|
|
Walter Baghot
|
On Wednesday April 30, 2008 the Federal Reserve lowered short term interest rates by 0.25% (to 2%) . It had been rumored they would lower rates even more, but it became more than a rumor that two members of the Open Market Committee resisted. Paul Volcker the former chairman gave a speech describing what he had successfully done in similar circumstances, which was to raise interest rates, not lower them. On the same day, Brian Westbury published an opinion piece in the Wall Street Journal, advocating that the Federal Reserve lift interest rates back to their natural rate, which is somewhere north of 5%. A day earlier, John L. Chapman had written in the same publication that the dollar needed strengthening, which is effectively the same as raising national interest rates. All of these dissenters are more fearful of stagflation than the recession, or November elections. All of them are echoing the classic opinion of Walter Bagehot, editor of The Economist between 1860 and 1877 . Nevertheless, the people entrusted to act are still lowering interest rates, and the rest of us retreat before their superior information sources.
Bagehot (pronounced baa-joe) always made his points in few words. The solution to what is now known as stagflation is to raise interest rates to punitive levels while cutting taxes. Punitive levels are of course punishing, and unpopular. Furthermore, since the Democratic candidates for President have boxed themselves into advocacy of raising taxes because President George W. Bush had cut them, the tax-cutting part of Bagehot's terse prescription is also opposed, D versus R. To explain a little, stagflation defines a situation where there is simultaneously rising unemployment and rising inflation. That's not supposed to happen according to the rule of Phillips Curve. The theory behind the Bagehot approach is that the unemployment in this circumstance is caused by the inflation, so you must attack the inflation with higher interest rates, even though a lot of people will be fearful that unemployment is caused by other things, and will go up. Raising interest rates will likely worsen unemployment temporarily, so it takes grit to do it and keep doing it. The industry must be encouraged to invest by dangling inflated untaxed profits in front of its greedy nose. Class warfare opposition is likely to be fierce and unfair. This whole situation prompted one observer to wish we had Gerald Ford back as President because he was the only President in fifty years to have the country's interest at heart. That's perhaps extreme, but the general reaction is supportable.
It begins to look as though some economist ought to make himself famous with a curve. Going from left to right, it would show that inflating the currency by lowering interest rates will initially help a recession and unemployment. But above a certain level, continued inflating will generate more unemployment by injuring employers. Let's call it a Bagehot Curve.
In the reign of the young one who has succeeded his father in the kingship, lord of diadems, most glorious, who has established Egypt and is pious towards the gods, triumphant over his enemies, who has restored the civilized life of men, lord of the Thirty Years Festivals, even as Ptah the Great, a king like Ra, great king of the Upper and Lower countries, offspring of the Gods Philopatores, one whom Ptah has approved, to whom Ra has given victory, the living image of Amun, son of Ra, PTOLEMY, LIVING FOR EVER, BELOVED OF PTAH, in the ninth year, when Aetos son of Aetos was priest of Alexander, and the Gods Soteres, and the Gods Adelphoi, and the Gods Euergetai, and the Gods Philopatores and the God Epiphanes Eucharistos; Pyrrha daughter of Philinos being Athlophoros of Berenike Euergetis, Areia daughter of Diogenes being Kanephoros of Arsinoe Philadelphos; Irene daughter of Ptolemy being Priestess of Arsinoe Philopator; the fourth of the month of Xandikos, according to the Egyptians the 18th Mekhir.
DECREE. There were assembled the Chief Priests and Prophets and those who enter the inner shrine for the robing of the gods, and the Fan-bearers and the Sacred Scribes and all the other priests from the temples throughout the land who have come to meet the king at Memphis, for the feast of the assumption by PTOLEMY, THE EVER-LIVING, THE BELOVED OF PTAH, THE GOD EPIPHANES EUCHARISTOS, of the kingship in which he succeeded his father, they were assembled in the temple in Memphis on this day declared:
Whereas King PTOLEMY, THE EVER-LIVING, THE BELOVED OF PTAH, THE GOD EPIPHANES EUCHARISTOS, the son of King Ptolemy and Queen Arsinoe, the Gods Philopatores, has been a benefactor both to the temple and to those who dwell in them, as well as all those who are his subjects, being a god sprung from a god and goddess like Horus the son of Isis and Osiris, who avenged his father Osiris, being benevolently disposed towards the gods, has dedicated to the temples revenues of money and corn and has undertaken much outlay to bring Egypt into prosperity, and to establish the temples, and has been generous with all his own means; and of the revenues and taxes levied in Egypt some he has wholly remitted and others has lightened, in order that the people and all the others might be in prosperity during his reign; and
whereas he has remitted the debts to the crown being many in number which they in Egypt and the rest of the kingdom owed; and
whereas those who were in prison and those who were under accusation for a long time, he has freed of the charges against them; and
whereas he has directed that the goods shall continue to enjoy the revenues of the temples and the yearly allowances given to them, both of corn and money, likewise also the revenue assigned to the gods from the vine land and from gardens and the other properties which belonged to the gods in his father's time; and
whereas he directed also, with regard to the priests, that they should pay no more as the tax for admission to the priesthood than what was appointed them throughout his father's reign and until the first year of his own reign; and has relieved the members of the priestly orders from the yearly journey to Alexandria; and
whereas he has directed that impressment for the navy shall no longer be employed; and of the tax on fine linen cloth paid by the temples to the crown he has remitted two-thirds; and whatever things were neglected in former times he has restored to their proper condition, having a care how the traditional duties shall be fittingly paid to the gods; and likewise has apportioned justice to all, like Thoth the great and great; and has ordained that those who return of the warrior class, and of others who were unfavorably disposed in the days of the disturbances, should, on their return be allowed to occupy their old possessions; and
