Philadelphia Reflections

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

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Confronting Obamacare: Health Savings Accounts

Repeal and Start Over, or Step-Wise Revision?


The Republican Congress which immediately followed the Democratic majority which had enacted the Affordable Care Act without reading it, voted to repeal the act at least fifty times, only to encounter a Presidential veto. Most of them campaigned in 2016 on a platform of immediate repeal. But now they have a Republican President to sign it, but there is a question whether that is really possible. Hundreds, if not thousands, of Obamacare subscribers, are lying in beds, expecting their bills to be paid. No matter how much a Congressman may hate the legislation, there is a question whether immediate, total, repeal would be practical.

In the first place, the Law may be booby-trapped. It was two thousand pages long when it was passed, and ten times that number of Regulations have been signed into having the force of law. Even if a team of lawyers had the tenacity to read it all through, they could easily miss the significance of a phrase, or its relevance to another regulation under a different heading. More likely, there are many sensible modifications which have been made for reasonable purposes. The news media, which were notoriously in favor of Mr. Trump's opponent during the campaign, would surely love to explain these clauses and their sensible purpose since the authors would be glad to leak the tips to them. It probably would take months to find them all.

As a matter of fact, five hundred-bed hospitals regularly shrink down to six or eight lonesome souls in beds on Christmas morning, but they are deluged with elective admissions the Monday after Christmas. By inaugural day the typical hospital is choked with patients, and the typical backlog is not worked off until February. This year, that rebound will probably be particularly bad. You can play national games with this situation, but it would probably require more time to plan it than exists after a surprise election. It could be done for an atom bomb attack, but it would not be smoothly executed for a political contrivance.

So, let's assume a political problem is addressed with political words, fixing up the temporary change-over mess after it has occurred. "With the exception of" or "In the case of" should serve the purpose.

Fill in the Gaps?

Soon after the Affordable Care Act was jammed past the House of Representatives, it began to appear President Obama had not carefully read the Act himself. Otherwise, he might not have claimed it covered every uninsured person, or that it mandated every uninsured person to be required to carry health insurance. It plainly did not do either one. In fact, about thirty million people were left without health insurance. Prisoners in custody, for example, needed some version of government-run healthcare but were obviously unsuited for the sort of health insurance covering the average citizen. Unfortunately, there were a lot of them. Disabled persons were eligible for Medicare, but many of them had not applied for it. Indeed, mentally retarded persons were sufficiently different from mentally disturbed ones, or mentally retarded from other neurologic disabled ones, to require a one-size-fits-all national health program to be modified. And anyway, John F. Kennedy with a retarded sister had started a program for retardation which would need to be integrated with other mental programs because it was probably superior to many, whereas the homeless were treated considerably worse to pay for it, when steam grates of cities replaced half a million state hospital beds for mental incapacity. There were said to be eleven million illegal immigrants turned away from overloaded hospital accident rooms. What about drug addicts? What about the awkwardness of the Constitution's Tenth Amendment? These issues had established the tradition this was a problem for state governments to handle, and definitely not the federal branch. Something was needed, but this wasn't it.

As an aside, the Affordable Care Act expanded its eligibility to State Medicaid recipients, who were automatically eligible, but only after they had established their poverty status. So including them in ACA did not really insure the uninsured, it merely included them before they got sick, instead of having the hospital social worker enroll them after they got sick. Therefore, to claim ACA insured twenty million previously uninsured was an exaggeration of language, as was quickly emphasized when half of the states refused to surrender their Medicaid programs to the new federal one. But half of them did yield, and without this dubious enrollment claim, the thirty million persistently uninsured would have even more appreciably dwarfed the twenty million allegedly included. It must be admitted Medicaid was usually a badly underfunded and substandard program, so the program was improved. But this was not exactly the enrollment boast being made. And as for keeping your own doctor, well, just take a look.

