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

208 Topics

Right Angle Club: 2014
New topic 2013-11-19 20:22:11 description

Right Angle Club 2012
This ends the ninetieth year for the club operating under the name of the Right Angle Club of Philadelphia. Before that, and for an unknown period, it was known as the Philadelphia Chapter of the Exchange Club. www.philadelphia-reflections.com/topic/175.htm

Right Angle Club: 2013
Reflections about the 91st year of the Club's existence. Delivered for the annual President's dinner at The Philadelphia Club, January 17, 2014. George Ross Fisher, scribe.

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

(Front Stuff for Healthcare Payment Reform)


Healthcare Payment Reform:

Revising the Health Insurance Model

George Ross Fisher, M. D.

Click for more Topics

Philadelphia Reflections is a history of the area around Philadelphia, PA ... William Penn's Quaker Colonies
plus medicine, economics and politics ... 1867 articles in all

  • Try the search box to the left if you don't see what you're looking for.

Special Education, Special Problems

{School Bus}
School Bus

President John Kennedy's sister was mentally retarded; he is given credit for immense transformation of American attitudes about the topic. Until his presidency, mental retardation was viewed as a shame to be hidden, kept in the closet. Institutions to house them were underfunded and located in far remote corners of a state. Out of mind. And while it goes too far to say there is no shame and no underfunding today, we have gone a long way, with new laws forcing states to treat these citizens with more official respect, and new social attitudes to treat them with more actual respect. We may not have reached perfection, but we have gone as fast as any nation could be reasonably expected to go.

However, any social revolution has unintended consequences; this one has big ones, surfacing unexpectedly in the public school system. For example, the king-hating founding fathers were very resistant to top-down government, so federal powers were strongly limited. So, although John Kennedy can be admired for leadership, the federal government which he controlled only contributes about 6% of the cost of what it has ordered the schools to do, and the rest of the cost is divided roughly equally between state and municipal governments. As the cost steadily grows, special education has become a poster child for "unfunded mandates", increasingly annoying to the governments who did not participate in the original decision. We seem to be waking up to this dilemma just at a time when the federal government is encountering strong resistance to further spending of any sort. The states and municipal governments have always been forced to live within their annual budgets, unable to print money, hence unable to borrow without limit. As Robert Rubin said to Bill Clinton when he proposed some massive spending, "The bond market won't let you."

The cost of bringing mentally handicapped individuals back into the community is steadily growing, in the face of a dawning recognition that we are talking about 8% of the population. Take a random twelve school children, and one of them will be mentally handicapped to the point where future employability is in question; that's what 8% means. Since they are handicapped, they consume 13% of the average school budget, and growing. The degree of impairment varies, with the worst cases really representing medical problems rather than educational ones. Small wonder there is friction between the Departments of Education and the Medicaid Programs, multiplying by two the frictions between federal, state and municipal governments into six little civil wars, times fifty. An occasional case is so severe that its extreme costs are able to upset a small school budget entirely by itself, tending to convert the poor subject into a political hot potato, regularly described by everybody as someone else's responsibility. There are 9 million of these individuals in public schools, 90,000 in private schools. They consume as much as 20% of some public school district budgets.

All taxes, especially new ones, are bitterly resisted in a recession. Unfortunately, the school budgets are put under pressure everywhere by a growing recognition that our economic survival in a globalized economy depends on getting nearly everybody into college. Nearly everybody wants more education money to be devoted to the college-bound children at a time when there is less of it; devoting 13% of that strained budget to children with limited prospects of even supporting themselves, comes as a shock. Recognizing these facts, the parents of such handicapped children redouble their frenzy to do for them what they can, while the parents are still alive to do it. It's a tough situation, because simultaneous focus on specialized treatment for both the gifted and the handicapped is irreconcilably in conflict with the goal of integrating the two into a diverse and harmonious school community, with equal justice to all.

