PHILADELPHIA REFLECTIONS
The musings of a Philadelphia Physician who has served the community for six decades

251 Topics

(1) Obamacare: Spare Parts for a Book
Maybe these should have been included, but it was decided to leave them out.

(2) Obamacare: Spare Parts for a Book
New topic 2015-07-22 16:02:02 description

New Health Savings Accounts
New topic 2015-07-07 03:12:18 description

Health Savings Account Proposals, a Summation
New topic 2015-06-23 01:15:40 description

Multi-Year, the Future of HSA
We've spent a lot of time on the 1980 version of Health Savings Accounts. It's already rolling along in action, with only a couple of suggested additions to make it better. But there are several other variations which would need some legislation, but could possibly take the basic idea into new directions.

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Proposal for Health Savings Accounts, Extended (N-HSA)

On June 26, 2015, the United States Supreme Court announced its decision upholding the status quo of the Affordable Care Act. As Justice Jackson once put it, "We are not final because we are infallible, we are infallible only because we are final."

It would thus appear that some or all of Obamacare will continue at least as long as until the next presidential election. For now, the Affordable Care Act is the Law, and so my first proposal is for a health care program that takes care of everything else, leaving a deliberate gap for whatever might be coming from the Administration.

That is, we address the healthcare of children, the permanently unemployable, and the elderly. This implies the eventual replacement of existing programs designed to help these people, including Medicare, and thus forces me to do what most politicians are reluctant to do, which is to criticize Medicare. I am confident I can make a good case for doing so, but its most controversial feature is its most needed one, to reduce its cost without terrifying the beneficiaries. The basic strategy of my proposal is to give Health Savings Accounts to everyone, but to omit any changes or contributions from the age group 21-66. That results in no small effort, however, because our focus programs require a transfer of at least 68% of healthcare costs from people who are not seriously sick, to the places where costs more naturally concentrate. That is the case for every broad-based plan ever proposed, but this is the first one to concentrate on nothing else, because we are blocked from diluting them with the costs of well people. Since we cannot force well people to agree to funds transfer, we merely relieve them of the need to pay the costs, and expect they will take advantage of the opportunity. Similarly, we cannot force sick people to make use of the program, so we must rely on their recognizing the advantages.

First Year and Last Year of Life Coverage. We start with the simplest case. Everybody gets born, everyone dies; there are no exceptions. Furthermore, these two years are the most expensive ones, and likely to remain so. Medical advances of the future may raise the costs of terminal care, but even that is uncertain, and the costs may go down. And it is likely to remain true that just about everybody who dies, dies at the expense of Medicare, so we start with firm data, readily available. To simplify boundary disputes, using the calendar dates of the first year and the last year eliminates that particular fuzziness. Furthermore, obstetrics and terminal care contain elements found in no other age groups, concentrating the scientific issues. When I first presented the idea to a medical audience, one wit rose to the microphone and recalled a town in Pennsylvania that passed a law stating: "Every fireplug in the town must be painted white, ten days before a fire." He was of course quizzing me how you knew when the last year of life began. The answer is, you wait until the person dies and count backward, and you get the cost data from Medicare. Since everyone knows how imprecise hospital costs may be, it is probably better to reimburse average terminal care costs for the year and the region. If the patient retains Medicare coverage, a simple funds transfer to Medicare simplifies both administration and coverage disputes.

The big problem is the long transition, unless Medicare and the Administration should agree to prime the pump. Therefore, the program must remain voluntary, and may even have waiting lists at times, depending on its popularity. Certain tricks known to financial managers may help to shorten the transition to self-sufficiency. For example, CSS reports that the first year of life absorbs 3% of healthcare costs, and the last year about 6%. That is, $10,000 should be more than ample for the first year and $20,000 for the last year of life. By externally supplementing the first, the surplus after ten years can be applied to accelerating the funding of the last year. But even doing that could take twenty-five years to complete the process. Funds could be borrowed with a bond issue, of course, but eventually that would raise costs and prolong the transition. "Sweet spots" can be found, but at the best, the transition is a long one, certainly spanning several turnovers of political power. Nevertheless, at the end of it, these pivotal medical coverages would acquire a major funding source, and other programs could experience a major reduction, up to 9%, in cost duplication.

In this, as in other parts of the book, we round off investment returns to 7% when we really expect only 6.5%. Using the old adage that money doubles in ten years at 7%, the reader can verify approximate accuracy by doing the sums in his head as he reads.

The Rest of Childhood, Seniority, and Permanent Unemployability. So that was the first Proposal 23: , to which the second one is a natural extension. All children are dependents of their parents, and the heavy costs of obstetrics (magnified by the unusual concentration of malpractice claims) make it impossible to devise pre-funding schemes. Young parents are often strapped for funds, so the lack of pre-funding is a growing problem in a Society uncertain of its family structures. Therefore, we have devised the grandparent roll-over. Tort reform would improve but not eliminate this work-around. Therefore children are lumped with senior citizen costs, and hence to a buy-out of Medicare.

The permanently unemployable are included by using surplus funds from the other two, mainly because there is no way to establish eligibility except by starting a program and seeing what it costs if you monitor it. Those may not seem like adequate reasons to lump them together, but it will be seen the details feel congenial, to do so. That is always a good sign in new proposals.

Multiple Programs in Multiple Years. The transition problem is always vexing in a new program, but reaches some sort of new limit when the ambition is to work toward uniformity and maximum patient control, across the entire nation; fragmentation always sounds easier. The temptation is always there to order and threaten to use force, but it must be resisted. Furthermore, enormous cost savings are readily available if programs are multi-year, and cost is a paramount issue, here. It's hard to beat compound interest, the longer the better.

We explain the reasoning of the grandpa transfer in the next section. It's simple (one grandchild's worth of costs per person), it uses surplus cash after a grandpa has no further use for it, and it comes at an optimum time on the compound interest curve. It greatly stretches the lifetime for compounding, but it is readily suited for a limitation on perpetuity. It even follows established family patterns, although families are under considerable stress, these days. True, it jumps over a new barrier for the first time, but it doubles the duration of compounding, skips over the issue of leaving a dark hole around Obamacare, skips over the issue of pre-funding obstetrics, simplifying a host of unnecessary red tape obstacles. And it reduces costs by half.

No Employer Involvement, No Obamacare Contributions. At first, it seems like a relief not to have to deal with the two thorniest issues of the past, but in fact it doesn't quite do that. If the patient has duplicate coverage, there must be cordial negotiations to see which coverage should be dropped. And while significant savings can be readily demonstrated, there will be some residual revenues which have to be transferred along with the patient or the new program will starve. The complicated systems we have evolved to facilitate cost-shifting will probably invalidate old statistics, and perhaps some old ideas. Transferring six percent of the gross domestic product is by definition a tedious, difficult task, even if you reduce it to four percent in the process. Everyone is hesitant to name the individuals who will lose their jobs, or their pensions, or their seniority, if the program shifts significantly. But if the savings aren't significant, what good are they?


Not Casualty, but Life Insurance

In effect, the HSA concept could also become the basis for a whole-life insurance company, not merely an individual do-it-yourself project. Such a company would pay for health insurance instead of funerals. I'd love to see the whole-life insurance companies adopt the idea, which comes close to imitating their existing business model. Whole-life insurers could manage the money professionally, and would create much-needed competition for old-style health insurance companies, now operating on the "use it or lose it" principle. The large amounts of money the savings account approach would generate, almost discredit the idea as exaggerated; we'll therefore let the reader do some of the math. Perhaps you do need to dangle astonishing incentives to get people away from the something-for-nothing term-insurance approach which is now threatening to shoot itself in the foot. Full transition is a fifty-year project, but long-term progress usually doesn't seem so long looking back on it, and it gives everybody a chance to claim some credit. Remember, it's only long-term lack of progress you really need to fear.

