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Philadelphia Reflections

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

270 Topics

Right Angle Club: 2016
In progress.

Benjamin Franklin
A collection of Benjamin Franklin tidbits that relate Philadelphia's revolutionary prelate to his moving around the city, the colonies, and the world.

Introduction: Health and Retirement Savings Accounts. As Is, Right Now.
New topic 2016-03-08 22:42:53 description

Health and Retirement Savings Accounts: Current Issues and Possible Remedies
If you read it fast, this is a one-page, five-minute summary of Health Savings Accounts.

Lifetime Healthcare and Retirement Accounts (Future HSAs)
New topic 2016-03-23 17:06:36 description

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Philadelphia Reflections is a history of the area around Philadelphia, PA ... William Penn's Quaker Colonies
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After London, Ben Franklin Revisited

George Goodwin appears to have written the best book I ever read, in Benjamin Franklin in London, which that writer in residence of the Craven Street Franklin Museum. has just produced. At least I have never read a book which proceeded to explain so much I knew puzzled me. There have been dozens or even hundreds of books about Benjamin Franklin, but all of them fall back on Franklin's Autobiography which while surely authoritative, is often unclear. Goodwin, concentrating on the eighteen years Franklin spent abroad, had access to many unnoticed personal papers. It was also written while Franklin was in England, where many things did not appear to need explanation to 18th Century Englishmen. And the autobiography was written for his son, who needed even less explanation. So it's a mistake to ascribe the autobiography's vagueness to deliberate deviousness, to say nothing of basing a whole theory of his personality on deviousness. Its hazy points now seem more attributable to his assuming his intended audience needed little explanation for what to us was seemingly left vague. And so as a first impression, Franklin himself emerges less deserving of his reputation for deceptiveness.

It occurred to me as I read it, that national opinions will change so quickly, that the transitional opinions of people like me will soon be swept aside. I am no scholar, but have read twenty or so excellent books about Benjamin Franklin, and adopted a number of fixed ideas which I will have to change. Therefore, Goodwin's achievement is in danger of becoming lost in a stampede of permanently revised views. Goodwin himself may be oblivious to his own achievement, which was probably gathered slowly after poring over heaps of primary documents, and living in a London world which needed less explaining to a Londoner. Heaven knows I am no Keats, but my place in all this can possibly aspire to his goals in the poem On First Looking into Chapman's Homer.

In the first place, Franklin appears to have been a staunch British subject, at least from the Albany Conference of 1754 to as late as 1774. His dream, formulated at Albany and expressed in many forms later, was that of a combined British-American empire, with its headquarters eventually to be located in America. For the largest part of his life, his attitude was not that America should be independent of Britain. It was the two nations should unite even more closely, America would inevitably grow larger, and the British Empire would become a British World. After King George III unleashed Weddeburn to excoriate Franklin before the crowned heads of Whitehall, it all changed, of course, but it did so after a personal dispute with the King about lightning rods, where Franklin never doubted he was the world-acknowledged authority. In essence, Franklin was the inventor of electricity, but King George responded, "Who do you think you are, a King?" Those weren't the words they used, but that was the sense of it. Or, considering what was at stake, the nonsense of it. Franklin had been challenged to destroy the British empire if he was so smart, and that is exactly what he set about to do.

Without editorializing a word, Goodwin allows us to read a line Franklin wrote in 177X, that XXXXXXXXXXXXXXXXXXXX.

Franklin was not without British allies. Lord Chatham, later prime Minister, and Edmund Burke, author of "On Reconciliation With the Colonies" came very close to toppling the government over this issue. And Lord Howe, who was designated to lead the British repression of the rebellion, is quoted as saying in 17XX, XXXXXXXX. Lord Howe's words are going to require some re-examination of his motives in abandonment of Burgoyne against direct orders, and redirection of the fleet toward Philadelphia. Frankin's response, of course, was to use the victory to sign a treaty of alliance with France.

In victorious America, of course, Franklin was celebrated for flying a kite in a rainstorm, something every schoolboy knows is too dangerous to try. It was during his time in England that Franklin performed a series of experiments which invented electricity which every physicist would agree would today win him a Nobel Prize. It made him a friend of Mozart and Beethoven, Joseph Priestley and five kings. Goodwin even restores the tarnished reputation of Peggy Stevenson.

But it isn't all for the better. Goodwin tells us Franklin didn't invent bifocals, some British optometrist did. So he raises a question, for those who are looking for it, about how many of the other American "firsts" for which he is famous, were ideas he picked up in his first trip to London in 17XX, and transported to an America eager to have what was the latest and trendiest. There are probably other innuendoes in this eminently readable but essentially scholarly work. But I missed them, and a hundred graduate students will have to put the record straight.

Generating Retirement Income by Overfunding Healthcare

All right, Health Savings Accounts once appeared to be merely Christmas Savings Funds, helping people of modest means accumulate the money for high "front-end" deductibles. This design of health insurance paradoxically reduces the premiums of catastrophic health insurance policies. At least that's how they began, with the higher the deductible on claims, the lower the premiums. Subscribers ran a small risk they might not deposit the full deductible before serious illness hit, but serious illness itself was fully covered. In fact, the effective deductible was reduced by whatever they had deposited; after a few years most of them had no out-of-pocket deductible left to pay, at all. A small risk of ongoing small outpatient costs remained, but after a few more years even that was covered. Protection gradually increased with time, starting first with the worst disasters, working down to trivial ones, finally to none at all. That pretty much summarizes the medical part of the two-part plan to arrive at "first dollar coverage" as fast as possible.

But after that, subscribers still have an increased cost of retirement income to worry about. It's part of the medical issue, because retirement costs rise with improved longevity. That's not hard to see, but forty years away, it's easy to neglect. It becomes still harder to improve on it, if it's only two years away. That's called the "transitional problem"; everybody isn't twenty years old on the same day. Some people are already sixty-four, with variable amounts of savings. Since they can't arrange thirty years of retirement funding in a single year of saving, their next-best approach is to make it cost as little as possible, thereby reducing the number of people hurt by differences in age.

Fine, but how would all that theory enhance retirement income, except in pitiable amounts? The answer: you can, yourself, make it less pitiable.

Be Frugal When You Spend It. It's pitiable if you spend it as fast as you save it, but it can build to a meaningful level in retirement if you just don't spend it. Frugality almost has to become a way of life, because its impact consists of many small savings accumulated, multiplied by compound interest. For example, people have trained themselves to avoid paying cash for whatever insurance already covers. Here, they must deliberately re-learn to pay cash for small services, even if covered by insurance. That may sound like paying double for medical service, but its intention is to save the tax exemption for bigger things later. Let's examine that matter in detail, later.

Usually, premiums are set a little high to provide a margin of safety; any resulting surplus is diverted to reducing future premiums. If you think it through, the insurance company has thus shifted its own risk onto future subscribers. (If the company goes broke, subscribers may find the risk has been shifted to former subscribers who dropped their policies.) Insurance companies call this a defined-term, or "term" insurance model because employer-based groups contain people of all ages, and a one-year term of insurance risk is safer for them in dealing with older subscribers. That's a good thing, by the way; you don't want your insurer to go broke.