As school budgets thus get increasingly close scrutiny by anxious taxpayers, handicapped children come under pressure from a different direction. It seems to be a national fact that slightly more than half of the employees of almost any school system are non-teaching staff. Without any further detail, most parents anxious about college preparation are tempted to conclude that teaching is the only thing schools are meant to do. And a few parents who are trained in management will voice the adage that "when you cut, the first place to cut is ADMIN." Since educating mentally handicapped children requires more staff who are not exactly academic teachers, this is one place the two competing parent aspirations come to the surface.

Unfortunately, the larger problem is worse than that. When the valedictorian graduates, the hometown municipal government is rid of his costs. But when a handicapped person gets as far in the school system as abilities will permit, there is still a potential of state dependence for the rest of a very long life. The child inevitably outlives the parents, the full costs finally emerge. We have dismantled the state homes for the handicapped, integrating the handicapped into the community. But when the parents are gone, we see how little help the community is really prepared or able, to give.


CHAPTER THREE: Maybe Even Better: Lifetime HSAs

Briefly Outlined: Lifetime Health Savings Accounts

Health Savings Accounts are a big improvement over traditional health insurance, and this book stands behind them -- as is, without major adjustments. Their secret "economy" lies in restraining everyone from spending insurance money more carelessly than he would spend his own. No one washes a rental car, as the saying goes. But when you do let the individual keep his savings, millions of HSA owners find ways to save up to 30% of average healthcare costs. HSAs provide an incentive for the medical consumer to shop more carefully, and consumers certainly seem to respond.

The effect is magnified by separating health payments into two components: individual non-pooled accounts, which create an incentive to keep what is saved by careful shopping, and catastrophic health insurance, which provides pooling between patients who have heavy expenses and those who don't. 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.

Inpatient costs, on the other hand, affect patients too sick to argue about price. The inpatient "free ride" is constrained by (improved and modified) payment by diagnosis (DRG) for the big items covered under a high-deductible ("Catastrophic") Health Policy. DRGs ("Diagnosis Related Groups") are a feature Medicare started for hospital reimbursement, which with expanded and more precise coding could be ideal for the catastrophic insurance part of Health Savings Accounts. Medicare now contributes half of average hospital revenue, so it effectively dictates the method of hospital reimbursement. There are problems with Medicare, but escalating inpatient cost is not one of them. Office and outpatient costs are seemingly uncontrolled, but we hope they can be constrained by new market powers given the consumer to resist cost inflation.

This summarizes Health Savings Accounts as currently used. But they could be made better, especially by linking inpatient and outpatient costs for substantially identical items, and constructing a relative value system for the rest. Almost any doctor would know what we mean, and detailed description is therefore skipped.

It has since developed in my mind that Lifetime Health Insurance might become even better for cost savings, with the addition of one more feature, copied from life insurance. It is, roughly, the difference between one-year term life insurance, and whole-life insurance, which offers multi-year coverage, even lifetime coverage. For those who don't understand, a one-year term insurance covers illnesses for a single year, and then is open for renegotiation. But a whole life policy covers a lifetime of risk, overcharging young people for it somewhat, but investing the unused part for later years when health risks are greater. The client is seemingly overcharged at first, but in the long run his lifetime insurance cost is 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 -- usually at death but not necessarily. What makes the saving so astonishing is the way life expectancy has lengthened. We were so uneasy about rising medical costs we didn't much notice that people were living thirty years longer than in 1900. 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 is 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 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. Indeed, a review of Latin American history shows what disaster we have avoided by retaining this negative reaction 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 17 a: 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. Withdrawals from the account should be tax-sheltered if spent for standard medical expenses through a special-purpose bank debit card, otherwise are taxable. 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.(2606)
Lifetime Health Savings Accounts (L-HSA) would differ from ordinary 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 best 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 17b. Tax-exempt Hospitals Should be Required to Accept the DRG method of payment for inpatients from any Insurer, although the rates should be negotiable based on a percentage surcharge to Medicare rates. The DRG should be gradually restructured, using reduced SNOMED code instead of enlarged ICDA code, and intended to be used as a search engine on hospital computers rather than table look-ups, except for very common hospital diagnoses.(2606)

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 eventually added to retirement income. For the same reason, it is important to have an attractive way 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 the grain, and is only feasible if surpluses can be replaced with pleasing alternatives.

