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

274 Topics

New Revenue Sources for Health Savings (and Retirement) Accounts
New topic 2016-06-23 22:23:35 description

Introduction: Surviving Health Costs to Retire: Health (and Retirement) Savings Accounts
New topic 2016-03-08 22:42:53 description

...Ratification, Bill of Rights and Other Amendments
The 1787 Constitution lacked a Bill of Rights. Few except Madison himself were opposed to adding one, but many other delegates would have failed election without promising it. Negotiations at the Convention had proved so excitingly innovative that time ran out before the Convention had to adjourn with only a promise of a Bill of Rights, first thing. Almost immediately, political America was thrown into a year of state ratification conventions. Massachusetts initiated the concept of ratifying the Constitution, attached with eight or nine amendment proposals for the Bill of Rights. When the First Congress finally convened, it faced almost two hundred proposed amendments, and Madison made sure he was chairman of a committee to deal with them. Practically alone he pared them down to a succinct twelve which survived as the first order of business of the new Congress. Almost unnoticed, he made a deal with Oliver Ellsworth the leader of the Senate, to pass the Bill of Rights in exchange for passing the Senate's Judiciary Act in the House of Representatives. Out of this combined beginning, the power and scope of the Judiciary Branch was born. But while that is a subject for later chapters, Madison never achieved a more skillful moment in his political life, than this pivotal one.

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.

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 ... 2655 articles in all

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

Newborns Funding Grandpa, and Vice-Versa

Newborns have a limitless horizon, and they also have one advantage which is unique. They enjoy the mathematical tendency of compound interest to rise with the passage of time. Life expectancy is now 84 years, and is predicted to reach 90 within the newborn's generation. Because of the math, money at 7% will double in value every 10 years, so if a newborn invests a dollar at 7%, it ought to be worth nine doublings in a lifetime, or 2,4,8,16,32,64, 128, 256, 512 doublings -- or $512 in 90 years. Apparently that's rough and rounded off; a calculator on the Internet says it will be worth $515.69, based on two assumptions.

The first is that you will really get 7%, and it will be compounded quarterly, following the historic tradition for stock dividends to be issued every three months. That's pretty close, except the stock market has averaged only half that much during recent market turmoils, suffering 30% dips in some years, 30% gains in others. It makes a whole lot of difference if you start investing at the beginning of a long recession, or at the start of its recovery, so it may take 20 or thirty years to smooth out to the average. If you start investing at the age of 60, it's likely your results will mainly reflect your lucky birth year, even if you follow the precepts of "passive" investing in index funds of the entire stock market. A newborn risks a little, approaching retirement he may risk everything.

Another way of looking at this matter is to get out professor Roger Ibbotson's compendium of stock prices for the past century, and ignore the boilerplate reminder that past performance is no guide to future performance. Of course it is no guide, but it's all you have. Limiting your attention to the biggest 500 or 1000 corporations, which are a little safer, stock market total returns have risen fairly steadily at about 11% a year. However, inflation has eaten away at that by 3%, so the investor only realized 8% before the broker took out his own expenses. Moreover, the market is subject to 30% swings every few decades, and if you protect yourself by holding 40% in bonds, your returns average closer to 5%. "Active" investors try to run between the raindrops and do a little better, but the fees of an expert advisor absorb most of the profit, bringing you to about the same result. So unless you can somehow control the year of your birth, you are going to average somewhat less than 7%.

{top quote}
We must assign a reasonable definition to a "decent" retirement, provide for a moderate one, and leave the rest to our own sources of wealth. {bottom quote}
But if you fool around with tips you heard at a party, you will probably do worse. Taken all together, most conservative investors would say: an average investor is going to do worse than 7%, would be lucky to average 6%, and may well average about 5%. According to our predictions, that won't be enough to pay for healthcare and retirement. But then, nothing will do it perfectly as long as we don't know where longevity will level out, or whether healthcare costs will fall, or what the economy will be like in the meantime. We must assign a more reasonable definition to a "decent" retirement, provide for a moderate one, and leave the rest to our own sources of wealth. It's essential to do that much to keep one generation from attacking the income of another. But it's hard to see us going much further.

It won't cover the entirety of healthcare and retirement, but it's still not, nothing at all. It's worth trying, in view of the gamble that science will do the rest. And it's close enough to keep seeking an extra percent return, here and there. Since the existing system is so riddled with obvious inefficiencies, the chances of finding a breakthrough are not all that bad. The opportunities for people willing and able to take a risk are pretty attractive, but not everyone is temperamentally or financially wise to take them.