Proposal 22:At this point, it probably would be wise to add some legislation clarifying the ground rules, since several professions would have to cooperate in allowing a new line of business for whole-life insurance, which seems a desirable outcome.
Let's not quibble. It might even be legally or financially possible to adopt one approach, year by year, or the other, spread over a life cycle; and hurry it all up by making it into a mandatory monopoly. But it is inconceivable that half of a whole unwilling country would tolerate a mandatory health system they widely resent. Preferably, it seems possible to implement parts of both approaches voluntarily right now, without major disadvantages except extra cost. You can do that, or you can read the Lifecycle-HSA as just an alternative proposal to consider. The main dream offered here prefers to cut average lifetime health costs in half ($175,000), but might be expanded to full lifetime coverage of $350,000. Or reduced by individual vendors to some more affordable fraction, such as by a reduction of average costs by only a quarter ($85,000) or a tenth ($35,000). To do this requires some legislation, but $35,000 times 300 million population is scarcely trivial. Even Bill Gates isn't worth half of that.


Better, but More Complicated: Lifetime HSAs

Health Savings Accounts are a big improvement over traditional health insurance, and this book stands behind them -- as is, without major adjustments. Go ahead and get one right now, regardless of what other coverage you have. Let me repeat: Their secret "economy" lies in keeping everyone spending insurance money as carefully as he would spend his own -- but not being too dictatorial about it. No one washes a rental car, as the saying goes, so you can't act as if someone has committed a crime, just because he doesn't do everything for you. But just you let the individual keep what he saves, and millions of HSA owners will find ways by themselves to save up to 30% of traditional healthcare costs. HSAs provide an incentive for the medical consumer to shop more carefully, and consumers seem to respond. The difficulty is, some people are too sick to worry about rules. So, substitute a catastrophic high deductible for your present coverage if the law lets you do it (which is presently uncertain) but go ahead with a Health Savings Account and add to it when you can.

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Looking ahead to what might follow HSA, is one of the main reasons for doing it. {bottom quote}
In practice, the Savings Accounts (and their debit cards) are almost entirely used for out-patients, where an effective shopper can wangle a reduction in costs. For hospital bed patients there is no choice but to allow the hospital to set its own prices, but those prices must become more fair. Fair prices are mostly an accounting effort, concentrating on reducing indirect overhead cost attributions, with a few legal rules to ensure uniformity. But everyone must wait for that to be made possible. Having repeated it all as a preamble, we now look ahead to how we might extend it to lifetime coverage, instead of the year-at- a-time variety. Looking ahead to what might follow it, is one of the hidden features of doing it.

One further idea. We have all assumed that catastrophic coverage is basic. If everybody ought to have something, he ought to have a very high deductible for a bare-bones indemnity policy. But just consider an alternative: insurance for the health costs of the first year of life, plus the last year of life. That's technically simple to do retrospectively, although it takes most people a few moments to get it. And 100% of the population would receive both benefits, at a restrained cost by remaining uncertain just what the last year of life is, until it is too late to run up the cost. Indeed, transition costs would be minimized by eliminating the first part of costs for the existing population, and phasing in the ongoing expense. Ask your friendly actuary; he'll get it, immediately.

Revised DRG coding and Methodology. Either way, if you guarantee to provide something for everyone, you better have a plan for controlling its extent. Inpatient costs affect patients too sick to argue about price, so hospital bed patients might as well be presented with some different options. They are more or less suitable for the DRG approach, but we have gone to some length to show what's wrong with the DRG coding methodology. The coding, among other things, must be fundamentally modified.

DRGs ("Diagnosis Related Groups") are something Medicare started, which with more precise coding could be made ideal for the catastrophic insurance part of Health Savings Accounts. Medicare now contributes half of average hospital revenue, so its rules effectively dictate most other methods of hospital reimbursement. There are many problems with Medicare, but paradoxically, escalating inpatient cost is not one of them. Inpatient billing has been so muddled, most people do not realize that DRG has been a somewhat overly effective rationing device. Office and hospital outpatient costs are quite another matter, so the whole hospital accounting system has been turned on its ear. In particular, components of inpatient costs must be re-linked to identical outpatient charges, in the instances where they are really market-based. Then, a system of relative values needs to be applied to that base. For that, we will need a Google-like search engine for translating the doctor's exact words into a more precise code.

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Single payer is not a solution, it is pouring gasoline on the flames. {bottom quote}
The Single-Payer Delusion. If the eyes glaze over at this endless complexity, take a moment to unveil this thing called single payer, which sounds as though it ought to be a great simplification. It's just Medicare for all ages, what could be better? Entirely too many people now spend their money on luxuries which they really can't afford. In a sense, the whole country plays make-believe that serious sickness is for old folks, who will be generously cared for, by Medicare. The facts are that Medicare is already running unsupportable budget deficits, and depending on foreigners to lend the money to pay for it. Extending that process to a lifetime of single payer is not a solution, it is pouring gasoline on the flames.

Furthermore, both catastrophic insurance and last year of life insurance are more similar than they sound. What most people don't appreciate is the risk of a catastrophic health cost is rather remote in any given year. But in a whole lifetime it is almost certain to happen at least once, which is often the last year of life. When you consider an entire lifetime, you cannot delude yourself it won't happen. Someone must plan for it, and the books must roughly balance.

Add Many Years to Lifetime Compound Income. Mathematically, it is fairly easy to show that healthcare costs will go down at the end of life; it's cheaper at 95 than at age 85. But that's probably a trick. We don't know what diseases will terminate life a century from now, so we can't count them. They are not cheaper, they are just unknown, and so we record the cost of the survivors of the race of life, not the average runner who will take time to catch up. If we are looking for lifetime healthcare revenue, recognizing that practically all revenue is now generated by members of the working age 21-66, a lifetime system needs to extend its revenue even further to other lifetime age groups. It seems only right that everyone's longevity should be included, but laws may currently block the way.

It would help a lot to include the first 21 years, adding several doubling time periods. It would also be useful to let HSAs run for a full lifetime instead of mandatory rolling-over to IRAs at 66. Obviously, the idea behind terminating at age 66, was that Medicare would take care of everyone's medical needs. But with time, Medicare has consistently run big deficits, to the point where it is 50% subsidized by other federal funds, or by international borrowing. Adding forty years would multiply extra investment returns by four doublings at 6%, and at little cost to the government. This would be particularly useful during the transition, when many people start their Accounts at zero balance, but at a more advanced age. It would be a significant improvement to all these programs to end them with at least one optional alternative; terminating a program at a fixed age is something to avoid.

Proposal 17: Health Savings accounts should include the option to be individual rather than family-oriented, and therefore should include an option to extend from the cradle to the grave, rather than age 21-66, as at present, and consider options for Medicare buy-out and transfers within families between accounts.

Permit Tax-free Inheritances of Funds Sufficient to Fund One Child's Healthcare to Age 21. In other words, we should make some sort of beginning to the knotty difficulty of creating state responsible for what used to be the family's responsibility. A second adjustment would recognize that essentially all children are dependent on their parents for healthcare support, until they themselves start to work. Children's health costs are relatively modest, except for costs associated with the first year of life, and the bulge would be even greater if insurance shared obstetrical costs better between mother and infant. Even as we now calculate it the baby's health costs, from birth to age 21, are 8% of lifetime costs. A cost of 3% for the first year of life alone, makes lifetime investment revenue essentially impossible for many young families to support lifetime costs, because the balance starts from such a depleted level. So, the idea occurs that a considerable surplus appears when many people become older, if grandpa could effectively roll enough of his surplus to one grandchild or designee. The average American woman has 2.1 children, so it comes close to a 1:1 ratio of children to grandparents. Young parents often have a big problem financing children, whereas in a funded system, the transfer from grandparents could be supported by a fraction of it by application of compound interest, even more so with passive investing.

