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

Problems. Problems

Hospitals and doctors have a right to keep their account books, anyway they please. The prices they charge, however, are a matter of negotiation with vendors. The case against mixing medical language into health insurance claims is clear enough; doing so adds considerable complexity and cost, without a clear purpose in changing the price. It makes us do a lot of dumb things. A return to an indemnity system would increase payment efficiency. Subscribers pay the insurance companies premiums in cash; insurers pay the healthcare providers in cash. Cash in, cash out. Payments go out to vendors based on individual costs run up by individual subscribers. Premiums are split among individual subscribers as per capita shares of the total paid out. Research and charity should be accounted for separately, instead of being mixed into general patient care costs. A case for going slow, gradually phasing-out the present system, makes sense. What's the resistance?

Unwinding Cross-Subsidies. No strong argument is improved by exaggeration. Regardless of original intent, the main justification of a system designed to protect teaching and charity hospitals has been researched that extended average life expectancy by thirty years in a century. There are lots of nits to pick but don't ever forget the baby you are going to throw out with the bathwater is what gave you thirty years longer to live. That outcome may have been unintentional -- many outcomes often are -- but a miracle of that magnitude should make us forgive quite a lot, indeed, it ought to make the whole world grateful. But also unforeseen was a convoluted system costing ridiculous amounts of money, at a time we cannot afford it. Never mind it's the best there is; it could be better. Because it's the best there is, improvements should be American improvements, not imitations of how Otto Bismarck arranged things.

Today, and even more when this system was designed a century ago, there is a considerable difference between the research and charity functions of different hospitals. Internal cross-subsidy hides the source of this, but it's fairly simple if you first subtract the different degrees of support the various hospitals receive from donations. Some hospitals do a lot of research and charity, others are located in different regions of differing composition. So a new layer of cross-subsidy was created to equalize the patient premiums for the same service, redistributing the "indirect overhead" costs to consumers to pay the bill. The result was the same health insurance premium, no matter which hospital you chose. To make sure everyone played fair with artificial numbers, the claims then passed through a medical process which we won't bother to describe. Over time, this just became the way things were done. I can remember having lunch with the board chairman of the local Blue Cross, who was also the board chairman of the largest hospital in Philadelphia, and I pointed this inter-hospital subsidy system out to him in 1970. He was astonished.

Since that time, Medicare has become the big gorilla for claims administration, essentially dictating methodology, although the methods have not changed much. What has changed is the composition of payments for research (now largely governmental), donations and charity (mostly much smaller), and administrative cost (which has gone out of sight.) How disruptive it would be to net out the overhead and pay it separately, is unclear to outsiders. I have the feeling hospital administrators are like a man holding a cat by the tail, afraid to let it go.

It is clear enough who benefits from the present blank-check approach, and therefore who would resist change. You certainly do not want to constrain either research or charity. Research added thirty years to longevity, and using the charity patients for teaching purposes is diminishing but still appreciable. In my own opinion, the disparity in luxury, between patients who pay for luxury and patients who do not, is the main dilemma facing reform. We like to say fairness itself provides for equal treatment under the law, but whether a payment was included in the transaction has always been skirted.

As the Affordable Care Act plays out, we get closer to examining whether we must reduce research costs in order to provide private luxury care for indigents. That's a political question, but it largely ignores how luxurious even our free services have become. We might rationalize it after research eliminated about ten particular diseases, but at the moment we can't afford to do it. One who remembers hospitals in the summer without air conditioning, and hospitals built low because elevators were expensive, may see things differently. To provide stripped-down care for everyone just to make it equal to indigent care seems a highly improbable alternative, to just about everybody except politicians. But while no corporation could survive long without a small amount of internal cross-subsidy, times seem to have changed enough to permit stripping out a large part of research and charity costs, funding them separately and perhaps displaying them unmerged on the patient bills. If the public is to decide this, the public must get the facts straight.

In addition, I propose we improve and enlarge Health and Retirement Savings Accounts on its present term and indemnity basis, and spend the following two or three years debating how to switch the rest of life to a whole-life approach as an integrated lifetime system. The cost improvement of whole-life over term insurance is another important argument for consolidating the vertically fragmented payment system. But I'm not really sure it can be done yet, although it deserves investigation. I wish others would explain what they mean by a single-payer system, but I fear whole-life insurance is not the goal in mind. This book envisions three hundred million individual owners, whereas single-payer sounds like just the opposite, a government system which remains a government system, no matter what. To further this debate, the rest of this book is devoted to the pieces we might like to add to HRSA, and how to go about adding them. You may notice taking off your shoe and pounding the table with it, is not one of the recommended options.

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With this point, we move away from the first section of the book, describing, endorsing and explaining Health Savings and Retirement Accounts in their present form, adding only a few tweaks to bring them up to date. In itself, Health Saving and Retirement Accounts are a great improvement over competitive systems, but they could be smoother and less expensive overall if the term of insurance risk were lifelong instead of mostly one-year. But until the whole-life insurance companies give it their blessing, I urge we hold back.

That means insurance might be improved if based on whole-life principles like most life insurance, although I invite life insurance experts to show me differently. Right now, tampering with Medicare is politically impossible, and ensuring children presents special difficulties. With those two gaps unsolved, you just can't devise lifetime plans that will work, so earlier patches probably do get in our road justifiably. The success of whole-life life insurance shows it can be done, sort of, but would require great care and long planning. After wrestling with the issue for years, I have come to believe we should concentrate on what is now legal but not fully exploited in HRSA, while we spend several years planning together before taking additional major steps into the unknown. Therefore, if you are only focused on the immediate future, you can stop reading, right now, and get busy adopting HRSA. But if you would like to know how much better (and cheaper) the idea of individually owned health insurance could be, read on. The country needs to decide whether to make one major improvement and stop or to keep going in an agreed-upon but difficult direction. Launching a thirty-year war is simply not necessary.

Originally published: Thursday, April 07, 2016; most-recently modified: Monday, June 03, 2019