My guess is childhood funding will be greeted with some reluctance. All of this talk about Wall Street makes a jarring clash with our soft and fuzzy notions about cute little kids. They run around in circles making excited noises, quite at variance with extensions of compound interest or contingency funds. But nevertheless, the math is close, and we cannot afford sentimentality. if we want to fund everybody's future, we need those years of extra compounding, and we need to face the fact that newborns have no money. Those things won't change, and it helps nothing to drag out the discussion of it.

The system badly needs to put some money into itself, as early in life as possible, in the following areas:

Contingency Fund. A person whose grandparent is willing to spend a thousand dollars is very likely to win this healthcare bet. There are lots of people who will never see a thousand dollars in one pile in all their lives. But there are millions of others who could easily afford it, and would be offended not to have the liberty to do so. With a swing of 500x from start to finish of a 90-year life expectancy, a contingency reserve of a quarter or half-million dollars could easily be leveraged into a lifetime free of healthcare and retirement worries, and hence make a significant difference in their lives. There surely are many people who could afford this, and the leveraged effect on our economy might well unleash an unimaginable economic boom. Maybe it wouldn't; so a whole lot of people have lost a thousand dollars. So what? This contingency platform needs a stronger structure to make the gamble seem more realistic to its detractors.

The Last Four Years of Life Reinsurance. Medicare now costs about $12,000 per person per year, and the average person stays on Medicare for twenty years, costing $240,000. But Medicare health costs are also internally J-shaped -- full lifetime costs in miniature. Half of expenditures are in the last four years of someone's life. Advancing science may change this curve, but it seems likely to represent terminal illness. If it's approximately true, the removal of terminal care costs should reduce all other Medicare expenditures to $120,000, spread over twenty years. If the contingency fund paid for terminal care, it would be after an initial expenditure of about $100. That is to say, an expenditure of $100 (to the contingency fund at birth) could readily pay for a reduction of $120,000 of Medicare liability, with the gap filled in by the growth of the contingency fund in eighty or ninety years. The savings would express themselves as a reduction to deficit financing, the payroll withholding, and the Medicare premiums. These reductions could be gradual and in different priority, during the transition phase.

The first Twenty-five Years of Life Reinsurance. There is no way for newborns and children to pay for their own health costs; someone else has to shoulder this burden, usually the parents. Families of differing size are another complication, because small families resist paying for large ones. Because this problem has defeated conventional notions, we here present the possibility that grandparents should make the transfer, largely using investment gains to do it, but eventually for the relief of the parent generation. The first and last years of life would be largely funded by investment gains, and residual health costs would be much smaller and more equitably distributed. The precarious present system, of having the working third of the population support the non-working two thirds of the population, would be much reduced and a way shown to eliminate it.

In summing up the reasons for a childhood insurance plan, one warning. These figures are derived from the published reports of CMS for 2015, probably reflecting 2014 data. Let's take the average Medicare benefits cost per capital as an example. The figure of $12,000 per year per person seems a little low for terminal care. It is a national average, reflecting low rates for one state, high rates for another. Furthermore, a great deal of terminal care takes place at state expense in Medicaid, and to enhance Obamacare the costs are shifted to Medicaid nursing homes. It's mainly Federal money, but it appears in the state ledgers and could quickly shift around, and end up as a Medicare expense. So the use of Last Year of Life cost-shifting might shift the investment savings around, while the net cost might seemingly rise as new expenses are dropped on it. The transfer of terminal care money from the contingency fund to Medicare would indeed save the consumer $120,000, but the net Medicare cost could be made to seem what the accountants want it to seem, including an increase in Medicare expenditures as their last resort.

The Working Population, from age 25 to 65. Except for removing its destabilizing burdens, this proposal does not endeavor to change the Affordable Care Act. Although the author harbors many opinions about it, this proposer has every intention of leaving the ACA to political, judicial, and electoral decision. For the practical purpose of avoiding discussion, the fiscal effects of the ACA are assumed to be neutral, in order to have as little effect on the discussion of program design as possible.

Adding Incentives to Health Savings Accounts.

Government programs tend to have a "one size fits all" quality to them, growing in part from the Constitutional requirement for equal justice under the law.

This homogeneous similarity is exaggerated by the way legislation is created. Each Congressman represents nearly a million constituents, far too many to be running for re-election every two years with scant time left to legislate. The laws are consequently too general, are revisited too infrequently, and leave too much to the Judicial branch and the administrative agencies to settle. Congress increasingly resembles a Board of Directors, rather than the source of legislation, but lacks the power to control the President by picking him. For this reason, we regularly hear the British parliamentary system praised, since the Prime Minister is chosen by the parliamentary ruling party. My own feeling is Congressmen are not able to devote sufficient time to the job of legislating mainly because they spend so much time on the telephone, soliciting election funds. Let's examine some issues which are not urgent, but eventually must be settled by these harried law-makers.

