Philadelphia Reflections

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

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

(2) Obamacare: Spare Parts for a Book
New topic 2015-07-22 16:02:02 description

Lifetime Healthcare, Using Health Savings Accounts (4)

At the time this book is written, newspapers report 12 million people have Health Savings Accounts. Unfortunately, newspapers also report the Affordable Care Act ("Obamacare") is awaiting Supreme Court decision as to its Constitutionality. Like the rest of the healthcare world, we must wait to see how the decision affects the financing. At the hearing, Justice Alito hinted the effective date of the decision might be delayed longer than the decision itself. Therefore I decided to proceed with a discussion of really radical health insurance reform, necessarily treating working-age people as a later add-on. The whole matter of paying for healthcare amounts to shifting resources from people who are able to work, to paying for people who are too sick to work. Insurance is one way to accomplish it, but is the ideal way for only some of it. For one thing, insurance has proved to be remarkably expensive. It involves a major shift of funds from those who can work, to those who can't, but administrative income from the transfers somehow gets dissipated. We can do better than that, by hundreds of millions of dollars.

Furthermore, the financial strain has overwhelmed the political obstacles. To speak of Medicare as a political "third rail" is no longer tolerable. It is the job of politicians to persuade the elderly that no one wants to ruin their entitlement, shorten their lives, or ration their care. Protection from all that would be strengthened, not weakened, by making the system sustainable. And the time is long past for believing the government will protect the funds better than having the money within one's own possession. At the other age extreme, the parents of children will do a better job of protecting the kids, than treating the whole age group as if it were in a child-care center. Mind you, there must exist a fail-safe or catastrophic, health insurance against legitimately huge medical expenses, plus a system of oversight for overcharging. But the first level of price resistance must rest with the patient's family, who have an avenue of appeal if they are bullied. We need an appeal mechanism, not a system of regulators. We need catastrophic insurance, not first-dollar coverage. With these two basics in place, the next level of decision must be restored to the patient's family. While of course frugal shopping is useful, the main decision a family must make is whether to spend their funds now, or save them for a later rainy day. A public education program might well prove useful, reinforcing but not supplanting the advice of a family physician. By improving the investment choices of the administrators of Health Savings Accounts, the investment experience of the whole country would be enhanced by educating the public in personal investment. That would be an invisible advantage of an enlightened HSA investment service; the visible part would be to set realistic goals, and then achieve them. Assuming legal or legislative clearance, the total lifetime cost would be one single payment at birth of $2200 (invested @ 6% compounded), in addition to whatever it turns out Obamacare charges for coverage from age 22 to 66.

In return for that, Medicare could stop borrowing 50% of its costs from foreigners, and each individual would cover the cost of one child per subscriber, up to age 21. (Remember, the present birthrate is 2.1 children per mother.) That is, individuals with children would get coverage for one designated child from birth up to age 21, for $220, which would be a bargain price for what is now 8% of lifetime medical costs, or $25,000. The government would get a far larger benefit of 50% of Medicare costs for one person. That would be a far more attractive part of the bargain, paying for coverage worth $82,500, for $2000. Although this would be a bargain package for many subscribers, it would only be of tangible value to those who had children. Very likely, it would be a futile selling opportunity, whose only virtue from presentation is to illustrate how we already start with solvency instead of subsidy. Subsidy -- and advantage to working people -- comes later, when compound interest makes the other, more customer-attractive, features vastly cheaper to provide. For that, we must await the Supreme Court's decision, followed by bipartisan debate and eventually, election results.

So, that's sort of a disappointment until we begin to envision what some regulatory changes could make, in addition. Remember, unless there is a change in the law, one quarter of Medicare's cost is supplied by payroll deductions from working people, and one quarter from the premiums paid by Medicare subscribers. Therefore, this proposal would only pay for half of the cost of Medicare, the rest being an elimination of the present deficit spending. If a system of voluntary Medicare buy-outs could be established, these costs would disappear, and both working people as well as present Medicare subscribers would be appreciably better off financially. At first, only the adventurous first-adopters would take the bargain, but even that slow beginning would allow a new program to get started, picking up more timid subscribers gradually. The whole population would now be offered a voluntary bargain. The next legislative step with significance would be to provide for an overfunded Medicare buy-out, which with a lump sum payment gives the customer a Medicare buy-out plus the surplus, which goes to cover the first 21 years of medical cost for a designated grandchild. Where does this extra money come from?

Taxing the Working Generation We won't know the realities of financing Obamacare for quite some time to come, but we can estimate how painful the revenue effect would be for working people, in addition to their Obamacare costs. For an extra $5 a month, from age 22 to 66, a small tax on working people would generate (with 6% compound interest) an extra pool of $xxxxx by age 66. That would seem easily adequate to supplant the $2220 pump priming at birth we postulated at the beginning of this section. Since it is paying for subsidies to the poor as well as the well-off, it probably should be discounted by a third or even a half. So, if that seems insufficient margin, it could be raised in incremental amounts of $5 per month, depending on how much saving could be effected in Obamacare costs, which at present we do not know. Nevertheless, the numbers inspire reasonable confidence that this general approach is at least worth a demonstration project. At present, the main uncertainty revolves around the consistent ability to generate a 6% return through index funds, including adequate provision for the "black swan" sort of recession every few decades.