With two statutory adjustments along these lines, financing of lifetime healthcare by its investment revenue becomes considerably easier.

Whole-life Health Savings Accounts.(WL-HSA) It has developed in my mind that Lifetime Health Insurance would become even better for cost savings, with the addition of one more feature, copied from life insurance, and combined with the needed DRG revision. It is, broadly, the difference between one-year term life insurance, and whole-life insurance, which offers multi-year coverage, even lifetime coverage. Life insurance agents frequently argue that whole-life is much cheaper in the long run than term life insurance. What they may not tell you is that most of the profitability of term insurance derives from so many people dropping their policies without collecting any benefits at all. Comparing apples with apples, whole-life insurance is not just cheaper, but vastly cheaper.

For those who don't understand, a one-year term insurance covers illnesses for a single year, and then is open for renegotiation. By contrast, a whole life policy covers a lifetime of risk, overcharging young people for it in a certain sense, but meanwhile investing the unused part for later years when health risks are greater. Does that start to sound familiar? The client is seemingly overcharged at first, but in the long run his lifetime insurance cost is far cheaper. Not just a little cheaper, but just a fraction of what a chain of yearly prices would cost.

It doesn't mean you must enroll at birth and remain insured until death; it means any multi-year insurance becomes cheaper, depending on the age you begin and the age you cash out -- often at death but not necessarily. What makes the saving so astonishing is the way life expectancy has lengthened. We have been so uneasy about rising medical costs we didn't much notice that people were living thirty years longer than in 1900. As a rule of thumb money earning 7% will double in ten years; in thirty years, it become eight times as big. If you lose half of it in a stock market crash, you still end up with four times as much. This is what would be new about lifetime accounts, and it can be easily shown that overall savings for everyone would be more than anyone is likely to guess.

Let me interject an answer before the question is asked. Why can't the government do the same thing? And the answer is, maybe they could, except two hundred years of history have shown the American public is extremely averse to letting anyone be both a player and an umpire. For more than a century at first, there was a strong political resentment of the government running a bank, or even borrowing money with bond issues. Yes, the government could invest in businesses, but we would then be guaranteed a century of rebellion if we tried to have government do, what any citizen is free to do on his own. Indeed, a review of Latin American history shows what disaster we have avoided by retaining this negative instinct to allowing the camel's nose under the tent. The separation of church and state is a similar example of how our success as a nation has been based on gut feelings. The separation of business and state is at least as fundamental as separating church and state. And for the same reason: we instinctively avoid having the umpire play on one of the teams.

Proposal 18: Congress should authorize a new, lifetime, version of Health Savings Accounts, which includes annual rollover of accounts from any age, from cradle to grave, and conversion to an IRA at optional termination. Investments in this account are subject to special rules, designed to produce maximum safe passive total return, and limiting administrative overhead to a reasonable, competitive, amount. The account should be linked to a high-deductible catastrophic health insurance policy, with permanently guaranteed renewal, transferable at the client's annual option. The option should also be considered of linking the HSA to a policy for retrospective coverage of first year of life and last year of life, combined.

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Lifetime Health Savings Accounts (L-HSA) would differ from ordinary C-HSA in two major ways, and the first is obvious from the name. In addition to meeting each medical cost as it comes along, or at most managing each year's health costs, the lifetime Health Savings Account would try to project whole lifetimes of medical costs and make much greater use of compound income on long-term invested reserves. The concept seeks new ways to finance the whole bundle more efficiently, and one of them is health expenses are increasingly crowded toward the end of life, preceded by many years of good health, which build up individually unused reserves and earn income on them. Since the expanded proposal requires major legislation to make it work, it must be presented here in concept form only, for Congress to think about and possibly modify extensively. This proposal does not claim to be ready for immediate implementation. It is presented here to promote the necessary legal (and attitudinal) changes first needed to implement its value. And frankly, a change this large in 18% of GDP is better phased in gradually, starting with those who are adventurous. By the time the most timid among us have joined up, the transition will have become routine. As a first step, let's add another proposal for the present Congress to consider:

Proposal 19. Tax-exempt Hospitals Should be Required to Accept the DRG method of payment for inpatients from any Insurer, althoug the age-adjusted rates should be negotiable based on a percentage surcharge to Medicare rates. The DRG should be gradually restructured, using a reduced SNOMED code instead of enlarged ICDA code, and intended to be used as a search engine on hospital computers rather than printed look-up books, except for very common hospital diagnoses. Also to be considered for those who are too sick for arms-length negotiation of hospital costs, are uniform reimbursements among insurance carriers and individuals, and between inpatients and outpatients, including emergency rooms, as well as a major expansion of specificity in DRGs.

Overfunding and Pooling. Lifetime Health Savings Accounts, beside being multi-year rather than annual, are unique in a second way : they overfund their goal at first, counting on mid-course correctionsto whittle down toward the somewhat secondary goal of precision -- amounting to, "spending your last dime, on the last day of your life". To avoid surprising people with a funding shortfall after they retire, we encourage deliberate over-estimates, to be cut down later and any surplus eventually added to retirement income . For the same reason, it is important to have attractive ways for subscribers to spend surpluses, to blunt suspicions the surpluses might be confiscated if allowed to grow. An acknowledged goal of ending with more money than you need, runs somewhat against public instincts, and is only feasible if surpluses can be converted to pleasing alternatives.

Saving for yourself within individual accounts is more tolerable than saving for impersonal groups within pooled insurance categories, but probably must constantly defend itself against the administrative urge to pool. Pooling should only be permitted as a patient option, which creates an incentive to pay higher dividends for it. The menace of rising health cost at the end of life induces more tolerance of pooling in older people, whereas small early contributions compound more visibly if pooling is delayed. Young people must learn it gets cheaper if you don't spend it too soon. The overall design of Lifetime HSAs is to save more than seems needed, but provide generous alternative spending options, particularly the advantage of pooling later in life. Because it may be difficult to distinguish whether underfunded accounts were caused by bad luck or improvidence, the ability to "buy in" to a series of single-premium steps should both create penalties for tardy payment, as well as create incentive rewards for pooling them. This point should become clear after a few examples.

Proposal 20: Where two groups (by age or other distinguishing features) can be identified as consistently in deficit or surplus -- internal borrowing at reduced rates may be permitted between such groups. Borrowing for other purposes (such as transition costs) shall be by issuing special purpose bonds. These bonds may also be used to make multi-year intra-family gifts, such as grandparents for grandchildren, or children for elderly parents.

Smoothing Out the Curve.There is considerable difference between individual bad luck with health costs, and systematic mismatches between average costs of different age groups. Let's explain. An individual can have a bad auto accident and run up big bills; as much as possible, his age group should smooth out health costs by pooling within the age cohort to pay the bill. On the other hand, compound investment income sometimes favors one age group, while illnesses predominate in a different experience for another. It isn't bad luck which concentrates obstetrical and child care costs in a certain age range, it is biology. No amount of pooling within the age cohort can smooth out such a systemic cost bulge, so the reproductive age group will have to borrow money (collectively) from the non-reproductive ones. With a little thought, it can be seen that subsidies between age groups are actually more nearly fair, than subsidies based on marital status or gender preference, or even employers, who tend to hire different age groups in different industries. On the other hand, if interest-free borrowing between age cohorts is permitted, there must be some agency or special court to safeguard that particular feature from being gamed. All of these complexities are vexing because they introduce bureaucracy where none existed; it is simply a consequence of using individual ownership of accounts to attract deposits which nevertheless must occasionally be pooled later. Because these borrowings are mainly intended to smooth out awkward features of the plan, every effort should be made to avoid charging interest on these loans. However, if gaming of the system is part of the result, interest may have to be charged.