We have stumbled onto the clear linkage between paying for healthcare, and subsequently paying for the extended retirement which is mainly a result of improving that care. Although the cost of healthcare is a national concern, extended longevity has proved to be several times as expensive, expressed as a lump sum at age 65. That's because a retirement fund is a constantly wasting asset, whereas Medicare is only spent when you get sick. Furthermore, retirement will soon last a third of a lifetime, so open-endedly it is awkward to suggest a price on it for everyone. Consequently, everyone, even people who are quite rich, is afraid to spend retirement funds for fear they may not suffice for a particularly expensive terminal episode. Homogeneous nations like the Scandinavians seem willing to carry equal retirement to a national level, for the same reason socialism is more popular there. A homogeneous people are more willing to trust each other to "re-insure" them in unpredictable circumstances. But our society seems headed in the opposite direction.

Socialism is unpopular here if carried beyond mere subsistence, because of its tendency to reduce work incentives. So it's a circular argument usually growing out of famines and genocides. For example, raising the retirement age might ease financial strains, but instead many people just want to quit work at the age of fifty, while others see no reason to retire at all. Unfortunately, workaholics resent the suggestion their extra income should support others who prefer to quit work. The difficulty is magnified by supporting thirty million people who are plainly unable to work, plus at least an equal number who hate the kind of work they do. The outcome is a diverse nation seeming resistant to providing a government pension which guarantees much more than survival. Observers legitimately object we don't know how long people will prove capable of living, and that's quite true.

If that's the case, there will always be a divergence in the luxury of retirements, and therefore a constant propaganda war between fairness to the poor and fairness to their more visibly successful competitors. At least for a very long time to come, the amount available for individual pensions at retirement age will be a scorecard for a successful life. Both public boasting and envious criticism should be discouraged, but its lifelong incentive to be frugal must not be ignored. If we can manage this paradox, the incentive can be used as a constant reminder that what you frittered away as a youth, might have been used to improve your retirement. At the very least, the public might be reminded that government debt lowers long-term interest rates, in order to stimulate short-term growth of the economy. To paraphrase John Keynes, "In the long run, we are all retired." Eventually, we must all live on what we saved, and debts we agreed to must be repaid.

{top quote}
One logical place to begin, is to pay a bounty into an HRSA for subnormal spending during the previous year. {bottom quote}
Therefore, unifying the finances of all medical care and retirement at any age is a powerful incentive to be medically frugal. Otherwise, your horizon becomes the termination of your present means of support, the termination of your present mortgage, or the graduation from your present school. There is general agreement that medical costs have risen so fast because there is nothing else to spend the money on, except frivolous medical care. As we said earlier in the book, there is reason to suppose the success of Health Savings Accounts lies in the powerful incentive provided by retirement needs, offered as a use for left-overs. The roll-over of an HSA into an IRA provides the alternative, and the tax deduction for health provides a preferred, but not mandatory, outlet. If, one by one, other funding sources for healthcare flow into an HSA, healthcare at all ages is provided with a unified incentive to be frugal. Health insurance of one form or another may resist an HSA alternative, but if we are correct, the market will force it. Because medical care seems destined to concentrate in elderly people, it seems most urgent to provide this incentive to Medicare, first. Of all places, Medicare is the least desirable place to be employing deficit financing, pay-as-you-go financing, or other mechanisms to make it appear to be less expensive than it is. Because of stretched finances, one logical place to begin, is to pay a bounty into his HSA for subnormal spending during the previous year. The beauty of this approach is that the younger you do it, the more it will help.

{top quote}
If the individual contributes to the contingency fund, or to the Last Year of Life fund, make choices for increased benefits for late retirement and anything else anyone can suggest, the attractiveness of Medicare will be enhanced. {bottom quote}
Flexibility is also an incentive for almost any program. We have mentioned several ways to enhance the revenue of Medicare, and there seems no reason to force the choices. The transition period from Medicare as we know it is likely to be a long one, and family circumstances may change several times during the phase-in. If the individual can contribute to the contingency fund, or to the Last Year of Life fund, make choices for increased benefits for late retirement and anything else anyone can suggest, the bookkeeping may be more complicated, but the attractiveness of Medicare will be enhanced. Particular attention might be paid to individual's ability to apportion the distribution of his nest-egg at the time of retirement, and later on until he writes his last will and testament. There will be an irresistible tendency to overestimate personal retirement needs, in order to avoid exhausting them too soon, and it should be relied upon. On the other hand, these requirements are often abruptly changed by illness, or death of a spouse. There might be several contingency funds, with different rules for invading them. And there should be a mandatory minimum gift to a grandchild, as opposed to or in conjunction with more general inheritance considerations. These warnings are issued in full knowledge that most people cannot see so far ahead, and most people will remain a long way from achieving their goals.