whereas he provided that cavalry and infantry forces and ships should be sent out against those who invaded Egypt by sea and by land, laying out great sums in money and corn in order that the temples and all those who are in the land might be in safety; and having gone to Lycopolis in the Busirite nome, which had been occupied and fortified against a siege with an abundant store of weapons and all other supplies seeing that disaffection was now of long standing among the impious men gathered into it, who had perpetrated much damage to the temples and to all the inhabitants of Egypt, and having encamped against it, he surrounded it with mounds and trenches and elaborate fortifications; when the Nile made a great rise in the eighth year of his reign, which usually floods the plains, he prevented it, by damming at many points the outlets of the channels spending upon this no small amount of money, and setting cavalry and infantry to guard them, in a short time he took the town by storm and destroyed all the impious men in it, even as Thoth and Horus, the son of Isis and Osiris, formerly subdued the rebels in the same district; and as to those who had led the rebels in the time of his father and who had disturbed the land and done wrong to the temples, he came to Memphis to avenge his father and his own kingship, and punished them all as they deserved, at the time that he came there to perform the proper ceremonies for the assumption of the crown; and
whereas he remitted what was due to the crown in the temples up to his eighth year, is no small amount of corn and money; so also the fines for the fine linen cloth not delivered to the crown, and of those delivered, the several fees for their verification, for the same period; and he also freed the temples of the tax of the measure1 of grain for every measure2 of sacred land and likewise the jar of wine for each measure2 of vine land; and
whereas he bestowed many gifts upon Apis and Mnevis and upon the other sacred animals in Egypt, because he was much more considerate than the kings before him of all that belonged to them; and for their burials he gave what was suitable lavishly and splendidly, and what was regularly paid to their special shrines, with sacrifices and festivals and other customary observances, and he maintained the honors of the temples and of Egypt according to the laws; and he adorned the temple of Apis with rich work, spending upon it gold and silver and precious stones, no small amount; and
whereas he has funded temples and shrines and altars, and has repaired those requiring it, having the spirit of a beneficent god in matters pertaining to religion; and
whereas after enquiry he has been renewing the most honorable of the temples during his reign, as is becoming; in requital of which things the gods have given him health, victory and power, and all other good things, and he and his children shall retain the kingship for all time.
WITH PROPITIOUS FORTUNE: It was resolved by the priests of all the temples in the land to increase greatly the existing honors of King PTOLEMY, THE EVER-LIVING, THE BELOVED OF PTAH, THE GOD EPIPHANES EUCHARISTOS, likewise those of his parents the Gods Philopatores, and of his ancestors, the Great Euergatai and the Gods Adelphoi and the Gods Soteres and to set up in the most prominent place of every temple an image of the EVER-LIVING KING PTOLEMY, THE BELOVED OF PTAH, THE GOD EPIPHANES EUCHARISTOS, which shall be called that of 'PTOLEMY, the defender of Egypt,' beside which shall stand the principal god of the temple, handing him the scimitar of victory, all of which shall be manufactured in the Egyptian fashion; and that the priests shall pay homage to the images three times a day, and put upon them the sacred garments, and perform the other usual honours such as are given to the other gods in the Egyptian festivals; and to establish for King PTOLEMY, THE GOD EPIPHANES EUCHARISTOS, sprung of King Ptolemy and Queen Arsinoe, the Gods Philopatores, a statue and golden shrine in each of the temples, and to set it up in the inner chamber with the other shrines; and in the great festivals in which the shrines are carried in procession the shrine of the GOD EPIPHANES EUCHARISTOS shall be carried in procession with them. And in order that it may be easily distinguishable now and for all time, there shall be set upon the shrine ten gold crowns of the king, to which shall be added a cobra exactly as on all the crowns adorned with cobras which are upon the other shrines, in the center of them shall be the double crown which he put on when he went into the temple at Memphis to perform therein the ceremonies for assuming the kingship; and there shall be placed on the square surface round about the crowns, beside the aforementioned crown, golden symbols eight in number signifying that it is the shrine of the king who makes manifest the Upper and the Lower countries. And since it is the 30th of Mesore on which the birthday of the king is celebrated, and likewise the 17th of Paophi on which he succeeded his father in the kingship, they have held these days in honor as name-days in the temples, since they are sources of great blessings for all;
it was further decreed that a festival shall be kept in the temples throughout Egypt on these days in every month, on which there shall be sacrifices and libations and all the ceremonies customary at the other festivals and the offerings shall be given to the priests who serve in the temples. And a festival shall be kept for King PTOLEMY, THE EVER-LIVING, THE BELOVED OF PTAH, THE GOD EPIPHANES EUCHARISTOS, yearly in the temples throughout the land from the 1st of Thoth for five days, in which they shall wear garlands and perform sacrifices and libations and the other usual honors, and the priests in each temple shall be called priests of the GOD EPIPHANES EUCHARISTOS in addition to the names of the other gods whom they serve; and his priesthood shall be entered upon all formal documents and engraved upon the rings which they wear; and private individuals shall also be allowed to keep the festival and set up the aforementioned shrine and have it in their homes; performing the aforementioned celebrations yearly, in order that it may be known to all that the men of Egypt magnify and honor the GOD EPIPHANES EUCHARISTOS the king, according to the law.
