Philadelphia Reflections

Last Four Years of Life -- Reinsurance.

Reinsurance is a term of art for an insurance company buying some insurance from another company, in case its own finances prove inadequate. In this case, we propose the creation of a re-insurance fund whose purpose is to fund the last four years of life, by repaying Medicare for them. At present, half of Medicare expenditures are for the last four years of life, so the ultimate result is to cut Medicare costs in half by funding the last four years of living independently. Depending on the adequacy of Medicare records, at first, it might be necessary to compile the costs and pay them individually. However, the likelihood is the law of large numbers would soon smooth out the costs, so the reinsurance might then reimburse Medicare its average cost. That would not only reduce the administrative costs but speed up the transfers, and apply a little pressure on consistently high-cost institutions to match the performance of consistently low-cost ones.

Maintaining a clear goal of effective cost reduction is a permanent need.

Since half the costs would then be spread over sixteen years instead of ten, the drop of both Medicare premiums and employer withholdings could be considerable. Because of the terminal nature of these payments, the vexing bad-debt issue ought to be simplified for hospitals, who bear the brunt of them. But the biggest step forward would be toward a system parallel to its present trends -- the only costs left might someday be the costs of the beginning and end of life. These costs are universal and soften the subsidy issue. Everything else might be curable someday, but these two matters would always remain. It should not be overlooked how important it is to maintain a clear goal of effective cost reduction. If you know where you are going, you don't waste so much time going somewhere else.

The overall "accordion" strategy is to start with the last years of life, add childhood costs (Look ahead a chapter or two) combining them with maternity costs. To these two ends of an accordion, would be added the second year of life, then the fifth year before death, and so forth alternatively. Meanwhile, the remaining costs of health care can be shared but reduced, as other diseases yield to science and better practices. But most important of all, the patients share some of the costs until the costs are eliminated, however long that takes. The structure of medical care is left undisturbed. To the extent possible the pace of change will depend on the pace of scientific progress, rather than the intensity of complaint about it.

If you know where you are going, you don't waste so much time going somewhere else.

The technical advantages are also considerable. The fund can start with a minimal contribution at birth, and have a full lifetime to generate rising compound interest into a long-term fund, a 500-to-one multiple. As far as the transition is concerned, this system can institute payments (and visible change) immediately. However, it need not contain childhood costs immediately, because everybody who has been born has already somehow paid for himself. The conversion costs are one-time, so they lend themselves to outsourcing to a consulting firm. While a change this large is always disruptive, it is difficult to imagine one more straight-forward, ultimately leading to a massive but gradual reduction in costs for issues which affect everyone equally.

Originally published: Monday, July 18, 2016; most-recently modified: Wednesday, May 22, 2019