Proposal 21: A reasonably small number of escrowed accounts within a funded account may be established for such purposes as may be necessary, particularly for transition and catastrophe funding. Where escrowed accounts are established, both parties to an agreement must sign, for the designation to be enforceable.(2606)
Escrowed Subaccounts.Both Obamacare and Health Savings Accounts are presently expected to terminate when Medicare begins, at roughly age 65. Nevertheless, we are talking about lifetime coverage, where we have a rough calculation of the cost ($325,000) and the Medicare data is the most accurate set, against which to make validity comparisons. We want to start with $325,000 at the expected date of death, spend some of it in roughly 20 installments, and see how much is left for the earlier years of an average life. Then, we repeat the process in layers down to age 25, and hope the remainder comes out close to zero. There are several things missing from this, most notably how to get the money out of the fund, but let's start with this much, in isolation for the Medicare age bracket, age 65-85. We are going to assume a single-premium payment at age 65, which both life expectancy and inflation in the future will increase in a predictable manner, and changes in health and health care eventually reduce healthcare costs, not increase them. Not everyone would agree to the last assumption, but this is not the place to argue the point.

We know:

(a) The average cost of Medicare per year ($10,900)

(b) How many years the beneficiaries on average are in the age group (18).

(c) Therefore, we know how much of the $325,000 to set aside for Medicare ($196,200),

(d) and know how much a single premium at age 65 would have to be, in order to cover it.($196,000 apiece)

(e) We thus know how much all the working-age groups (combined as age 25 to 65, 60% of the population) must set aside, in advance for their own health care costs, when they reach Medicare age($196,000 apiece).

(f) and by subtraction therefore how much is left for personal healthcare within age 25 to 65 ($128,800).

(g)We can be pretty certain average Medicare costs will exceed those of anyone younger, setting a maximum cost for any age.

(h) Alll of this calculation ignores the payroll deductions for Medicare and premiums. Since this is nearly half of the cost, it changes the conclusions considerably, depending on how you treat these points. During the transition phase, several approaches may be necessary. Furthermore, the size of accumulated debt service is unknown, or what the plans are, for it.

Shifts in age composition of the population produce large changes in total national costs, but should by themselves not change average individual costs. What they will do is increase the proportion of the population on Medicare, thereby paradoxically making both Obamacare and Health Savings Accounts relatively less expensive. Obamacare can calculate its future costs with the information provided so far. But the Health Savings Account must still adjust its future costs downward for whatever income is produced by investments. We don't yet know is how much each working person must contribute each year, because we haven't, up to this point, yet offered an assumption about the interest rate they must produce. We should construct a table of the outcome of what seem like reasonably possible income results. There are four relevant outcomes to consider at each level: the high, the low, and the average. Plus, a comparison with what Obamacare would cost. But there are two Medicare costs: the cost from age 25 to 64, and the cost from 65-85, advancing slowly toward a future life expectancy of 91-93. These two calculations are necessary for displaying the relative costs of Medicare and also Obamacare.

Children's Healthcare. Someone is sure to notice the apportionment for children is based on income rather than expenses. The formula can be adjusted to make that true for any age bracket, and a political decision must be made about where to apply an assessment if income is inadequate; we made it, here. We have repeatedly emphasized that if investment income does not match the revenue requirement, at least it supplies more money than would be there without it. Somewhat to our surprise, it comes pretty close, and we have exhausted our ability to supply more. Any further shortfalls must be addressed by more conventional methods of cost cutting, borrowing, or increased saving. In particular, attention is directed to the yearly deposit of $3300 from age 25-65, which is what the framers of the HSA enabling act set as a limit, somewhat arbitrarily.

Privatize Medicare? And finally but reluctantly, the figures include provision for phasing out Medicare, which everyone treats as a political third rail, untouchable. But gradually as I worked through this analysis, I came to the conclusion that uproar about medical costs would not likely come to an end, until the Medicare deficit was somehow addressed. I believe we cannot keep increasing the proportion of the population on Medicare, paying for it with fifty-cent dollars, and pretending the problem does not exist. So it certainly is possible to balance these books by continuing our present approach to Medicare. But it would be a sad opportunity, lost.

In summary, we have concocted a guess of the outer limit of what the American public is willing to afford for lifetime health coverage ($3300 per person per year, from age 26 to 65), and added an estimate of compound income of 8% from passive investing, to derive an estimate of how much we can afford. From that, we subtract the cost of privatizing Medicare if our politicians have the courage for that ($98,000 -196,000) and thus derive an estimate of how much is available for health care of the rest of the population ($128,000). Because of the longer time spans available for compound income, at 8% it would cost more out-of-pocket to finance the $128,000 than the $196,000; it would actually be financially better to include it. The non-investment cost, on average, would only be $ 148,000 per lifetime, for an expense which otherwise almost insurmountably crowdis out everything else in the national budget. It might be $98,000 less because of Medicare payments, or it might prove to be more, depending on interest rates and scientific progress. Believe it or not, that could be a wide improvement over the present trajectory.

That's how it seems when you approach the topic of multi-year health insurance. But there are several exciting additions, when you really get into it. It plods along, and then it explodes.


Commentary: Agency for Mid-Course Corrections

Among the many things we don't know about the future, is the average longevity eighty years from now. The whole-life insurance industry prospered when they sold policies assuming American longevity of 47 years in year 1900, and it turns out to be 83 today, still growing fast. If longevity should get shorter, as it recently has in Russia, life insurance would go out of business. Since we can't rely on projections, we have to rely on early observations, and make mid-course corrections.

President Lyndon Johnson both underestimated how much Medicare would cost, and how politically successful it would be. He was in no position to multiply 50 million Americans times $11,600 per year per person, times 22 years per person. That simple sentence tells you all you need to know about current Medicare costs, but who knew? Nor could he know how fast longevity would grow, or how fast the cost would rise. But we can monitor the trend, extrapolate, and revise the extrapolation. Medicare was a medical success, which had to be paid for; and President Johnson's successors might have found that out a little sooner, and changed course.

For reasons obvious and not, the nation would be well served to create a monitoring agency linked to the guidance of future Congresses in charge of the Health Savings Accounts we already do have, and maybe some related issues. When we start envisioning lifetime coverage , it becomes even more vital to have a permanent agency to sort out what is happening. Such an agency will make mistakes. If we are to govern 18% of the Gross Domestic Product, we need an organization at least as talented as that of a Fortune 500 corporation. Beyond that, it requires an instinct for simplifying complicated problems. We have lots of people like that, we just don't put them in charge as often as we should.The British seem to do a good job with institutions like the Inns of Court, but that's not necessarily a style Americans would embrace. As much as anything, we need a core group who worry about issues in advance, and have the prestige and access to make their view be heard. Rather than design a blueprint, let's review some issues .

Health Savings Account Age Limits Should be Extended, from the Cradle to the Grave. Congress can change that limit, whereas longevity is whatever it is and needs to be measured. Therefore, it's considerably safer to over-deposit more than you believe you will need, planning to return the excess. As a practical matter, the real danger is overoptimistic revenue projection, so the opportunities for gaming it will abound. Someone who sells his business at age 63 might have enough cash, but still encounter trouble because of the $3300 per year limit. It seems pointless to squeeze through such a narrow window, and much better if the window were enlarged to permit lump-sum deposits up to a $132,000 lifetime limit. With that sort of cushion, plus a stretch of reasonably good health at the right time of life, it would become considerably safer to take the risks. At age 65, a lifetime of health costs is already in the past, but the curve of health expenses starts to bend upward at age 50, at a time when college expenses for children may be persisting, and the house isn't quite paid for. It seems a pity to cripple a good idea with pointless contribution limits that almost stretch far enough, but leave people fearful. If Congress develops a serious interest in lifetime insurance, the yearly contribution limit should be revisited. The optional side use for retirement should be examined, including its gaming potential.