This decree shall be inscribed on a stela of hard stone in sacred and native and Greek characters and set up in each of the first, second and third rank temples beside the image of the ever-living king.
(C) 1981
The Trustees of the British Museum.
Written 27 March 196 B.C.
1 artabe, a Greek or Persian measure of 52 liters (1.48 bushel).
2 aroura, a Greek measure of 2,735 square meters (0.67 acre).
This page was derived from an English translation of the Greek text of the Rosetta Stone, published in a booklet by the British Museum. this derivation the Egyptian names of the gods appear where the Greek names appeared originally. The Greek measures in the text may have had no Egyptian equivalent, as the Greeks had already ruled Egypt for 136 years. No doubt the size of the jar of wine was also standardized.
The Right Angle promptly invited Jason Mayland, school consultant, a second time, after he had mentioned the first time that Charter schools were "a whole different topic by themselves," during the first time he was here. The room was packed, and the intensity of the audience was something to behold. This is a very explosive subject, and most people doubt the full truth of what they have been told. All right, let's have it.
After all, most of us are old enough to remember when the Philadelphia public schools claimed to be the best in the nation, and Catholic parochial schools were also said to be the best. Right now, there is an uneasy feeling the deplorable state of the schools is responsible for much of the city's decline. There is a general opinion the schools are unsafe, expensive, and failing. It certainly is true the claim is being made that they only need more money, at the same time they are said to cost $100, 000 per year for each teacher to produce deplorably bad results. It all goes to reinforce a general feeling in the public that this subject is important, expensive, obscure -- and we are being lied to.
Our speaker did clarify one important aspect pretty quickly. We have about 40% fewer students than we used to have, which creates vacant school buildings and excessive pension costs from the past, a subject he referred to as "sunk costs." He wasn't sure why we had fewer students, but it's probable that we do, and by itself, this issue would account for a large part of the dispute about how we can overspend and underpay the teachers at the same time. It's probably not the whole story, and it doesn't explain where the students went, or why. But it's a fact of the matter and doesn't sound like a sort of thing which is easily fixed. It might even be something which more money could help, and with the passage of time, might get better just by attrition. With the city finances in bad shape, it probably isn't going to get city money, but the local discovery of oil shale might hold out some hope. Unfortunately, the people who live on top of that shale want to keep the tax revenues for themselves, and it is certainly true they are entitled to something after a century of poverty. A situation in which the rest of the state was supported by a Philadelphia surplus, whereas it has been true for decades that the rest of the state is supporting Philadelphia.
|
|
String Theory Charter School
|
About half the schools are now charter schools, but the difference in teaching quality is more controversial. Essentially, the parents say there is a big difference, and politicians are keeping their children from getting it. The teachers say the difference is very small, and the extra cost is very large. The proof of the quality of teaching is difficult to obtain, and worse still is in the hands of the teachers themselves, who want very much to slant the results in their own favor. Even if they don't slant the results, they maintain the good students have been skimmed off, leaving them with inferior students. The rest of the arguments have the same quality: disputed results, and testy disputes. The rest of the Right Angle Club tended to agree with an earlier speaker that random scholarships show that private schools make a big difference until we learned that Charter schools are not private, but part of the school system. So, let's repeat what we think we know: private schools would make a big difference for the kids, but maybe charter schools won't. If we could change the charter schools to be more like private schools in some way, perhaps we should do that. Since we don't know what the essential ingredient in private schools would be, perhaps the conversation should be between private schools and charter schools. Heaven forbid we change the public schools. If we could find out what the difference is, and put it in a bottle, we are ready to make the charter schools drink it. That's what the public schools are demanding, but after all these years of malfunction, their credibility is very low.
There's even another thing we could do. Every seventy years, perhaps we should change the political machine in charge of the city. Come to think of it, that would be about now.
Now that we have described Health Savings Accounts as the string linking a string of pearls, we must have a second look at one of the pearls, because in a sense it is two of them. Medicare, it may be recalled, only pays for 80% of it's patient's liability, while the other 20% is the patient responsibility. That is, Medicare has a 20% co-payment, which amounts to a 20% reduction in benefits. Most people who can afford it will purchase a secondary insurance policy from Blue Cross or a commercial insurer, to cover this 20% liability, thus restoring the 20% of benefits at their own expense. Those who cannot afford such policies will often apply to state Medicaid, to become what is known in the trade as a "dual eligible". Those who are not eligible for Medicaid will often just take a chance on their personal resources, often becoming a source of the hospital's or doctors' bad debts. It is thus a curious feature that much of a hospital's bad debts come from the lower middle class.
