Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Health (and Retirement) Savings Accounts: Steps To Lifelong Health Insurance
If you are a fast reader, we will begin with a ten-minute summary of Health Savings Accounts. At first, it covers future revenue, then spending projections follow. No matter how medical care changes, cost and revenue must remain in balance.

Children, 0-26

Everyone agrees there is a tangle about the rights and responsibilities which begin when childhood begins. We wish to avoid this issue as much as we can, but partitioning the costs of the average child requires stating some point or other, as its beginning.

Keeping the practicalities of paying for it in mind, we hope no one will object if we say childhood begins, the day you are born.

We next consider the healthcare costs of children, from birth until age 25, linked with the costs of the elderly, for a reason. One of the points made in this book as an arguable alternative to the present employer-based system, is to keep it within your family, rather than tax other people as a class. However, although the system now claims to begin with the first full-time employment, a newborn provokes about $18,000 of medical expense including obstetrics before that, right from the beginning, before the child can even feed him or her self. Age 26 might be a reasonable place to begin self support, not because of tax deduction, but since that's typically the age group with the lowest health costs. Even that starting age has its problems, because the parents are not much more accustomed to managing finances than the child is. The central question remains the same. Who is to supply the $18,000?

The Progressive movement started the idea of "family plans" about a century ago, but Henry J. Kaiser is credited with noticing an employer's gift of the insurance would supply two tax deductions, the employer's and the employee's, during World War II. That "reduced" the cost of health insurance by at least 50% (for the employer and employee), but it made a married employee seem more expensive than unmarried ones, made healthcare seem a free cost to the recipients and therefore boosted its cost, introduced a religious note by discouraging multiple pregnancies, and was unfair to unemployed or self-employed persons who were excluded from getting the gift. It is impossible to determine how much this new twist distorted employment and medical prices, but by suspicion the unfairness was major. It surely prompted response, and this is one. If big business can get tax deductions for giving away healthcare, why can't everyone else?

So it is proposed -- hold your breath -- HSAs give the equivalent of $18,000 at the death of an older relative, to a newborn's HSA at birth. The average childbearing mother has 2.1 children, which works out to one grandchild per grandparent, and helps smooth out the cost of multiple children. Because births and deaths cannot be forced to coincide, some sort of fund has to be created to make all this come out fairly, but the result should equal a zero balance between two generations. And because everyone who is alive has somehow already paid his birth cost, there is less urgency to begin this feature at the onset of the program--it becomes a feature of the transition. And, going back to the pros and cons of including Medicare premiums in the compounding, the more surplus is generated, the shorter the transition period should become. Ultimately, of course, the cost of health insurance for the mother is reduced; but the main beneficiary of the transfer is whoever is now paying for the mother's health insurance. That would sometimes be the father, sometimes the employer, and sometimes the Affordable Care insurance.

A few children are cursed with horrendous medical bills, which quite often predict lifetime disabilities. For the most part, however, childhood medical costs are pretty small. It would seem to produce an < b>ideal configuration for insurance, leading to mostly small premiums, affording a lot of protection against a fearful risk which is nevertheless relatively uncommon. However, a newborn is unable to walk, talk or feed him or her self, beyond even mentioning his or her lack of savings. Parents are now expected to pay such bills, and when they are very large it is common for grandparents to help out. So it sort of fits the common situation to group the two dependent periods of life (childhood and old age) together, as a continuous loop skirting the income-producing period of life entirely. The underlying purpose is to shift overfunded money to an underfunded time, compensating the childhood cohort for the fact that compound interest appreciates very little during childhood, but very greatly toward the end of life. This configuration fairly shouts "risk pool" but requires legislative action because it is more a metaphor than legal reality. It serves to explain to people why we have struggled to close the loop for twenty or more years, because what is true for children is definitely not true for Medicare, where the main costs congregate. To meet the disparity, we chose to employ patchwork solutions for a single generation, counting on the enhanced generosity of the public for disabled children to meet the major expense. This appearance contrasts sharply with the deceptively low average cost of ordinary childhood healthcare. The only danger is for this temporary expedient to become a career.

Please note the fiscal dilemma. Even if subsidies or gifts provided a $100 nest egg to start a health savings account at birth, 2.5 doublings at 7% would only create a fund of $525 by age 25. That's not nearly enough to fund healthcare for individuals at risk of auto accidents and HIV, while trying to pay for college, home mortgages or the like. By contrast, $100 a year for forty years might well pay for all of Medicare while retaining a leverage of eight dollars out, for one dollar in. Adding $1400 a year for 20 more years, would be much better, at 80 to one. For lucky people $8127 might work, but its safety margin is too narrow for launching a lifetime medical system. The actual plan proposed is a complicated variant of this approach. As the reader will see, there will be ample funds available for a lump sum donation, once the system has closed the loop, because just 8.5 extra doublings from the beginning of lifetimes to the end of other lifetimes, without supplementation, should silence any remaining doubts, at 256 to one leverage.

Once it gets under way, the two-generation process is very simple, requiring only a few amendments to existing legislation. Extend the age limits of catastrophic high-deductible insurance down to the date of birth, and allow the premiums to compound up to the date of death or 104, the length of a perpetuity. After that, allow surplus Health Savings Accounts of the parents or grandparents to flow over to the HSAs of the child, and allow surplus funds of grandparents and designated others to be transferred (from the date of death of one, to the date of birth of the other) via the HSAs of both. Gifts of this sort might even become a popular item in obituaries, in lieu of flowers.

Springing such a radically different proposal on an unprepared public is potentially to provoke ribald rejection, so it's gradually introduced here as a challenge to provoke alternative proposals. At the moment, I don't see what they would be. We are combining the advantages of two systems, for the young and for the old, which separately they cannot achieve, except through the socially threatened but biologically inescapable, concept of "family".

 

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