Philadelphia Reflections

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

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Assorted Proposals

In fact, the employer probably gets more of a gift than the employee. State and local corporation taxes vary, but a profitable corporation pays 38% federal corporate tax, and the total tax burden is about 50%, the highest in the developed world. By defining fringe benefits as a cost of doing business, major corporations effectively increase their net income by half. It becomes their choice to reduce prices more than their foreign competitors are able to do, or to increase their dividends, or to pay more lavish salaries to executives. All of these things help support the price of their stock, so the stockholder benefits. Since the employee gets both a gift and a tax deduction, he is happy, although some of the benefits are illusory. Those who lose from the transfers are mainly foreign and domestic competitors, and the rest of the public has to pay higher healthcare costs because no one is deceived about the effect of insurance on prices. Free trade, domestic competition, and healthcare prices are bearing this burden.

The competitor deserves a word, here. About half of the business is made up of big business, and half is a small business. Wall Street and Main Street, if you will. The accidents and opportunities which Henry Kaiser stumbled upon in 1945 only apply to big business, and probably much of that anomaly can be traced to the fact that big business is more likely to be profitable because that's how it got to be so big and also is more likely to be engaged in international trade, where the competitors don't get a vote. Some of the tax benefits like Subchapter S are probably an effort to help small domestic competitors without helping foreign competitors. But self-insured people and uninsured ones are excluded. Very likely, much of the politics of healthcare is intended to help these people, without helping small business, without helping big business, and without helping foreign competitors. Pretty soon, you have a tangle of interests which would be affected by removing the obvious tax inequity which Henry Kaiser is given credit for discovering. Just about everybody has something to gain, something to lose. So it begins to be impossible to say, whether, on net balance, the country would be better for abolishing it. That's essentially what would happen if we changed the health system to something different; and unnoticed in the process, abolished the tax inequity which everyone agrees is a bad thing.

Just how bad things are, is hard to say. We know about job lock and the other features directly attached to employer-based insurance, and we more or less decided to live with them. But the escalation of healthcare costs, and the soaring international debts being used to pay for them, are getting too much to handle. We can tolerate a lot of things, but it's not clear we can tolerate devoting 18% of GDP to healthcare, particularly if the price keeps going up. It's hard to imagine anything one would want to spend his money on, more than on longevity. But when serious people, or at least people who take themselves seriously, start talking about euthanasia as a solution to our health cost problem, you know the costs are starting to hurt. In my opinion, we have reached the point where a lot of unthinkable cost reductions, must be taken out and reviewed. My own solution is to switch from a debt-based system to a savings-based system, with savings of immense size which have to be stretched a little to suffice. But get this: you can only do it once.
Proposal (N) Congress should set a reasonable time goal, and then mandate that the DRG be rewritten based on SNOmed, and reduced to a DRG which is much larger than at present, and capable of easy expansion. As mentioned, the hospitals which are winners under the old system will identify themselves by opposing this, and they should be asked if they can suggest alternatives.

Proposal (L) Congress should periodically investigate whether an intermediate insurance category of high-priced outpatient services has been created. If so, hearing should be held with an eye to creating one. It must be recognized that the nature of medical care is continually evolving, and this is one direction which may be emerging.

Compound Investment Income. Here, we have the heart of the whole arrangement. It's not a bonus, but rather 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. In fact, the results of passive investing have recently been so superior that you wonder why anyone does anything else. Unfortunately, there is evidence that the financial industry has been so stressed that it has resorted to taking a majority of total returns, to itself. Therefore, the novice investor must be warned that stock market trades are widely available for less than $10, but are frequently charged $300. The investment returns should be, but seldom are, displayed, so it is often impossible to compare different brokerages, and even harder to compare a company's gross returns with its net, returned to the investor. 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.

Proposal (T) Congress should require all managers of Health Savings Accounts to display to the customer, and publish to the world, quarterly, their average total returns, as compared with average net total returns to HSA subscribers, and to the individual subscriber if there is meaningful variation. If the difference between net and gross exceeds 1%, the manager should be required to complete a form explaining it. There are several trillion-dollar funds who would find this proposal no hardship.

Proposal (P) Managers of HSA investments should be qualified as fiduciaries under standard definitions, or make it clear to the customer that they are not. It must be recognized that the nature of medical care is continually evolving, and this is one direction which may be emerging.

Proposal (S) A cost comparison and returns comparison of all managers of HSA, by location, should be annually published, at least on the Internet, or in some other way made available to the public. Those who are wise in the ways of investing have no idea, of how innocent many people are.

Originally published: Wednesday, July 22, 2015; most-recently modified: Monday, May 13, 2019