Philadelphia Reflections

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

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Health (and Retirement) Savings Accounts: Steps To Lifelong Health Insurance
If you are a fast reader, we will begin with a ten-minute summary of Health Savings Accounts. At first, it covers future revenue, then spending projections follow. No matter how medical care changes, cost and revenue must remain in balance.

Anticipating the Need from the Beginning

When you touch a hot stove, the signal makes a round trip to and from your brain in a fraction of a second. But we have been told the tip of a dinosaur's tail is so far from its head, its slowed signals required a second brainlet in the tail of the dinosaur to retransmit in a useful time period. Whether the example is accurate or not, the fable illustrates the utility of speedy information. If we construct a system of paying for Medicare with revenue derived from childhood, we can't wait for the signal to travel for sixty years to those expensive Medicare patients. It would be a useful feature for the two ends of the payment system to communicate instantly. That would only be possible if those two ends were in existence from the beginning of the system. Therefore, it might be important to reorder the sequence more or less simultaneously and to establish communication from the outset. That's true throughout the cycle, but it is particularly important for the two ends of it. The "pearls on a string" design concept might take care of this problem fairly simply.

It's preferable, for instance, to insisting all "pearls" should be revenue neutral and then forgetting about it. Doing that would raise the question of what to do if they don't all prove to be neutral. Evict a member of the circle? Impose a reserve requirement and tax it when ends don't meet? Does one pearl borrow a deficit from another pearl with a surplus? Tax the incoming receipts for last year's deficit? What should be done if some pearl is chronically out of balance, year after year? All of these possibilities may well be encountered, and solutions are more likely to be imposed if they are agreed in advance. Such arrangements are somewhat more secure if agreed as a condition of entry, since that forces revenue and spending to be pretty close at the start, making maintenance easier to continue. But what should the others do if one age group consistently produces a surplus? You wouldn't want to discourage that. What if they all produce surplus?

Inevitably, a more ideal solution is to impose or award a monetary solution, either paying an interest rate or awarding one, for internal borrowing. The problem is a monetary one and should have a monetary solution. For a start, the actually achieved investment return of the depositors seems like a good rate to begin. If the problem becomes a chronic one in spite of a common interest rate, some consideration should be given to modifying the content of the investment portfolio. With millions of individual HSAs owned by amateurs, they should be faced with an idealized solution as a default, trying as hard as possible to avoid doing it by regulation, but probably reserving regulation as a fall-back from market failure.

The starting concept is to invest in the whole economy, prospering or suffering as the whole nation does. A penalty fund composed of drug companies, scientific equipment makers, or makers of other medical products, could be constructed to divert the profits of such industries back to the patient population which supports them. If the effect of HSA deficits is to speculate on insider information, such profits might be refluxed back to the HSA as a means of discouraging speculation with the depositors' money. Or encouraging it for that matter, so long as the effect is to recycle speculative profits back to the people being gouged. Eventually, a system might be imagined of the patient population creating a venture capital fund, whose purpose is to stimulate research in products which transform speculators' profits into products which benefit them even more than in financial ways. We're getting close to government control of private industry when the discussion turns in this way, but perhaps some small experiments would be harmless, or definitions could be devised to distinguish venture capital investment from insider trading. We do seem to have a problem with establishing market prices for medical care, and perhaps there is some value in this type of approach. While we are at it, we might also have a look at the Food and Drug Administration, which seemed to be working well until Senator Kefauver meddled with it.

Originally published: Wednesday, December 28, 2016; most-recently modified: Monday, May 13, 2019