Philadelphia Reflections

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

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

Thoughts on Transitions: Benefits

Ninety years, a full lifetime from birth to death, is a long time to project anything, in this case the future nature of medical care and retirement. Nevertheless, increased longevity in the past century suggests a trajectory of multiplying internal investments 512 -fold, with scanty costs in childhood and heavy costs as death approaches. The challenge arises whether we have the wit to find out how to manage this J-shaped investment, without waiting ninety years..

That medical care comes in several independent stages over a long lifetime, suggests a whole lifetime presents a sequence of different challenges. We can prove very right about some, very wrong about others. But the various transitions for a whole population must be tested simultaneously, since just about everyone is of a different age at the start. So the project must be tested in its various parts early and simultaneously. But on the other hand an advantage appears. You find out if it all can work, much earlier. Furthermore, the choices must be largely voluntary, because the possibility of failure of one step must be announced in advance, and either swiftly repaired or the segment gets dropped. Just because one of two intermediate choices proves superior to another, does not necessarily mean the inferior option must be removed. And finally, the classical Health (and Retirement) Savings Account always remains an option, particularly for those individuals who nurse suspicions that rent-seeking intermediaries will eventually devour all the savings from longer-term solutions.

Infants and Children Everybody alive has already been born, only fresh newborns will be concerned with these costs for a long time. Because of extensive cost-shifting, it's pretty hard to know how much getting born really costs. By the time this issue is a serious one, the true costs of this step will become defined. Furthermore, the step involves transfer of much of the cost from the working-age parents to the child, and generation of the cost of this gift from the grandparent. We address these issues by making it a gift, ultimately transferred from investment profits. Consequently, it may be some time before the employer plans see enough reduction in their costs to tempt them to cooperate. Since most of the true cost information is in the hands of negotiating counterparties, it may not be possible to start this phase in bulk for some time. Consequently, it is fortunate that most of this early part of life may be one of the last financial steps in the entirety of funds flow.

Working-age 25-65 This is the age group currently the center of controversy between employer-based, and the Affordable Care Act. At least until the November 2016 elections, it will not be possible to predict what these costs are, how much they include, or what future directions they may take. Consequently, we have decided to treat these costs as neutral, neither subsidizing nor being subsidized by other age groups. That's unlikely to be the case, of course, but at least it creates a baseline for negotiations. Ultimately, the here-projected system would be in a position to offer to absorb the costs of obstetrical delivery and to equalize the cost of male and female adults, so willingness to negotiate is likely. In return, this proposal would request permission to transfer a third of Medicare withholding taxes, intending to invest and grow them for the first-and-last year of life system. During such negotiations, it is likely the question of ACA cost overruns and subsidies will arise. However, in the past, the working age group has supported both the younger generations and the retired ones, so the incentives to bargain are certainly present.

Even though sickness care is migrating from employer-based to Medicare, the cost of the last twenty years of life is itself J-shaped, with half of Medicare expenditures currently falling in the last four years of life. That implies the last-year-of-life concept might develop enough funding to cover half of Medicare by the accordion principle of extending it to the "last four years of life", which could then result in a massive shift of funding possibilities.

The Elderly (Medicare and Old Age Retirement.) The unsupportable retirement costs of the elderly are a result of improved healthcare extending longevity by the unheard-of extent of thirty years in the past century. It isn't nice to say so, but this unfunded retirement cost is really just an unfunded benefit of Medicare. While it is true most old folks have elected to hunker down to protect what they have, it seems to me the politicians misread the signs. Medicare is regarded as the "third rail of politics-- touch it and you're dead". However, the seniors pay attention to the news and they vote in large numbers--they fully understand the interchangeability of health costs and retirement costs, as well as the vulnerability of the Medicare budget to the inroads of the Affordable Care Act's budget.

What's more, the funding of Medicare is so structured that changing it will have little effect on the seniors, themselves. The revenue is 50% subsidized by the general fund, 25% subsidized by payroll deductions from younger, working, people, and only 25% supported by premiums from the Medicare recipients, themselves. In fact, this division is a little outdated, with even more coming from payroll deductions. Unfortunately, the whirlwind rearrangements of the Affordable Care Act have outpaced the available data about them. It is probably more unchallengeable to state that at least three quarters of Medicare is a subsidy from other generations. The payroll tax, in particular, is calculated as 3% of the wages of younger people, entirely unrelated to how much Medicare spends, or on what. In fact, the disparity in size of the baby boomer generation and their age successors is a source of major budget headache. Take away a third of the payroll revenue, and the consequence will be a problem for Medicare administrators, but will not be felt by seniors, themselves. It is the upcoming younger generation which would be asked to invest in its own future retirement, and it is they who would chiefly benefit from its investment income. Divert the revenue to battleships and sugar subsidies, and it is this generation which would have a right to feel cheated, not the seniors.

So that's essentially the proposal for dealing with the third rail of politics: Start diverting a third of payroll deductions to investment accounts, and cycle the enhanced amount back to seniors, gradually increasing the payback over twenty years, as each year adds another layer of income. It will be small at first, but should grow to an important source of funds. Finally, give the seniors a choice of how they want to divide it: more years of Medicare replacement, or retirement income, or gifts to a grandchild health subsidy, or just a contingency fund. If that proposal could be made to sound like diversion to battleships or stockbroker yachts, it would take a major effort.


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