Revisited by whom? Someone should be empowered to travel, and talk to people in the field. Maybe hold hearings, maybe just interview. A simplified goal is therefore to accumulate $80,000 in savings by the 65th birthday, intending to make a single-premium buy-out. That clarifies costs, but is it practical on a large scale?Remember that savings get a lot harder when earned income stops. With current law, you would have to wake up and start maximum annual depositing of $3300 by your 50th birthday, to reach $80,000 by age 65, and you would need generous internal compounding to make it. But notice how easily $100-200 a year would also get you there, starting at age 25 (see below), even justifying somewhat less optimistic investment income returns until age 65. Many more frugal people might skin by with looser rules; It even could rather easily be subsidized for poor people and hardship cases. If you are going to cover lifetime health costs instead of just Medicare, many more will need $80,000 to do it, and have something left to share with the less fortunate. But to repeat once again, that still compares favorably with the $325,000 often cited as a lifetime cost. That's all we care to promise in public, but secretly we know it may not be enough. The plain fact is, if longevity or inflation get out of hand, someone must have the courage to raise the contribution limits. If people simply cannot pay that much, we become insolvent debtors. But at least we can recognize a political squeeze we could afford to pay, and designate someone who is sufficiently thick-skinned, or sufficiently isolated, to enable us to pay it. There's one other expedient. We could abandon the idea of an $80,000 single premium Medicare, revert to the present Medicare system, and eventually pay $788,000. Where did that number come from? It comes as a gentle reminder that Medicare's foreign debt will continue to rise and be serviced if we don't pay it off. It's probably futile to estimate the interest rate an insolvent nation would be forced to pay, but it would certainly rise as the end game approached. About the best to say about it is, it's cheaper than provoking an atom war.

Proposal 13: Instead of the present annual limit of contributions to Health Savings Accounts of $3300 per year, Congress should permit a lifetime limit of $132,000, with annual deposit limits adjustable to bring accounts at their present age, up to what they would have been if $3300 annually had been deposited since age 25.(2718)

Proposal 14: Congress should reserve decisions to itself for changing the lifetime contribution level, and review final appeals from contract terms which seem to threaten imminent major adjustment to the general public lifestyle.(2718) Starting with the Medicare example. Notice that forty years of maximum contributions, would amount to far more than the necessary $40-80,000 by age 65. We haven't forgotten that the individual is at risk for other illnesses in the meantime, so in effect what we need is an individual escrow fund for lifetime funding intended (at first) only to replace Medicare coverage. (We are examining lifetime coverage, piece by piece, trying to accommodate an extended transition period.) Depending on a lot of factors, that goal could cost as little as $100 a year deposited for forty years, or as much as the full $1000 per year. It all depends on what income you receive on the deposits in the interval. In a moment, we will show that 10% return is not impossible, but it is also true that a contribution of $1000 per year would not seem tragic, compared with the present cost of health insurance (now averaging over $6000 a year). I have unrelated doubts about the current $325,000 estimate of average lifetime health costs, but that is what is commonly stated. For the moment, consider these numbers as providing a ballpark worksheet for multi-year funding, using an example familiar to everyone, but not necessarily easy to understand after one quick reading.

The Cost of Pre-funding Medicare. Rates of 10% compound income return would reduce the required contribution to $100 per year from age 25 to 65, but if the income were only 2% would require $700 contributed per year, and at 5% would require $300 per year. Remember, we are here only talking of funding Medicare, as a tangible national example, Obviously, a higher return would provide affordability to many more people than lesser returns. Let's take the issues separately, but don't take these preliminary numbers too literally. They are mainly intended to alert the reader to the enormous power of compound interest. Let's go forward with some equally amazing investment discoveries which are more recent, and vindicated less by logic than empirical results.

If someone makes a single deposit of $80,000 on his/her 65th birthday, there will accumulate $190,000 in the account over 18 years, the present life expectancy if he spends nothing for health and invests at 5%; assuming $190,000 is what the average person costs Medicare in a lifetime. Since the average person spends $190,000 during 18 years on Medicare, enough money will accumulate in Medicare to pay its expenses, and after some shifting-around, this should make Medicare solvent, in the sense that at least the debt isn't getting bigger because of the individual. Furthermore, index funds should be returning 10-12% over the long haul, so there should be some firm discussions with the intermediaries about some degree of dis-intermediation. Please don't do the arithmetic and discover that only $40,000 is needed. That seems plausible, but that's wrong, because the costs remain the same , and previously the government has been borrowing half the money from foreigners. In effect, the subscribers have been paying the government in fifty-cent dollars. There has been an exchange of one form of revenue for another, so the required revenue actually does demand $80,000 for a single deposit stripped of payroll deductions and perhaps premiums. An end would put to further borrowing, but the previous debt remains to be paid. I have no way of knowing how much that amounts to, but it is lots. All government bonds are general obligations, mixed together, and access to Medicare reports back to 1965 is not easily available. What we can more confidently predict is the limit that young working people can afford to put aside for the sole purpose of paying off the Medicare debts of earlier generation. If there are other proposals for paying off this foreign debt, they have not been widely voiced. And the debt is still rapidly growing.

They would have to set aside an average of $850 per year (from age 25 to 64) to achieve $247,000 on the 65th birthday, assuming a 5% compound investment income and relatively little sickness. This might seem like an adequate average, but occasional individuals with chronic illnesses would easily exceed it in health expenditures. It is not easy to estimate the size and frequency of such occurrence in the future, so someone must be designated to watch this balance and institute mid-course adjustments. As an example, simple heart transplants costing $200,000 are already being discussed. To some unknown extent, the cap on out-of-pocket expenses would have to be adjusted to pass these cost over-runs indirectly through the Catastrophic insurance. Insurance does greatly facilitate sharing of outlier expenses, but usually requires a time lag whenever new ones appear.

It does not require much political experience to know that taxpayers greatly resent paying debts that benefitted earlier generations. They complain, but complaining does not pay off the debts of the past. To double required deposits in order to pay off past debts, as well as using forgiveness of payroll deductions and premiums, would require an additional $120,000 per year escrow, for each year's debt accumulation. At present, roughly $ 5300 per beneficiary, per year, is being borrowed, and there are roughly twice as many current beneficiaries as people in the tax-paying group, but only 18 years, as compared with 40 years as a prospective beneficiary. So that comes to liquidating roughly $1300 a year of debt to balance the two populations, or $2600 a year to gain a year. That's for whatever the debt happens to be, which surely someone can calculate. To accomplish it, one would have to project an average of % income return. That's definitely the outer limit of what is possible, and it probably over-reaches a little. Therefore, to be safe, one would have to assume some other sources of income, a change in the demographic patterns, or an adjustment with the creditor. Assuming inflation will increase expenses equally with inflation seems possible. And it also seems about as likely that medical expenses will go down, as that they go up. You would have to be pretty lucky for all these factors to fall in line over an 80-year lifetime. So, although Medical

It is this calculation, however rough, which has made me change my mind. It was my original supposition that multi-year premium investments would only apply up to age 65, and that would be followed by Medicare. In other words, HSA should only be implemented as a less expensive substitute for the Affordable Care Act. It seemed to me the average politician would be very reluctant to agitate retirees by proposing a plan to eliminate Medicare. They would feel threatened, the opposing party would then fan the flames of their fears, and the result would be a high likelihood of undermining the whole idea for any age group, for many years. Better, I thought, to take the safer route of avoiding Medicare, and confining the proposal to working people, where its economics are overwhelmingly favorable.