With such general conclusions in mind, it seems inadvisable to limit choices without good cause, or provide for handling exceptional cases without the approval of some sort. Failure to do so might lead to forcing some people to reject a job opportunity, or to buy insurance they do not need. Or to encourage inflation to minimize the unfairness to a surviving spouse to force reduction of his/her lifestyle. For the first few decades at least, constraining the choices at certain critical points should operate on a sort of common-law or Court of Equity process, as the issues gradually surface, and are slowly resolved. The country is growing increasingly restless about the intervention of administrative agencies without adequate oversight by the court system.

Marriage Laws. Broken marriages, whether broken by death or design, are too common to justify anticipating their future direction. A lawyer dominated legislature must recognize the danger of too much power in the hands of the trial bar when dealing with life-long savings of either party, or both, or prior expenditures of the couple for health purposes. Or unanticipated contingencies which occur after the separation of a couple. It will be a long time before we have settled what is best to do about serial marriages of homosexuals, or marriages of intersex couples, or no marriages at all. The courts dealing with lifetime health and retirement funds should at least have an outlet for the special insights their role provides.

Special Treatment of the Handicapped. Not only do handicapped people of all varieties have increased healthcare expenses, they have special laws dealing with their problems which may conflict with what is generally best to do about lifetime health and retirement funds. It is unwise to freeze the rules before the exceptions become evident.

Foreign Citizens and Conflicts Between States. It is comparatively common for citizens who were foreign-born, to retire to the nation of their birth because it is cheaper to live there. They become subject to devaluations of the foreign currency, and prey to agents who purport to help them, just as residents of different state jurisdictions become subject to conflicting mandates.

The list of potential conflicts is very long, and these are only examples of it. The basic point is that a mechanism should be created to deal with long term exceptions to laws which envisioned a shorter horizon and fewer linkages.

Three Segments of Lifetime Healthcare, Starting With Medicare

The Affordable Care Act was announced as mandating health insurance for everyone, but about thirty million people were specifically excluded. The healthcare problems of seven million prison inmates, eight million unemployables, and eleven million illegal immigrants were too specialized to be included in a program which hoped to be one-size fits all. Quite properly, outliers would be better handled by special programs, designed for their special needs.

The Affordable Care Act is now central to Administration attention, and Medicare is deemed too hot to handle in an election campaign. We elect here to discuss Medicare, retirement, childhood, and how to unify--pretty much all that's left. That avoids direct confrontation, but it prepares for the day when ACA is either confirmed or abandoned. It's no secret in our scheme, all of lifetime healthcare seems appropriately connected financially to a single lifetime Health Savings Account, one per person. We'll return to that after we first discuss the dependencies of retirement and of childhood. Neither of them is an easy question. Medicare is not only a political hot potato, it comes at the far end of life after savings have stopped accumulating to pay for it. Moreover, it is unique that retirement usually begins about the same time as Medicare. Childhood comes at the beginning of life, before there has been much chance to pre-pay it. That makes such a radical difference between the two, they almost seem to be different programs.

We begin with the far end of life, where most health cost concentrates. While retirement is parallel in time to Medicare, we are only beginning to recognize its source as an inherent component of better health. If one is to help pay for the other, they must, in the Medicare case, draw their funds from the same pool. That's Medicare, which most people don't want to change.

Although the Industrial Revolution brought many lifestyle improvements in the past two centuries, it also brought continuous turmoil. The idea of leisure time may have been a reward for being in the upper 1%, but most of the population never dreamed of leisure time. The novels of the "Lost Generation" after the first World War often revolved around the discovery of unfamiliar leisure pursuits by members of social classes newly learning about such things. The moral, then and now, seems to be that leisure is no bed of roses.