In employment-group health insurance, surplus or deficit is made up after a year or two of "experience rating", because final health insurance risk reaches an artificial end at age 65-66, with Medicare then shouldering the remaining healthcare risk. Eventually, current low interest rates will go back up, and investment income will once more become a meaningful gain, so look for investment income to return to normal. There are myriad reasons behind the yield curve, which relentlessly defeat the convenience of any Federal Reserve Chairman who wishes to continue low rates. Call it supply and demand, for shorthand.

Individual ("non-group") insurance also contains people of many ages, but people using it are expected to know how old they are. Health Savings Accounts are always individual accounts, not pooled ones. (The required pooling of risk is situated within the catastrophic health insurance, attached to every account.) Individual unpooled accounts offer two advantages to younger people: of a longer time horizon to work out the leads and lags, plus some savings from not subsidizing older folks.

You share your major health risks in the insurance part, but you don't share your individually compounded savings from frugality, in the savings account. Older working people might be wise to set aside some personal savings to supplement the term health insurance, adjusting for the more frequent risk of a second sickness in older people. Because the Affordable Care Act mandates the deductible, it also mandates an "out of pocket limit" to recognize the risk of a second illness coming along too soon. So Health Savings Accounts usually do the same. That's safer, but raises the cost. Furthermore, interest rates have been unusually low for nearly a decade, so banks have made a habit of paying low cash dividends longer than rising earnings justify. However, in spite of the superficial appearance that Health Savings Accounts cannot accumulate much money for retirement, demand for them has been heavy and fairness has become balanced. At present, their aggregate deposits are already reported to be over $30 billion.

Deductibles vs. Copayments. This seems a good time to emphasize the good feature of a front-end deductible, compared with the uselessness of copayments (traditionally 20% of claims cost.) Both of them reduce premium levels, but for different purposes. Deductibles induce patient frugality, as we have noted.

The purpose behind the typical 80/20 co-pay is less obvious, since it is only even calculated after a claim is made, or after a wasteful procedure has already been performed. Repeated studies have shown it has little net effect on premiums or service usage. It is favored by negotiators who must make quick decisions in a bargaining session, because a 20% co-pay results in a 20% reduction of premium, a 40% co-pay would result in a 40% premium reduction, etc. Co-pay has the additional perverse effect of making a second supplemental insurance policy attractive to most subscribers, including a doubling of its insurance profit and overhead.

Consequently, we favor high "front-end" deductibles, but reject copayments from insurance design. And subscribers ought to do the same.

Perhaps not surprisingly, most new subscribers to HSA have been younger than age fifty, and forty percent have so far never made a single withdrawal from their accounts. It's hard to measure, but the aggregate small incentives of saving for retirement have resulted in 30% less spending for disease, so the size of account balances grows faster than expected in spite of the current recession. Ultimately there must be some surplus because competition will force at least some savings to be distributed to subscribers. Subscribers are nevertheless on the lookout for investments which pay more than ordinary bank savings accounts; stock index funds ("passive investing") are the most popular alternative. Please notice that all of these explorations grow out of the unusual feature that Health (and Retirement) Savings Accounts are the only available form of health insurance which surrenders all termination surplus directly to the consumer, rather than return it to him via the insurance company as lower premiums. In theory, the amounts should eventually seem to be about the same, but compound interest over the fifty-year interval spreads them apart.

Portability in a Larger Sense, Leading to Hidden Cost savings. The fact that HSA accounts are proving financially attractive, is surely a sign they may contain some previously unsuspected advantages, in addition to just being portable between employers. Additional portability -- between only paying for health care and paying for retirement in addition -- is more smooth and natural than we expected. Improvements in longevity reflect improvements in health care, and are the natural consequence of the population getting healthier. (The saving in one compartment, is a cost for the other, with compound interest exaggerating the difference.) Furthermore, there is a consequence more evident to physicians than to patients: if you get real sick, you won't need to worry much about retirement costs, so here too a saving in one is still a cost in the other, but in reverse. By far the largest accelerator to the balance is to overfund it up to the legal limit. No attempt is made in this book to claim we know what future costs will be, except to point out -- whatever they are -- increasing longevity will clearly push costs into different compartments, some upward, and some downward. It seems certain flexibility between compartments will become more desirable over time, and might save considerable money. The clause in Health and Retirement Savings Accounts that any leftover tax-exempt surplus transforms into an IRA (Individual Retirement Account) when Medicare eligibility is attained, is probably the forerunner of others. More potential flexibilities are explored in this book, and advocates of other systems are invited to add features to their favorite program. In other words, at age 65, a subscriber does lose a doubly tax-exempt HSA with a surplus, but gets back Medicare plus a regular Retirement Account (IRA) in return, unless middle-men eat up the float. It's logical it would save money, but the heartening discovery is, it actually does.

The Battlefield. The HSA derives a double tax deduction in the sense that whatever is spent on qualified health service is not taxed, neither when it is deposited nor when it is spent. That appears to be a major inducement for HSA subscribers to be frugal, and the longer it continues the more it accelerates. That's in itself the main reason not to tamper with the incentive, since the alternative incentive is to employ brute force to hold prices down, a provably futile gesture of amateur administrators. Since a few dollars saved while young, compounds into many more dollars later, the double exemption is often the best investment an average person can find. It is, to say the least, an attractive alternative investment vehicle, if not a windfall.

Splitting the healthcare product into two compartments (savings account and Catastrophic health insurance) has proved particularly suitable for saving within the account for out-patient costs. Price-shopping for cheaper medical expenses seems irrelevant to truly sick persons in a hospital bed, however. Spread-the-risk insurance was inevitable for disrobed patients, whatever the related temptation for overspending. It's important for customers to be convinced the spread-the-risk quality of insurance continues, but is confined to circumstances where it has no real alternative. Those professions coming from different cultures who scoff at the self-restraint of physicians, are in some danger of enraging doctors into behavior everyone will regret, encouraging behavior which is being resisted. Nevertheless, some degree of slippage is inevitably part of insurance. As soon as you spread the risk, for example, it gets harder to itemize the bill fairly.

Be Careful Who Your Subsidy Partners Are. Insurance companies and hospitals both share risks with clients, and boast it reduces premiums. Young people almost always have lower costs than older ones, so it's tempting to mix a few expensive old folks with a large number of young ones in group policies. However, the client doesn't usually consider the overall effect of his choosing either a particular insurer or a particular hospital. No matter how old he is, he should want to be mixed with a lot of young clients (except premature babies).

