Philadelphia Reflections

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

Related Topics

Right Angle Club: 2015
The tenth year of this annal, the ninety-third for the club. Because its author spent much of the past year on health economics, a summary of this topic takes up a third of this volume. The 1980 book now sells on Amazon for three times its original price, so be warned.

Concept Behind New Health Savings Accounts

At present, the Classical variety of Health Savings Accounts is reported to have 15-17 million subscribers and 25 billion dollars deposited. It seems to be growing at the rate of a million new subscribers a year. Let me confide it is very satisfying to discover millions of people are intrigued enough to commit money to an idea John McClaughry and I put together thirty years ago. It happened without any money of our own devoted to promoting it, and from which John and I have derived no personal gain. I even have an eventual goal, which requires some legislative help to get going. It's called the Lifetime Health Savings Account. It builds on the original idea of the year- to- year Classical HSA, but follows the whole-life insurance plan, so familiar to purchasers of life insurance. It is, to lifetime health care, what whole-life life insurance is to term insurance. A single lifetime marketing effort, internal professional investing of its float, early overfunding followed by later distribution of surpluses.

However, you can't buy lifetime health insurance right now, and won't be able to, until certain laws are modified. Furthermore, the various steps will take decades to come together into a unified lifetime demonstration. Therefore, two strategies were tried out. The first was to omit some steps and work around The Affordable Care Act as if it didn't exist. That's easier on paper, called the New Health Savings Account (N-HSA), but takes just as many decades to prove itself, and is forced to surrender much of the financing cushion which gives it a safety factor. Therefore, it is only included in the book to display some of the hidden technical features which tend to make it workable. These details are then extracted like pearls from oysters and strung into a necklace of ideas. The eventual outcome is the last chapter of the book, which is able to refer to these pearls as if the reader is familiar with them. Which he will be if he reads the book sequentially, and which he can be if he refers back to the sources in other chapters in other guises. The result is a description which is quite simple, but each feature of which has explanations which are not entirely self-evident.

If I started over and re-wrote the whole book, it would be much smoother. However, I made a conscious decision to sacrifice smoothness, in order to get the book into the national debate in time to make an impact. Even now it seems a little late, while many fast-breaking events just have to be ignored because there is no time to include them. It's the primary difficulty, for which I apologize, is the math of the examples keeps changing.

Meanwhile, I decided two things: to go ahead with the book with its final goal largely sacrificed to immediate needs. And, to prepare an interim, or new, Health Savings Account proposal. The new proposal would go ahead with a few advances toward Lifetime Health Savings Accounts which might be acceptable enough to political combatants to pass Congress, but which could advance the concepts of Lifetime HSA through some experimental stages. Even that proved too ambitious because It would require decades to prove the concepts by example. So it was stripped down some more, creating the last chapter of this book. Instead of taking a few ideas and struggling with them for a lifetime, I finally came to the view that a lifetime was a series of events, some of which worked out, and some didn't. Like a string of beads, I finally strung them together, recognizing that some would have to be replaced. Essentially a pilot study of proofs-of-concept, it prepares the way for more grandiose plans after most demonstrated flaws had been cleaned up. I called it New Health Savings Accounts (N-HSA) and thought it would work to include all of the healthcare except for age 21-66. Although that would cover 58% of health costs, it would not conflict with the Affordable Care Act, and might eventually seek greater compatibility as the ACA evolved. If the ACA got thrown out, it would be a concept prepared to take its place, without tumbling us into healthcare chaos. But until some upcoming elections clarified where the public stood, the two ideas could essentially stay out of each other's way.

A description of N-HSA follows in this section. Because the calculations of the Lifetime goal-model showed L-HSA could generate considerably more money than required, I was misled into thinking abbreviated N-HSA would generate ample funds. That turns out to be only narrowly true, and it has such a thin margin of safety that a major war or a major recession would probably sink it before it had enough public support as a pilot study. That didn't stop Lyndon Johnson from going ahead with a program which was only 50% funded, together with a Social Security program which has a similarly bleak balance sheet, and a Medicaid program which is a notorious failure to do a good job or to come close to paying for itself. But those were different times. In 1965 the international balance of payments of the United States had been positive for 17 years in 1965 but has been steadily negative for fifty years subsequent to that time. It shows no sign of improving. The Vietnam semi-revolution destroyed Lyndon Johnson's political career in the Sixties. His entitlement programs lingered on as unsupportable public generosities for fifty more years, but they simply must change if we are to survive as a nation.

The Health Savings Account is based on a different set of fundamentals. We have saved enormous sums by stamping out thirty diseases but at a different sort of cost which has increased as we extend our generosity to essentially everybody, even non-citizens. We have created a tidal wave of rising expectations which even the most optimistic surely cannot imagine can continue indefinitely. And a rising rebellion of envious foreigners with nuclear capability, and an unstable monetary system without any definable standard; which puts us at the mercy of ambitious foreign rulers. And yet, we continue to throw huge amounts of money at research, in a typically American mixture of hope and calculation. We have narrowed most medical costs to about five chronic diseases: cancer, Alzheimer's, diabetes, Parkinsonism and self-inflicted conditions, and we aren't going to stop until those five conditions are cured. Nobody told us to do such a thing, but everybody secretly hopes it will work. If we eliminate diseases, well, everybody can then afford not to pay for them. Unfortunately, it created a bigger, unanticipated, problem.

We bifurcated medical payments into three compartments: working people age 21-66 who earn almost all new wealth, but most don't get very expensively sick. Secondly, the elderly from 66-100 who don't earn much money, but increasingly have all the expensive diseases. And third, the children from birth to age 21, who only consume 8% of the health care costs, but who have no opportunity, either to pre-fund their costs or to earn enough to pay for them. This third group, as I found out, unexpectedly upset almost all plans for comprehensive care, cradle to grave. Rich and poor folks, about whom we have heard so much, are distributed within these three groups. What we have mindlessly created is the need for an enormous transfer of wealth from the people who earn it, to the rest of the nation, who have most of the disease and little of the earning power. This wealth transfer is just more than the generosity of the country can comfortably support, and it's been growing steadily from President Teddy Roosevelt to President Barack Obama.

My concept, right from 1980 onward, has been to find a way for individuals to store up their own wealth while they are working so they can support their own costs when they grow older. Doing it by demographic classes is too much altruism to tolerate -- just listen to what young people are saying about their lucky elders, and to what the baby boomers are saying about the millennials. The nick-names will change, but that's the way all interest groups talk about each other. I had assumed medical science had already reduced the disease burden to the point where self-funding your own old age -- in advance -- would cover a majority of the population. But I now have to admit we are only part-way. Enough volunteers would probably support N-HSA to make the experiment a success in normal times, but it doesn't have enough cushion to be completely confident it could survive a war or a depression. Every time we make a scientific advance, the day of feasibility comes a little sooner. So, it boils down to whether you are willing to take the risk now, or not. I'd like to see a pilot study of volunteers iron out the kinks, first. But a great many impatient people are boiling to take the risk right now, and if we are lucky on the international and economic level, it might work. Every bull market "climbs a wall of worry." If we approach it more gradually, it is more certain to work. Judge for yourself.

Originally published: Friday, July 31, 2015; most-recently modified: Wednesday, May 15, 2019