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There are plenty of problems with American health financing, but three features are the basis for optimism and the subject of this book. The first is the possibility that research can get us out of the jam we are in. The National Institutes of Health has started to prioritize its research, sensibly focusing on the most expensive diseases first. Opportunities will always dictate the attractiveness of a particular line of research to the investigator, but to the extent, a funder can influence choices, the N.I.H. has started to put a priority on the cost of diseases that cost the most to treat. It is their estimate that eighty percent of healthcare expenditures can be roughly assigned to only six diseases (Cancer, Diabetes, Parkinsonism, Arteriosclerosis, self-inflicted Conditions, and Psychosis.) If somebody gets us an inexpensive cure for only one of them, it would have a big impact on costs. At the moment, the best estimate of lifetime health costs is roughly three-hundred fifty thousand dollars per person, in the year 2000 dollars. By spending the present annual 33 billion dollars on research, it seems reasonable to look for a decline in health costs in the next decade, after which even research costs should decline. Expense is most heavily influenced by the need to institutionalize certain situations. I once wrote a paper on the patients in the Pennsylvania Hospital on July 4, 1776, and the diagnoses were remarkably similar to the present time, concentrating on disorders of the legs and brain, where you have to be put into bed to be cared for.
One thing we can, of course, be very sure of: everyone will eventually die, and thus will have one terminal illness. We can eliminate any or all five-- and you can be sure that something fatal will take their places, although you can't be sure it will be cheaper to treat. Nevertheless, longevity will lengthen, making healthcare cheaper, per unit of longevity. Perhaps the way to put this is to aim for only one fatal condition per lifetime and to re-design our insurance to anticipate this direction of things. As a side consequence, the longer you delay the grim reaper, the more income will be generated within Health Savings Accounts, more patents and copyrights will expire, more drug competition will lower costs. Unfortunately, the longer you live, the more it will also cost to extend that retirement. The resulting certainty is for greater consumption pushed into old age, and the likelihood is, more money will be spent on living expenses and less on sickness expenses. Any way you turn it, Social Security or it's equivalent will need more money, and Medicare or its equivalent will probably need less.
In later sections of this book, we discuss the creation of last-year-of-life insurance, as a re-insurance step to make this transition more automatic and less a debate about fairness. It takes decades to grow this fund to the point where it can accomplish its intended goal, so if we procrastinate, the problem will someday be upon us, leaving too little time to get it started. In the meantime, it's entirely possible to spend the premium money on short-term expenses, leaving it to our children and grandchildren to worry about. Since it's absurd to suppose toddlers and grammar-school children can be persuaded to fund their retirement by agreeing to consume fewer lollipops, it seems likely the first-movers will be well-to-do-parents, seeing an opportunity to escape taxes or refund future expenses of their own, like college tuition. And then, we might play the counter-cyclic game with the economy. Ingenuity might be applied to linking immigration quotas to domestic unemployment, or top-heavy stock markets. The worse our unemployment pool becomes, the less we need immigrants, and the more we need surplus cash for retirement endowment. If we are destined to have a fairness argument about prefunding retirement, let it be based on considerations like this. At least it has the potential to set ground-rules far in advance and can demonstrate what is politically feasible. For many decades it will be impossible to guess what future costs will look like. but meanwhile, actuaries and statisticians will be encouraged to speculate on how well we are doing, and how much individuals will have to supplement from their own resources. Newsmedia will have room to find examples of people who gambled and lost, or gambled and won, or what is likely to happen to everybody who ignores the problem.
The second optimistic direction to take has been known since Aristotle. Compound interest thrives on increased longevity. Ever since the pirate ships of the sixteenth century, our country has resisted the simple teachings of this mathematical assertion. In the past thirty years, we have crossed over the bend in the curve where it really is possible to derive astonishing multiplications of assets, simply by living as long as most people now survive. Never mind the trivial or even negative interest rates imposed by the Federal Reserve. The Fed has the mandate to maintain stable prices, and it will return to it, after a brief interval of praising inflation as a useful tool to manage a recession. The sixteenth-century pirates liked shares better than gold because they never could tell in advance when a sail they were pursuing into harm's way was a rich prize or a molasses barge. If we had to, we could base our currency on common stock index funds just as well as on debt or credit, and after a brief turmoil, things would be much the same.
And finally, we are edging toward a recognition that healthcare ought to enjoy a common tax exemption. We aren't there yet, but the tax exemption of Health Savings Accounts could close most of the gap for all Americans, and it has already made considerable progress. You could close the gap entirely by the passage of a one-line amendment, but you could also essentially close it by extending Health Savings Account deposit accounts to the point where differences were no longer worth fighting over. Once again, we have crossed an invisible line. When the public sector grows to be more than a quarter of the Gross Domestic Product, tax preferences become dominant and are no longer tolerable. We aren't going to shrink the public sector appreciably, we can't grow the GDP even up to a 2% growth target. So increasing the tax exemption is about all that is left.
We might, if you like, add a fourth direction to take. At 18% of the GDP, healthcare is too large to be distorted by a linkage to employment. Everybody naturally is reluctant to threaten a gift of 20% of his income; indeed, it would seem monster ingratitude to do so. Even though we know it is unfair (after all, life is unfair), and it makes the whole structure unsound to balance the health cost of the whole nation on the one-third of the population which is working -- and on less than half of that third -- who mostly aren't particularly sick. This can't last, folks, and you can say you read it here, first.
Originally published: Monday, February 22, 2016; most-recently modified: Wednesday, June 05, 2019