N-HSA: The New Health Savings Accounts
Some new ideas are ready to be debated. Here are the ones I favor for 2016.
Since we propose to fund the end of life with money generated many years earlier, and since the whole structure disintegrates if funds are spent prematurely, it might be a long time before savings amount to much for the people funding them. A long gap between savings and spending generates the income windfall, but failure to distribute the windfall generates restlessness. Saving for one's own later spending does help pacify restless people, and is a major reason for using individual accounts rather than pooling. Minimal amounts of insurance and government redistribution are necessary, but as much as possible should be confined to 5% of the population which generates 40% of the costs. Self-interest thus concentrates transitional revenue as a whole toward individuals who do not live long enough for a full cycle to rescue them. With many contingencies certain to arise in such a long interval, it is difficult to construct a convincing model, except by estimating the upper limit of what it can produce and then guessing at the lower limit of what might satisfy the participants. What follows is an attempt to do that.
The cost of dying is always likely to be greater than the cost of being born. In our estimates, it is taken to be five times as great. Between birth and death, rent-seeking is a formidable competitor to program reduction whenever science produces lower medical costs. Intermediate steps and middle-men should be as few as possible. A reward system should be devised for intermediaries who demonstrate low costs. To be blunt about it, this is one of the strong arguments for individual rather than merged accounts, and private rather than political control; history shows a need for such a bias. It has been Medicare experience that 5% of the clients generate 40% of the costs, so here is another guide for the model. Each year, about 6.6% of Medicare patients die. The number of newborns plus immigrants of various ages are both likely to be capricious and will constantly vex projections. We must do better than we did with the baby boom bulge, where adverse projections were ignored for decades. Scientific advances are likely to mitigate diabetes, Alzheimers, cancer, Parkinsonism, osteoporosis, and a dozen less common degenerative diseases, during the next century. So longevity will increase. Although a dozen, now less common, diseases will take their place, the tendency will be for healthcare costs to decline after age 55 and diffuse more widely after age 75. Since costs will be less affected before age 55 than afterward, there is a potential for investments and compound interest to rescue us in time, since Medicare now covers about half of the costs, and Medicare will continue to expand for increasingly older members. As costs flatten out, there will come a time to take the jump to an entirely new but less expensive system.
The secret of a successful transition is to hold back expenditures but accelerate revenues until the two are close. Then take the jump.
There are such big differences in average health costs between men and women, between regions of the nation, and between employment situations, not to mention income brackets and ethnic groups, the earnest, honest statistics available to the public about its health costs are alarmingly variable. When the recent commotion about the costs of Obamacare are added in, with the delayed changes in the status of employment inclusion, plus unexpected jumps in insurance premiums ranging up to 50%, this seems like a poor time to be talking absolute numbers. Consequently, we prefer to make our transitional projections in terms of relative values. It seems more accurate to say that if women of reproductive age continue to cost 20% more than men, the savings will be 20% greater -- if you follow our plan. Consequently, it is probably more meaningful to project a 50% improvement in both costs, than to make a thousand mistakes in estimating all the numerical variations of the same idea. Only when prices stop changing so rapidly will it be safe to be more specific.
Accordingly, we note that substituting catastrophic insurance for Obamacare ought to reduce costs by 30%. And paying for childhood and last year of life by reinsurance-switching ought to shave off 20% more. Consequently, the addition of $50 per year premium cost (paid into the escrow fund) and substitution of catastrophic insurance, combined ought to reduce costs by about 50%. Since Medicare now consumes about half of health costs, we ought to be ready to complete the transition in about half of the life expectancy, or 42 years. Scientific advances should shorten this time interval, and the many extra suggestions of this book ought to provide additional financial cushions against surprises. Consequently, we project that a transition should take no longer than 42 years, and we fervently hope that luck could improve on that. But 42 years is what we project. Can anybody propose a plan which would improve on that projection? It's, of course, a pity we didn't do this ten years ago, so it would only take 32 more years, but that should be a caution that if we spend ten more years calling each other names, it will take 52 years.
A physician friend of mine was a patient of a famous neurosurgeon who had joined a group and accepted a salary. Quite recently, he visited the neurosurgeon, only to have the interview interrupted by an automated telephone call. The automated message was to the effect that time scheduled for the visit had expired, and he should quickly terminate the office visit. The neurosurgeon remonstrated, to little avail. It seems safe to predict this whole relationship is soon to terminate, although it will be interesting to watch. There are limits to what evasions can be devised, as well as to what controls will be tolerated. I predict this neurosurgeon and this institution will eventually test such limits.
In the same way, I predict a funded pre-payment system will eventually devise enough compromises to keep its system functioning. It produces too much extra revenue to tolerate unlimited abuse. Any system which can produce so much revenue that inflation protectors are necessary, and one which at the same time is so complex it requires actuaries to project revenue--will find the necessary accommodations.
Originally published: Tuesday, November 10, 2015; most-recently modified: Monday, June 03, 2019