Co-pay has a long history and a bad reputation. Most textbooks will classify it as a form of patient participation in his costs, and a restrainer of abusive claims. But it long ago developed the practical role of adjusting premium cost to available budget during group negotiations. If you don't get sick, you will have no co-pay obligations, but if you do get sick, it extinguishes 20% of the cost. So, although Medicare co-pay secondary insurance responds to the 20% co-pay feature of Medicare, in company negotiations for group policies for younger employees, it can be 30% or 27% or some other number, because the negotiators discovered that doing so reduced the cost of the insurance by 30% or 27% or whatever. It greatly facilitated middle-of-the night negotiations for the limits of coverage, with calculations on the back of an envelope, and probably had little relationship to restraining medical overuse. Quite obviously, it created the need for secondary insurance, with a double dose of administrative costs and profits. So an expensive and largely futile feature has persisted for seventy or more years, deeply embedded in Medicare for fifty. Usually the carrier for the secondary insurance is the administrator for the 80% which the government pays, but nevertheless, two confusing reports ("explanation of benefits") for two different insurances come trickling into the patient separately, two or three months after one treatment took place. But it does save the government 20% of its cost, so it persists. You will notice this 80/20 formula makes no effort to define or assign the extra insurance company costs and profits, which are negotiated privately. If utilization is affected little by co-pays, costs are nevertheless directly escalated by using two insurances to pay for a single medical encounter. Three insurances, if you include Major Medical policies.
In the case of Medicare, there is another quirk. As mentioned earlier, about 50% of the government's share of the cost, is borrowed. Insurance companies often borrow money, too, but usually not attached to a specific policy. While there may be hidden arrangements between Medicare and its secondary carriers, on the surface it would appear the secondary carrier's 20%, actually represents 33% of Medicare's cash flow. If that's the case, nothing short of a bull in the China shop will dislodge the preposterous dual-insurance system. Furthermore, it seems likely this cash leverage is playing an important hidden role in the ACA negotiations with large group employers. Eventually, this leverage is what might threaten ACA with disruption, but that particular issue gets us off the topic of Medicare, though the issues sound similar.
Having earlier reviewed the finances of the 80% of Medicare, and found that financing it is rather precarious, let's look at the more modest goal of financing the 20% co-payment insurance with the available resources. That's a more modest goal, and a more achievable one, one which would at least remove a large source of public confusion and dissatisfaction. It might, for example, explain why it takes weeks or months for a computerized "explanation of benefits" to appear at the patient's home after he has long since forgotten the charges it matches.
* * *
The main purpose of eliminating the Medicare co-pay feature is to eliminate the extra cost of a second insurance administration. Once you grasp the unlikelihood that a copayment would affect utilization if you only feel its impact after you go home from the hospital, you see the argument that it does not affect inpatient behavior. Outpatient costs might be another matter, although even that has not been demonstrated, and the alternate use of debit cards by Health Savings Accounts seems to point in the other direction (see page ). The conclusion would have to be that you have two choices: reduce the duplication of insurance companies, or reduce the duplication of policies. Just exactly which approach would save the most money requires greater access to the data and more expert analysis. Superficially, it seems likely the outpatient use is greater among younger people, resulting in a greater saving after compound interest is applied. A change of this magnitude requires more investigation than nonprofessional outsiders are likely to provide.
Nevertheless, eliminating the copay in some manner would provide a leveraged advantage. The extraction of the cost of the last four years of life
would cut Medicare direct costs by 50%, and the elimination of copay would reduce it further. This is an example of the sort of leveraged cost reduction we have in mind. Migration of the center of medical care, from the hospital to the suburban retirement village would be another.
If we were commercial insurance investors dealing with a failing health insurance partner, no additional money infusions would seem sensible until Medicare stopped losing so much money. Because we are talking about a government program however, we must resort to the stance that a new program does not have to accept old debts, only new ones that it had a hand in creating. Therefore, this proposal does not include the repayment of old debts, regarding them as the government's problem to resolve. In many ways, Medicare was a noble achievement, but even the richest country in the world cannot afford to run a 50% deficit indefinitely, in an entitlement program grown so large. Undertaking to correct its mistakes does not imply assuming its debts. Furthermore looking forward, a looming retirement funding crisis, or at least equal size, threatens to replace it as the largest consequence of its heedlessness. Was this lengthening of longevity by thirty years a bad thing? Of course not. The bad thing was to let finances get into their present state before addressing them. The bad thing was to kick the can down the road, for fifty years. Because so few people seem to understand them, let's next review a quick summary of Medicare finances.
The Basic Funding Structure of Medicare. Approximately one-quarter of Medicare is paid for by its premiums, often derived from reduced Social Security payments, (a circular solution, if you regard prolonged longevity as a hidden cost of Medicare). Another quarter of Medicare is paid for by a 3% payroll withholding tax on younger, working people. (Unfortunately, this money is immediately spent, in a process quaintly known as "pay as you go"). And finally, half of Medicare expense ($260 billion annually) isn't paid for at all, it's just debt, initially laundered into general taxation and then floated away by bond issues.
Suggested Solutions:
1. Extract Income From the Float. To attack the problem we would probably need to do many complicated things, but the first step might be pretty simple. We once contemplated a transfer-entrant into this revised program be required to sign an authorization to redirect payments for Medicare cost on his behalf to his own Health Savings Account. (Incidentally, it might also include an accounting of copayments and subsidies.) From the beneficiary's point of view, nothing changes except the postal address of his payments, which becomes his Health Savings Account. If he is between the age of 25 and 65, his withholding tax is so directed; if he is already on Medicare, it is his Medicare premiums. That's a payment stream which stretches sixty years, overall. Depending on his present age, first it is one, and eventually, it is the other. That wasn't so hard, was it?
