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.

Steps in the Staircase, Extending for Decades.

There are traps on every step of the staircase to an improved healthcare financing system. They are teased out in four preceding books, step by painful step. A brief summary is therefore important for orientation, especially for newcomers.

A Health Savings Account misleads a newcomer into thinking it is a single process, when in fact it starts with two processes, welded together. It begins with a high-deductible health insurance policy, and adds a Christmas Savings Fund to help beginners overcome the initial deductible. That is, it began as a bare bones indemnity policy for poor people, because it's the cheapest form of insurance. It has the characteristic that the higher the deductible, the lower the premium. It's true it leaves the subscriber without coverage for a few years when he is young, but the Affordable Care Act has made high deductibles essentially mandatory, so we start out even. Once there are enough deposits in the account to cover the deductible, the subscriber is completely covered from the first dollar of health care. But since he has the alternative of paying cash for small claims, it carries an incentive to leave it untouched as a tax-exempt fund for larger later claims. Since the true deductible is what is left unpaid, it is quite true the premium does not rise when the depositor crosses that invisible line. When he does, he can rightly claim to have first-dollar coverage at high-deductible (low) premiums. It's a bargain, and he is allowed to deposit $3400 yearly into the account, getting a tax deduction for it, and no taxes when he spends it for healthcare. Health Savings Accounts are the only health plan with this feature. It gathers compounding interest as long as there is money in it, which will turn into an IRA (Individual Retirement Account) when he joins Medicare. It's the only plan with that feature, as well, and the American Academy of Actuaries found it was 30% cheaper than regular insurance.

Part of the savings came from the tendency of HSAs to pay small bills with a debit card, working on the assumption the depositor will not spend his own money as freely as he spends an insurance claim. Since health insurance averages 17% costs, mainly claims processing, it taught everyone the lesson that the expensive claims processing costs could be avoided by giving the subscriber some "skin in the game." When you compound these two savings for several decades, a surprising amount of income is generated, which ultimately is available to spend in retirement. And if you spend it for healthcare, you probably won't survive quite as long. Serious disease is being pushed steadily later in life, to the point where half of sickness cost is paid by Medicare, and half of that covers the last four years of life. Longevity, in short, has increased by nearly thirty years in the past century. At the rate this is going, retirement costs will soon exceed healthcare costs, and a dual-purpose Health Savings Account is the only health insurance which covers both purposes.

Therefore, this program is available as a fall-back, in case of a sudden collapse in the Affordable Care Act. The incoming President won the election as a change agent, and he may have other plans. But the House of Representatives has voted to repeal the ACA many times, only to be thwarted by the threat of filibuster in the Senate or veto by the former President of the opposite party. Very shortly, we may find ourselves without ACA, and nothing ready to replace it. Since the HSA is owned by the subscriber, and innumerable financial institutions are able to supply it, it makes for a quick replacement. A very short technical amendment would repair the few flaws to appear in thirty years, like expanding the age, occupational and contribution limits, and allowing a tax deduction for the insurance component by permitting the tax-exempt account to purchase the catastrophic insurance, currently forbidden. Given a week or two, Congress could improve on that, but it makes a swift substitute very simple.

However, the HSA has been around for thirty years, and bigger ideas have emerged. The retirement feature is the first feature to appear, inadvertently thwarted by the mandatory roll-over on attaining Medicare coverage. The roll-over is a good idea, but it should be optional up to a somewhat later age. We will return to that unexpected twist in the next section. Because Medicare is beginning to accumulate most serious illnesses, the bullet will have to be bitten; Medicare really ought to be the first existing health plan to join the Health Savings Plan network. Unfortunately, retirees are particularly wary of change to their plan, and must be persuaded.

Since other health insurance needs to share in this feature as well, provision ought to be made to add their finance stream to the Health Savings Account pattern, like adding pearls to a necklace. As long as they remain revenue neutral, there would be no objection to adding them to the Health Savings Accounts in order to share in the retirement incentive. This might be considered if new programs for prison inmates, illegal immigrants, etc. want to get started rapidly, and would greatly facilitate the transition. Great overhead savings are possible through merging operations permanently, but permanence is not as essential as a speedy onset. Just as Medicare is accumulating the bulk of serious chronic disease, employer-based health insurance and ACA contain the bulk of the money generation. A very expensive transfer system, using the government as a bank, has been virtually constituted for the purpose of uniting the money with the disease cost, across age barriers. This problem is expensive, and getting worse. However, no one wants to subsidise some other insurance, so every ship on its own bottom -- revenue neutrality, -- is a price that must be paid for independence of the various delivery systems. These are the steps on the staircase., which may take decades to complete. The very least which can be required is to keep any windfall scientific breakthroughs, permanently within the healthcare realm, untouchable by regional, governmental, industry or legal encroachment.

Because very large amounts of money must be held by a custodian for many decades, special precautions must be constructed to keep it from wandering to unintended purposes, such as aircraft carriers, to say nothing of imperfect agency of the usual type. The awkwardness of the Tenth Constitutional Amendment must be satisfied, possibly through the court system, possibly legislatively. All these things require time to resolve, and a full implementation cannot be expected during many changes of political control. Neither the outcome nor the cost can be precisely predicted. But if we rescue healthcare from earlier blunders, and avoid new ones in retirement funding, we can be very proud of ourselves.

Now, let's take a look at the age limit for surplus funds in the account.


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