The Affordable Care Act seems to have overlooked the refinements of this homily; by striving to include all the uninsured, they managed to include a large number of newborns and specialty children's hospitals, who are effectively (however reluctantly) subsidized by the rest of the community. Employer groups trying to do the same thing, necessarily avoid most people under 25 years old, who were suddenly included in population-wide averages of uninsured, by the new law. Patients over 65 may be similarly under-represented. Furthermore, about twenty cancer hospitals have been exempted from DRG constraints. Regardless of how it got composed, the ACA found it was subsidizing more than it expected, and (because they were the subsidizers) premiums for well people consequently threatened to rise more than expected, even though often enjoying incomes which exceed the uninsured.

Employer groups were thus cross subsidized, but to differing degrees; outcomes were hard to predict and smaller groups proved more agile than larger demographic subgroupings. Out of these unexpected aggregate costs, arose a need to subsidize employer groups unexpectedly, and explains some unlikely favoritism for prosperous political groups originally targeted for income redistribution. In most employer groups, young people subsidize older ones; that's definitely not the same as rich people subsidizing poor ones. The detailed extent of these problems will probably not emerge until after the November elections.

Hospitals differ in their costs for similar case-mixture reasons. If you don't need a big-city tertiary hospital, you need to ask why you should pay for it by secondarily cross-subsidizing its expensive clients. This may explain some of the surprising successes and failures of HMOs, private insurance companies, and other allegedly share-the-risk groupings. Small, agile and for-profit companies seem to maneuver more readily than big non-profit ones.

Cheaper. These and other mechanisms probably underlie the claim that HSAs are 30% cheaper. Because there are many small explanations rather than a few big ones, they will be harder to imitate. Such an accumulation, doubly tax-exempt, over a period of several decades aggregates to a surprising amount of compound interest. Money at 7% only takes ten years to double, for example. Most people would have difficulty finding a superior way to save for retirement, than by reflexly putting any spare cash into an HRSA. It's true you have to get sick to be entitled to the double deduction, and you may not survive severe illnesses with much savings. But the peace of mind of just knowing you have been covered by shrewd exertions of skillful management creates some cost-free benefit not to be scoffed at. Everybody needs a consolation in despair, and this one turns out to be powerful.

"Overfunding" the Account. Therefore, enlisting patient participation extends the argument for durably separating the account from the insurance. Indeed, it makes a significant argument for overfunding the account among young people, who badly need to hear it. "Overfunding" in this case means trying to spend as little of the account as you carelessly might spend. If a considerable number of people become so-minded, a relatively realistic market price can emerge for out-patient costs. This is America, after all. That's not so true of inpatient costs, but it nevertheless provides a relative-value base for even those costs -- with a few adjustments in the regulations related to major changes in the diagnosis code employed.

Summary. So that's how we see the simple change in the payment structure into a Christmas saving account transforms a device for helping poor people afford insurance, and adds to it an incentive for the patient to be frugal for his vulnerable old age. Instead of paying to borrow money, you are paid to save it. Pinch pennies for healthcare, in order to save dollars for retirement. And then multiply it by compound interest A mutually beneficial system actually reducing medical costs, is the underlying description. It does this by providing a pathway, and an investment vehicle, for deriving meaningful retirement insurance out of unused health insurance. (Effectively, this boils down to a sterner message: if you abuse the healthcare system, your own retirement will suffer.) The demographic group may not suffer, but because it's individually owned, the careless individual will.

But, it must be noted, since this can also transform health insurance from a cost center into a revenue center, it creates some uncomfortable resistance from the financial community (because it seems to them to be a zero-sum loss). The resistance is this: financial transaction costs have declined 70% in the past ten years, so the financial community is hurting, at least compared with the Gilded Age. After all, declining prices of anything are a major reason for profitability to fall. If, in addition to attrition in revenue, a formerly insignificant income for the subscriber (interest on the accounts) transforms into an important mechanism for building up a retirement fund in six figures lasting thirty years -- it starts trouble with its zero-sum counterparty. Subscribers begin asking uncomfortable questions and making cost comparisons, at a time when the financial community sees its own income under stress. Already, there is agitation in Congress to replace buyer-beware with fiduciary advisors. The subscribers will win because they have the votes, and control the flow of funds into accounts. But it may turn out to be a slow bloody battle, notwithstanding its far more dignified potential for transforming into a juicy opportunity for both sides.

The Source of Subscriber Sluggishness. When individuals compete with corporations (tax authorities and investment managers), it is usually a matter of youthful inexperience futilely competing with the experience and immortality of corporations. It seems to take a long time for young people to discover how much difference a steady, small interest rate can make to the process of converting small savings into big ones -- providing one starts early in life. Immortal corporations do have a more distant horizon and an indelible memory. But the immortality isn't as great as many think; for a glaring example, it's a comparatively rare corporation which stays in business for a hundred years. The greater advantage which a corporation has, is it has been given a solitary legal mandate to make as much money as possible. The movies call that "greed" but a corporation either sticks to its business (making money) or falls out of that business, sometimes after being sued by its stockholders.

A large corporation can lose lots of money. Those who wish to penalize excessive profits should more logically favor elimination of corporate income taxes, allowing high profits and large losses both to fall upon richer individuals. The present system, allowing profits to go to stockholders at lower rates than corporate taxes would, encourages corporations to get bigger, less profitable, and to flee the country which started them. None of these outcomes is likely to appeal to populists. Since healthcare has grown to 16-18% of GDP, the present tax arrangement of health insurance probably exerts an appreciable drag on the economy.

Imposed Self-control by Escrow Accounts. Young people constantly face the competing priority of consumption, and many never do learn to restrain it in order to accumulate larger savings. Others learn but too late, after several decades of potential doubling have been forever lost. Odysseus knew this but he also understood himself, so he had himself lashed to the mast of his ship while he sailed past the temptations. The shocking truth is that very small differences in interest rates, differences which some would have you believe are trivial, accelerate savings faster that most young people ever imagine. Taxing authorities and investment companies have already learned compound interest grows best over long stretches of time, and small differences in interest rate (as little as 0.1%) are quite sufficient if continued for a lifetime. This is a simple point, but so vital we must soon devote more time to the requirement of "escrow" accounts, perhaps more aptly termed "Siren Song Accounts". Call them loss insurance or even credit default swaps if you please, but at least recognize they impose an opportunity cost.

True, many banks do offer Health Savings Accounts without either an attached health insurance policy, or brokerage service. Both services are essential, but selecting insurance managers in these cases remains the customer's problem. You might think banks would have a similar response to the investment management of savings, except they have a complicated relationship with insurance companies they may not wish to disturb. By contrast, they also have a losing competition with investment banks, who have found cheaper ways to acquire investable funds by selling bonds and stock certificates. From time to time, as in the recent mortgage disaster, the government puts its thumb on the scales, and right now all banks are afraid to lose market share to competitors. Secret kickbacks may play some role in all this, so acquiring and integrating a whole company's operation seems a safer business alternative for them. One way or another, your account may be transferred to a different manager without your knowing it.