The cultural response seemed to be that leisure was best reserved for retirement, although the younger generation sometimes rebelled at that conclusion. It was probably Medicare which created the belief that retirement was the time for everybody to enjoy leisure time, and everyone was entitled to retirement. In any event, it was surely Medicare which extended retirement longevity. Overextending it, if you believe it will be impossible to pay for it. After all, retirement is a continuous cost, while illness is episodic. Right now, there are ways of calculating costs which depict retirement as five times as expensive as healthcare. But Medicare averages thirteen thousand dollars a year, and rising. That's a pretty meagre retirement, and when you discover Medicare is 50% borrowed, you have to question how many people could retire on $6,500 a year. Medicare As a Financial Issue. Medicare is about half paid-for, half borrowed. According to Mrs. Sibelius, about half of Medicare expenditures are supported by the general fund, or general taxation. The general fund is in deficit, however, providing fairness to the description of Medicare as a fund borrowed from the Chinese, since China is the main purchaser of ten-year Treasury bonds. The purchaser may change, but the deficit looks to be permanent. Until deficits are paid off, it will remain true that Medicare provides a dollar of care for fifty cents. That sounds wonderful, until it suddenly sounds terrible.

An accountant would say, actual cash revenue is roughly evenly divided between premiums paid by the beneficiaries, and pre-paid as a payroll tax of 3% on workers not yet old enough for benefits. (About half of this wage tax comes directly from the employee, another half from the employer. We skip over the technicalities that some parts of the program are tied to one fund, other parts to another, and also some are subject to higher income tax). About a quarter of Medicare is paid in advance on a "pay-as-you-go" basis, which is to say they pay current costs of other people, they are not saved for the contributors to become beneficiaries. A second quarter is paid and spent by current beneficiaries as Medicare premiums. That is, about half of the deficit is pay as you go, another half is borrowed from foreigners; only a quarter of the budget is current revenue from the beneficiary age group. However, the payers of pay-as-you-go are about thirty years younger than the spenders of it. If we put the youngsters' cash to work for thirty years, what interest rate would it take to grow one dollar into three? The answer is about five to seven percent. For quick understanding, a few tools are needed:

Invest the Withholding Tax and Stop Borrowing for Medicare.You can either spend the revenue or save it, in pay/go, you spend it and it's gone. However, in pay/go you only need to pay it back once to get on a sounder footing, but then you are left with finding some way to pay the deficit half of the current budget --indefinitely. In this example, let's assume we could amortize the single-year cost of correcting pay/go. What's then left is paying three quarters of the ongoing cost with a quarter of it, invested in something safe for roughly thirty years. Could we do it? The answer is roughly yes, but it raises the political question of whether it's worth doing. The voting public would scarcely see a difference, and you would have launched a risky new venture of indefinite duration. The withholding tax and the Medicare premiums would remain the same, the benefits would be unchanged. Most accountants would say it was a desirable change to a more stable system, but many politicians would say it runs a risk without any contemplated political benefit. Everybody is correct; it isn't enough but it is something. It solves a definable portion of the problem, if we could find some way to supplement it. We have four suggestions:

Devise Some Way to Escrow Long-term Funding. New revenue ordinarily arrives as cash, and is invested in short-term loans until it is decided what to do with it. With thirty-day loans, or even overnight loans, you just have to wait a little, to regain cash status. But money market funds show us what can happen. If customers get into a sudden panic, they want their money back immediately. If it's already invested in thirty-year mortgages, the money market fund may go bankrupt unless someone "bails them out". Which is to say, loans them more money to supply some cash -- even though they have ample funds frozen in long term investments. If no one will do so, the creditors may shut them down and you have the beginning of a liquidity crash.

Because of this very real possibility, the longer the loan, the higher its interest rate, because the liquidity risk gets protracted. That's bad if you are a borrower, but pleasant if you are a creditor. Therefore, if the Medicare wage-tax receipts flowed into a single-purpose account, creditors would be assured money could not be withdrawn before the stated time, and its rate of return would rise with this new attractiveness. Just how much extra income would be provided is a little uncertain, because very few loans are currently for longer than thirty years. However, about forty-five years are potentially available between age 21 and 65, and educated guesses could be made. A one-or-two percent rise in income might change many calculations, not merely this one.

Find Ways to Extend the Years at Compound Interest. Since retirement is conventional at age 65, a fund for retirement will immediately start to dwindle until the date of death. But many people continue to work, or have other retirement funding sources. If they do not need the surplus immediately, they should be permitted to leave it in the escrow fund, to prolong its term. This could be either fixed-term extensions or demand deposits, at the election of the depositor, and its election would make these funds preferable to retain, compared with Social Security, for example.

The open-endedness of retirement is always going to be a problem. If we speak in averages, they suggest half of the population will be dead, mid-way to the average. Any unexpended surplus after their deaths will be a source of contention, and there will be a struggle for it between heirs and longer-term survivors. If the compounding of unused income could continue longer, for even five years after death, the extra revenue would be considerable.

