is understandable, so far) followed by linkage of the helpless inpatient's diagnosis code to the same or similar ones for market-exposed outpatients. (Whew!) All of which is to say that DRG has been a very effective rationing tool, but it cannot persist unless it becomes related to market prices. We have had entirely enough talk of ten-dollar aspirin tablets and \$900 toilet seats; we need to be talking about how those prices are arrived at. In the long run, however, medical providers are highly influenced by peer pressure so, again, mechanisms to achieve price transparency are what to strive for. These ideas are expanded in other sections of the book. An underlying theme is those market mechanisms will work best if something like the Professional Standards Review Organization (PSRO) is revived by self-interest among providers. Self-governance by peers should be its theme, ultimately enforced by fear of a revival of recent government adventures into price control. Those who resist joining should be free to take their chances on prices. Under such circumstances, it would be best to have multiple competing PSROs, for those dissatisfied with one, to transfer allegiance to another. And an appeal system, to appeal against local feuds through recourse to distant judges.

Deliberate Overfunding. Many temporary problems could be imagined, immediately simplified by collecting more money than is needed. Allowing the managers some slack eliminates the need for special insurance for epidemics, special insurance for floods and natural disasters, and the like. Listing all the potential problems would scare the wits out of everybody, but many potential problems will never arise, except the need to dispose of the extra funds. For that reason, it is important to have a legitimate alternative use for excess funds as an inducement to permit them. That might be payments for custodial care or just plain living expenses for retirement. But it must not be a surprise, or it will be wasted. Since we are next about to discuss doing essentially the same thing for everybody under 65, too, any surplus from those other programs can be used to fund deficits in Medicare. But Medicare is the end of the line, so its surpluses at death have accumulated over a lifetime, not just during the retiree health program.

That may not be more accurate, but it displays its assumptions better. Michigan Blue Cross has calculated we calculate lifetime costs and Obamacare costs by starting with lifetime average health costs of \$325,000 and subtracting Medicare. Although Medicare is reported by CMS to have average costs of \$xxxx, for which we prefer to assume a Health Savings Account "present value" cost of \$80,000 on the 65th birthday (at a 6.5% interest rate). At the same 6.5% rate, a \$3300 annual deposit from age 25 to 65 (the earning years) would total \$132,000 of deposits. Preliminary goals for a hypothetical average person are: To accumulate \$80,000 in the Medicare fund by the age of 65, to pay off the 25-year health costs of 2.0 children per couple as a gift to them, and to pay his own relatively modest average healthcare costs from 25-45, somewhat higher costs 45-65. The Medicare goal of \$80,000 is what is estimated to be what is required for a single-deposit investment fund (paid on the 65th birthday) to pay the health costs for an average person aged 65-93,(a guessed-at future average longevity), with an estimated compound investment income of 4%, also guessed, but conservative. Inflation is ignored, assuming revenue and expenses will inflate at the same rate. Our average consumer will have to set aside \$1250 per year from age 25 to 65, and earn 4% compounded, to do it.

Those who disagree with the underlying assumptions should feel free to substitute their own assumptions. The interest rate of 4% is deliberately low, in order to make room for disagreements which are higher. The upper limit is set to match the HSA contribution limits of 3300 times 40, becoming hypothetically the upper bound of revenue which can ever be anticipated. Anticipating two children per couple and full employment from 25 to 65, this revenue effectively covers one full lifetime, from cradle to grave. Childhood illnesses and elderly disabilities notwithstanding, this is all the revenue we allow ourselves in this example.

Let us assume that an average person can start contributing to an H.S.A. at the age of 25, even though perhaps a quarter of the population at that age are burdened with college debts, etc. and cannot. We are well aware of the Pew Foundation poll that xxxx% of those under 30 are still living with their parents, and that xxxx% have college debts. (Congress ought to examine this condition, which could apply at any age, and provide for make-up contributions later.) The present ceiling of \$3300 annual contribution is otherwise taken as the upper boundary of what is possible for the sake of example, and theoretical deficits would have to be made up from the \$68 trillion dollar surplus created by such legal maximums. To plunge ahead with the example, our average person sets aside \$3300, starting at age 25 toward lifetime health costs. To simplify the example, he does so whether he can afford it or not, and what he can't supply himself is provided by a subsidy or a loan. Since present law prohibits spending from the H.S.A. for health insurance premiums (this should be reconsidered by Congress, by the way), an estimated premium of \$300 for his own Catastrophic insurance is taken from the set-aside, and the remainder is placed in the H.S.A., paying an estimated 4% tax-free. Within this he eventually needs to set aside a Dependent Escrow premium (remember, this example covers lifetime expenses, even though everyone has Medicare), which for twenty years (until age 45) is zero for Medicare and available for medical gifts to Children, and after that is exclusively used for Medicare, both of which will be explained in later sections.

Health Savings Accounts are tax-exempt, and they can earn investment income. Except it isn't all it could be. Professor Ibbotson of Yale, the acknowledged expert in the long term results of investment classes, has regularly published data going back nearly a century. In spite of military and economic disasters of the worst sort, investment classes have remained remarkably steady throughout the past century and presumably will maintain the same relationships for some time to come. John Bogle of Philadelphia has translated that into index funds of investment classes, with almost negligible administrative costs. (Caution: Many index funds are sold with very high trading costs, typically in charges when money is withdrawn. Be careful of your counterparty, particularly if he specifies the index fund, because he may limit it to one who gives kickbacks to him.) With this warning, there is a reasonably good chance of getting returns approaching 10% for investments in index funds of well-known American stocks, even though the typical HSA at present is yielding much less. This investment income can grow to the point where it constitutes a fairly large part of the health revenue.

### SIX PIECES OF THE LIFETIME PIE

Instead of starting at birth and ending at death, this book will reverse the process. Let me explain. There is a big transition problem in a proposal like this, since the readers will be of different ages, and the system must work without gaps. Everybody has already been born, and for a long time to come, everybody will have a piece of his life behind him that he does not want to pay for. The time is past when Lyndon Johnson could solve the transition problem by simply giving a gift of many years free coverage to most of the new entrants to his system. So, although it will probably spook a number of old folks just to hear the discussion, let's begin for completeness with the Last Year of Life Coverage, and end up with the First year of Life coverage. Both of those apply to 100% of Americans in a theoretical sense, and in a sensible system would be the basic coverage. If any health insurance should be universal, these two have the strongest arguments. Unfortunately, they have the least chance of political success. Therefore, it is likely that they will be voluntary and self-pay if they are adopted at all.

Originally published: Monday, July 28, 2014; most-recently modified: Sunday, July 21, 2019