Philadelphia Reflections

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

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Old Introduction June 28,2015

This book was originally based on a notion, or a dream if you will. A whole lifetime of healthcare might be purchased, for what now only covers a quarter of a half -- those scarcely-noticed payroll deductions for Medicare, listed on everybody's payroll stub ought to be enough. But then politics and Supreme Court decisions came along. Turning over each pebble on a new heap, it seems that amount might still stretch to cover all of the nation's average lifetime costs, although payroll deductions wouldn't resemble the way to do it. Reducing prices by 25% of $350,000 is a ton of money, particularly when multiplied by 300 million people. Let's lower expectations by saying the new narrower proposal might only reduce prices by 14%. That would be $39,000 times 300 million, or twice the combined fortunes of Bill Gates and Warren Buffett. $39,000 is a substantial amount for anybody, and $ 11.7 trillion is an astonishing aggregate for the nation. That's once in a lifetime, but it's still $140 billion a year. I decided to ignore the 42% of historical costs which Obamacare covers (age 21 to 66) until its facts are clearer. Just add the cost of the earning cohort (aged 21 to 66) later to include whole lifetime costs. That leaves a gap of one third in the middle of life, but it's not the third which will contain most of the healthcare costs in the future. If you don't know what the Affordable Care Act will eventually cost, you can't be confident what lifetime healthcare will cost. But I'm confident lifetime Health Savings Accounts would cost much less. The Affordable Care Act has not convincingly described any cost reductions, now or in the future. But to be fair, neither do Health Savings Accounts. They reduce the net price by adding extra revenue. {top quote} The issue is how to transfer $238,000 from individuals in one group, to another group. {bottom quote} The quick calculation now follows. Average lifetime healthcare expenditure (in the year 2001 dollars per person) is in the neighborhood of $350,000. That's the estimate of statisticians at Michigan Blue Cross, confirmed by Medicare. Medicare takes half of the annual cost, from birth to age 21 takes another 8%, and we don't know the cost of the unemployable of working age, but they are 10% of the population. So, the new segment we assigned ourselves, excluding age 21 to 66, involves at least 68% of national health costs, and probably somewhat more. That represents the basis for saying the working population 21-66 must pay its own costs and somehow transfer at least 68% more to what we will call the dependent sector. At a minimum, that's 68% of $350,000 per lifetime, or $238,000. Don't take it too seriously, but that's the ballpark. It's dangerous to foresee a day when all the people who aren't sick, are paying for all the people who are. Romeo's take on it was, "He jests at scars, who never felt a wound." Endowment funds traditionally aim for 8% annual return (3% for inflation, 5% net). The stock market has averaged 12% gain for a century, so 4% isn't exactly missing, but its disappearance requires convoluted explanation, later in the book. Starting with those bits of information and adding a few more, just re-arranging payments would get to the same final result-- by spending one-third as much money. The cost of separating employer-based insurance from all the rest of it exceeds my abilities, so it will have to dangle. How we got to that conclusion isn't rocket science, but it isn't obvious, either. So let's make the conclusion easier: you can save a ton of money doing what is suggested. Don't complain it isn't two tons or only half a ton, it is what it is. You can put this data through a big data computer, or use a slide rule, but you are still dealing with predictions about the future, which contain lots of uncertainty. Although it will not make healthcare free, it implies savings of about $38,000 per person, per lifetime. View that saving in two ways: it's only about $500 per person, per year. Or, viewed as a nation of 316 million inhabitants, it saves $150 billion per year. Skeptics could attack the math as exaggeration, and still get an answer in billions per year. Tons instead of billions would be as accurate, just sound imprecise. Next might come nit-pickers. You can't get 8% investment income returns a year, unless this, or unless that. Very well, just say this is the top limit of what is possible as an average, using average investment advice. The Federal Reserve confidently promised to keep inflation at 2%, but actually experienced 3% over the past century. Chairman Bernanke tried his best to "target" inflation up to 2% but inflation just resisted going up to more than 1.6%, and it's pretty hard to get any agreement about why it resisted. Accuracy just isn't possible when you are predicting the economic future. That's why the unit of measurement is in tons. Tons of money. Who will save it, and who will steal it, is a little harder to predict. Some people are income targeters. They spend every cent they earn. But there are others, and to them, this book is addressed.

Originally published: Tuesday, July 14, 2015; most-recently modified: Wednesday, May 29, 2019