Philadelphia Reflections

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

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Healthcare Financing, Up to Medicare Age

We have just estimated the lifetime healthcare cost of people up to age 65 as $128,000. That estimate was largely derived from guessing the limit of what people could afford for a lifetime of healthcare ($325,000), and observing you can't spend more than you have, indefinitely. From the total was subtracted the present known cost of Medicare, leaving the younger people with a healthcare budget of $128,000 from birth to 65.We then calculate how much compound income could be derived from $128,000 at 8%, recognizing it would arrive in yearly limits of the Health Savings Account Law of $3300 per year, from age 26 to 65. We calculate under two assumptions, with and without privatizing Medicare, and in two other assumptions, average life expectancy of 83 (the present figure) and life expectancy of 93 (the projected life expectancy). Curiously, the longer life expectancy has a lower projected cost, probably because it does not include the treatment costs of whatever lengthens life expectancy by ten years. But it does include the extra revenue from the lengthened period of compound interest on reserves.

It is most unfortunately true that present law prohibits paying for high-deductible insurance which is mandated to accompany a Health Savings Account. By striking a single sentence of the law, the injustice of unequal tax deductability for employer-paid insurance would disappear, but for the moment this feature must simply be accepted. First, let's define it. A high deductible could be as little as $1250 per year, or as high as $6000 for family plans. Its top limit, however, is simpler. It need not be higher than $10,900, the average cost of Medicare, since average young people will almost always cost less than the elderly. Furthermore, let's state the great virtue of high-deductibles: the higher the deductible, the lower the premium. As a consequence, the sellers of high-deductible Catastrophic healthcare insurance are very reluctant to advertise or even quote over the telephone, what their typical annual premium would cost, particularly when pre-existing condition riders are forbidden. This last feature creates an incentive to search for group memberships, higher premiums, younger clients, higher deductibles and lower ceilings. A longer waiting period for insurance to take effect might be a partial solution. As would rebates for longer subscriptions without claims. Obamacare has withdrawn its pure Catastrophic coverage in favor of paying subsidies for higher premiums to fairly high income groups. Increasingly, it is difficult to obtain this type of coverage without either being in a group or having a personal interview. With a change of party control in Congess, this would be a very good time to hold hearings on the problem. In the meantime, for discussion purposes, we use the hypothetical limits of $5000 deductible with an $11,000 maximum limit, for a premium of $1000 annual premium. Probably no policy exactly matches this example, but the difficulties could be ironed out by agreed rebates, or guaranteed issue, after 5 years of policy-holding. All of this does increase the administrative costs of what started out to be an ultra-lowcost product.

This approximation would consume $39,000 of a $128,000 budget, allowing $3300 annually to be deposited in the account. With compound income at 8%, this would purchase $xxxx worth of deductibles and outpatient costs over the 39 years of coverage, and including childhood costs. Except for unusual medical circumstances in the first few years, this should suffice. Indeed, after the first five or ten years, the fund would grow to the point where additional savings could be derived from less expensive fail-safe insurance policies, or even smaller deposits into the fund.

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