Second Edition, Greater Savings.
The book, Health Savings Account: Planning for Prosperity is here revised, making N-HSA a completed intermediate step. Whether to go faster to Retired Life is left undecided until it becomes clearer what reception earlier steps receive. There is a difficult transition ahead of any of these proposals. On the other hand, transition must be accomplished, so Congress may prefer more speculation about destination.
Consolidated Health Reform Volume
To unjumble topics
FRONT STUFF: Health Savings Account: Second Edition, Greater Savings
Skipping past a long history of healthcare payment reform, you might say the Affordable Care Act ("Obamacare") and Health Savings Accounts just offer different approaches to the same new problem. Science has mostly wiped out disease in younger people. Disease has been chased into the retiree age group by a combination of employer basing, and medical research. It is essentially true that people earning money don't have much disease, while the people with disease don't have much money. At the rate things are going, some day there will be very few health costs, except in the first and last years of life. Nobody earns much money in those two years.
But we aren't there yet, although even the present structure looks top-heavy. In 1965 we adopted Medicare and Medicaid, for the elderly and the poor, respectively. Medicaid has always been underfunded even though shared between Federal and State sources. Medicare however is one-quarter funded by payroll deductions, one-quarter funded by the elderly paying premiums, and one half subsidized by general federal funds (borrowed from the Chinese). Projected costs were greatly underestimated, the deficit grew to unmanageable size. One way or another, 75% of Medicare's costs are drawn from non-elderly sources. The ultimate result is a gigantic transfer system, transferring money from non-sick people to sick ones. It hasn't provoked rebellion yet, but it looms as a threat. The people paying the bills don't get much for their money, but Medicare patients get a dollar's worth of care for fifty cents.
That leaves young people, nearly a third of the population, neither sick nor subsidized. The Affordable Care Act appeared, and made it compulsory for well people to buy insurance, to fund a transfer pool for the illness of other people; and they angrily resisted. Described as short-sighted, "the young invincibles" had to recruit subscribers from a highly underfunded Medicaid. As Medicaid funding was increased to attract participation, Obamacare became more costly. By contrast, Health Savings Accounts offered voluntary participation to those Invincibles, with the promise their surplus premiums would earn investment income for many years into the future, when the investments would lower the big costs of old age. If accounts got overfunded, income might be diverted for retirement. By the year 2015, enrolments to each approach were roughy equal, but there is little doubt Health Savings Accounts met with more approval from its users.
George Ross Fisher
...Also by the same author:
Health Savings Accounts: Visions for Prosperity The Hospital That Ate Chicago, Saunders Press, 1980
Health Savings Accounts: A Handbook, Ross & Perry, Inc. 2015 (Forthcoming)
Ross & Perry Book Publishers
3 South Haddon Avenue
Haddonfield, New Jersey 08033
ISBN #: 978-1-931839-44-0
For advice and support about the thrust of this book, I owe spiritual debts to John McClaughry of Vermont, the late F. Michael Smith, Jr. of Louisiana, and the late Bill Niskanen of Minnesota and Washington, DC. It's heartening to remember strong support coming from wide corners of America, and from strata of society ranging from a country doctor, to the former Chairman of the President's Council of Economic Advisors. All three of these men worked their way up to being either a candidate for Governor of his state, the President of his State Medical Society, or the Chairman of a famous Washington think-tank. All three brushed aside the problems they created for themselves by constantly thinking outside of the box. My fellow Philadelphian John Bogle, whom I have only fleetingly met twice, deserves a lot of credit for demonstrating in his books how to invent a complicated concept, and then simplify it for outsiders. I've adopted his investing strategy.
And for personal support and tolerance from my family editorial board, consisting of my two sons and two daughters. My son George took time out from climbing the tallest mountains in the world, to develop a computer algorithm that instantly created the answers to a multitude of math problems hidden in certain assertions I blithely make, but now have confidence in. Likewise, my CPA daughter Miriam, told me some things which may be commonplace among corporate Chief Financial Officers, but astonish the rest of us. And her siblings Stuart and Margaret, who understood my tendency to wise-crack, but having long practice with its consequences, talked me out of most of it.
Headlines in the Wall Street Journal announced collapse of Congressional healthcare reform. In the same edition a small short article buried in its depths, described a possibly major step toward its reform. Martin Feldstein calmly observed, a tax exemption for healthcare insurance of 2.9% really amounts to a wage increase whose elimination might go a long way toward paying for the eighty-year mess Henry J. Kaiser had created. (In fact, it was effectively taxable income of 4%.)
It was all so simple: healthcare extended longevity, created thirty years of new retirement cost. In turn, exempting the premium for healthcare became a tax-exempt increase in wages -- for the 70% of employees getting insurance as a gift. Maybe not at first, but wages adjust to expect it during eighty years. Social Security could not cope with an extra thirty years, so SSA was going broke, while health insurance was actually the main cause of increased longevity.
But notice how unused Health Savings Accounts automatically turn into retirement accounts (IRAs) for Medicare recipients. So if you are lucky and prudent with healthcare, or if you overfund an HSA, unused healthcare money makes a reappearance in retirement funds where it belongs. If you have used up the money, you have probably been sick, and maybe won't need so much for a shortened retirement. Increasingly, expensive healthcare hits the elderly hardest, so there are many years during which compound interest overcomes inflation. At the rate things are going, retirement may become four times as expensive as Medicare, so let's consider that future.
Medicare doesn't save its withholdings, it uses "pay as you go" and spends the money on other things, like battleships. Therefore, to make any use of this windfall, it is necessary to save it, invest it, and use it for retirement. Just doing that much might redirect the other 30% of withheld tax to its intended purpose. So the economic effect would be considerable, just by stirring around in that corner of it.
Introduction to Second Edition
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Further Front Stuff: Second Edition
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Martin Feldstein Does It Again: Eliminate Tacit Tax Exemption for 70% of Workers Denied To the Rest
The Henry Kaiser tax exemption for health would pay toward Social Security, indirectly paying for retirement, which health insurance prolonged.