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.

Transition to Revised Medicare: Pearl #2, Part 4

Transitions to new programs from old ones, are usually difficult. The transition from a post-paid system of Medicare to a pre-paid one is no different; but the huge size of the program makes it harder, deficit spending of the past fifty years makes it worse. Congress tends to act a little like Queen Victoria, outlining what it wants to achieve, and leaving the details up to the professionals on the Congressional staff, or the regulations applied by the Executive branch. The following are therefore only suggestions.

Up to this point, we have alluded to the possibility of a "last four years of life" concentration of expenses creating ample decades for compound interest to accumulate on savings, before the savings are later needed to reimburse Medicare for them. However, some people will die within the immediate next year after enactment, so some expenses will surely begin immediately. (That would be awkward, so it might be better to begin after a delay, starting with a cushion of the accumulated revenue; but temporary deficit spending, partial yearly payments, and a trailing transition fund are all alternative possibilities.)

The revenue for the early years would probably best come from absorbing the 20% co-insurance premiums, as the useless co-insurance is wound down. Since the last four years are said to contain half of the costs, they could be approximately matched to about 6% of the annual co-payment revenue (3% of annual Medicare cost) during the first fifteen years of Medicare, and declining amounts until the copayment are completely absorbed. That leaves a small shortfall for the copayment fund, which would, in turn, be compensated by either the contingency fund or Medicare premiums, recognizing that increases in Medicare debt would be stabilized by investing the annual wage withholdings instead of spending them in "pay as you go"(see above).

After a certain amount of juggling, the consequence would be 1) the elimination of copayments, bad debts from this source, and double insurances, 2) the elimination of "pay as you go" for wage withholdings, and 3) the establishment of a permanent terminal care reimbursement system, independent of Medicare but reimbursing it.. Future scientific advances might somewhat reduce the cost of terminal care, but in general medical scientific improvements in productivity could all be applied to the health of younger people. As the system matures, the half-ing of cost for Medicare should become apparent to younger generations, but it will take time for the compound interest to build up to that level. At some point, the system should stabilize, and reverse funding for children could begin-- protected in the meantime by the fact that birth costs have already been absorbed for people who are currently alive.

Essentially all we have done is eliminate the secondary carrier and applied its revenue (plus a little massaging) to pay for terminal care. What happens to the premiums formerly paid on behalf of the secondary insurance? In all fairness, they should be added to the Medicare premium, because it is now carrying 100% of Medicare instead of only 80%. Everyone is better off, except the people who can't afford secondary insurance. Why not give them a tax deduction by allowing the Health Savings Account to pay their health insurance premium? After sixty years, they probably deserve that break.

Originally published: Wednesday, September 21, 2016; most-recently modified: Friday, June 07, 2019