But when the calculations show how close this proposal under cautious revenue projections could come to failure, and when nothing else remotely close to it has been proposed by anyone, the opportunity runs the risk of passing us by. So, I have changed my mind. The moment of opportunity is too fleeting, and the consequences of missing it entirely are too close, to worry about the political disadvantage of doing the right thing. The transition to a pre-funded lifetime system will take a long time to get mature, and the political obstacle course preceding it is a daunting one. At least we should allow it as a demonstration option, where some fears will prove unwarranted, and others can be corrected.

So we make the guess of the average life expectancy where things will eventually flatten out, will then be about 91. (Be careful, most census figures are for life expectancy-at-birth.) But many people would have to be lucky in everything: a favorable investment climate for the right ten-year periods, plus a favorable health situation which avoids expensive illnesses just at the age when they begin to threaten. Some life-saving scientific advances would be a big help, too. Using a lower goal of $80,000 and an interest rate of 7% is considerably easier to conjure, but the barrier which might be reached first is the $3300 yearly contribution limit. Some unfortunate individuals might be forced to pay all medical expenses out of pocket in order to make the investment fund stretch, even before the average becomes affected. The individual who came up short might still remain considerably ahead of where he would be without an HSA, but we are using a precise match of revenue and expense, to simplify the examples. Someone who sells his house or business at age 63 might have the cash, but still have trouble because of the $3300 per year deposit limit. It seems pointless to squeeze through a narrow window, and much better if the window were enlarged to permit lump-sum deposits up to a $132,000 lifetime limit, adjusted for inflation and compound income returns. With that sort of cushion, plus a stretch of reasonably good health at the right time of life, it would become considerably safer to take the risks. At age 65, a lifetime of health costs is nearly in the past, but the curve of health expenses starts to curve up at age 50, at a time when college expenses for children may be persisting, and the house isn't quite paid for. It seems a pity to cripple a good idea with pointless contribution limits that almost stretch far enough, but leave people fearful. If Congress develops a serious interest in lifetime insurance, the yearly contribution limit should be revisited.

The simplified goal is therefore to accumulate $80,000 in savings by the 65th birthday, remembering that savings get a lot harder when earned income stops. With current law, you would have to start maximum annual depositing of $3300 by your 50th birthday, to reach $80,000 by age 65, and you would still need generous internal compounding to make it. But notice how easily $100-200 a year would also get you there, starting at age 25 (see below) and less optimistic investment income returns until age 65. Many more frugal people might skin by with looser rules; poor people and hardship cases could more easily be subsidized. If you are going to cover lifetime health costs instead of just Medicare, many more will need $80,000 to do it, and have something left to share with the less fortunate. But to repeat once again, that still compares very favorably with the full $325,000 which is often cited as a lifetime cost. We have already imposed an extra $80,000 internal savings requirement in order to include Medicare; here is the place it would be a hardship.

Starting with the Medicare example. Notice that forty years of maximum contributions, would amount to far more than the necessary $40-80,000 by age 65. We haven't forgotten the individual is at risk for other illnesses in the meantime, so in effect what we need is an individual escrow fund for lifetime funding intended (at first) only to replace Medicare coverage. (We are examining lifetime coverage, piece by piece, trying to accommodate an extended transition period.) Because of the extended period for income compounding, the addition of Medicare will eventually subsidize the costs of pre-Medicare younger people. But for a while, the exactions for Medicare will seem a strain for younger people. Depending on many factors, that goal could cost as little as $100 a year deposited for forty years, or as much as the full $1000 per year. It all depends on what income you receive on the deposits in the interval and the varying age of entering the program. In a moment, we will argue that 10% returns are not impossible, but long periods of 5% are possible. It is also true that a contribution of $1000 per year would not seem tragic, compared with the present cost of health insurance (now averaging over $6000 a year). But for some, it will be greeted sullenly. I have unrelated doubts about the calculation of $325,000 estimates of average lifetime health costs, but that amount is what is commonly stated. For the moment, consider these numbers as providing a ballpark worksheet for multi-year funding, using an example familiar to everyone, but not necessarily easy to understand after one quick reading.

The Cost of Pre-funding Medicare. Rates of 10% compound income return would reduce the required contribution to $100 per year from age 25 to 65, but if the investment income were only 2% would require $700 contributed per year, and at 5% would require $300 per year. Remember, we are here only talking of funding Medicare, as a well-understood national example, Obviously, a higher return would provide affordability to many more people than lesser returns. When $100 competes for the investment income from 10%, it's much easier than $300 competing for 5% income. Let's take the issues separately, but don't take preliminary numbers too literally. They are primarily intended to alert the reader to the enormous power of compound interest, and the big difference made by relatively small changes in it. Let's go forward with some equally amazing investment discoveries which are more recent, and vindicated less by logic than empirical results.

A transition from term insurance to pre-payment of Medicare is greatly eased by forgiving the premiums and payroll deductions, which are roughly age-distributed, and can therefore be forgiven in a graduated manner for late-comers to the program. Most cost-redistribution of high-cost outlier cases should be handled through the catastrophic insurance, which is well suited for invisible and tax-free redistribution. Because of hospital cost-shifting, inpatients are temporarily overpriced, but are quickly becoming underpriced as a result of gaming the DRG to shift costs to outpatients. This will in time affect the relative costs of Catastrophic and Health Savings Accounts, and must be carefully monitored for mid-course adjustments. This changing horizon of cost shifting almost demands the creation of a special agency to keep track of it.

Proposal 15: Congress should create and fund a permanent Health Savings Account Agency. It should have members representing subscribers and providers of these instruments, with power to hold hearings and make recommendations about technical changes. It should meet jointly with the Senate Finance Committee and the Health Subcomittee of Ways and Means periodically. It should have extensive access to the appropriate Executive Branch department, to review current activity, detect changing trends, and recommend changes in regulations and laws related to the subject. On a temporary basis, it should oversee inter-cohort and outlier loans, leading to recommendations about the size and scope of inter-subscriber loan activity. At first, it might conduct the loan activity itself, with an eye toward eventually overseeing a commercial vendor.(2718)

Cost Sharing with Frugality.At present costs, statisticians estimate future healthcare costs of about $325,000 (in year 2000 dollars) for the average lifetime. We could discuss the weaknesses of that estimate, but even though it's breathtaking, it's the best guess available. Women experience about 10% higher lifetime health costs than men. Roughly speaking, how much the average individual somehow has to accumulate, eventually must equal what he spends by the time of death. The dying individual himself has little interest in what is left unpaid at his death, so Society must do it for him, in order to survive as a Society. At this point, we unfortunately must also work around one of the great advantages of having separate accounts.

On the one hand, individual accounts do create an incentive to spend wisely, but it is also true that pooled insurance accounts make cost-sharing easier, almost invisible, and tax-free. Cost sharing induces reckless spending of other people's money however, while individual accounts induce frugality with your own money. Therefore, linking Health Savings Accounts with Catastrophic insurance provides a way to pool heavy outlier expenses, while the incentive for careful money management remains in the outpatient costs most commonly employed (together with a special bank debit card) to pay outpatient costs. Such expenses are much more suitable for bargain-hunting anyway, because dreadfully sick people in a hospital are in no position to argue or resist.

But a cautionary reminder: linking individual accounts to frugality through outpatients, as well as linking heedless spending to insurance through inpatients -- induces hospital administration to game the system you have devised. There's no doubt we have created a system which can be gamed by shifting medical care to the outpatient area, but we must expect the DRG to be attacked, in order to reverse the incentives, which run in the hundreds of billions of dollars. A well-informed monitoring system simply must be created and funded, if we ever expect the decision to hospitalize patients to rest on whether the patient needs to lie down, instead of on what kind of payment system we happen to fancy. At the same time, the present DRG coding system must be considerably improved to withstand being subverted.