The money now starts to earn investment income, which is new money for the program, with the surplus eventually going through the Health (and Retirement) Savings Account into retirement funds. One way of looking at this rearrangement is to say the beneficiary has been given the money to pay his bills but relieved of the obligation to pay old debts. He has also been given extra latitude to invest the income and use the profit to fund his retirement. What does the government get out of it? It potentially gets an abatement to annual increases in debt, plus the hope the retirement incentive will restrain cost escalation. If you wish, you could say the principal value to the government is creating the incentive at the end of this and other programs which join the string of pearls. Meanwhile, both parties can pray that science will reduce future medical costs, not raise them. But however it turns out, this solution, unfortunately, does turn out to be too small to make a significant change in the management of Medicare's debt, so we go on to other approaches. However, it raises an interesting point for a brief digression:
Using the shorthand that Health Savings Accounts ought to produce at least a 7% return, and money at 7% doubles in ten years, a quick look at pre-financing present Medicare payments overall is a little disappointing. In the Secretary's report, Mrs. Sibelius tells us annual Medicare expenses are about $560 billion, and cash revenue aims to be half that, or $280 billion. If the cash revenue only resided in the individuals' HSAs, it might add 7% revenue or 19.6 billion per year. That sounds like a worth-while amount, and it could be approximated it would apply to each yearly age cohort for 65 years (45 years of wage withholding, followed by 20 years of Medicare premiums). Since the system has been in place for many years, it has reached a steady state, net of demographic and economic variations. So an age cohort would collect a lifetime average of 65 x 19.6, or $1,274 billion, or 1274 divided by 500 million individual recipients or $2548 per lifetime. It certainly sounds as if the maneuver would be worthwhile because the government would be no worse off, and the subscriber would have $2548 more in his HSA.
But Michigan Blue Cross has estimated the average person spends $350,000 per lifetime for health, half of which is covered by Medicare; and so 25% of that is Medicare revenue. Even by the roughest sort of estimation, this proposed re-direction of revenue would save less than 1% of the cost of Medicare, because revenue is such a small part of the cost. To put it another way, this approach might be an important funding device if indebtedness were not such a large part of Medicare's budget. We have not calculated the effect of compounding, which might theoretically reach several times its original size as stated revenue. On the other hand, neither have we recognized the annual increase in Medicare spending, which its trustees report to be 5.7% per year. Both 7% and 5.7% are fragile projections of the future, one of Medicare spending and the other of the stock market. As long as annual increases in cost are so close to investment revenue from cash revenue, any hope of substantial investment revenue is at the mercy of minor yearly volatility. and cannot be relied on. The best to be reasonably hoped for this proposal is to stop the growth of Medicare deficits. It should be done, nonetheless, but there is no great political advantage to be gained from emerging with the problem apparently unchanged.
The second weakness of this approach is a variation in proportionality between revenue and expenses among various government programs. Last year, the Social Security budget was $888 billion, while the total Medicare budget was $618. A quick glance at my secretary's pay stub reveals she has five times as much withheld for Social Security as for Medicare. The approach of investing the withholdings until the day they are spent is a good one. But if widely applied, would have drastically unexpected consequences unless other things are changed.
Additional Proposals to Supplement Medicare Income. Since Medicare is so underfunded by its revenue, the hope of extracting additional income above 7% is pretty dim. Therefore, the hope of significant cost abatement must come from three other proposals, all of which require the investment of fresh funding. That is, they are investments, not miracles:
2. The Second J-Shaped Curve, Within Medicare. All healthcare costs with the exception of premature birth, genetic disorders and the like, are migrating to older age groups. One of the main sources of disruption is the migration of costly illness from working people to people on Medicare.
But even within Medicare, costs are also migrating into later life. Half of Medicare costs are paid on behalf of the last four years of someone's life. Since Medicare extends about twenty years after retirement, half of the total Medicare cost would vanish from its annual budget as a result of placing this burden somewhere else. This might be called the Last Four Years of Life Reinsurance, a component of the First and Last Years of Life reconstruction of healthcare finance, to be described later. The consequence is partly funding forward toward death, partly funding backward toward childbirth, and so reducing the transition time. The present system, it may be recalled, always funds forward toward death, and buries childhood in "family" plans. That's the background.
But death is the end of the line; costs can't get pushed any later, although curiously, revenue just might be. Therefore, the unique features for transitioning Medicare to some other system reside not only in the universality but also the finality of the cost of terminal care. This entity has a soft lower border, but we know that half of Medicare costs are concentrated in the last four years of life, creating a simple surrogate, although not a pure one. Paying this version of terminal cost separately allows the remaining cost of Medicare to be cut in half, by spreading it over the remaining sixteen years. Transition time is also halted. Moreover, smaller pieces are considerably easier to fit into a transition scheme, so the ultimate product fits the cost curve more comfortably. By the way, the last years of life are not the same as the last years of Medicare, and can only be calculated in retrospect, after the death of the individual.. This is the reality which allows one insurance to be paid out as costs are incurred, and a second, a re-insurance, to repay the first one after the facts are in. Funding the re-insurance from birth allows compound interest to pay for most of the magic in a forward direction. And making obstetrics/pediatrics into a gift from a parent to child, allows it to fund backward. Now, we are beginning to approach the way Nature makes us pay our bills.