Saving for yourself within individual accounts is more tolerable than saving for impersonal groups within pooled insurance, 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 be taught it gets cheaper if you don't spend it. 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 create penalties for tardy payment, as well as incentive rewards for pooling them. This point should become clear after a few examples.

Proposal 17c: Where two groups, by age or other distinguishing features, can be identified and matched, as permanently in revenue/expense deficit, or surplus, borrowing at reduced rates may be permitted between the two groups to the extent they consistently match. 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 parents for children, or children for elderly parents.(2606)

Smoothing Out the Curve.

There is a considerable difference between individual bad luck with health costs, and 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, the age group should smooth out health costs by pooling within the age cohort to pay the bill. On the other hand, compound investment income follows one curve, while illnesses predominate in bulges on a different curve. It isn't bad luck that concentrates obstetrical and child care costs into a certain age range, it is biology which does it. 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, and can accordingly game their health costs in various ways. 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 17d: 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, that 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 the average cost of Medicare per year ($10,900); we know how many years the beneficiaries on average are in the age group (18). Therefore we know how much of the $325,000 to set aside for Medicare ($196,200), and can calculate how much a single premium at age 65 would have to be, in order to cover it. We thus know how much all the working-age groups combined as age 25 to 65 (60% of the population) must set aside for their own health care costs when they reach Medicare age($196,000 apiece), and by subtraction therefore how much is left for personal healthcare within age 25 to 65 ($128,800). Shifts in age composition of the population will produce very large changes in total national costs, but should by themselves not change the 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. Let's 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.

Someone is sure to notice that 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.

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.


A Change in Direction

For whatever reasons, much of the Affordable Care Act is still shrouded in mystery. After three years, an employer-based system is still predominant, and it remains unclear where big business wants it to go, or perhaps what makes business reluctant to go ahead. It is even conceivable big business just wants a vacation from healthcare costs, hoping to go back to the old system, once an economic recovery restores profits enough to generate taxes, to be worth the saving of them. Otherwise it is hard to see what value there a year's respite. Under the circumstances, it begins to seem time to look at some new proposal, neither sponsored by an opposition party, nor motivated by antagonism to the Administration initiative. Let's reverse its emphasis, testing how much it is true the financing system now drives the health system, not the other way around.

Both big business and big insurance have been remarkably silent about their goals and wishes for the medical system, while quite obviously agitating for some sort of change by way of government, and quite obviously leaving their own agendas off the negotiating table. Let's illuminate the situation, with the medical system speaking out about how employers, insurance and investment should change, while leaving the medical system alone, until we better understand what is driving it. The proposed way to go about all this is to harness Health Savings Accounts, with its two different ways of paying for healthcare (cash and insurance), with two time frames for the public to explore (annual and lifetime), and passive investment of unused premiums versus concealed borrowing. So yes, it's technical, and necessarily it's been simplified. Two important features, multi-year insurance and passive investing, will be described in Chapters Three and Four. But one theme runs throughout: the customers, individually, should have choices. Nothing should be mandatory, everything possible should be left for individual customers to select.

