Philadelphia Reflections

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

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Random Suggestions for The New HSA

1. They could add twenty or more years to the opportunity for extending compound interest still further. That would be after a long buildup of compounding, which works best after forty years (see the graph). Compounding already introduces a 512-fold multiplier. Adding three more doublings would extend it to 4096 to one. You need this extra cushion, not for the ultimate result, but to get through a protracted transition. For this purpose, we might consider the 21st birthday-- a moment of the lowest medical costs --to be the beginning of financial life. It would supplant the present obstetrical moment of the baby's ears emerging from the birth canal, which is the second most expensive moment in lifetime healthcare. This has its pros and cons.

2. Closing the inheritance loop would provide a social bridge between grandparent and grandchild generations, who until recently scarcely met each other. Therefore, we should avoid making transfers completely automatic; to a certain extent, they should be earned. And there should be some latitude to modify them while money remains in the declining fund after the first year of life, for various contingencies. The new method of transfer provides surplus funds for the grandparent generation indirectly to overcome the heavy first year of life costs of their own child, seemingly by relieving medical costs for their grandchild. Other than that, there should be some latitude.

3. Since Medicare recipients are retired, there is a ready use for surplus funding to be used for retirement. Other alternative uses should be considered. Provision of a roll-over from HSA to IRA has already been enacted.

4. Eventually as science progresses, the Medicare population will contain most of the severe illnesses of life. If they get sick, they won't need so much retirement income. If they don't get sick, they will need the money to live on. If the transfer to a grandchild is made at death, the whole retirement issue disappears. Congress should consider whether it wishes to devote so much attention to this one issue, or whether it would be better to designate the Judiciary or an agency.

Summary. A childhood health insurance, linked to a health insurance for senior citizens, owned by two people linked by redefining a birthday or some other strategy, may well sound like a peculiar-looking idea. Using its surpluses for retirement, and also to fund the permanently unemployable, makes it look even more peculiar. But let me persuade the reader to do a little math. At 7%, there are 9 doublings in a 90 year life. 2,4,8,16,32, 64, 128,256, 512. That's rounding up on 6.5% and 85 years, which are closer to realistic estimates of future longevity and interest rate return, but who can predict? Every dollar at birth (possibly redefined as the 21st birthday) is multiplied 512 times. Since lifetime healthcare costs are estimated by others to be $350,000 adjusted for 3% inflation, and half of that is attributed to Medicare costs, the grandparent would have to donate the sum of $350 at the child's birth to pay for all of Medicare, no payroll deduction, no premiums paid. That's a rough estimate, of course, and we still have to account for the notch caused by birth costs, and the gap created by age 21-66, now covered by Obamacare. Uncertainties about the legal status might reduce this to $70,000, which leads to the $39,000 conservative promise. Restoration of age 21-66 might lead to a tripling of these estimated savings.

Proposal 22: Congress should enable one voluntary transfer between the Health Savings Accounts of members of the same family, especially grandparents and grandchildren, and one transfer to a general pool for balances left over from the family transfer. Members of the grandparent generation who have no grandchildren may choose one substitute from outside the family.

Proposal 23: Congress should permit voluntary buy-outs from the Medicare program, which include consideration of returning payroll deductions, and fair accounting for premiums, copayments and benefits already paid for, by age groups in transition.

Originally published: Tuesday, September 01, 2015; most-recently modified: Sunday, July 21, 2019