All of that is small-time, based on the mistaken notion the system is basically sound. Let's look, without pretense, for seriously larger amounts of money:

Contingency Fund. The combination of compound interest turning favorable as you extend longevity, added to increasing longevity itself, leads to surprising results if the argument is extended from the cradle to the grave. Everybody's eventually going to die, so relatively soon that's going to extend to essentially everybody dying after he reaches age ninety. One more fact, it helps doing compound interest in your head, to remember that money at seven percent will double in size after ten years. The means nine doublings in 90 years, or (2,4,8, 16, 32, 64, 128, 256, 512) or 500-fold increase over a lifetime. You might even stretch this to the limit of a perpetuity (one lifetime plus 21 years) to get a multiplication of the money to 2000 times. That is, a contingency fund of $2000 might be envisioned from the gift of $1 to a newborn. Since you know with absolute certainty that every newborn will die some day, a contingency fund of a million dollars per person is possible with a grant of $500 to everyone born in poverty, so long as you don't spend any of it for 111 years, providing you can get an average 7% return, and providing the government doesn't devise other uses for your money in the meantime. Incidentally, increasing public resistance to inflation is one of the hidden virtues of this proposal. Most people would laugh at such a long-term projection. For a single individual, yes, for an extended family, not so much. The trick is to get started with small amounts, which don't attract much attention until they demonstrate some power. That would be in gifts to newborns, described in a subsequent section.

Instead of fanciful extrapolations, it is possible to say almost every working person could summon up $200 per child to provide supplements which would accomplish reasonable goals for lifetime healthcare, plus a somewhat more modest description of a comfortable retirement supplement to Social Security. And for those who are unable to support themselves for handicap reasons, the government might summon up the cost for indigents. In the long run, that would be a bargain for government. Since every child has two parents, that leaves a 100% cushion for under-estimates when we extend this idea to children. The problem is not arithmetic, it is public acceptance of the whole idea of individual long-term contingency fund, plus a way to store such a fund for centuries at a time, protecting it from pilfering by its custodians.

First and Last Years of Life Re-Insurance By far the best proposal for refinancing Medicare, however, is to anticipate the way science is going to re-design costs. In the long, long, run, there will be very little medical cost left, except the first and last years of life. We have no idea how long it will take, but that's the direction it is going.

So, phase in a re-structuring of funding for both children and elderly first, and then add in the rest of a lifespan, step by step. Be sure to do it in such a way that maximizes the investment income at compound interest. This might be a project under construction for many decades, but its first step would be to begin funding for the Last Four Years of Life, which happens to be an early step in refinancing Medicare. Since the reader may be unprepared for the topic, it is considered in a free-standing way, in the next section.

Prologue and Epilogue

This is the second of several volumes on rearranging the pieces of lifetime healthcare financing. Without adding substantial sums of money, it begins to appear an entire lifetime of healthcare, plus the extended longevity it provides, might be paid for with rearrangements of what we already spend. It's a hope, not a promise.

One consideration is not ready for incorporation into the scheme, however. The working years of life, from age 25 to 65, are covered by disputed and undisputed portions of the Affordable Care Act, pending lawsuits before the federal courts, and the political positions of the two political parties about how they should be modified or repealed. Essentially, we have not decided how much working people should directly contribute to their own retirement, or what they must give up to do it.

This plan treats extended longevity and retirement costs as inherent costs of improved medical treatment, acknowledging the wide variety of opinions about defining a basic, a modest, or an overly generous retirement income. Without substantial resolution of these two gaps in the plans, it seems impractical to suggest lifetime financial coverages. Therefore, the Affordable Care Act is treated here as revenue neutral, and retirement income becomes whatever falls out of other plans, plus whatever the individual manages to accumulate, on his own. We all must continue to "plan" for our retirement by saving more than we think it will cost. That's the theory; the reality is, many or most Americans just "plan" to muddle through. That's only workable for a few more years. Eventually, we must decide whether to sacrifice retirement in order to preserve the Affordable Care Act, or the reverse.

