Philadelphia Reflections

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Bare Bones of Childhood Health Insurance

The insurance plan for childhood isn't complex or tricky; it just has a lot of parts pinned together. Although it is most readily understood by looking at a graph of it, the following is a list of its main ingredients:

1. The child gets his Health Retirement and Savings Account at birth, presumably with some sort of custodial provision for the person now responsible for his health costs. It's legally his only HRSA from birth to death. The reason for this is to start the compound interest running at birth, adding at least two doublings to the end of it.

2. By the appropriate legal methods, half of his mother's (or collectively his family's) responsibility for his obstetrical and neonatal costs become the child's cost, and half of her other costs for obstetrics/gynecology are assigned to her spouse. The reason for this is to equalize (somewhat) the male/female difference in health premiums, and to shift half of the purely delivery and neonatal costs to her offspring. Employers would be permitted to pay for these costs to her HRSA, just as if they pertained purely to the mother.

3. On the assumption that the above maneuvers roughly equalize cost apportionments, the rest of this discussion is in absolute terms.

4. The pooled transfer fund transfers $18,000 to the baby's personal account, discharging the grandparent from further responsibility after his HSRA makes one such transfer. The reason for this maneuver lies in the maternal birth rate of 2.1, making each grandparent or designee responsible for only one grandchild per lifetime.

5. The grandparent has previously executed permission for $18,000 to be transferred to the fund, in consideration of earlier concessions, and it remains in the pool after his death until it has been used a single time, regardless of other children in the family. If the discharge has previously occurred, transfers are made from funds contributed by childless members.

6. After the funds have been transferred to the newborn's HRSA, they pay for the newborn and neonatal costs, and the balance remains in the baby's HSRA until the 26th birthday, responsible for the child's health costs up to that age. Calculations have previously been made, to aim the child's HSRA to arrive at a zero balance at that age. But the right is reserved to increase or decrease the grandparent/grandchild transfer amount, in order to satisfy program requirements, particularly to maintain the solvency of the system, and to prevent the creation of a perpetuity extending further than an additional 21 years. That is, the transfers can be increased for everyone in the event of cost overrun, and decreased individually, in case of overfunding which threatens the probability of a perpetuity.

7. At age 26 the child assumes personal responsibility for his healthcare during the years of his employability age 26-65 unless other arrangements are made with the Affordable Care Act.

8. At the 26th birthday, it is intended that discretionary funds would be zero, and that long-term escrows have been created, in the range of $200 at birth for a long term contingency fund, $100 at birth for Medicare, and $100 at birth for retirement. The last three funds are an obligation of the parent generation, except in the case of poverty or disability, out of consideration for the transfers in item 2.

9. At any time up to age 45, the individual has the right to sign an agreement with Medicare. It should in effect provide that his Medicare withholding tax should be paid into his HRSA instead of to Medicare. His Medicare cost for the last four years of his life should be paid to Medicare as re-insurance benefits. And his Medicare premiums adjusted up or down to keep the system in balance. At age 65 he agrees to have any projected surpluses in this system paid to him as supplemental retirement benefits or turned into an IRA, except at his death he agrees to allow the grandfather assessment to be drawn once out of his HRSA.

10. All ages and dollar amounts are hypothetical, intended only to suggest an order of magnitude.

11. The lifetime cost of this unified "First and Last Years of Life Reinsurance" is suggested to be $400-$500 per person per lifetime, assuming a 6.5% investment income compounded quarterly throughout. Any additional costs or revenue from the Affordable Care Act are not considered, and passage of appropriate enabling acts is assumed. It seems fair to begin consideration with an additional $1000 of out of pocket costs for misjudgments and transition costs, and it seems fair to warn that many observers consider even 5% net return to be optimistic for a 90-year projection. Most investments are the other way: returns are higher for longer commitments. However, few loans are longer than 30 years, and experience is limited.

Originally published: Tuesday, July 19, 2016; most-recently modified: Tuesday, May 14, 2019