Philadelphia Reflections

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

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This book outlines the hidden advantages of Health Savings Accounts, which the author had a hand in creating in 1981, along with John McClaughry of Vermont when John was Senior Policy Advisor in the Reagan White House. HSAs had more advantages than we realized. By turning them into retirement funds at the end, not a word was changed but they created a new incentive to save, by adding a new reason to save. By simplifying reimbursement, they exposed the ineffectiveness of third-party policing and saved money to be multiplied by investment. They were a vehicle for subsidies to the poor, a Christmas savings fund for the frugal, and interstate mobility for the rich.

Finally, the idea dawned that such simplicity provided an avenue for a gradual transition to new programs, as well as an escape hatch if they failed. Beads on a string, as it were, with a common retirement fund at the end, as a universal incentive for savings in each program added. It might take fifty years to implement every step proposed. But then, it took fifty years to get into this situation.


The waste in the medical system is mainly a result of poor coordination of its finance design with its central -- medical -- functions. This, in turn, is partly a result of adopting specialized independent functions and greatly exaggerated by imposing the third-party (insurance) system between them. And partly it grows out of a mistaken business-school doctrine that all businesses are the same, regardless of their product. The consequence has been the interposition of two business-school organizations between the patient and his doctor. An unexpected but visible consequence has been a spectacular widening between costs and prices. It symbolizes the collision between the business plan to make a profit, and the Hippocratic Oath to place patient benefit ahead of personal gain. Like a spoiled child, the public demands unreasonable success with unreasonably low prices. The bizarre result has been an unsustainable set of internal cross-subsidies, held together by the illusion that moral justification is a permanent justification for economic absurdity.

This book has attempted to devise a goal and a way to reach it with stretched-out pre-payment in the hands of the patient. But the longer a change is drawn out, the more chance of misjudgment and what you seek most to avoid -- the pain of sudden collapse. The implicit cost has grown so large it could require a century to absorb it. And so the central question emerges as to how much shorter for safety the transition really needs to be. If we crash along the way, it is proof we waited too long. So what we might attempt needs to be better understood. We have developed a system of intimidating our leaders, to the point they are afraid to do the right thing. So the public demands even more vigorous creative destruction. This is your last chance, is what they seem willing to threaten.

By way of answer, it is impossible to answer in advance how long the transition should be before we take the final leap. It is only possible to estimate, by experience, how much steady progress toward the goal is possible. It is only possible to know what rate of progress toward the goal, for what sustainable spurts of time, is enough to satisfy the public, that their leaders even approximately know where they are going.


Originally published: Tuesday, November 22, 2016; most-recently modified: Tuesday, May 14, 2019