3. Contingency Fund. But wherever is this money, half the cost of Medicare, to come from? Terminal care is predictable the day you are born, so you might as well fund it when it is cheap. A separate fund could be imagined, but for simplicity, we lump terminal care financing into a general contingency fund. So we next propose to complete the Medicare revenue issue by adding a contingency fund, essentially substituting a subsidy of $1 at birth for a deficit sixty times as large at age 65, and depending on compound interest to make up the difference. (It may well require about $100 up front, but less if we extended its duration by two or three decades.) How fast it would actually grow in the intervening 65 years would become evident before then, and appropriate adjustments made, but the person or agency to make the decision should be specified with care. The sixty to one estimate comes from 7% doubling principal every ten years, 2,4,8, 16, 32, 64 doublings in sixty years. How much to begin with is actually the last calculation, adjusted to balance the books as experience gathers to improve the estimate, and adjustment applied to its duration.
4. Extended Contingency Fund. The contingency fund ending when Medicare begins might anyway generate a 64 to one magnification of the initial deposit. However, it could extend to 250-to-one if its boundary were the day of average death (now 84) or 1000 to one if it added 21 years to the date of death and ended where the common law now says perpetuity begins (one lifetime plus 21 years). Innovations of this sort make many people squirm, but the underfinancing of Medicare in the past leaves little opportunity for conventionality in the future. All of this magic is a function of the mathematics of compound interest; objections to it are sociological, not mathematical. With leverage of 1000 to one, it is difficult to imagine an inability to pay the front-end $100, when $100,000 is so far in excess of what actually seems needed.
Sweeping proposals of this sort, however, do tend to dump their problems at the far end, so the ultimate goal is best stated to be funding part of the individual system backward to childbirth, partly forward to death, and still having a contingency fund for safety. That is, the system as a whole may be volatile and require internal borrowing, but each individual HRSA ends up with balanced books. By implication rather than calculation, in ninety or so years, you get rid of the Medicare debt. That's approximately how long it took to create it, too. The system does not "cover" retirement, except perhaps for bare-bones Social Security. It merely closes the individual books after death as described in other sections. Last-Year Coverage is also designed to save money, and thus eventually to generate some funds for retirement, but not likely at first. First and Last Year re-insurance is intended to resemble an accordion, quickly going to the first 25 years of life and the last 4 years of life, then slowly adding other years in the middle. Somewhere along the line, it might even shrink somewhat.
At the moment, it appears terminal illness usually lasts four years, a process which might be thought of as "breaking the cocoon of health". Half of Medicare expenditure occurs in the last four years of life, leaving quite a surplus when the other sixteen years of cost are redistributed. In any event, the "accordion" effect is available for use in the transitions.
This completes our proposal for refinancing Medicare. The first step is to eliminate the supplemental copayment burden by substituting pre-payment for the 20% revenue, and meanwhile letting small front-end investments grow to appreciable size for the remaining 80%. Until we see what must be done to integrate the ACA with the rest of healthcare, it's likely to use up our political capital with the public, just to make that start. Secondly and later, it reduces itself to stabilizing cost increases by first investing the float created by the J-shaped cost curve, combined with cutting forward-financing loose from the debts of the past. Even a program allowed to concentrate on its 50% forward shortfall, must employ some novel approaches to produce annually $250-300 billion in either cost cuts or new revenue. We suggest compound interest is entirely capable of achieving it mathematically by making a total stock market investment starting at birth and continuing to death, or even 21 years after death. All that is necessary to do it on paper is to invest sufficient money at first. Unfortunately, there is an invisible limit to how much the populace is willing to tolerate as an investment, even on such bargain-basement terms, which I postulate to be about $500 per newborn child. Will that suffices for a 65-year investment? Possibly. Will a hundred-year investment cover it? Almost certainly. Do we as a nation have the patience for a hundred-year investment or the degree of honesty in our agents to leave such huge amounts un-pilfered for a century? That's far less certain.
How Would This Combined Approach Make Medicare Solvent? Medicare has become so over-extended that conventional approaches are soon exhausted. Like any other proposal that might work, this one relies on approaches which are usually best avoided. First of all, it depends on such long time periods that unexpected events would be the rule, not the exception. Many Congresses of many political parties would have to understand it and leave it unharmed for a century. Secondly, such huge amounts of money are involved that tampering, embezzling and fraud are not merely possible, but inevitable. These two problems would confront any reformer. From these two obstacles emerges the third one. Individual Health Accounts would have less risk than gigantic single payers because some people will be stupid, reckless and venal. If you make up your mind in advance that you will rescue everyone who doesn't succeed, the whole system will be no better than a single gigantic reinsurer overseen by either an idiot or a crook. The opportunities for illegal gains will exceed the opportunities for honest managers. Therefore, smaller is better than bigger, simpler is better than complicated, and success is never guaranteed.