Standard Deviation within and between age cohorts.Furthermore, there is an important distinction between a mismatch of revenue to expenses caused by chance within one age group, and a revenue mismatch between two age cohorts. To put it another way, somebody has to pay off these debts, and we must have a plan about who should pay them when revenue is not present in the account. Borrowing between subscribers within the same age cohort should pay modest interest rates to forestall gaming, but borrowing between different cohorts for things characteristic of their age level (pregnancy, for example) should pay no interest if at all feasible. Unfortunately, people sometimes abuse such opportunities, and interest must then be charged. Until the frequency of such things becomes better established, this function of loan banking policy should be part of the function of the oversight body. When its limits become clearer, it might be delegated to a bank, or even privatized, but the policy must be monitored by specialists who understand what is happening "on the ground". While it is unnecessary to predict the last dime to be spent on the last day of life, incentives should be understood by the managing organization, separating routine cash shortages from likely abusive ones. And looking at all such activity as potentially having been caused by payment design. Much of this sort of thing can be minimized by encouraging people to over-deposit in their accounts, possibly paying some medical bills with after-tax money in order to build the fund up. Such incentives must be contrived, if they do not appear spontaneously. User groups can be very helpful in such situations. People over 65 (that is, those on Medicare) spend at least half of that $325,000 lifetime cash turnover, but just what should be counted as careless overspending, can be a matter of argument.

Proposal 10: Current law permits an individual to deposit $3300 per year in a Health Savings Account, starting at age 25, and ending when Medicare coverage appears. Probably that amount is more than many young people can afford, so it would help if the rules were relaxed to roll-over leftover entitlements to later years, spreading the entire $132,000 over the forty-year time period at the discretion of the subscriber.(2718)


Health Insurance for the First and Last Years of Life

We have reached the tentative conclusion that supplementing a gift or a subsidy of $400 at the birth of every child is about the limit of what millions of people could afford, or the nation would agree to as a cash subsidy for the poor. At the same time, it falls considerably short of assuring lifetime healthcare for the average person. True, compound interest has the potential, together with extended life expectancy, to pay for it all. It just will not pay for what is otherwise a comparatively modest expense, the healthcare of children. Let's think about that.

Proposal 29: Let's combine the costs of the first year of life with the last year of life as the irreducible minimum health insurance.
What I really am trying to do, I admit it, is to combine a life situation which often has a surplus it can't use, with another situation where just about everybody has a difficult debt. And 100% of the population has both issues to some degree. A somewhat sly part of this is all the people alive have got the costs of terminal care ahead of them, but nobody alive has birth costs ahead to pay for himself; that could create quite a surplus of revenue to begin the program with. The costs of these two years are of course paid in retrospect, or averaged and paid immediately. After all, it is mainly the hospital which is being reimbursed, not the patient, so the delays in billing reimbursement are applied at the place which causes billing delays. That's about all we will say about this approach, and we go on to examine accomplishing an intergenerational transfer by providing lifetime costs by compound interest. There's no technical reason why both approaches couldn't be tried simultaneously.

If science should ever succeed in eliminating every disease and therefore every cost of healthcare, 18% of present costs would still remain to be paid -- for the first year of life and the last year of life. The other way of looking at it is the cost of this approach would only be 18% of covering everything, and indeed much of it is already covered, so it would be less than 18%. These two costs will seemingly always persist for 100% of the population. Birth and death may both become expensive items, but while terminal care could be provided for in advance, the cost of being born is paid by the parents in retrospect so to speak. Indeed, whenever childbirth is unusually expensive, it is often paid for by the grandparents.

There is no escaping these realities, and in the meantime the rest of health costs will dwindle down within these two categories, which seldom change their nature. Therefore, although it is not traditional in the health insurance field, I propose it is an entirely natural thing for the costs of childbirth to be an obligation of some other generation, usually but not always of the same family. The difficulty of using pre-paid approaches for childhood is more vexing to health planning than is generally appreciated. The problem is made worse by the unusual concentration of malpractice claims in this group, and the marginal finances of parents at this stage of their careers.

Any resistance to this proposal is more instinctive than rational, since we have had many generations of concentrating such issues within the family unit. That is particularly true in this particular instance, when compound interest will generate almost any amount of money at the death of a grandparent, simply by increasing the amount envisioned at the grandparent's birth, and waiting long enough for it to appear. Indeed, the relatively confiscatory level of estate taxes (60-70%) is a sign our society is not entirely comfortable with perpetuities, although the available remedies are fairly simple.. Indeed some states also levy inheritance taxes on the recipients as well as the donor's estate taxes. Whatever the traditional resistance, it's obvious typical costs of the first year of life always greatly exceed what a newborn is able to pay; there must be a mechanism for inter-generational transfer of funds, or life cannot continue. At present, it's called a family, and families are under strain. Conditions of modern life have evolved to the point where interference with some generational transfers causes more suffering than relaxation of such attitudes would cause. There will be resistance, but it must be persuaded to re-examine its position.

Health Costs for the first year of life are reportedly 3% of the total, and while the last year of life (15%) is worse, those costs laid on young families are particularly disruptive because of still higher costs later if neglected. At best they compete with college, housing and automobile costs, and probably reduce the birth rate of the middle class. Table xxx shows a family of curves based on subsequent investment income from different invested external-contribution levels at birth, to help readers judge how much surplus might likely be generated at the end of a lifetime of average costs. Our goal is to estimate the cost of overfunding grandpa's health costs at birth, so there would remain an incentive for him to spend wisely, even after enough has been transferred to the grandchild generation to extend coverage to age 21. That is, to estimate the cost of transferring the obligation of grandchild costs from parents to grandparents.

First, however, we must determine the size of grandchildren's costs. It would indeed be possible to transfer only the first 3% of all costs ($10,500) for the first year of the child's life. But nearly the last gap to consider in comprehensive health coverage is the 5% of costs from the first birthday cake to the 21st birthday when emancipation from parents is legally complete ($17,200). We need to see whether paying for that interval amounts to much of a burden; which it proves not to be, to the average grandparent estate when the perpetuity issue is set aside. The 5% extra cost of funding up to age 21 is $17,200, discounted at 10% from birth. The extra difference between what would limp by, and what would pay for comprehensive lifetime healthcare seems too small to make a political issue of $17,200. It would usually come from grandparents at their option in the HSA contract, but shifts by default to those in the pool who do not designate grandchildren.

The pool would also pay for those newborns who do not have a willing grandparent. During the early transition phase it might possibly be necessary to have government backup if temporary mismatches appear, eventually repaid by adjusting the initial cash deposits. It happens the birthrate is 2.1 per mother, which easily matches one-half per grandparent, greatly relieving but not necessarily eliminating any temporary mismatches. It would seem a fairly simple task to charge 1:1 (grandparent to child) for the first three or four years, and gradually re-adjust if more precise data is available. Starting the process with a recognized surplus would also simplify the start-up. If a surplus should actually occur, it could be addressed by lengthening the time before the child-generation had to pick up the responsibility of paying its own costs. It could even be used to eliminate costs for the child-generation entirely, but this is not completely desirable. Things which are free are not considered to be valuable. It should not take dynamic scoring to understand that making healthcare free would increase its cost.