Don't take on too much at once. Health Savings Accounts have grown to over 12 million clients, so it isn't feasible to do more than repair a few loopholes, and let it grow. The next logical step is to get rid of "first-dollar coverage", not by eliminating insurance, but by making high-deductible the normal standard for health insurance. If we must make something mandatory, it ought to be insuring big risks before insuring small ones. Catastrophic indemnity insurance is a well-established, known quantity; it's not likely to need pilot studies to avoid crashes. It doesn't need government nurturing; it needs the big companies to see the writing on the wall. So let's get along with it, without any mandatory coverage rules. If the old system of employer-based and tax-warped coverage can get its act together, that's fine. Because as I see it, the main danger in Catastrophic coverage is it will penetrate the market too quickly; let people have a level playing field to watch the game unfold. When we have two viable competitive systems, the customers can decide between them, and both will emerge healthier.

An observation seems justified. In a system as large as American healthcare, changes should be piecemeal and flexible; win-win is strongly preferred to zero-sum. Sticking to finance for the moment, we slowly learn to avoid zero-sum approaches, while strongly applauding aggressive competitors. Napoleon conquered Europe, and Gengis Khan conquered Asia that way, but it isn't an American taste. Since everyone would prefer saving for when he needs that money for himself, (compared with being taxed to support someone else's healthcare), let's see how far and how fast we can arrange that. The recent extension of life expectancy creates a long period between healthy youth and decrepit old age. About 20% of those born in the lowest quintile of income, will eventually die in the highest quintile. That's a start, but it can never be totally universal. Nevertheless, a much large proportion of people could save a small amount of money when they are young, and by advantageous investing in a tax-sheltered account, accumulate enough money to support their healthcare costs while old. Some people will never be self-supporting, of course, but the idea is to shrink the size of the dependent population as much as we can. We can at least try it out, on paper so to speak. And if it produces good numbers, perhaps we can try it out in pilot projects, or otherwise. That ought to be the next step in our long-term plan to reform the health system without attacking it -- switching from one-year term insurance, to multi-year whole-life insurance. We aren't ready for that yet, but we are ready to call in the experts in whole-life life insurance and asking for their guidance, while setting up information gathering systems to navigate the reefs and shoals. The exercise does seem feasible, and is explored in the rest of this book. Meanwhile, medical science is reducing the pool of illness and lengthening the average longevity. Actuaries are my best friends in the whole world, but I think they are wrong about one prediction. Like retirement planners, both professions assume future taxes and future health costs are going to go up. But I am willing to predict, net of inflation, they will go down as longevity increases. It's the nature of retirement living which will change. Both things will change because of changes in the nature of investing and finance, the lowering of transaction costs, and the effect that has on the economy. Because investing is based on perceptions, and a general disappearance of acute disease will certainly promote new perceptions of what is important.

Over thirty years have elapsed since John McClaughry and I met in the Executive Office Building in Washington, but a search for ways to strengthen personal savings for health has continued, trying to avoid temptations to shift taxes to our grandchildren, or mace money out of innocent neighbors. Most of the financial novelties to achieve better income return, came from financial innovators and the insurance industry. But the central engine of advance has come from medical scientists, who reduced the cost of diseases by eliminating some darned disease or another, greatly increasing the earning power of compound interest -- by lengthening the life span. My friends warn me it must yet be shown we have lengthened life enough, or reduced the disease burden, enough. That's surely true, but I feel we are close enough to justify giving it a shot. Before debt gets any bigger, that is, and class antagonisms get any worse.

While Health Savings Accounts continue to seem superior to the Obama proposals, you can never be quite sure. For example, the ERISA (Employee Retirement Income Security Act of 1974) had been years in the making, but eventually came out pretty well. In spite of misgivings, ERISA got along with the Constitution. And we had the Supreme Court's assurance the Constitution is not a suicide pact. So, still grumbling about the way the Affordable Care Act was enacted, I had decided to wait and see; but eventually stopped waiting to describe an alternative. The long-ago strategy devised in ERISA, by the way, turned out to be fundamentally sound. The law was hundreds of pages long, but its premise was simple and strong. It was to establish pensions and healthcare plans as freestanding corporations, more or less independent of the employer who started and paid for them. Having got the central idea right, almost everything else fell into place. Perhaps something like it can emerge from Obamacare, but its clock is running out.