So, what is the matter with forgetting about ACA repeal and concentrating reform efforts on the people everyone would concede were falling through the cracks? This would have been an excellent case to make when ACA was fumbling through Congress several years ago. And it still makes a good argument that Obamacare was politically motivated, not an issue the public needed and was demanding. The public perceived something was the matter with healthcare, and they wanted it fixed. But they left it to politicians to determine what was needed, how to work around the Constitution, and how to pay for it. It failed on all three counts.

My view of what really happened has a lot to do with the untimely death of Senator Edward Kennedy and the events leading up to it. A then-graduate student named Jacob S. Hacker had, ten years earlier, been assigned the task of interviewing the survivors of the Clinton health plan, to find out what really happened to cause it to be withdrawn without a vote. He wrote a book, entitled The Road to Nowhere which stated it had been a deliberate plan to introduce different versions of the proposal in the House, and in the Senate. That made it possible to satisfy everybody. It also made it possible for President Bill Clinton to withdraw awkward sections from each bill in the House-Senate conference committee. What the plan had really been all along would stand revealed, too late to change it.

It would be my suspicion the Obama strategy was the same, but Kennedy's death and the Republican replacement -- after the Senate vote but before the House vote -- forced the Democrats to adopt the Senate version, word for word, as the final bill -- so, no conference committee. That may have been the clever political strategy, but it meant the final Obamacare product was something no one wanted, could not live with, and ended in multiple disasters. Whether it is true the Obama administration positively wanted to fail, I am not sure, and do not wish to speculate. But if they are as contrite as they ought to be, bipartisan cooperation in fixing the problem becomes a possibility and is the spirit behind this set of books. More than any other motive, the opportunity presented is unusual and is the occasion for putting the replacement of the Affordable Care Act at the top of my own priorities for health reform. It can be accomplished, and I am not sure the more pedestrian proposals could be.

Escrowed Subaccounts

Homer, the blind Greek poet, portrays Odysseus on his voyage home from the Trojan War, mistrustful of his own good intentions about approaching the Sirens, beautiful women with an enticing song. Odysseus lashed himself to the mast of his ship, as a precaution against temptation. The modern version is an escrow account, which protects more useful later expenditures against youthful temptations to spend, or else against hysterical reactions to less serious problems. In an escrow account, the owner specifies legitimate use, deviating only with the consent of some third-party custodian. Escrow has in mind the need for healthy young persons to save for more serious illnesses when tempted to spend on less serious ones, while there does remain an outside possibility for early spending to be more sensible. Buying a red convertible roadster with money set aside for retirement might be one issue best restrained, but not absolutely forbidden.

Escrow subaccounts become necessary when long-term saving is more central to some purposes than others. In a Health Savings Account, the bulk needs to be available for bruises and checkups, but an irreducible amount is set aside for serious distant spending. In the general account, partial escrow meets current needs, but a portion is forced into an untouchable future account. An entire age group may be solvent, while any individual member of it remains in serious deficit. So, insurance spread-the-risk covers some, while escrow protects against others. Both have a cost, kept as small as possible. The depositor must keep in mind, his fears invigorate his counterparty's business plan to make a profit. This whole issue depends upon the J-shaped cost curve of health care. The non-escrowed, general funds are mostly limited by deposits into them, but it must be recalled that health insurance itself adds 17% to medical costs. Escrowed funds depend more on frugal spending habits multiplied by investment and compound interest, boiled down to a few tenths of a percent increment over many decades. Long after bruises and check-ups have been forgotten.

Here's the battlefield. Professor Ibbotson of Yale has shown total stock market returns have averaged 11% for a century, and other investigators using other sources suggest it may have been true for two centuries. Never mind that future predictions may not follow past results -- it's all we have to judge by. Three percent inflation reduces 11% to 8% real return. Serious unexpected recessions ("Black swans") come along every 20 years or so, it has been traditional to protect against them by investing 40% in bonds, reducing the real return to 5%. Our calculation of the present rate of healthcare spending requires 6.7% for the plan we will sketch in later. On the other hand, it will be noticed the finance industry consumes investment returns in a manner which reduces 8% to 5% and meanwhile shifts most of the risk to the customer. Because of computers and productivity, it does not seem unreasonable to hope for 6.7% to the depositor. But it won't come easily since the finance industry is resisting fee-only approaches which the Wall Street Journal estimates would add 1% to the depositor's return. Since bigshot investors refuse to pay more than 0.4% for investing large amounts, and since HSA investors do not have a payroll to meet in recessions, it should be possible to approximate everybody's goals. After a struggle.

