Philadelphia Reflections

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

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Pearls on a String:Further Extending Health (and Retirement) Savings Accounts
Pearls on a String: Further Extending Health (and Retirement) Savings Accounts. HSAs are the string. Retirement saving, Privatizing Medicare, and Shifting Childhood Costs-- are the Pearls. Other Pearls to follow.

The Central Argument of Our Times: Balancing Prices Between Costs and Revenue

Somehow, it seems necessary to reiterate the very simple model of the marketplace: the housewife with a basket, bargaining with a farmer at the back of his wagon. The price is set by supply and demand: she has to get home to cook dinner, he has to get home to his farm. As the vegetables in the back of the wagon dwindle, she has to pay more to get something. When it gets later and his wagon is still full, he has to lower his price.

But the Industrial Revolution changed the balance: as mass production grew, more people were hired, including an accountant to keep track of what it cost to make something. The factory couldn't sell below average cost, else it went out of business. Price was still set by supply and demand, so if there was a margin of profit, there could be disputes about how to divide it. If the factory got big enough, some of the workers inevitably had no idea what their contribution was worth. That became increasingly true on both sides of the equation, both for the buyer and the seller. The use of a Health Savings Account at least re-simplifies the price matter for the buyer, who has to authorize each transaction. Ultimately, he says yes he will pay the medical price, or no he won't. Only when he is too sick to care, should the insurance take over the bargaining. Unfortunately, he has no idea whatever about the audited costs of the other party in the transaction, so he has to rely on supply-and-demand to make the price seem right and fair.

In a typical hospital of three or four thousand employees, or a typical drug company with fifty thousand of them, the typical employee may have no idea of the fairness of the top boss, the CEO, or his lieutenants getting big salaries. The employees and stockholders might be underpaid, or the customers overcharged. There was plenty of proof that both injustices could occur, but no proof whether in general, the public was charged fairly for a vitally necessary product. Enter insurance and government control, to fill that gap.

Insurance prices are set by insurance competition, so the anti-trust statutes at least try to be satisfied insurance was not a monopoly. Healthcare is one step removed, and not very transportable. So health anti-trust is a somewhat more local thing, although consumer groups tend to look for foreign comparisons. Governments are a slightly different matter; they can be as unfair as they please as long as they get re-elected. But in a sense, King George III of England and Benjamin Franklin together, long ago discovered the real resistance to that idea. When London's St. Paul's Cathedral was struck by lightning, Ben Franklin (then living a few blocks down the street) was quite reasonably called to consult. He said the church needed a needle-shaped lightning rod. But King George wanted a copper ball, and he was King. In time, King George got his copper ball, but lost much of his kingdom for his royal heedlessness of facts. In the long run, Franklin won the argument, but lost his British loyalty. Apparently, he said words to the effect, "Who the hell do you think you are, telling me about lightning rods?" Historians will differ about which of them was being more unwise.

Fundamentally, the issue in pricing seems to be the currency. No one denies the government must control the currency, and very few want to see a return to the gold standard. Getting more specific, it seems reasonable to allow the the government to water the currency in order to preserve the nation's health -- during some sort of national disaster. But it is totally unreasonable to watch the currency get watered in order to balance the Federal budget without raising taxes, or some other contrived excuse to lower interest rates. The suggestion of funding healthcare with huge internal reserves may not seem pertinent to this imbalance, but it is.

The very idea of a few elected officials making such a decision without public support, calls into question the wisdom of using the power of the public purse to serve as a fail-safe mechanism for overspending on healthcare. If a hundred million voters stake their future healthcare on a stable currency (in the HSA way), it would not prohibit government from acting as re-insurer of last resort. But it would make it a whole lot harder to water the currency, in the name of better healthcare.

Originally published: Monday, September 05, 2016; most-recently modified: Thursday, June 06, 2019