The conflicted outcome at present is for the potential HSA customer to discover which HSA vendor declines to make choices between insurance companies, but does look for ways to acquire the investment end of the business and overcharge for it, either directly or with kickbacks . In a curious twist, this pressure shifts to the customer to choose stock-pickers, whereas his best interest is usually served by choosing total-market index funds. Watch out for fees, however, which can upset any generalization about investment type. This situation can shift rapidly in the present environment, since it would not be surprising for these financial behemoths to purchase market share indirectly, or else for failing stockpicker firms to sell themselves to banks of various descriptions. A much more productive approach for the small investor would be to look for a firm which will segregate accounts into "escrow, and non-escrow", leaving the choice of high-deductible health insurer to the customer. Likewise, accounts could still be designated "captive, or self-selected", and leave the choice of investment management to the customer. It's true the average investor is often poorly equipped to make such choices, but should have no difficulty in telling 1% from 8%, when (see below) the difference of one tenth of a percent can result in a lifetime swing of $30,000. The importance of escrow accounts is described in the section which follows this one. Essentially, you can get higher income if something forces you to shift short-term into long-term investment.

The Importance of Small Differences in Interest Rates. To pay expenses in a stripped-down HSA, banks often charge for smallish balances, waived when the balance reaches their business break-even point, usually about $5000. Similarly, investment latitude is often stratified, with larger accounts given more choice of investments. Those are generally good arrangements because of their flexibility and elimination of conflicts of interest, but they impose some responsibility on the customer -- who must be willing to make selections in return for possibly greater return. It's all quite understandable, and suggests novel uses of the account. The example before us is to "Overfund" it at the beginning, and use its surplus after compound interest, to supplement retirement income decades later; let's explain.

Improving the Retirement Benefit At present, the HSA law permits a maximum deposit of $3350 per year per person, with even higher limits for whole families. By constraining out-patient expenses or paying cash for them, the balance can thus build up to $5000 in less than two years, eliminating bank surcharges of roughly $50 a year by immediately reaching the waiver level. Since doing this also eliminates any remaining question whether the HSA will provide full coverage for hospital charges, it's pretty hard to criticize a $5000 investment which produces $50 a year tax exempt income until Medicare kicks in, and then compounds it, adding more than 1% tax-free to its investment income. If the transaction then permits investment in total market indexes, paying off the investment was very wise. Let's now extend the frugal idea to more prosperous customers.

The Outer Limits of What is Possible. If an employee deposits the full limit of an HSA, and makes no withdrawals from age 20 to age 65, his balance will be increased by $154,550. In fact, it should grow by more than that, possibly much more, if the income compounds. He can start with the present abnormally low interest rate of 1%, and find annual maximum payments compound the balance to $196,225 in 45 years. With a more normal interest rate of 4%, this rises to $442,527. At 6.5% interest rate (which probably requires stock index investment to achieve), the result would be $959,760. Since the stock market for the past century has averaged 11% return, and inflation has averaged 3%, a net-of-inflation return of 8% is conceivable -- before taxes and expenses -- and so we'll set 8% as the theoretical maximum goal. $1,578,977 retirement account (at 8% net) is thus the utmost goal which is realistically achievable, adjusted for inflation. But the difference between roughly $908 thousand and $1.5 million ($650,000) is a difference still worth pondering, since it identifies the maximum potential difference attributable to middle-man costs, and that's a lot. And if you think the bank is entitled to something, it probably can get compensated by compounding daily but paying compounding quarterly, and additionally by requiring deposits monthly but crediting them yearly. As far as inflation is concerned, these are uninflated numbers, both at deposit and withdrawal. That is to say, they are all in 2016 currency, and leave a generous potential profit for the manager.

Just squeezing out 6.6% instead of 6.5% makes for a final difference of $30,500, or roughly a fifth of the net (of medical outpatient expenses) deposited. Without resorting to insulting language, this large difference achieved by such a small income increment, is a legitimate goal for technology improvements and management streamlining. If it can't be achieved, well, that's too bad. But it would be unfair to say there is no room for improvement by educating the public. Right now, everybody involved would probably agree it is high time to increase the deposit limits, after several decades of their having remained stationary. That will assist the transition from a nuisance to a central bulwark of retirement security. The financial industry wrongly misjudged this transformation to be trivial, and it's getting a little late to adjust it gracefully.

True, about a fifth of the contribution to this scheme is provided by income tax reduction, but the line between public and private obligations to health care is already too blurred to hope for any agreement on the fairness issue. Just look at the tax contribution to the cost of group employer based insurance, which probably approaches 60%. More important is the contribution to increased longevity made by medical care. It seems hardly debatable that improving health was largely responsible for lengthening the time in retirement. The problem of outliving savings is pretty much a by-product of improving medical care; if you want one, you cope with the other. For this reason alone, it seems entirely proper to include rising retirement costs as part of the cost of improving health care. If you want to solve the whole problem, you look for any solution and forget about assigning blame. Is there anyone reading this chapter who doesn't want to live an extra thirty years?

How to Plan for Future Costs and Revenues at a Distance

In an earlier section, we discussed how to predict the leads and lags of revenue and expenses in future healthcare. Some approaches were suggested, but they were for a strictly defined, short-term program. We now must turn to future adventures in new directions, where it quickly emerges it is impossible to do such a thing precisely if even the setting of goals must await Congressional decision. For example, we had it from statisticians that the average lifetime cost of healthcare is approximately $300,000 per person, somewhat more for females than males. That figure however is based on the assumption that present trend lines will continue, when we can be pretty certain some expensive diseases will be cured, and some cures will be more expensive than the disease. Diabetes has so far proved to be one such disease. Instead of dying in a few months, diabetics now give themselves injections and pumps for fifty years. It is now the turn of diabetes to be regarded as an expensive disease, a cure for which might possibly save money. And it was all because of research.

So for the purpose of planning far ahead for the entire nation, we hastily assert that numerical answers are not the way to go. What's needed throughout the discussion is to keep revenue and expenses relatively well in balance. That means designing a monitoring system for the project, so we can notice when the two lines are diverging. At that point, either we cut our suit to fit our cloth, or else we economize on some non-medical expenses, in order to pay for our new-fangled health care. Over long periods with different diseases, up at research bat at unexpected times, it seems fairly certain we would have to adjust, first to the left, then to the right, then to the left once again. The analogy would be for a sail ship to point toward a goal, and shift sails as the wind changes. If this is the way we must navigate, we can stay on course only if we abandon the goal of stating the time of arrival. And if we must wait for politics to tell us where we are going, we can't even define the system of measurements. That's awkward, but it's essential. For a planner, it is a license to speak as we please, leaving final decisions to Congress.

Essentially, we propose four ways to generate revenue, and (unfortunately) two other ways to generate losses of revenue. Since that's relatively simple, the proposal is to lean more in the four positive directions if we need money, and two ways to lean if revenue comes in too fast, unbalancing something. Please notice there is no provision for new transfers from the private sector.


Individual Escrow Accounts. There are three: all beginning at the onset of working life and depositing until age 65. (We do hope Congress will liberalize those limits.)

First escrow, proposed for retirement funding, starts to distribute funds at age 65, continuing to earn investment income after 65, assumed to be completely depleted at age 90.

