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

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SECTION FIVE: Multi-Year, the Future of HSA
We've spent a lot of time on the 1980 version of Health Savings Accounts. It's already rolling along in action, with only a couple of suggested additions to make it better. The new 2015 version is also before you. But lifetime Health Savings Accounts are only a dream, to be worked on for months or years, because they invade so many turfs, and will require extensive legislation to become a reality.

Converting Term Health Insurance Into Lifetime Health Insurance

We start with the lucky circumstance that everyone has belonged to Medicare for half a century, and before that, large populations had Blue Cross and Blue Shield. The cost of healthcare at various ages is pretty well known for large populations. Since lifetime life insurance is cheaper than term life insurance, it is safe to assume lifetime health design is cheaper than year-to-year health insurance. The present inflexibility is one of the relics of an insurance system based on employer gifts to employees who are no longer as sickly as they once were. To go further, it also seems pretty safe to convert from a more expensive system to a cheaper one, and expect profits, except for the quirks of the tax laws. At the least, marketing costs should be reduced, provision would no longer be needed for gallbladder and cataract removals in people who have already had the surgery, and interest could be earned on unused premiums over long periods -- if we could unify around patient insurance rather than yearly renewals based on place of employment. The system would become vastly more efficient, and interstate transfers would be facilitated. The methods employed by ERISA would be a good model for a start, and its experience would be useful.

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Accounting theory has it, every cost must be attached to a charge. So charges inflate to accommodate them. {bottom quote}
What Costs So Much?
Whole-life insurance has its differences. Whole-life experiences fewer drop-outs, but makes an extra profit from investing the unused premium money for many more years. The additional investment income allows the premium to be lowered because it is not constantly threatened with non-renewal, and enhanced health care regularly creates greater longevity than the original estimate. So, whole-life insurance really can withstand careful investigation as a model. The bottom line is that healthcare would be less expensive if we shifted to the whole-life approach.

This book's present proposal is to do roughly the same thing, converting term health insurance into lifetime health insurance, year by year. After all, that would start from a 15-million subscriber base.That's just the basic revenue source, however. Health insurance has a number of jumbled issues during a long transition period. The purpose of stressing the life insurance model first is to overcome a natural suspicion that we intend to claim magical powers of predicting the future. That risk is assumed to be stipulated, and we will not bore you with constantly repeating it.

Let's start at the far end, with the final answer to the test. In year 2000 dollars, the average American spends an average of $325,000 on health care in a lifetime. Women spend about 10% more than men. The main problem is to take a lump of money at the end, and restore it to different young people as they get sick. When they remain well, the problem of balance transfers is fairly simple. To insure the entire lives of 340 million Americans, the cost would be trillions of dollars. That's 110,500 trillions in fact, give or take a few trillion. Or 110 of whatever is one thousand times bigger than a trillion. The original mind-boggling figures were developed by Michigan Blue Cross from its own data and confirmed by several federal agencies; the future projections are my own. By the end of this book we will have suggested it should be possible -- to cut that figure in half, without changing the medical part of it very much.

It is legitimate to be skeptical, since a ninety year lifetime history involves a great many diseases we don't see any more. They afflicted many people who would have been readily cured with present medications except the drugs weren't invented. As if that weren't complex enough, it also involves predictions about the health costs of people who are still alive, destined to be treated with drugs nobody has seen, yet. To hammer this last point home, it is roughly estimated that fifty percent of drugs now in use, were not available only seven years ago. Since we must go back ninety years to get data about the childhood illnesses of our presently oldest citizens, the unreliability of also looking ninety years forward from 2015 must be clear. And to do that for a population constantly in transition from very young to very old is daunting, indeed. But the facts of life, that people are born, go to school, get jobs, get sick, and then die -- never change. What's new, is it takes longer to run the course, and thus opens up gaps between steps. If we gather the gaps and meanwhile charge premiums on the longer time intervals, we produce a brand new source of revenue. While the intricacies sound complicated, in the end we rely on going from a more expensive process to a cheaper one, assuming the transition costs can be supported.