Some Unintended Opportunities

The present state of healthcare legislation is, to put it delicately, immature. Both Health Savings Accounts and the Affordable Care Act are the law of the land, but the Obama Administration defiantly slipped in some regulations, and quietly slipped in others, which have no precise authorization in the law. Everything may claim to be mandatory, but until enforcement begins, neither enforcement nor appeal to the Supreme Court about constitutionality seems completely feasible. When no one has been injured, no one has "standing" in the eyes of the courts.

Funding the Deductible. For example, every one of the governmental "metal" plans has at least a $1250 front-end deductible, going up to $6300 for full coverage. Meanwhile, non-government health insurance is rapidly replacing copay with high deductibles, too. (Co-pay is the main cause of supplemental insurance, a doubling of administrative burden.) Unless a person is eligible for subsidy, this mandatory large deductible makes the insurance hard to use unless the individual has saved up some cash for his deductible, somewhere else. So why not provide a tax incentive to have the deductible in escrow? At the moment, Health Savings Accounts are the only feasible approach to this goal, but that does not exactly mean they have been authorized to do so, since double coverage is more or less forbidden. The deductible means nothing until you get sick, so Obamacare gave itself a few years to figure this out, but the public is apparently in jeopardy if it tries to invent a work around. It begins to look as though the voters may not give the originators of this plan enough time in office to see this as a problem they must address. So, if this is going to be everybody's problem, why not see if the Health Savings Account can offer to do it. By doing so, the individual apparently must drop his existing insurance, so go figure.

People who have no illnesses, naturally have little present concern with ambiguities in health insurance. But they will matter as soon as illness appears. Therefore, the present state of limbo will increasingly be of concern to more people. Seemingly, there is a race between the three branches of government to start an action. Either a compromise must be reached between the Executive and Legislative branches, or else the Courts will be forced to intervene by some injured person. Curiously, the only Justice to express displeasure with the present Constitution is Ruth Ginsburg, whose two cancers make her likely to be the next Justice to retire.

A piggy-bank for Millennials. Whatever someone may think of Obamacare, the front-end deductibles provide a pretty substantial incentive to maintain at least $1250 per person cash reserve somewhere, and an HSA would be just a wonderful place to keep it. If that is somehow blocked, an IRA would be almost as satisfactory. If Congress addresses the matter, an IRA could later add a feature to roll over the deductible from such IRAs to HSAs. If the individual avoids spending what is in the HSA, it eventually will do so itself on attaining Medicare eligibility, anyway. That is, it becomes an IRA. Calculating a 10% investment return, age 25, and assuming no medical expenses, it would then amount to up to $51,000 taxable, or somewhat less if lower interest rates are assumed. For someone who stays healthy, its minimum distribution as an IRA at age 65 starts paying a retirement income of over $775 a year. That's pretty good for an investment of $1250. Obviously, everybody older than 25 gets less, but in no case does anyone get less than the $1250 he/she put in. The issue of the 10% investment return is taken up in Chapter Four. As will then be seen, there are two issues: whether such a return can be safe and consistent; and whether hidden fees will undermine the return.

It's true you can't spend the same money twice. If the fund is depleted by spending for a deductible, it must be promptly replaced to keep the fund growing. However, Aetna studied and GAO confirmed, that only 50% of enrollees in employer-sponsored HRAs withdrew any of their funds (which might have been used for outpatient as well as high-deductible purposes). Apparently these clients were anxious to preserve the tax shelter, even though the employers' efforts to enhance the compound income were not particularly strenuous. But the power of compound interest lies in re-investing the profits, so reasonably prompt restoration of the principal would not materially reduce the final outcome, just so long as internal profits remained untouched. It would be fairly simple to impose this requirement, creating a distinction between "balance" and "available balance".