The second escrow has yet to be described, but is intended to pay for the final year of life, eventually including the first year of a grandchild's life. Its deposits consist of transfers of Medicare payroll deductions, from age 20 to 65. Deposits stop at 65, but the balance continues to compound until the subscriber's death. Transfers to Medicare and the grandchild occur at that point, disbursing the escrow at assumed age 90.

Net Gains From Research Assuming the National Institutes of Health continue to fund research at $33 billion per year, we can reasonably expect some reduction of treatment costs, net of the cost of the treatments. At the end of one year of their expected patent life, they should be transferred to either escrow account, preferably partially to both.

Investment Income and Compound Interest. It must be obvious that investment gains will fluctuate, and there must be some short-term cash to manage long-term investments. We try to make realistic assumptions, so it is possible these revenues are maximums.


Net Costs of New Treatments. It is common for new drugs and treatments to cost more than old ones, usually to pay off R&D costs in exchange for visibly improved treatment. After a few years, the sunk costs are paid off, and the net cost of treatment is reduced. However, in addition to this R&D writeoff, some diseases are so rapidly fatal that the cost of keeping the patient alive must be called a net cost of the new treatment.

Net Reduction of Health Costs. In this example, it is assumed that there will be scant financial gains to the public until the transition costs are mostly on a downward path. That's a political decision which may come out differently. However, it greatly simplifies the description to make the assumption that all temporary gains should remain unassigned until they seem permanent.

The Full Program in Operation. The overall assumption is that health costs will eventually mostly morph into retirement costs, except for the essential health costs at the beginning and ends of life. Within that assumption is another, that health costs will continue to be low for young people, high for older ones, with decades of compound interest between the two. We also assume basic stability in the monetary system, with a positive interest curve, and equities outperforming debt instruments over the long haul. Although we are unqualified in these matters, we will make one monetary suggestion, in case of monetary turmoil. Finally, we have no idea how long it will take research to dig us out of our present difficulties, but congratulate the American public for taking the gamble that research can eventually rationalize the health system.

Transition Problems. By far the most difficult problem to solve is transitional and largely man-made. That is, by any set of reasonable assumptions, the interest income which could be generated by investing the cost at the beginning of life, could cut the costs in half at the end of life. Almost all of the problems in the way of doing that, are created by adjusting to programs previously established by Congressional vote. That is, the solution is evident in the situation, except for the fact that no layman can wave aside existing laws. Consequently, the transitional costs must be paid by following existing law when a layman makes them, but if Congress made them Congress could wave away the barriers Congress had previously created. The consequence is that a layman must make convoluted, often self-defeating, transition proposals, whereas if Congress itself had made them, such objections could be swept aside.

Transition Gap. Since we propose to pay for the new system with income gathered on payroll deductions, there is an initial transition gap between the beginning and end of Medicare, for the early years of the new system. The duration of funding gap would be about twenty years, the length of time between the termination of payroll deductions (age 65) and the average age at death (presently 84). But the gap would actually diminish gradually over five years and eventually be extinguished by the arrival of available sources of funds for this transfer, since the last year is only a quarter of the Medicare budget.

What are the available sources of funding for this gap? Equity, defined as the judgment of Congress, should determine the apportionment between them. They are:

1. The generations, like my mother, who died at the age of 103, receiving benefits but never contributing to Medicare, because President Johnson was in a hurry to get started in 1965. Her whole generation is now dead, but her beneficiaries either inherited her generation's money or benefitted from it. This portion in fairness, is owed by my generation in the form of inheritance taxes.

2. The present recipients of Medicare, who believe they will have paid for health costs of their last year of life in the prescribed way, through a combination of payroll withholding and premiums, but in fact would be receiving double benefits.

3. The currently working generation, whose payroll taxes for Medicare would be reduced by eliminating a quarter of their present assignment.

4. Children from birth to the time of beginning work, who will gradually be building up an escrow fund to pay for their terminal care. This last is probably just a bookkeeping rearrangement.

5. The Treasury, in the sense, or to the degree, that eliminating the deficit and its borrowing costs is part of the outcome. In other words, everybody, in varying degrees, should contribute because everyone would benefit. The benefits flow in at different times and rates. Whether to chop them up into pieces or to smudge them into the existing tax system is a matter Congress will decide, no matter what we suggest. Nevertheless, we start the discussion with a suggested plan, recognizing many plans are feasible.

In the problem at hand, about a quarter of Medicare costs appear in the last year of life. If a mechanism could be constructed to deposit such a sum at interest the day the person is born, a normal interest rate would have paid this off by the time a person was about twenty-five or thirty years old. That is, there is plenty of money in the system to do it. However, to confront newborns with a collective fee of fifty billion dollars is nonsense, particularly when the beneficiaries of this gift would already be dead, and would have contributed nothing to the cost. Yet this is not too different from what Lyndon Johnson did with the transition costs of starting Medicare in 1965. Using this example, we are about to propose a method of accomplishing this transfer within existing law, which Congress could easily improve on, if it chose.

That would be to consolidate the first and last years of life into a single person, and suggest a pump-priming federal gift of $450 to pay for both. At 6.5% tax-free compounded quarterly, this should create an escrow fund containing $101,000 upon death at an average age of 84. Since there would be no birth costs for existing Medicare recipients, the subsidy would be reduced to $300 for them (generating a minimum of $67,500), but paid back out of surplus as surplus begins to be generated, and disappearing when it is repaid. If necessary, their Medicare premiums could be reduced in the meantime. The great bulk of escrow contributions would be provided by transferring payroll deductions to the HRSA. It is not contemplated that payroll contributions would be reduced until foreign borrowing stopped. By this approach, almost all participants would benefit. Congress might improve on this system if it chose. The goal is to start with first and last years, gradually extending both until contributions become unnecessary. That might easily take fifty years to complete, and would imply net cost reductions by research in the meantime.

Proposed Transition Scheme.After the defined-term HRSA has had a few minor adjustments, and after a couple of years of study and discussion, the proposed first step would be to start up the escrow funds which would fund a Terminal Care proposal, called Last year of Life Insurance. The actuarial process is essentially the same as life insurance, and the life insurance industry probably has useful experience to draw on. Medicare can readily supply the data on actual cost experience, and current payments would be very close to next year's cost. Over time, they might migrate, so the continued existence of Medicare is essential to this program, and should be reassuring to conservative subscribers, who fear we will propose closing Medicare. It is intended that Medicare payroll deductions will fund the transfer of the average national last-year costs to Medicare, allowing them to reduce Medicare premiums for current subscribers. Infact, if the payment system got tangled, payroll withholding might have to be temporarily increased, to pay for costs created before the research findings.

