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.
Up this point, the reader has been exposed to a rather deadpan description of where available data seems to lead us. Experience with discussing the matter with friends at local clubs, has been the members of the audience either sit in bewildered silence, or they interrupt with imagined discoveries of flaws in the reasoning. Most of the interruptions are misunderstandings, requiring a lengthy digression to explain the point to someone unfamiliar with the particular topic which upset him. Since readers cannot speak out, but often have the same points of misunderstanding, let me pre-answer some common sources of agitation:
Some Common Misreadings 1) "This is a rich man's plan, which does not focus on the poor man's problems. "No,it accepts the ground rules of Medicare to include everybody, rich or poor, of a certain age; and we follow Medicare's data, so we accept their rules. The data per average beneficiary takes Medicare's data and divides them by the number of beneficiaries. Since Medicare data has age limits, not income limits, including 46 million persons over 65, plus 9 million disabled persons under 65, the average is probably somewhat more conservative (higher) than even the average rich man would actually pay, but the benefits are universal for the age group.
2)"Where is a poor single mother going to get $100 to start a contingency fund?" You mistake the purpose. The $100 is an example, not a mandate. It saves us repeating endless calculations for every year from birth to death. It illustrates the power of compound interest, implies that things which are entirely free are not taken seriously, and provides a point for subsidy, when subsidy is needed.
3)"These calculations are preposterous." You may be right if I have occasionally miscalculated or miscopied some numbers. But I tried hard to avoid that. The main purpose of the effort was to point out that increased longevity (caused by medical care) has brought the far end of the curves into an area where the tail of compounding turns upward. We have long since ignored this feature, which greatly bothered the ancient Greeks who discovered it. Since the tail, except for the transition phase, of the curve stretches ahead nearly a century, we mostly haven't adjusted to the practicalities of the proposal, quite yet.
4)"Nobody can earn 7% in the stock market for extended periods of time." I looked over my own and some other accounts, and find I have averaged 6%. A recent article in the Wall Street Journal estimates that switching the stock manager to a fee-only arrangement (instead of a participation in the profits) would add one percent to the average investor's final return. If we get serious and exploit computers and other efficiencies, I have no doubt another percent investment return is feasible. Naturally, the finance industry doesn't want to agree, but that's the nature of creative destruction.
5)"What's the good to me, to wait nearly a century to get healthcare cheaper? The government or my agent would probably steal it, anyway." Yes, the problem of imperfect agency is a real one, and prevention must become part of the design. But the transition might take twenty years, not a century. Medicare itself was created in 1965, and you could have raised the same objection, then. You have to start somewhere, and you have to expect mid-course corrections.
The Real Practical Issues to be Confronted. At my age, I have no desire to start a company and make a fortune, so I leave that to my grandchildren. So I might as well be frank about the matter.
This plan cannot go ahead without some Congressional amendments. Not many, but there would be sufficient to cripple the idea if it provokes opposition which has no motive except political ones. The age and employment requirements of HSA must be eliminated, and other government programs should be modified to adjust to changing life circumstances. Bare-bones catastrophic insurance should be standardized by some mechanism. If there were problems with the ACA, surely there must be flaws in catastrophic insurance companies, because they are accustomed to a one-year term format, and this proposal requires a longer horizon. A huge nation-wide system requires local offices and personal advice about how to handle changing investment environments, plus issues like investing for newborns, and for divorces. A totally new approach will require a lot of explaining, and all of this requires investment.
But mainly I have strictly left the working age group (age 25-65) out of the narrative, until the full facts are known after January, 2017 and we can learn whether it is to be revenue-neutral or regularly sustains a big loss. When Donald Trump gets control of the department and its books, I worry that deficits will prove to be far worse than even he thought they would be. His temptation to "expose the rascals" will be strong, but must be held back for better, more strategic, political uses. One important use would be to punish efforts to stonewall the new program. The Affordable Care Act took two years to emerge with regulations, Medicare in 1965 was an administrative mess for five years -- their computers didn't work, either. So, it might be wise to start modestly, with the program of 1980 to which a few essential parts are added. Just for a taste of what's coming, read Robert Wachter's book, The Digital Doctor to learn how 30 billion dollars was recently taken from the Stimulus Package to finance the Electronic Medical Record, which eventually overwhelms just about every physician who must use it without crippling shortcuts. It often employs MUMPS, an interpreter language, largely given up as obsolete in 1985, so patching it is just about impossible.
At least we don't have to usher in 2017 with a trillion dollar bond issue, after all. Let the program be voluntary, possibly with demonstration projects in various states. The secret of its effectiveness is that savings build up early for expenses which are greatest at the far end. But in a reversed transition, the oldest people must be served first, so you just can't afford to let an unlimited number of the older, expensive ones get in at the beginning. If we must have bond issues, let's start with patching up the cracks as they appear, and keep the bond issue from suddenly looming in the trillions of dollars. The best I can foresee is a twenty-year transition, during which there may be opportunities for wounded ACA supporters to get even. So let's be nice, and not be over-eager with eliminating all of ASA with a single stroke of a pen.
But let's not be timid, either.