Medicare, possibly fundable, retirement income, probably not. To do the quick math in your head, it is useful to remember money at 7% doubles in 10 years. The Medicare deficit doubles every fourteen years. Since Medicare revenue is half of its expenses, its revenue invested at 7% would generate 3.5% of expenses, or just about enough to cancel out the annual rise in the deficit. Current interest rates do not achieve that, but current rates seldom do. During the eight years of the Obama administration, low-cost total market indices averaged 11% gain. Much of this never reached the average stockholder because the finance industry absorbed it, but things seem to be changing quickly. The pharmaceutical industry may possibly be over-represented in the index, but we are proposing to make the average patient become an average stockholder. Let's take the four components:
#1. The Contingency Fund. is designed to be overfunded for contingencies, so it is hard to say how much it should be. The most conservative investment period would terminate at death, but expand to whatever age is necessary, up to age 105. That means the $500 initial deposit never varies. Congress might, however, decide to vary the initial deposit to use a shorter time period. It makes no mathematical difference, but its political difference might be considerable.
#2. Delay Liquidating the HRSA at death. Although things get a little threadbare beyond this point, there is no reason to hold back borrowing for a purpose. We are at the point in the compound interest curve were holding the funds for ten years after death would multiply the original subsidy by 128 instead of 64. We are paying the Chinese much less than that for the Treasury bonds, and they would probably be greatly relieved to see a way of recovering their investment. It may not sit very well with some people, but it would surely guarantee repayment. At the moment, repayment looks rather doubtful.
#3. Investing the Pay as You Go. The problems created for others in the payment process have to be reckoned with. We propose the individuals continue to pay/go temporarily for half of the withholding tax receipts, effectively unchanged because half the cost has been transferred but the withholding tax revenue remains constant. What is essentially involved is to balance the problems of the current budget staff against the problems of passing acceptable legislation. But once more, the mathematical "sweet spot" is comparatively easy to calculate, but the political effects are more intangible. It is probably impossible for an outsider to have a firm opinion.
Additional unknowns in this equation are how much nursing home costs from state Medicaid plans would eventually emerge as Medicare deficits. It is common knowledge that although custodial costs are not allowable costs, states have found ways to make them a federal responsibility. We also understand the HRSA owner may get less than 7% income on his deposits. Although the Chinese debt would stop rising, past indebtedness remains unpaid. Current Medicare bills would have to be paid for probably another decade, and may well rise in size. Ultimately, the way to balance the books is to raise the contributions. So, privatizing Medicare might or might not make it cost less, but would greatly relieve its present costs. Funding for past debts will have to come from other sources. However, contributions from the two contingency funds could easily be increased.
#4. The Last Four Years of Life Half of Medicare costs appear in the last four years of Life. By reimbursing Medicare for the last four years from other sources, Medicare's average cost is cut in half. but the withholding tax remains the same. Therefore, we come closer to breaking even in several decades, although we probably won't quite make it.
#5. Simplicity, Simplicity. To begin with the opposite of simplicity, two quite unacceptable new ways to manage the medical payment system suggest themselves. One alternative is to consolidate the whole industry, with one corporate administrative arm assuming the payment tasks for everybody, along with the whole delivery system. That scarcely seems appropriate management for a health complex which is already too big to manage. But it seems to generate many current proposals, especially those coming from the bureaucracy itself. Another idea, based on its resemblance to whole-life insurance, proposes a giant company or government department to concentrate on health finance, doing it for everybody. It might seem suitable for an insurance company, a medical school, a computer company, or a medical society. That seems to be what these organizations would like, but it immediately creates additional complexity, because computers only work if you specify some response to every contingency in advance. In a sense, this version of "Single Payer" would be a throw-back to the days when only a big company or a big government could afford to own a computer.
Is medical finance really so complicated most people couldn't handle it by themselves? Let's remember the anguished words of the Tzar: "I don't run Russia. Ten thousand clerks run Russia." What the Tsar was saying, was the problem isn't individual complexity, the problem is the huge volume of simple problems. For example, if we proposed to butter everybody's bread, it wouldn't be hard to do, it would be hard to manage.
Is medical finance really so complicated most people couldn't handle it by themselves?
|
|
|
Transfer Slips, and Monthly statements, Only. So, yes and no to computers, which what all this amounts to. Abundant cheap computers tempt us to use them for simple tasks, at the risk of making the simple task complex. (In another generation, a self-correcting code may correct this problem, at the same time it widens the opportunity for vandals.) The proposal made here instead is a confederation of otherwise free-standing organizations (The Pearls), hiring their own experts, feeding into a common channel of Health Savings Accounts owned by individual patients (The String). Individuals could hire consultants if they pleased but the decisions should be so simple the average high school graduate could cope with them. One standardized lifetime account form, which serves as a transfer system for a single person's various balances. Sort of like a checkbook. It provides a common incentive to be frugal for future retirement, and a common way to multiply such savings.
If that won't suffice for some tasks, we are traveling down the same path as the income tax, and should re-consider such high-handedness.
There might be many networks, as long as their balances are uniformly transferable and they each link ultimately to a transferable retirement fund (The Goal) and a transferable investment fund (The Multiplier). Such networks might grow very large, but still, remain quite simple, and decisions which belong to the patient would remain within his control. The only outward purpose of such paperwork would be to transfer credits of the owner to debts of the same owner or vice versa, with the adjusted balance ultimately coming to rest in his retirement account, creating a common incentive to be medically frugal. They would maintain adequate records (which mostly no one ever reads), an information source, and a designated HSA representative, but their outward form and purpose would remain recording a transfer slip. If you want a simple system, give it to individuals who have an incentive to keep it simple. Don't give it to people who have an incentive to make it complicated.