However, there is on average a twenty-year gap between the termination of payroll deductions (the onset of Medicare) and the age at death of subscribers, so this transitional cost must somehow be re-arranged. However, the overall revenue to fund the last year would come from payroll deductions, which is desirable for the entire program from start to finish, if it can be managed. The plan is to transfer the entire proceeds of the payroll tax to the individual's escrow account as it is collected, eventually supplying considerably more revenue than is needed, because of the generation of compound interest. It might be necessary to delay the onset of death payments a year or two, but eventually the gap will be filled, then it might be exceeded, but eventually the program will be able to address the second-to-last year, or even more.

Alternatively for transitional costs, the program could draw on the first year-of-life program for its surplus funding, because everybody now alive has somehow already funded the cost of having been born. Furthermore, including newborns would add 20+ years to the interest compounding for combined newborn-and-elderly pay-back. The problem is only one of math, there is plenty of money in the proposal once it gets started.

Elimination of Existing Programs. The grand scheme is to use compound income to eliminate the tax cost supporting existing government programs, substituting an accordion-like elimination process which begins at birth, ends at death, and is supplemented only in the middle. Gradually, it is envisioned that working people could stop directly subsidizing other age groups' health costs before and after their working years. As investment funds come in, and medical expenses decline, some of their retirement costs could be covered, as well. Since age-transferred costs would be supported by non-escrowed investment accounts. it may take a long time to get to that goal, but national morale should be improved by understanding there is a goal, and a workable plan to get there. By "workable" is meant you may pay your own costs at a different age, not subsidize some strangers who happen to be of a different age.

The reader may have noticed we have omitted one significant group, those from birth to age 25. It has special problems, addressed in the next section.

Those who feel affection for government guarantees should be heartened to learn this plan provides for the probability we may not actually reach that goal in their lifetimes. Thirty million Americans were excluded from the Affordable Care Act, which sincerely hoped to cover everyone. However, the realities of seven million prison inmates, eight million mentally handicapped, and twelve million undocumented aliens proved to be too much for that goal. In many ways, the ACA served to convince almost everyone that a very sizeable population subgroup had such specialized needs that specifically targeted programs might well be a better approach for them. And so, it is only realistic for this proposal to allow for the possibility that Medicare, the CHIP program, and Medicaid may never be completely closed, even though they were never completely suitable for more typical Americans.

"Christmas Saving Fund" for Medical Care

After listening to a description of a Health Savings Account (HSA), the nice Quaker lady exclaimed, "Why, that's just a Christmas saving fund for health care!" And so it is. First you buy a health insurance policy which pays the cost of major illnesses above a fairly high cash deductible. And second, you create a special savings account -- independently and tax-free -- to build up the cash deductible, and/or outpatient health expenses below (too small to trigger) the insurance. Once your savings account has at least reached the deductible level, you are totally covered for major health expenses -- from first dollar to last, just like Blue Cross used to be, long ago. True, you still must pay small outpatient costs, but passing them through the account reduces their cost by the income tax deduction. We hope you just continue to add to the account as you are able, tax-free up to $3350 per year, but the decision is yours alone.

Something significantly extra emerges at the age you become eligible for Medicare. We therefore even suggest a name-change of HSAs, to Health and Retirement Savings Accounts,(HRSA), because any surplus from remaining healthy turns into a Individual Retirement Account (IRA) when you convert to Medicare. For some people, this retirement addition is more important than the health care part. It all will depend on your health.

As far as healthcare is concerned, many speeds of differing amounts, will reach the same finish line, so the Health Savings Account invites the subscriber to choose the speed he can afford to risk, to reach the entire deductible (or even more). In fact, there are incentives at every turn to save even more, because some people won't save unless prodded a little. In fact, the average American spends $2000 annually on loan interest, because he can't resist the temptation to buy things. But you can always deplete this particular account for an illness, then restore or exceed it tax-free, if part of the balance does happen to be needed for healthcare. Meanwhile, it earns tax-free income. It isn't hard to understand, particularly if you read it twice, but its hidden power may be less obvious. The old Blue Cross system had a "use it or lose it" quality to it, but the Health and Retirement Savings Account gives you back anything that's left over, as an incentive to save for retirement. The first part of this book tries to make clear how important the difference is.

Because both deposits and medical withdrawals are untaxed, the system offers the advantages of both a regular IRA and a Roth IRA combined. The only disadvantage to overfunding the account is to pay a penalty for non-health expenditures from it before age 65. After the HSA subscriber reaches Medicare eligibility, it all turns into an Individual Retirement Account, which you can spend on anything you please. Since you can't predict what your health will be, the harmless incentive is to keep it overfunded to get more tax abatement, but nevertheless that's not required.

* * *

That's unique and simple, and all quite true, but it describes only a fraction of the full potential of HSAs, which require the rest of this book to explain. Read the first four short paragraphs again if they seem unclear. Much of their potential wasn't dreamed up by the originators (John McClaughry and me) at all, but just tumbled out as patient experimentation and experience accumulated. It's tested, all right. Between fifteen and twenty million Americans already have these accounts. As things turn out, they are not merely attractive to poor people, although that's how they began. The original goal was to help people of average income afford what most people who work for big corporations had been given by their employers for decades; but innovative thinking has gone far beyond that modest beginning.

{top quote}
The Retirement part is more important than the Medical part. {bottom quote}
The Traditional, or Employer-based System. In spite of all the talk about healthcare reform, about half the population still retains the employer-based design, and they passively imagine the employer design only requires tweaking to be perfect. However, it remains relentlessly connected to the kind of job someone has. It begins when you get a job, and ends when you quit that job; that's a difficulty, right there. In employer groups, you don't buy it, your employer buys it and gives it to you as part of your salary; but you need not suppose your pay-packet is as big as it would be without it. The result is, the core of the employer system has become largely funded by tax deductions -- the employee's, (20-30%), and particularly his employer's at a higher rate (40%). The relentlessly rising costs it provokes are not the employee's problem nor his employer's problem; they are the government's borrowing problem, and a big one. But the source of its cost inflation is the false appearance it is free. It isn't free. It may well be the main reason America's corporate income tax remains so high, driving our corporations abroad. Otherwise, it suppresses profits, take-home pay, dividends and tax revenue.

Employer-based health insurance is so riddled with cross-subsidies (both inside and outside the hospital), it would be hard to say who supports what. But clearly, young employees subsidize older ones, and may lose out entirely if they change jobs as they frequently do. Unfortunately, the Affordable Care system uses the same configuration, but superimposes income groupings. Unless the Affordable Care Act changes, thirty million people will be specifically excluded from it. While it mandated uniform subsidies, its subsidy designations conflict with existing ones, and cause problems which have not been solved in two extensions of the employer insurance mandate. Some subscriber groups match the government subsidy limits well and prospered, but the components in other insurer groups do not happen to match the subsidies well, and are threatened with considerable disruption. Stay tuned to hear how this works out.

Overall, the whole system is unbalanced, with the working third of the population struggling to support the non-working two thirds, too young or too old to be working. Thirty years have indeed been added to life expectancy in the past century, so it's hard for anyone to complain about the effectiveness of the American health system, except notice: not getting sick means a longer retirement, requiring more retirement income. Everyone wants to live longer, but few can afford a longer vacation after the working years. Employer-based insurance encourages more spending; the illusion of being free encourages wasteful spending because neither the patient nor his employer has much "skin in the game". Its biggest problems grow out of its most attractive features. Everybody is afraid to admit longer retirement costs are merely deferred, unfunded, healthcare costs.