The value of attempting it, is considerable. We already have a technique which the statistical community agrees is reasonable, which tells us lifetime insurance would require something over $350,000 per person. Future trends can be estimated well enough, to show whether costs-after-inflation are going up or down, and roughly by how much. A penny in 1913 money is called a dollar today, just for illustration. Naturally, we then assume a dollar today will be called 100 dollars, a century from now. Regardless of numbers games with the value of a dollar, we have a tool to estimate the general magnitude of health costs, and by how much they will likely change. It's useful, even when its answers are surprising.

Theoretically, there is room for a change in expectations. Some people may decide living eighty years is long enough, and then decline to pay for more. However, I've tried it, and I don't feel eighty is enough. So, for my own benefit if for no better reason, I decided to see what could be done with the cost problem. One solution is to work longer than retiring at age 65. If future medical care changes direction drastically, its payment system might also be forced to change. But if health care doesn't change much, the payment system won't need to predict the future. That reasoning reflects the insurance industry's own history, where the marketing department eventually asserts dominance over the actuaries, by declaring it is more important to predict generally, than with precision.

The approach has its limits. Health insurance did historically underestimate how much the payment system could warp the medical one over long periods, primarily because it initially mis-apprehended who its customers were. Payment methodology is now relentless in persuading its true customers, who are businessmen in the Human Relations departments of large corporations. They don't like to hear it phrased that way, but we now have a four-party system, not just a third party insurance, and its fourth-party directors, big employers. As corporate taxes rose, the system invented by Henry Kaiser in 1944 used corporate tax deductions to fund the third-party system with 60-cent dollars. In fairness to Mr. Kaiser, much of the system has migrated to take advantage of the tax deduction, and the tax rates themselves are higher.

Looking back over an expedient system designed for short-term goals, a shocked realization now begins to dawn: most current "reform" thinking is about how to twist the medical system to fit some unrelated budget. Even more shocking is the business customers discovered how modified tax laws could let them buy health insurance with a discounted business dollar. When donated to employees, another 15 or 20 cents could be clipped off. Obviously, if health insurance is subsidized by business tax deductions, and Medicare is 50% subsidized directly by tax infusion, health reform can't claim to be a reform until finance is fixed. Essentially, the employer-based system amounts to this: by giving health insurance instead of salary, the employer skips paying for extraneous things which have been linked to the salary level. Union domination of state legislatures has assisted this goal. Just for example, the Philadelphia wage tax is based on 4% of wages, the New Jersey income tax is based on wages, and so on. If you can find a way to pay the same, but claim the pay packet is smaller, you've got the idea.

Gradually we reach the point of rebellion; if it is legitimate for insurance executives to tell physicians how to practice medicine, it must of course be equally legitimate for physicians to re-design the payment system. So let's have a go at it.

Footnote: In the thirty years since I wrote The Hospital That Ate Chicago about medical costs, the newspapers report physician reimbursement has progressively diminished from 19%, to 7% of total "healthcare" costs, so perhaps now it's legitimate for some related professions to answer a few cost questions, too.

As patient readers will gradually see, considerable extra money is already in the financial system, leaving difficult problems of how to get it out and spread it around. This isn't snake oil, or a mirage. The beneficiaries would scarcely see any difference in medical care if Health Savings Accounts fulfilled their promise. But frankly, the insurance providers would have to make some wrenching changes. Since millions make their living from sticking with the present, it is undoubtedly harder to design a new system which would please them. We're not going to mention it further in this book, but the easiest way to remove big business from the equation, would be to eliminate the corporate income tax, and shift the tax to individual stockholders. It is not corporate revenue which finances the medical system, it is corporate tax deduction, largely because we have imposed a system of double taxation of corporate profits. Eliminate one of the taxes, and business might complain less about losing the tax deduction. Meanwhile, health insurers would have a new line of work offered to them. Corporate officers should, and often do, regard themselves as custodians of the capital in use, which in fact belongs to the shareholders.

What about the public? Well, medical care now costs 18% of Gross Domestic Product (GDP) and 18% is pretty surely crowding out other things the public might prefer to buy. In a sense, the political beauty of the premium-investment proposal we are about to unfold, lies in its primary aim of cutting net costs by only adding new revenue. Critics will say we pretend to lower costs by raising them. But essentially the money is spent to eliminate hidden subsidies and red tape which are off the books, and by other means which have been overlooked in the past.The accounting theory is that every cost must be attached to a charge, so charges have been inflated to accommodate that notion.


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