We mentioned earlier, Roger G. Ibbotson, Professor of Finance at Yale School of Management has published a book with Rex A. Sinquefield called Stocks, Bonds, Bills and Inflation. It's a book of data, displaying the return of each major investment class since 1926, the first year enough data was available. A diversified portfolio of small stocks would have returned 12.5% from 1926 to 2014, about ninety years. A portfolio of large American companies would have returned 10.2% through a period including two major stock market crashes, a dozen small crashes, one or two World Wars hot and cold, and half a dozen smaller wars involving the USA. And almost even including one nuclear war, except it wasn't dropped on us. The total combined American stock market experience, large, medium and small, is not displayed by Ibbotson, but can be estimated as roughly yielding about 11% total return. Past experience is not a guarantee of future performance, but it's the best predictor anyone can use. As we will see, your money earns 11%, but that isn't necessarily how much the owner will earn.

We discuss lifetime Health Savings Accounts in Chapter Three. Up to this point, we have confined the emphasis to the advantages of regular, annual, one-year term Health Savings Accounts. But one point may not be so clear: the Savings Account part of HSA is already lifetime, in the sense of rolling over and accumulating after-tax income for the rest of life. So for that matter, Catastrophic high-deductible insurance would be an easy next step, requiring only some adjustment of the present unfortunate tendency to assume an equivalence between "mandatory" and "exclusively mandatory". Money is money, and the courts will have to decide what sort of entirely fungible money is satisfactory for meeting minimum, maximum or any other coverage requirement. Since the "metals" plans all have high deductibles, but also have unduly high premiums, it seems likely the idea was to force insurance premiums to cover the subsidies for the uninsured. Such confusions of language and intent are ordinarily corrected by technical amendments. At age 65, right as it now is, HSA turns into an IRA for retirement purposes. But up until age 65 it can be used for medical expenses, getting a second tax deduction. Eventually, some Supreme Court will perhaps decide all of these conditions and contingencies reduce the fungibility of money, and thus weaken the value of money as a medium of exchange. .


CHAPTER TWO: Looking for Loopholes

One of the bloggers about Health Savings Accounts proposes that you start one, even if you don't plan to use it. The reasoning is that political maneuvering is such that the rules change too frequently to trust them. That's far less likely to happen after January, 2015, when the Republicans take control of both Senate and House, although the presidential power to issue regulations will still persist. Let's assume the worst. Where would that leave you?

An HSA is the best of all the qualified retirement funds, because it allows a tax deduction when you make a deposit, and a second tax deduction when you make a withdrawal, providing you spend it for qualified health services. If you don't get sick, what then? Well, it amounts to a regular Roth IRA, with tax-free income accumulating until you retire at age 59.5. So, the money is locked up for a few years, but otherwise is just an IRA. It's true you must have a high-deductible health insurance in addition, but it is rapidly getting to the point where that's the only kind of health insurance you can get. If you get sick, you can always get an extra tax deduction by spending the money in the account for medical purposes.

There's another quirk in the law, which may or may not endure. You don't need a linked high-deductible to withdraw money from an HSA, but you do need it to deposit more money. If you take advantage of that, watch out for the rule that you can't have two government plans at once, including Obamacare, Medicare, Medicaid and Veterans Health Benefits. So it's best to take out the HSA first, then the other insurance. This is such a complicated process, it might very well change, so be sure to ask before you take any action.

In any event, the suggestion seems valid at the moment, that the worst to happen to you is to acquire a tax-deductible account which you aren't entirely free to liquidate until you retire. And it has a health insurance feature which is also tax-deductible to the extent it has been funded, but which can be used to empty the account if you are strapped for money. If you have other sources of funds, it probably would be best to spend them first, since doubly-deductible health insurance is hard to find.


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

Please Let Us Know What You Think


(HTML tags provide better formatting)

Because of robot spam we ask you to confirm your comment: we will send you an email containing a link to click. We apologize for this inconvenience but this ensures the quality of the comments. (Your email will not be displayed.)
Thank you.