Further Advantages of Health Savings Accounts. Before going further, let's go back and notice what else tumbles out of the simple structure of the HRSA, or Health and Retirement Savings Account, which now becomes our central topic. First of all, it's usually lots cheaper. Sometimes it's hard to prove where the savings come from, probably about 15% from the account itself, and another 15% from the catastrophic (indemnity) health insurance. Eventually, savings get greatly multiplied by compound interest.

Cost-Savings. The higher the deductible, the smaller the premium, is just mathematics, but a big reason this package appeals to financially struggling people. But notice what's obviously also true: the lower the deductible, the higher the premium. Seemingly, it should all come out the same, but it's cheaper. The HSA (Health Savings Account) started out as a new way to lower premiums temporarily, for people who didn't happen to be sick at that moment. However, if someone becomes sick, the average total of premium plus deductible, in the aggregate, surprisingly often turns out to be lower than regular insurance. That's when we started noticing its hidden features, trying to explain such hidden power. First of all, this approach probably does induce more young people who aren't sick, to buy insurance.

Larger numbers of young subscribers lowers the average premium for everybody else, because healthy youngsters essentially buy protection, not health services. Subscribers acquire some control of the premium price, but it's incomplete, depending on insurance design. For the most part, young people overpay for protection. Nowadays, the Affordable Care Act sets mandatory deductibles for all health insurance plans, while ostensibly forcing everybody (except for 30 million embarrassing exceptions) to buy health insurance, too. That's supposedly a way of forcing premiums down, except it upsets people to be forced. And anyway, premiums for what satisfied the Affordable Care Act quickly (and alarmingly) went up higher and faster than before. The cops and robbers approach didn't save money, probably because all government projects are "one size fits all", responding to the equal protection clause of the Constitution. That's nice, but it can't defy the law of gravity.

In better economic times, appreciable interest income is earned when young healthy people stay healthy for fifty years before they do get sick. Effectively, with an HSA you can pick any residual deductible you want, by taking more risk, or less, for a few early years. As the Christmas fund builds up to the deductible and beyond, eventually you take no financial health risk at all, and begin to take retirement risk. Let's say that again: by partially funding the insurance company's posted deductible, what's left unfunded is setting the true deductible. Most HSRA subscribers eventually fund it all, and have no true remaining deductible when they get sick. But a funded deductible has changed the nature of the cost resistance. It now becomes one of protecting your investment, because you are surely going to need it.

The amount of subscriber risk can remain only fuzzily described, whereas insurance companies must pay to the penny, and usually can't accept vague financial risks. This one stretches over too many years to be safe for them to predict, even in bulk numbers. Mismatches are numerous, between income and sickness experience. When you have enough money in the Health (and Retirement) Savings Account to pay a deductible, you essentially have first-dollar coverage. That doesn't exploit the full potential of HSAs, but it's at least one of the things it does. The fact that excess spending is less provoked is proof the issue can be addressed. In addition, almost all modern insurance also has an upper limit to total cash out-of-pocket medical costs, but those limits are higher than the deductible. They were added to cover the remote possibility that someone might have more than one illness in a limited time period. This soon gets to be a complicated insurance theory, but it includes the warning: you must know the risk if you are to assume it.

The designers of the Affordable Care Act evidently badly underestimated the amount of backlogged health maintenance they were assuming, and probably underestimated it by vaguely ascribing it to "pre-existing conditions." All you really need is to read the newspapers to see The Affordable Care Act is very close to getting the insurers into financial trouble (My local Blue Cross organization lost $56 million last year, and the whole industry probably lost a $billion.), thereby eventually passing big trouble on to the public. One of the major sources is an unsophisticated gap between the deductible and the lower limit of out-of-pocket costs. If you take a risk, you must know how much it is, or else who will assume it for you. To base that gap on the insurance company's need for risk limitation, is a pretty crude approximation which in fact presumes the government will assume it. Insurance executives surely knew this; whether the politicians did, is less certain.

By contrast, the HSA subscriber does run a small but definable risk during the time the account is building up to the deductible level. He can guess at that risk, which is extremely small for young people, and hopes he won't get very sick for several years. Inevitably, older people have greater risk because they have worse health. So right now everybody's safety rests on hustling to build up the account as fast as possible. Because it's a pretty good investment, it's a good idea to overfund the account whenever the subscriber has spare funds, just in case. Lots of poor people are too unsophisticated to have bank accounts. That's fine -- just overfund your HSA. Unfortunately, the Administration just applied a penalty for doing that in any ways unspecified, a pretty vague if not unenforceable threat. I do suppose someone could get hit by a truck on the way home from buying insurance, but in that remote situation, the limit for uninsured costs would be the size of the deductible; if deposits had been made to the account, it would be less.

Once the gap is filled, you can change the premium or fill the account up a second time, but most people are often too unfamiliar with the twists and turns to achieve absolutely minimum costs. Rest assured, HSA is a pretty good investment although not a windfall, so unsophisticated people don't have much if anything to lose by overfunding it. Some have suggested the gap can be narrowed by buying life insurance, but cost statistics are not available to evaluate that possible approach. Some day, some enterprising insurance company will offer an automatic re-adjusting feature, but that would add cost. It requires a company to get involved without charging high fees, hoping only for big volume for reward; hoping for big volume implies heavy investment. Annuities are probably too expensive for the purpose.

Eventually, the subscriber will discover more money in the account than he absolutely needs for healthcare (and the sooner he does, the better). Some people will buy a newer car, or a bigger house, send someone to college, or pre-pay some future lean year of his own when he is between jobs. If those events describe his entire future, he need read no further. For some people, sudden illness may indeed terminate their planning. For the rest, however, the big problem would be to avoid outliving their retirement income, usually because they remained so healthy, not because they spent their reserves on illness. We all secretly hope the future will be good to us. In fact, paying for retirement in the future threatens to become such a large problem, it could dwarf illness as a threat for almost anybody. It begins to raise the question of what the main threat facing you, really is. Thirty years of extra longevity are wonderful, but everyone needs a way to pay for them, particularly if they should become forty years. Taking the long, long view is what the rest of this book is all about: We seriously propose a solid foundation of Health and Retirement Savings Accounts as a bulwark for just about everyone's far future. Meanwhile, unless someone changes the rules, it's hard to see how very many people could lose money by getting started. The rest of this book shows ways to do better than that, without getting hurt.

What will Future Healthcare Costs Be, and Will Such Revenue Be Available?