Most of our projections assume a 7% investment return for a simple reason. Money at 7% doubles in 10 years; $100 turns into $200 in a decade. Since the life expectancy at birth is now about age 83, eight decades of 7% doubles eight times and $100 at birth turns into (200, 400, 800, 1600, 3200, 6400, 12800, 25600) or more than 250 times as much as you started with. This simple calculation allows you to check data in your head. It is a subset of the "rule of 72", which says any interest rate within reason divided into 72 gives an answer of how long it takes to double. Thus, 7% doubles in 10 years, 6% takes 12 years to double, 8% takes 7 years, 10% takes 7. If you prefer, the Internet supplies many compound interest calculators, but be wary of false answers when a computer cache fails to empty completely. If you use an internet calculator, be sure to use one of the simple formulas for checking answers in your head. That summarizes why we used 7% investment returns instead of 6.7%. No matter what you use, projecting the future contains some uncertainty.

If math of all sorts bothers you, the following chapter may be skipped, since plenty of people with green eyeshades will check it. Ultimately, however, all projections of the future involve some guesswork, and therefore probably some errors. I stand in awe of the life insurance industry, which managed to make a stable business out of almost the same problem. They had to pick a premium decade in advance, invest it in a sea of uncertainty, and return a fixed but attractive guarantee decades later -- and still stay in business. That doesn't mean it will work every time, or that just anyone can succeed. But it does seem to show it is possible.

Let's summarize. The present system is going broke. Unless something changes, the Government will be unable to continue its present level of Medicare spending for more than a decade or so. The public is complaining about how much Medicare costs, but in spite of straining at the limits, 50% of its spending is borrowed by bond issues, and it does not provide any retirement benefits beyond present Social Security. Mrs. Clinton proposed lowering the age limit at a calculated extra cost of $7800 per enrollee per year, eight years ago; probably a third more in today's inflation, which the government protests are too little inflation to erase their deficits. And yet, Medicare covers half of all healthcare costs in the nation. As the Affordable Care Act demonstrated, the healthcare needs of the rest of the country cannot subsidize Medicare, Medicare is more likely to be asked to support other age groups. Medicare is the "third rail of politics, just touch it and you're dead." And yet, additional really sick people are moving into the Medicare age group; eventually, we will reach the point where, except for self-inflicted disorders, there will be no health costs except the first and last years of life. If we are on a pathway toward concentrating all, or mostly all, of healthcare costs into Medicare, it is futile to imagine doing away with Medicare. That's where we are, and it is pretty grim, forget about math to prove it. Please look now at our counter-proposal.

We propose to change the financing, not the delivery system. The total revenue is unchanged, the style and methodology of healthcare delivery are unaffected. Continuing bond issues to cover deficits are not contemplated, although one-time transition costs may have to be. Childhood costs are included, obstetrical and pediatric costs are transferred to Medicare. A moderate retirement benefit (nevertheless larger than sickness costs) is provided. Provision is made to include other programs, like additional pearls on a necklace, but only if they are self-sustaining, every ship on its own bottom. Everything is based on incentives and voluntary enrollment; nothing medical is mandatory. It may take longer than everyone wants, and it may include some approaches that offend some people, but at least they don't have to join if they don't want to. Since mathematical precision is impossible, it may fall short of its goals. In that case, it will only partially cover expenses. In that case, it will require supplementation. But it's hard to see how anyone would be worse off. If you think I am just ranting and raving, read on.

New blog 2016-12-17 23:55:03


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New blog 2016-12-17 17:17:51 description

Fill in the Gaps?

Escrowed Subaccounts

New blog 2016-12-17 23:55:03
New blog 2016-12-17 23:55:03 description