If you want a simple system, give it to individuals who have an incentive to keep it simple.
|
|
|
This particular feature has a political element. The American public now imagines it gets a bargain with Medicare, somehow getting a dollar of healthcare for fifty cents, and therefore a treasure they are unwilling to surrender. In all probability, no organization except the government could function long with such a deficit, so taking the deficit away from the government necessarily places it in the hands of someone who must balance his books. Somehow, legal protections for the patients against the debts of organizations which participate in the confederation must be established, so they can occasionally provide benefits at a loss, but only within stated limits. Called a "loss leader", the situation is a common one. Two additional savings multipliers must be added, although they will be explained shortly, along with two important investment designs. There are four large sources of new revenue within Medicare:
Investment Mechanisms.We promised to discuss two investment mechanisms which might help matters. The first is the tendency of compound interest to rise with time. We have already shown above that adding another decade to the example will have an exaggerated effect on the outcome. This is an inherent quality of compound interest which crept up on us as science has conquered early death, and should have wide application in the future. As we learn how to avoid borrowing and learn how to be successful creditors, it should become a commonplace to rearrange financing to optimize it.
The second new model is index investing. As international borrowing has vastly increased the money supply, interest rates seem to have settled at a new low. Bonds have always been a zero-sum investment, but recent trends seem to set an even lower boundary. Common stock has more risk and volatility, but John Bogle and others have shown that it is practically useless for an ordinary person to buy anything but total-market common-stock index funds since the fees charged by intermediaries wipe out any profit from active investing. We recommend a heavy emphasis on this method. Beyond that basic approach, other strategies may be considered as a way to add fractions of a percent to total returns, best avoided by people without experience, or lifetime years to recover from investment misjudgments.
In Final Summary of Privatizing Medicare. Even with considerable twisting, Medicare is so underfunded, no way can be found to self-fund it without adding two to five hundred dollars per person as a pump-primer, adjusted for being added at birth. That's a great bargain of course, but it will meet far more resistance than five hundred dollars is worth, mostly centered on the long transition time. Even with tinkering, it would require forty or fifty years at the most optimistic. In the Pearls on a String concept, the deficit might be made up by surplus generated by other programs, but it is unlikely to be able to identify such a cross-investor. The Affordable Care Act does not look as though it is going to generate a surplus, for example. In the long run, further privatization of the IPO variety seems the only way to shorten the transition time to the point where the public would accept waiting so long. Nevertheless, although complete resolution of the problem is probably presently impossible, there is no reason why partial solutions would not help.
At first, the British Empire wasn't even British, it was English. English history, English religion, English unification, even English court intrigue, and gossip. When Sir Francis Drake brought home the Spanish gold, it was welcome enough, but it was just part of the English Revolution, on its way to becoming the British Empire. English settlers were just a curiosity, like the "Indians" they brought home. England was Ben Franklin's idea of home, left behind by his prosperous family because of largely religious quarrels. The silk-dye Franklins, by the way, had to start over at the bottom in Boston because Cotton Mather's crowd wouldn't accept their money, or see their side of a silly English religious quarrel. England was, in fact, everybody's home, intellectually, although that was fast coming to an end. Because of the plague and the fire, lots of things were coming to an end, and lots of other things were just starting. For now, the important thing was they were people of former substance, wide acquaintance, and thoroughly English. Whiggish and out of favor perhaps, but not seriously in rebellion.
When they got to America, the whole Franklin family was rambunctious and supported itself with sister Jane's invention of bar soap, her father's candle-making shop, and brother James' printer shop. They got in trouble somewhat with a straight-laced community, but most of their troubles would be called "scrapes" and "quarrels" of a family trying to re-establish itself in new circumstances. When he got to Philadelphia, Benjamin repeated the performance. Arriving at a strange town as a penniless teenager, he turned a print-shop into a chain of newspapers and was ready to retire to his hobbies and politics at the age of 42. Along the way, he learned to keep his mouth shut.
Franklin was not an aristocrat, but there were scarcely any aristocrats who did not seek him out. In spite of writing one of the most famous autobiographies in America, few people could be certain of his religion, his marital status, his politics. He was definitely not a Quaker, but for a while, he led the Quaker faction. He never went past the second grade, but would have won a Nobel prize if there had been such a thing, and financed his own research. He spent eighteen years living in London, inventing a musical instrument which pleased Mozart, and regularly visiting Parliament. When the King's Saint Paul Cathedral was struck by lightning, the King sought his advice. When King George III rejected this advice, the personal quarrel turned him into a personal enemy of the King. As a consequence, he finally turned rebel, joined the Continental Congress, and eventually helped write the American Constitution. At the Albany Conference of 1754, he had proposed a Union of the Thirteen Colonies and lived to see it a reality in 1789. But in spite of that, it took a personal confrontation with King George III to convince him Independence was a good idea. In spite of his greatly praised autobiography, no one suspected it of him. No one seems to have known.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.