Philadelphia Reflections

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

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Introduction: Surviving Health Costs to Retire: Health (and Retirement) Savings Accounts
New topic 2016-03-08 22:42:53 description

In Summary, Where Health Savings Accounts Now Stand.

In the first place, we add "and Retirement" to the title of HSA, to make them Health Savings and Retirement Accounts (HSRA). Many years from now, it might be possible to imagine a reverse in the emphasis. That is, to see them as mainly retirement funds with an associated health care feature, but right now HRSA will do. The retirement option was always there, but little recognized or exploited. It is fast becoming the main incentive to be frugal, and frugal is what HRSA is all about.

To write about Healthcare Financing in the year 2016 is quite a challenge because national politics are shifting so fast. This is actually the third rewrite of this book, this year. Unexpected Supreme Court decisions, unexpected presidential nominees, unexpected implementations of the Affordable Care Act, and unexpected success of Health Savings Account availability have all combined to pester a proposal which seemed static for thirty years. The HRSA you can enroll in today at many local banks is much enhanced since it appeared as a strange new concept, so there is an audience asking for it to be explained. There are also politicians who would like to hear what useful additions might help or hinder it, and other politicians are searching for new ways to approach health care. On all sides, health care seems about to break down, but it actually hasn't changed much. It seems to be holding together better than home mortgages and the rest of the economy, but the politics of it are astounding. So this is what emerges:

The first part of the book, which I hope you have already read, is a description of what many millions of people have already started, a Health (and Retirement) Savings Account that can live together with the Affordable Care Act (which also mandates a high deductible.) You can have your choice of health insurance to go with it, although I prefer a low-cost indemnity plan. If you don't spend the account sooner, it should build up to a meaningful retirement supplement. That's something few people had previously viewed as a necessary outcome of improved healthcare.

Although it was never even contemplated in 1981, the retirement income feature is proving to be its greatest attraction, because nothing else matches it. In thirty years of testing, a few regulatory tweaks seemed advisable, and it would be helpful if this or the next Congress would bring it up to date with about three or four technical amendments. I have gone ahead and described them, on the assumption that neither political party would oppose the changes, at least on the merits. With these amendments, you could still have health insurance immediately available even if the present system falls apart. Increasingly, that's an important thing to say, as the newspapers filled with stories of health insurance deficits.

On the other hand, it could remain a Christmas Saving fund with bare-bones insurance for those who are financially struggling. With deposits over time, it transforms into first-dollar coverage at considerably lower costs. It provides a platform if the government chooses to subsidize seriously poor people. It might prove as much as 30% cheaper to switch, but without a retirement incentive, one can't be certain. It provides a mechanism for developing market-based outpatient costs, using relative values and an improved DRG, and could thus extend market mechanisms from outpatients to helpless-inpatient costs. Overall, it's a pretty fair investment, so you aren't taking as much risk as it would seem. Application to the past century shows no one would have lost money with it, and everybody would have made some, payable as reduced healthcare costs. That last statement includes and disregards World Wars, two world depressions, and countless small ones.

The second part of the book contains some bits of relevant history, mostly cautionary history. If I have time, I plan to issue a fourth book on this topic, focused more expansively on how we got into this tangle.

The third part of this book describes some future ideas which could be immediately debited for more serious savings but would require enabling legislation and considerable suspension of disbelief in new proposals which would upset the existing order of things. If you don't plan to live another ten years, perhaps you needn't read beyond this point, but you might better understand why certain things are necessary sooner. Some might say this is a waste of time because galloping inflation would ruin it. But my position is we need to see what we would be losing by permitting inflation. The fundamental position is pay-as-you-go funding substituted short-term expedience for long-term cost overruns, with unsustainable results. Figuring a transition path out of it is really difficult.

The third section, therefore, contains the novel proposal of insurance-to-insurance re-insurance, perhaps more explicitly termed "first and last years of life reinsurance." It shortens the long transition period by working at it from both ends at the same time. Building on the idea that young people have little need for healthcare, while old folks require a ton of it, the opportunity of compound interest for the first fifty years, paying for the whole thing, is explored. Breaking it into four parts shortens the transition. The concentration of revenue production to the working period of a lifetime also lessens the dangerous system of well people supporting the costs of sick people by an enormous transfer system -- which is what we are unsuccessfully trying to do, today. This is accomplished by creating a second insurance mechanism in reverse, starting with end-of-life reinsurance that everybody will need, and ending with a first-year-of-life addition, which most people have already paid for in some haphazard way or another, so the transition costs are reduced. The long transition time is still the weakest part of this proposal, not lack of money. Reinsurance cuts it in half, someone else will have to cut it further.

For a short summary of it, Medicare takes care of your terminal illness the same as before, but the new insurance reimburses Medicare for its cost. Meanwhile, at the other end of life, first-year pays for a grandchild by slightly overfunding the last year for grandpa, and compound interest builds it back up. This dual system would take fifty years to mature fully, but it could eventually pay for all healthcare out of investment income when it did mature. Perhaps by that time, a majority of the public will accept the idea that investment earning is here to stay. And maybe by that time, research would have whittled healthcare down to those two basic years (birth and death), anyway. This is at least a theoretical way to convert a hundred-year dream into a fifty-year dream, and suggestions are made for how it might be narrowed further. One of its great beauties would be that it would operate almost invisibly while it grows to take over a full lifetime. A second beauty would be to create a long-term plan to follow out of these crushing costs.

The third part of the book is also devoted to a way to phase out much of our present arrangements, gradually, as evolving circumstances make the component pieces obsolete. Remember, fifty percent of drugs now in use were invented less than seven years ago. The first and last years of life would continue much as they already are, but other pieces like CHIP, like Medicare, like healthcare as we mostly know it, will be gradually conquered by research in the next century. Even if you don't believe that will happen, you need planning for it, just in case we need to shift the funds. But if you are as sure as I am that it will happen -- we just don't know how soon-- it will be fun to devise a roadmap for it. However little it might resemble our conjectures, we'll all be better off for some advance thinking.

Originally published: Tuesday, March 15, 2016; most-recently modified: Tuesday, May 21, 2019