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.

Some Pages for a Book on HSA

Right Angle Club 2017
Dick Palmer died this year. We will miss him.

Two Central Mistakes In The Design of Medicare.

There are surely dozens of misjudgments in our health system, but concentrate on two of them. If corrected, they could transform the system, while if uncorrected, no scoring -- dynamic or otherwise -- will conceal our collective failure to address health costs seriously. Other problems can stand aside while these two are considered.

The first is pay-as-you-go. Its name is misleading, because the younger generation, mostly enjoying good health, pays for the previous generation's dauntingly high health costs toward the end of life. Medicare started in 1965, and grew for fifty years. The first generation thus was given a free ride, so my mother who died at the age of 103, represents a whole generation who paid essentially nothing for thirty years of expenses. This hot potato of debt was passed along for fifty years, getting bigger with time and baby booms. The burden of 18% of Gross Domestic Product became unsupportable, even with abnormally low interest rates. We must now liquidate the debt burden, invest the idle savings until needed for healthcare, and thus eliminate the annual 50% Medicare deficit to foreign nations. Quite a task.

An important result of replacing pay-go with pre-payment is the incentive to save, replacing the historical incentive to spend. Actual experience with HSAs demonstrates net savings in health cost to be at least 20%. Using a Health Savings Account, young people of each generation save for their own subsequent health costs, instead of spending immediately for anonymous demographic groups of strangers. At this point, another unexpected bonus appeared:

Some young people have the good luck not to get sick very much, thus accumulating tax-exempt money in the account when they turn 66. In fact, most people do escape serious illness until about age 55. Since everyone gets Medicare eventually, current law turns HSA accumulations into a tax-exempt retirement fund, a provision which went largely unnoticed. (It's mandatory, while I would prefer an option.)

At this point, a second blunder by the designers of Medicare reached the surface. Medicare provided better medical care, made longevity increase, but laid bare it had added thirty years to be financed as retirement cost. Sickness cost is episodic, but retirement costs are continuous. Consequently, these additional retirement costs may eventually become several times as costly as the sickness costs they replaced.

I cannot claim it will be easy to scrape together a package of proposals to cover the transition to a considerably less costly funding system. But I have tried, and suggestions follow in this book. No health funding scheme other than Health Savings Accounts provides even a flimsy scaffold for addressing this new issue. Social Security does have such a mission, but it is hopelessly underfunded. I'm afraid we have to say this impending disaster is largely a consequence of Medicare's success. So this is the second of two big problems facing us: we failed to anticipate success.

But there is a third big elephant in this room which might be wiped out with a paragraph of legislation. Scratch any regulation and you usually find a lobbyist underneath it. Somewhat over half of the population enjoys a tax deduction which is denied to the other half, and that other population is restless about it. Unless big corporations soon yield to the demand for equality of treatment, there will be continuing agitation. No doubt it is contemplated to address this issue in the looming tax reform, and perhaps the defenders of this inexcusable situation plan to reserve their concessions for later trade-offs. But after seventy years of this inequity, one half of the public owes such a large debt to that other half, little quid pro quo is justified. Permitting HSA to pay the premiums for its required high-deductible insurance could accomplish this in a handful of sentences, eliminating the grievance.

And what might be called the fourth big issue actually offers hope, instead of despair. Medicare coverage for young unemployable persons ("disabled") was effectively broadened to over 90% in 1984. Narrowly higher costs were thus added to basic Medicare costs for 9 million of the 46 million regular Medicare recipients, rather than remaining lumped with the 30 million uninsured unemployables (requiring specialized programs.) These higher costs of average Medicare per employable person, have been overlooked by most commentators, making ordinary Medicare seem costlier than it really is. It's bad, all right, but not quite as bad as it seems. Documenting that fact, as well as shifting the medical income tax inequity to the tax bill, thus leaves onlytwo new issues to address: pay-as-you-go, and retirement funding. That's quite enough for the first round.


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