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.
Actuaries have one way of totaling up the average lifetime cost of healthcare, which comes to $350,000 per person, in the year 2000 dollars. Their method of the cost estimate is to ask insurance companies to tell them how much they spend at each yearly age. That potentially has three flaws, although perhaps some of the flaws cancel each other out.
The first comes from getting reports from insurance companies, which might well minimize the cost of insurance itself, sometimes estimated as high as 17%, sometimes as low as 2%, for Medicare. The Medicare figure is surely on the low side, with much of its cost attributed to other sources than CCS -- the cost of Treasury and Congressional involvement, for example, or military administration. But as a preliminary guess, let's say 2-17% is a possible statement about this source, or $7000-$59,500 per person, per lifetime.
The second is medical research, which is $33 billion a year, or $1000 per person-year, $84,000 per lifetime, or 4% extra, for the National Institutes of Health, alone. University and pharmaceutical expenditures overlap somewhat, but surely double the research cost to 8%. Research cost is part of the overall equation, as the companies loudly complain. Training professionals is similarly mixed-source, but certainly another 2%.
And finally, depending on how you figure it, there is an uncompensated subsidy of one subgroup by another. The cost of Obamacare is difficult to measure, but surely seems a major cost to the people who pay extra to support it. For the present, we treat the Affordable Care Act as tentatively revenue neutral, which is to say: adding nothing to the non-escrow portion of the Health Savings Account of the age group 26-65, and/or costing no more than inflation adds at 3%. Inflation lends a working supposition to the idea that total lifetime healthcare cost is somewhere around $500,000 in 2017 dollars, plus 2-17% for health insurance, 2% for training, and an unknown amount for ACA. Call it $600,000 a year, with research entirely funded by independent sources. Total revenue expended for health might easily reach a million dollars per lifetime per person by the end of the decade, by this method of calculating.
Bottom Line. Calculating the expenses-consumed we reach about the same conclusion, but both approaches are confounded by cost-shifting. Let's skip ahead to approximate where the new proposal places us. From childbirth to age 25 we estimate $18,000 cost, having shifted $10,000 of obstetrics from the mother to the child, and donating the remaining $10,000 from the grandparent. From age 26 to 65, starting at an HSA balance of zero, we break even by assuming a shifting balance between current expenses and subsidy from other generations; that is, the escrow account keeps growing while non-escrow also grows but falls behind by age 65. We thus project a net voluntary transfer (of $65,000 for a Medicare buy-out) leaving $ 135,000 for retirement. They would surrender $10-18,000 of childhood expenses when the same $10-18,000 is transferred from the working generation and then later re-transferred from retiree surpluses to one grandchild's HSA.This is America, built on several centuries of optimism, or risk-taking. No one needs to warn us of the possibility of miscalculation. We have sometimes, indeed, experienced miscalculation and over-optimism. But if all goes well, we could end a century of risk with bills paid, longevity further lengthened, and money in the bank from betting on the American economy. If things go badly in the stock market and laboratory, or if they go bad in wars and epidemics, our reserves will suffer and planning will work out wrong. Obviously, in a gloomy future, plans must be curtailed. We count on the stock markets to be our banker, but if they appear to be based on a miscalculation, we may once again blame it on the bankers. But let us hope we have the sense to modify our plans, particularly by adding the First and Last Years of Life reinsurance system and dipping into our reserves sooner than expected. That's for volatility. For real miscalculation, major modifications of the delivery system may be needed, but it's difficult to imagine wanting anything more than longevity.
Up the time of death (average age 84) scarcely any new money has been added to the medical system, except for money previously uncomplainingly paid during working years from working-age people toward Medicare, plus Medicare premiums paid by seniors. These funds, which currently produce unmanageable deficits, would now be paid into the Health Savings Accounts for age 26-84 deficits from awkward timing. For the most part, the surplus should replace hardship, for deficits anticipated for age 66-84 in the form of $65,000 for a Medicare buyout at 66 and a $10-18,000 Childhood buy-in at age 84. Surplus or deficit may arise between the HSA and Medicare at age 65, or again between the HSA and Children's funds at 84. If any deficits appear during this interval, they could be paid by extending Trust Funds to age 104 regardless of whether the depositor is still alive, and only then must the remainder being written off as national debt. At that duration, compound interest grows quite surprisingly. During the early transition, these deficits might appear large, but many of them could later be written off easily against looming reductions in Medicare costs caused by a century of research discoveries, or stock market returns multiplied by compound interest.
Originally published: Monday, January 02, 2017; most-recently modified: Friday, May 31, 2019