Technicalities of Transition Once transfers from the "grandparent" HSA to the "grandchild" one are working smoothly, the working-generation contribution can be eased by up to 8% (the cost of children). Furthermore, if the option of buying-out Medicare is made legal and feasible, it should no longer be necessary to deduct Medicare withholdings from paychecks; prior payments might be open to negotiated rebate. That should eventually reduce the price of lifetime coverage, but unfortunately might make any remaining gaps less appealing for poor people until the entire life cycle gets into operation. Looking ahead, considerable premium costs would be less necessary, and are therefore up for consideration in the new scheme.

Repealing Obamacare's present prohibition of Catastrophic Health Insurance after age 30, is certain to be very popular, and should be an early priority, leaving extra room for compromise after the removal of childhood costs. All Obamacare policies are high-deductible, but their premiums have been raised to cover the uninsured. Once this funding concept has proven itself, that should be less necessary. Since the HSA covers everyone who wants it, and anticipates subsidies for those who cannot afford it, a compromise phase-in should be possible. How much real re-insurance would then cost is probably fairly well known to its recent insurers, although recent uproars will probably make new bidders rather protective. In this sense, public opinion is important to the price which would be demanded. As far as subsidy to the poor is concerned, Obamacare originally anticipated hospitals would be able to lower their prices if everyone became insured and internal cost-shifting would stop; this would provide a test of that hope. Really serious planning may have to be deferred until a concerted effort is made to clarify the extent of internal hospital cost-shifting; one hopes this is already under way. If the approaching Judicial outcome produces a mixture of priorities which cannot be balanced, there will just have to be a later Congressional action to balance it. Since it can be anticipated that piecemeal introduction of lifetime coverage will seem attractive to many, perhaps there will be several opportunities to get things more optimal. Transition into a new system must coincide with transition out of the old one. Unfortunately just the fear of deadlock, could slow smooth advancement.

Since John McClaughry and I were the two originators of Health Savings Accounts in 1981, we obviously are pleased with the notion that so many fellow citizens see our idea as the main alternative to comprehensive government involvement. The previous few chapters outline how I think the HSA can be stretched to finance and reduce the cost of all medical care, how its segmentation would assist a stepwise transition to it, and how it would essentially leave the scientific details to scientists while leaving more decision-making to the patient. Having once been in charge of the Professional Standards Review Organization in my area, I am completely satisfied that professional self-governance can quickly control abuses, if there must be an iron fist hidden somewhere inside this velvet glove. Doctors are generally no more interested in administration than Senators are, or than executives of unrelated businesses once were; but doctors are disciplined and bright, which is the main qualification. I share Senator Wallace Bennett's view that a small but adequate minority can be found to do the work, although overstaffing will seldom prove a problem.

Health Savings Accounts were originally designed to replace employer-based health insurance, but millions of subscribers would be relatively satisfied with either one. Like any one-size fits-all solution, each will seem uncongenial to some people, who should be left free to make a choice. By leaving enrollment voluntary, institutions can gradually expand or contract to adjust to demand. I have an enduring but blurred memory of the chaos which ensued in 1966 when Lyndon Johnson on television invited old folks to start sending the government their medical bills, when it was soon discovered Medicare did not even have a listed telephone number. A vacant supermarket was found in Camp Hill, Pennsylvania, to store the unopened mailbags of Medicare claims, floor to ceiling.

All the HSA needs, to integrate almost any reasonable working-person health insurance into lifetime coverage, is a reliable stream of enough money to function. Starting at age 21, this money would link the roll-over money from the "grandparent's" surplus Medicare funds after death to the newborn's new HSA. Judging from this untried analysis, the likely limiting step would appear in organization of the proposed Medicare "buy-out" program, since infirm old folks in the last years of life would have little incentive to switch. In fact, demographic mis-matches might appear between any two segments of a lifetime program. Therefore, a contingency fund to cover these anticipated short-falls, especially for the first year of life, would probably have to be regarded as a main hindrance to smooth start-up. From my talks at public meetings I detect that elderly people have accepted Medicare as a fact of their lives, and are surprisingly indifferent to the Obamacare commotion. They even express the unlikelihood that anyone could ever change the present entitlement, in time to make a personal difference to them. This attitude must be gradually persuaded to yield, and then secondarily reflected by their elected representatives. A surplus is welcome at any juncture; it is the shortages which will hurt. The key to smooth transition is to devise the right incentives, well in advance of the uproar.

 

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