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.

Epilogue, January 6, 2017

Epilogue, January 7, 2017

Understanding What We Can Afford. My advice for early Presidential action would be to convene a group of accountants. They should acquire subpoena support, fan out, and tell us where health care stands financially, reporting back in six weeks. I trust experts know how to proceed, but would start with some recently-retired medical cost accountants. They probably already have an idea how things stand, and if retired some are eager to talk. Including a few actuaries and other experts would also be helpful. In a business merger, something like this would be called "due diligence".

The nation divides into three health groups within a massive funds-transfer system.While children and retirees produce most of today's health cost, they generate too little income to pay for it. Only the employed central bracket, aged 25-65, produces more income than expense, and they aren't very sick. (Savings by other groups don't count because their savings originate during working years.) Notice the Affordable Care Act happens to concentrate low-income sub-groups within the only age bracket which reliably produces surplus revenue, subsidizing the pre-employment and post-employment groups. Unfortunately, employer-based insurance also competes for much of this transferable revenue, by recirculating it. Consequently, it is difficult to guess how much is really available for subsidy purposes.

Both the Affordable Care Act and employer-based insurance have incentives to obscure their effects. The ACA hopes for an image of success, while employers recirculate potential tax revenue into multiple tax exemptions. So much, in fact, that few companies actually pay the high corporate tax they complain about, since taxes are a business expense, too. The public is thus unclear how much room is left to reform healthcare. The two subgroups who might know the answer are reluctant to share it.

The issue boils down to the size and elasticity of the potential surplus from working people, available to subsidize health costs of the other two thirds of the nation. If the surplus is small, our future should be one of cost-cutting. If it's elastic, perhaps we should postpone reform until there is greater recovery of the economy. If it's large, well, spend away. We will hear a lot of impassioned rhetoric in the next few months, but nothing will affect the decision as much as -- understanding what we can afford.

Eliminate Duplicate Coverages. Returning to Health Savings Accounts, the existing HSA is adequate to get us past insurance collapses, even if HSA only gets a few tweaks of its limits. High deductible, non-copay, with a cap on out-of-pocket costs, is the most health insurance anybody ever needs. However, if an employer or some other program already provides more generous coverage, there is absolutely no sense in adding a cheaper insurance on top of it for the same coverage. Inflationary first-dollar coverage may have been a bad idea from the start. But even it becomes affordable for poor people by attachment to a tax-free Christmas Savings Fund, called a Health Savings Account. (Because you see, once the deductible builds up in that account, first-dollar coverage is effectively created, but the independent health insurance premium is unaffected. Frugal people will save it for retirement.)

The rest of HSA is an expandable blueprint, to be implemented as circumstances and politics permit. It could amount to a few tweaks for the cost of living, or it could march through additional medical modules added to HSA like beads on a string, as they prove or disprove successive concepts. After all, the basic concept is this is a cheaper way to accomplish the same goal. If it doesn't reduce costs, why bother with it? Almost by definition, prisoners in detention for example are quite different from the mentally retarded for another example, and there are a dozen other such outliers. You almost never know if they mesh until you try to mix them. The people who lose coverage by ACA repeal are mostly refugees from a crippled Medicaid program, and they were eligible all along but didn't realize it. There is absolutely no sense in merging anything unless it works.The pearls on a string design permits the addition of new programs one by one, as they become urgent. They only need to break even after subsidies.

If Medicare gets into the trouble we predict, we have outlined a plan to transition out of it. There are thirty million people in some sort of of offbeat situation, right now. . If longevity should extend to age 104 as some predict, I believe HSA could adjust to it; if not, it must be modified. The investment management and "disintermediation" features seem to need re-negotiation fairly soon. Once it can be decided whether to remain state regulated, a minimal federal oversight structure could be created to acknowledge interstate sales are a modern requirement. There is enough money to do many of these things, but the political latitude needs to be tested. The essence is to rearrange them, and keep the savings within healthcare. There are lots of things to be done, without doing them all at once. The software industry, for example, should be able to get the electronic record into useful shape by eliminating physician notes until voice recording becomes usable, and when automatic summarization materializes. Everything worth-while has a cost attached to it, so creating a sensible accounting design is the first big step in medical computerization, anyway. .

A final note on the net cost of adding new revenue. Astute critics will complain about (unmentioned) costs of catastrophic coverage. During the time Health is used as health insurance, of course bare-bones insurance is necessary to create stop-loss protection, because Medicare insures everybody over age 65, rich or poor. Some people are poor, so there will be losses. However, when the plan expands to Medicare pre-payment, there is no loss potential during the up to sixty years it is acting as a Christmas Savings conduit for later expenses. Consequently, there is no need to pay for loss protection during this interval. Whether you treat it as an escrow or a Christmas Saving Fund, should depend on whether it is at risk. Since at that stage the subscriber is not even a member of Medicare, Medicare is at no risk. I recommend removing high-deductible health insurance from HSAs unless they pay claims. Insurance is potentially unnecessary during the first sixty years of a Medicare reform, because the primary health insurances are expected to break-even (after subsidies) or be excluded. Thus, from birth to age sixty only custodial and banking functions are needed, describable as taking delivery of index certificates and storing them in a bank lock box, but more plausibly as part of an IRA. Meanwhile, banks collect deposits and invest them, a function many banks or brokerage houses perform for little charge, making their profit on the float. It might cost something, but not enough to change the narrative.


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