At present, average American lifetime cost of health care is thought to be roughly three hundred thousand dollars in year 2000 currency. Females cost about ten percent more than males, and live somewhat longer. Anyway, it's expensive, has a fair amount of waste, and it's certainly more than it used to be. No one would write a check based on that statement, but the goal of the question is more modest. Whole-life insurance is appreciably cheaper than term life insurance. So, after a few chapters on other details, we examine how much cheaper lifetime health coverage might be than year-by-year (term) funding -- and incidentally, ask whether it might be made cheaper than it is at present. To roll all the complexities into one monthly premium for life would introduce great efficiency, but it must be remembered the savings account approach captures the largest component of growth, the flexibility to begin saving at any age, and to accommodate any variations to duration at the other end. To get even that much attention you have to announce what your assumptions are, so cost projections can change as assumptions change. A vital point to recognize is the longer compounding continues, the better it pays. It's even more vital to recognize how much difference small differences in interest matters. A third variable is the frequency of compounding (see below).

{American Revolutionary}

Will We At Least Cure the Expensive Diseases? Several thousand diseases are currently recognized, and more can be expected to turn up. But the National Institutes of Health, largest research-funder in the world, calculates eight or ten diseases currently account for 80% of current costs. Remembering NIH also currently distributes 35 billion dollars a year, it doesn't seem impossible for one or two of the expensive ones to be picked off by lucky research in the next decade or two. Perhaps it is possible for all ten of the expensive diseases to be cured in three decades. There are at least two main disappointments lurking in such projections, however.

The first is the heaviest contributor to cost has long been the need to admit the patient to an institution. When Thorazine came along, President John Kennedy jumped the gun a little and effectively closed five hundred thousand chronic psychiatric beds. In retrospect, it might have been wiser to restrain that impulse by a quarter or a half, so we might now find fewer psychotic souls lying on sidewalk steam grates in the winter. Nevertheless, the general idea was understandable that diseases requiring institutionalization consume more resources than other conditions which might be judged more dire by a different standard than governmental cost. In a sense, institutional costs are a variable, independent of the cost of treatment. These are "low-hanging fruit", as the saying goes, and are getting used up fairly quickly, except that shortening the length of stay may simply increase daily costs -- and so end up at about the same place, by adding a lot of administrative overhead. Some time ago, I wrote a little paper on the diseases afflicting the patients in bed at the Pennsylvania Hospital on July 4, 1776, the very first Independence Day. There was considerable similarity with the present, because of the tendency of leg conditions and brain conditions to require help with daily living, not because the treatment hadn't changed a lot. What with air conditioning, high-speed elevators and private rooms, daily living costs have also risen faster than the cost of living.

Quarantining contagious diseases is another costly treatment approach, similarly mixing treatment cost with the cost of daily living. An independent, less satisfactory, factor contributing to institutional cost is cultural; providers and manufacturers failing to exercise self-restraint in black-mailing helpless patients to achieve unwarranted profits. You do see some of that, particularly near vacation areas where patients are generally strangers. Perhaps we should re-classify these as vacation costs. Our culture has discovered a deeper artificial cost issue: rationing always provokes shortages, which are ultimately self-defeating in a free society. When you threaten this balance in matters of life and death, you find you ultimately get still higher costs. Perhaps some one should try reclassifying rationing costs as independent variables.

Unfortunately for prediction purposes, five or six thousand uncured conditions have a way of expanding to fill vacancies created by the diseases we cure, since everybody has to find something to die of. Generally, this benefit to the system makes its appearance as a cost of lengthened longevity.

Meanwhile, improved housing does make it possible for more people to die at home, or at peace with their fate in some other location. The spread of higher education makes it more expensive to provide kindly, basic care, and our instinct to use automation to replace caregivers somewhat coarsens the substitution. Architects report it is always more expensive to build vertically than horizontally; therefore calling into question whether we have considered the high-rise incremental cost, or the alternate cost of moving institutions to the suburbs. In a nearby high-rise office building, I noticed the elevator shafts took up fully half of the floor space on upper floors. Someone has to commute; whose time is cheapest? Putting patients in hospices and calling it scientific care has not improved costs much, at least so far. Whatever else you might think of HIV, its swift eradication is a marvel of science. Copyrights and patents do run out, competition does work if unobstructed by regulation, so the prospect is for future health care to proceed through spurts of astonishment, but on balance for healthcare to get slowly cheaper, per year of added life. Much of the cost problem will nevertheless be buried in a mountain of double-talk, simply renaming retirement issues, and possibly employing some sugar-coated euthanasia.

Will Support Environments Become Friendlier to Medical Cost-saving? In my opinion, improvements in the supporting environment hold at least as much promise as medical research itself, for making medical care cheaper. Medical research is somewhat force-fed at the moment, in the hope of breakthroughs which may emerge from expanding chromosome and protein chemistry. Changes in architecture, infrastructure, clothing technology and similar drab subjects are probably due for a major upheaval from advances in electronics, which have so far neglected such prosaic matters. My own insight into such matters was advanced by seeing how greatly medical efficiency has been enhanced by widely-denounced advances in finance and banking. How much a one percent change in interest rates can affect medical costs, barely scratches the surface of what can potentially happen. If people can commute to work in half the time, or must commute in twice the time, makes all the difference in the hidden costs of healthcare. When the millennial generation gets back on its feet, they will be more surprised than we will be, at how much they can accomplish with comparatively prosaic advances.

Frequency of Compounding and Depositing. A feature of compounding is the more frequently you compound and the more frequently you deposit, the faster it grows. That is, if you pay $365 at a dollar a day, it will grow considerably faster than if you deposited $365 on December 31; if you compound the money in the same manner, it gets another boost. With a single deposit of $400 at birth, only the compounding frequency is demonstrated; in actual practice, the deposits extend from age 20-65, somewhat at the control of the depositor. The expenses of doing it are a negative factor, so at least you should inquire about these two features when comparison shopping. We next show the single-deposit for escrow accounts, followed by the multiple-deposit which reaches its extreme with depositing the annual limit of $3350. More probable actual results lie somewhere between these two extremes.


And then, who knows? Some idiot with a bomb may blow us all to cinders. Predicting future revenue could prove easier than predicting future costs, and force us to cut our suit to fit our cloth. That probably leads to rationing, so it's a last resort.

What emerges is that small variations in frequency of compounding, plus small variations in investment income, plus small variations in longevity -- combined -- are somewhat within our control, and make an enormous difference. But fundamentally it was the increase in longevity which put this new vision before us. It will be up to financiers and politicians to make this vision come within our grasp, fighting every inch of the way, no doubt. But it was fundamentally the medical profession, responding to the tub-thumping of the Rainmaker, Abe Flexner, that made it seem possible in our lifetime.

A most interesting website, thank you. I really hope to visit Philadelphia one day, and I shall definitely consult your website. I came across this website after doing a search on Johannes Kelp / Kelpius. I had just listened to a song written about him called, 'Sighisoara' at ukuleleroadtrips.com. Sighisoara is the place J Kelpius left for Philadelphia with 40 followers. Best Regards
Posted by: Pamela   |   Aug 20, 2015 11:04 AM
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
Posted by: SUSAN WILSON   |   Aug 12, 2012 12:49 AM

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