The technical toolbox of alternative revenue sources for retirement is not exhausted, however. (1.-2.) We have not specified the direction of the remaining three quarters of the Medicare withholding tax, nor the Medicare premiums. (3.) Under this plan, working-age persons make minor direct contributions toward their own retirement, and shift the cost later, down the road. (4.) The last-years-of-life rearrangement would pay for half of Medicare's 20-year cost by expanding to the last four years of life (That's half of Medicare's 20-year cost in exchange for 20% of its revenue). (5.) Reduction of premiums for employer-based health insurance can actually be anticipated from shifting obstetrical costs to the baby, reducing childhood health costs from the employed parents. (6.) Similarly reduced Medicare deficits, now financed by bond sales to foreigners, should ease the government cost of healthcare. (7.) Even though group health insurance is heavily subsidized by employer tax deductions, the deductions are not entirely free, and employers should benefit. (8.) If savings of this sort are shifted to younger age groups and saved at compound interest, one could expect substantial contributions to retirement income to result. (9.) A rather small transfer of the foregoing savings to a contingency fund (begun at birth) should ease the competition for allocation of investment income between the public and its financial agents. There can be optimism, therefore, that the discord and unexpected reversals of such an elaborate scheme, can eventually be overcome by the basic axiom of compound interest. Start saving younger, in order to save for a longer time.

Re-shuffling Some Old Ideas

Dear reader, please bear with the next three paragraphs. There's nothing entirely new. All of these ideas have been around for a long time, but are reshuffled into a somewhat surprising recombination. We assume the reader has accepted our brief excursions into compound interest, escrow accounts, the J-shaped lifetime health expenses, and the complexities of pre-paying the cost of newborns. Our whole economy is built on debt and its extension, called credit. However, everyone guiltily knows is it better to be paid interest than to pay it. Everyone knows life expectancy has lengthened, but not everyone realizes the cost implications. And even Aristotle despaired of the way we ignore the way compound interest sharply increases at the far end; it's J-shaped, too. Let's start by re-emphasizing what everyone supposedly knows already.


The Cushion. The first hypothetical graph illustrates a tax-free escrow account, into which only $400 is deposited at birth, and terminates at death 90 years later, accumulating wealth until age 65 but then spending it down for retirement. The numbers are arbitrary. That is, it begins with a manageable sum but eventually produces a modest retirement, just by sitting still. This is the "accordion" we employ to substitute for our obvious inability to project costs and revenue for a century ahead. It assumes an average income of 6.5%, which is justified by the history of the past fifty years, which show a high of 8.6% and low of 4.5% in successive thirty-year slices. Actually, as my son shows in the appendix, it is the more conservative modal value rather than the average, to satisfy actuaries who will be asked about it. We have only partial data for fifty years before then, and even sketchier data for a century before that. But the data seem to justify the same conclusion for a long time, in spite of countless wars and recessions. This isn't the plan, it is the cushion which would support the plan if it failed, intended to show our proposals remain within the limit of what is conceivable. No one, of course, can claim to predict the future with precision.

Measurement Inaccuracies. According to accountants, revenue always equals costs, accountants then stretch things a bit to make it happen. But in projecting the future we sometimes substitute one for the other because data is more available. When you dig into how these numbers are produced, you see their premises, hence their inaccuracies, are sometimes quite different. That's a fact which misleads the reader when the two curves are superimposed, allegedly displaying profits and deficits as the difference between cost and revenue. Sometimes it also misleads executives, who have to scramble to keep the company (or the nation) afloat in a mismatch. Without going into boring details, this explains much of the empiricism of the planning process. Sometimes, just sometimes, the Board of Directors acting on logic, knows better than the CEO, acting on data. In healthcare, the central actor is the dismaying alacrity with which costs react to reimbursement.

A Harpoon for Leviathan. And having long experience with the conflict between the welfare of the individual patient and the welfare of the organization, doctors instinctively resist the efficiencies which allegedly result from placing centralized control more and more remotely. Remote, that is, from the patient, who then suffers from the choices being made. Therefore, the "disintermediation" which is implied by individual health accounts immediately appeals to physicians, and should appeal to patients, even though it is easily shown that running a tight ship is best for the organization. Therefore, while using Abraham Flexner's ideas as a model ultimately added thirty years to life expectancy, it could not stop its own momentum to adjust to the retirement consequences of improved longevity. People instinctively sense some control must be restored to the patient. Even if they were not so much cheaper, giving patients individual control of their own Health Account balances is the least disruptive place to give patients a harpoon for Leviathan. Prices have wandered too far from costs, and that's a fact.

The Plan in Outline. We assume many things will remain unchanged. Health costs will remain J-shaped, low at the beginning, high at the end. We assume life will continue in three stages: dependent children for thirty years, working and earning for thirty years, and retirement for thirty years, all more or less. We assume some transfer system must exist, so the one-third in the middle can support the two-thirds at the ends. And we assume that research efforts (now $33 billion yearly) will continue until there are essentially only two costs left: the first year of life and the last year of life. Diseases will first concentrate into Medicare, and then gradually fade away. There will be many ups and downs before it takes place, but eventually that will be the final configuration. Since there are many programs for health, broken up and overlapping, eventually most of the existing structures will change, merge, or disappear. We started with health costs paramount, but will end with retirement costs dominant, birth and death continuing as appreciable costs. Finally, most of the next century will be spent in transition from what we have now, to birth, education, retirement and death, with education perhaps going its own way.