{top quote}
Not everything which is desirable to do, is desirable to do in a big hurry. {bottom quote}
The political advantages are wide-spread. The younger generation is relieved of the cost of the healthcare of children; the cohort from birth to 21 generates 8% of lifetime healthcare costs. During the transitions, there probably will be problems with overlapping coverage. Not only is Medicare reducible in cost to whatever seems desirable, but the U.S. government is relieved of the embarrassment of borrowing 50% of Medicare cost from foreign countries in order to pay for it. If desired, the 1.6% salary withholding for Medicare can be eliminated, relieving working people and their employers of about one quarter of Medicare costs. The tax inequity between employees and self-employed can be eliminated. The doughnut hole and other copayments, and the Part B premium can be eliminated, thus relieving present and future Medicare recipients. Funds would become available to cover the shock of a bulge in retirements as the baby boomers reach retirement age. And of course the money might be redirected to farm subsidies, culverts and battleships. But once the idea is explained, it becomes like the fable of Columbus and the egg -- anybody can do it. Nevertheless, it would seem much better to proceed slowly according to a defined plan, using demonstration projects and experimental trials, mid-course adjustments and careful monitoring. Not everything which is desirable to do, is desirable to do in a big hurry.


I'm overwhelmed. I'm thinking of a one-line poem by William Blake: "Enough or too much" " stragglers who live from 85 to 91." Sorry to be a burden, but soon to be 91 I can still go a couple of rounds without huffing and puffing. You remind me of Dr. Melvin Konner.... professor.... anthropologist..... physician.
Posted by: Martin   |   Sep 27, 2014 5:16 AM
I want to thank you for this wonderful resource. I find it fascinating. May I offer one correction? In the section "Rittenhouse Square Area" there is reference to the Van Rensselaer home at 18th and Walnut Streets and its having a brief fling as a club. I believe in 1942 to about 1974/5 the Penn Athletic Club was located in the mansion. The Penn AC was a good club, a good neighbor and a very good steward of the building - especially the interior. It's my understanding that very unfortunately later occupants gutted much of the very well-preserved original, or close to original, interiors. I suppose by today's standards the Van Rensselaer-Penn Athletic Club relationship could be described as a fairly long marriage. The City of Philadelphia played a large role in my life and that of my family, and your splendid website brings back many happy memories. For me and many others, however, there is also deep sadness concerning the decline of so much of the once great city and the loss of most of its once innumerable commercial institutions. Please keep-up your fine work. Your's is a first-class work.
Posted by: John D. Mealmaker   |   Aug 14, 2014 2:24 AM
Dr. Fisher, The name Philadelphia University was adopted in 1999, as you write, but the institution dates to 1884 and has been on School House Lane since the 1940s. It acquired the former properties of the Lankenau School and Ravenhill Academy, but it did not "merge" with either of them. I hope this helps when you update your site.
Posted by: David Breiner   |   Jun 11, 2014 10:05 PM
Hello Dr. Fisher, I was looking for an e-mail address and this is what I could find. I must tell you my Mother who you treated for years passed away last May. She was so ill with so many problems. I am sure you remember Peggy Marchesani. We often spoke of you and how much we missed you as our Dr. You also treated my daughter Michele who will be 40. I am living in the Doylestown area and have been seeing the Dr's there.. I just had my thyroid removed do to cancer. I have my fingers crossed they get the medicine right. I am not happy with my Endochronologist she refuses to give me Amour. I spoke with my Family Dr who said he will take care of it. I also discovered I have Hemachromatosisand two genetic components. I have a good Hematologist who is monitoring me closely. I must say you would find all of this challenging. Take care and I just wanted to convey this to you . You were way ahead of your time. Thank you, Joyce Gross
Posted by: Joyce Gross   |   Apr 4, 2014 2:06 AM
I come upon these articles from time to time and I always love them. Is the author still alive and available to talk with high school students? Larry Lawrence F. Filippone History Dept. The Lawrenceville School
Posted by: Lawrence Filippone   |   Mar 18, 2014 6:33 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "...blog/1588.htm" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "...blog/1588.htm" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
George, Mary Laney passed away last November. I was one of her pall bearers. She had a bad last year. However, I am glad that you remembered her and her great work. I will post your report at St Christopher's and pass this along to her husband Earl. Best wishes Peter Hunt
Posted by: Peter Hunt   |   Mar 28, 2013 7:12 PM
Hello, my name is Martin. I came across [http://www.philadelphia-reflections.com/blog/1705.htm] and noticed a ton of great resources. I recently had the honor of becoming a part of a new non promotional project on AlcoholicCirrhosis.com. We decided to put together a brief guide about cirrhosis, and the dangers of drinking. We have received a lot of positive feedback and I wanted to suggest that we get listed on the above mentioned page under The National Institutes of Health. Let me know what you think and if you have any further requirements or suggestions.
Posted by: Martin   |   Jan 1, 2013 8:51 AM
I FIND THIS VERY INTERESTING, INDEED. I AM HOWEVER, SEARCHING FOR THE ANCESTOR WE HAVE BEEN TOLD WAS JOSEPH M. WILSON OF JORDAN TOWNSHIP IN WHITESIDE CO. IL USA. MY HUSBAND WAS ORPHANED AND WITH LITTLE CONTACT WITH HIS FATHERS SIDE OF THE FAMILY THE 9TH OF 10 SURVIVING CHILDREN SINCE ALL ARE DECEASED BUT, ONE). I HAVE HOPED TO FIND HIS CONNECTION AS TO THE STORIES RELATED BY SEVERAL OF HIS DECEASED RELATIVES THAT WE ARE CONNECTED TO THE WILSON MILL FAMILY HISTORY. OF JOSEPH AND FRANCES. MY HUSBAND WAS ALSO, FAMILY TO: GRANDFATHER RANSOM (ISABELLA)WILSON & HIS BROTHER WILLIAM; OF ELKHORN GROVE CARROLL CO. IL USA AND HIS SON JOSEPH WILSON(NANCY). I?WE( MY SONS AND NEPHEWS NEICES AND GRANDDAUGHTERS IN COLLEGE... WERE HOPING THAT NOW THAT I AM ON THE COMPUTER AND WITH YOUR HELP THRU THE GENELOGICAL SOCIETY TO YOUR ADDRESS WE MAY FIND THE FAMILY WE SEEK. MY LATE HUSBAND AND I DROVE PAST THE SITE OF THE FIELD WHERE JOSEPH AND FAANCES ARE BURIED , THE CEDARS ARE GONE AND IT IS NOW FIELD. I HAVE BEEN HOPING TO FIND THE LINK FOR OVER 30 FAMILY TO PAY TRIBUTE TO THOSE WHO HAVE GONE BEFORE AND PERSEVERED TO BRING US THE LIFE WHICH WE ENJOY AND SERVE, TODAY. I RECEIVED ONLY THIS WEEK BY A FLUKE AN EMAIL WITH PHOTOS FROM A 3RD COUSIN THAT FOUND MY EMAIL ON A COUSINS EMAIL ADDRESS AFTER INQUIRING AND INTRODUCING HIMSLEF: AND HE TOOK THE TIME TO SEND MANY PHOTOS AND HISTORY OF GRANDPARENTS AND FAMILY AS WE HAVE HAD NONE. WE STILL DON'T HAVE A PHOTO OF HIS MOTHER AND FATHER. WHAT I HAVE OF THE TREE, I AM ANXIOUS TO SHARE WITH FAMILY THAT IS SEEKING HISTORY, AS I STILL AM HOPEFUL TO FIND IT IN TIME FOR THE DEADLINE AUG. 30 TYPED AND DELIVERED TO MY MARTIN HOUSE MUSEUM WHERE I AM A MEMBER. MY HUSBAND WAS A MASTER MASON WHILE IN LODGE WITH THE COUPLE THAT DONATED THE HOUSE TO BE A MUSEUM. THANK YOU FOR YOUR TIME AND THE GRAT WORK YOU HAVE ALL DONE ON THIS HISTORY. WE WERE LIFE MEMBERS OF THE LUTHERAN CHURCH BUT , THERE IS NOT ONE IN OUR TOWN, SO I FOUND THE REFORMED CHURCH,OF WHICH, I AM VERY HAPPY TO BE A PART. THANK YOU .
Posted by: SUSAN WILSON   |   Aug 12, 2012 12:49 AM

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