Philadelphia Reflections

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

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SECTION SIX: Condensed Summaries

Summary: The Shifting Environment of Health Savings Accounts.

And yet another way to describe Health Savings Accounts, is as a series of places to put money, voluntarily moving from one category to another in response to the age of the owner, but potentially to environmental pressures. If the environment changes, the money might need to migrate, but it never disappears unless the owner spends it. Ideally, the money moves smoothly around in a circle, but it could pile up if some subscriber had unexpected personal situations. It's the subscriber's money, so we wanted to avoid locking him in, except by suggesting the most advantageous way to grow it or spend it. Many voluntary features could have been mandatory, with about the same result, but we wanted subscribers to innovate. The philosophy was that of the college president who built a new college without sidewalks. Only after the students had worn paths of choice in the lawn, did he order the paths to be covered with concrete. Here is a summary of the environmental factors we felt might change enough to warrant new pathways. The same idea applies to repairing the lawn after a hard summer.

Demographics. China found it didn't work to limit families to one child, and selective abortions in India caused the same disruptions. The baby boom bulge is a notorious example of a population bulge working its way through the steps, until it finally came to rest in Medicare, threatening the program with bankruptcy when later generations don't bulge enough to support their parents. Some bulges and shortfalls are predictable almost a century ahead, and while the migration of illness and good health is slower, it will pretty surely boil down to two enduring health costs: birth and death. So, the demographics of each generation are basic, and they are often predictable. In our society's view, there is little you could or should do about it, so although we can predict demographic surplus and shortage, we should accommodate the effects, not directly modify the cause.

Wars and Depressions; Inflation and Deflation. Major disasters affect all generations, but sickness concentrates by age. Furthermore, health disabilities from war affect those of military age and their successors, and recessions cast a long shadow over later income potentials. It might be helpful to set aside funds for these disasters, since it is possible to estimate the coming economic effects, and to start generating income for approaching shortages. There may even be usable information about earlier wars and recessions on which to base such estimates.

Economics is known as the dismal science, reflecting scepticism about the predictions of economists. However, they are getting better at prediction, and should be given a chance to estimate the future effects on health care costs, to the degree they modify the modifiers. The more we do this sort of thing, the more we may find certain predictions cancel each other out. And economists' predictions are likely to reinforce opinion that the best option is to steer for price stability, rather than resort to violent course reversals, a view not universally held by politicians.

The Nozzle of Transfer Points. It took the Federal Reserve a long period of experimentation to discover its most effective tool for modifying economics in the currency markets was to adjust short-term interest rates. In the economics of health care, I would venture the most effect can be had with the least commotion, by adjusting the transfer limits as money flows between age groups. When the leverage at age 21 approaches over 500-fold, the ranges of power over health spending are enormous. Therefore, regular transfers from the federal Treasury may be quite small, but probably should be prevented from going to zero. Since it is envisioned that grandparents might bequeath a certain portion of their death surplus generated from Medicare without reducing Medicare benefits, the small initial cash deposit is a point which would be noticed least in a panic. Alternatively, adjustments of the amount the grandparent was allowed to bequeath could have a similar muliplier on far larger sums of money. Ultimately, such modifications would have to be reversed when such funds start to accumulate income, but considerable time would pass, between age 21 and 65, to accomplish it. Both government and subscriber must learn the cheapest time to pay bills is while they are small.

A second adjustment tool exists in the ability to require account balances to shrink or go to zero. The money would be given to the account holder, but would simply stop generating income until the required adjustment took place. Opportunities would appear at birth, at age 21, at age 65, and at death. Furthermore, large populations would achieve these ages at different times, so opportunities for adjustment would extend over a range of time. It took the Federal Reserve a long time to learn the sensitivity of adjusting interest rates, and it would take an equally long time to learn how to use these tools as well. It took a particularly long time to learn the most important lesson of all: what the limits were, for accomplishing anything worth-while with these tools, at all. Everything speaks in favor of establishing a monitoring agency, with defined powers and required limits, permanently devoted to this subject alone, periodically reporting its findings to the public.


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