The Plan. Technically, the plan revolves around birth and death re-insurance, possibly renamed First and Last-year of Life Re-insurance. Assuming this is the final configuration toward which we are working, our new plan should deliberately aim for it, meanwhile coping with the individual changes science forces on us. One lucky thing is that everybody alive has already been born, so it is not so urgent to cope with that transition quite so urgently. That's good, because the transition to last year-of-life will be complicated enough. Re-imbursing Medicare for terminal care costs should reduce the Medicare withholding tax for working people, allowing that amount to be directly transferred to escrowed partitions of individual HRSAs, instead of indirectly through intermediaries. Growth of this money in the escrow would be the new money for the system, so the individual must negotiate an income rate with his HSA vendor, at least matching the Medicare inflation rate, before he would be able to accept the system of transfers. However, the amount needed is astonishingly small, since it multiples many times in the process. The transfer, or whatever it is eventually called, of $100 from the withholding tax to the escrow fund at age 25, would generate (at 6.5%) $100,000 at the person's death at age 84. The cost of the last year of life, currently, is said to be $25,000. Paying for the rest of Medicare at current prices might require $300 more. Paying for all of Medicare plus a retirement income from 65 to 84 would depend on what you think is a moderate retirement. But paying an additional retirement of $20,000 a year (amounting to $40,000 per couple) would cost an additional $4000. That's a lot of money, but remember the present total contribution to the withholding tax is $227 billion, or roughly $6800 per worker per year. There's no need for precision in such numbers, but beneficiaries and benefits get added so quickly it is silly to be more precise. The conclusion is obvious that there is plenty of money in this approach. The potential difficulty lies in the transition.

Don't turn your head to spit. Please remember that the secret of this approach is to use two funds gathering income simultaneously from opposite directions. Since 7% income doubles the fund in approximately ten years, using two funds in opposite directions results in doubling the doublings. The success of the venture thus lies in maintaining a reasonable income in competition with your own intermediaries throughout, either through excessive fees or confiscation by the sovereign. Whether the danger is called default, inflation, or outright confiscation, the expression for this is "imperfect agency", and it has endured as long as governments. The only nation with a Constitution to last 200 years can be the only nation to resist imperfect agency, as well. But it won't happen without vigilance. Since some of the religious divines in my own family tarnished their record, the advice they give in Texas is, "Don't turn your head to spit."

There's a deficit in this system, occasioned in 1965 when generations of new Medicare recipients (like my own mother) were given Medicare without contributing to its costs. Congress will have to decide how to cope with this, possibly by absorbing it, possibly by taxing heirs of the beneficiary (like me), who will probably protest about ex post facto. If that approach is blocked, the new investment money will have to be taxed for it, somewhat delaying its benefits. However, transition costs are nothing new to Congress, and a variety of methods have historically been applied. This proposal eventually envisions enlargement to include the second-to-last year of life, etc, while the first year of life might even start from birth to age 25. Working from both ends, the transitions should eventually be complete, and Medicare should gradually shrink. So long as the excesses in the system eventually go to support retirement income, it should be possible to grow our way out of the Entitlement squeeze. Its long term hope probably rests on research discovering cures for expensive diseases, diminishing the costs of Medicare, but longevity will also increase, so increased retirement costs must be considered as well. This proposal must be considered a long-term transition plan of uncertain length. Present beneficiaries of Medicare can rest assured that dual systems are practically inevitable for quite some time.

It is the present intent to regard the Affordable Care Act as revenue-neutral, since it is not possible to predict what it will actually be. So the problem of the first-year-of-life may not need to be addressed immediately, but ultimately the plan is to over-fund the last-year costs by about $400 (sound familiar?) and distribute $100 to funding newborns by inheritance at the death of what would be their grandparent, reserving the remaining $300 for the last-year of their parents. To make all of this come out right, the present 2.1 births per mother would translate into $200 per child generation and $400 per grandchild generation. But there are four grandparents, so it remains $100 apiece per grandchild.

Let's now turn to health insurance for newborns, which pose new difficulties.

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 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 "" - 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 "" - 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 [] and noticed a ton of great resources. I recently had the honor of becoming a part of a new non promotional project on 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

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.