Philadelphia Reflections

The musings of a physician who has served the community for over six decades

Volumes

Right Angle Club 2016
New volume 2016-10-27 19:24:19 description

Rt. Angle by Years
New volume 2017-07-24 22:26:42 description

Right Angle Club: 2016

In progress.


Pot Belly

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T.S. Eliot

In a lovesong written by T.S. Eliot, the character named J. Alfred Prufrock complains that as he grows old, he wears the bottom of his trousers rolled. College freshmen who encounter this line are apt to glide over it, uncomprehending, but the allusion will eventually grow clearer. The old man tends to find his legs have apparently grown shorter, because he has to roll up his pants to keep them from dragging on the ground. Although the cartilages in his knees, hips and lower spine may have compressed a little, the shortened legs are more apparent than real. The pants seem longer because his belt line has dropped. Dropped below his pot belly, that is.

No medical textbook that I know contains much discussion of pot bellies, even though they are almost universal, and universally noticed. The muscles of the belly wall relax, allowing the guts to bulge forward over the pubic bone.

{top quote}
Even doctors don't know enough about this disorder of old age {bottom quote}

The aging lungs tend to enlarge, pushing the guts downward. The spine bends forward, and of course fat tends to increase inside the abdominal cavity. If there has not been too much weight gain, the pot belly tends to flatten out when its owner lies down on his back; if weight has been gained, the pot sticks up like a pregnancy, obscuring the lower edge of the rib cage, bulging out at the sides. Normally, a young person's abdomen is described as "scaphoid", or hollowed out like the inside of a rowboat. A skinny young woman has wider flaring hip bones, exaggerating this scaphoid appearance, and making the waist narrower by allowing the guts to drop down into the larger pelvic cavity. Younger people are more active, with more muscle tone holding things together somewhat better.

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Pot Belly

Anyway, when the older person rolls over in bed, the innards of the belly cavity get squashed against the mattress. The old man's prostate leads to a fuller bladder, which means he gets up earlier when he rolls over it, and gets up a lot earlier if he is overweight and has more pot belly. Or it may be the upper stomach that gets squashed, forcing the acid stomach contents up the esophagus and resulting in heartburn, burping, and even cough or hoarseness if the acid gets up into the throat and back down the windpipe. With weight gain, the pressure of lying prone can press against the main leg veins as they cross the brim of the pelvis, resulting in swollen ankles. Since the large intestines are coiled and kinked, external pressure against them causes a minor degree of obstruction which can be experienced as constipation or sometimes bowel urgency. Since the bowels contain a fair amount of gas, pressure on them causes small gas bubbles to merge into larger bubbles, with resulting flatulence which can reach startling proportions in the early morning hours. For all these reasons, people with pot bellies tend to sleep on their backs, causing a lot of snoring. If they snort and waken, they may have night time insomnia, daytime drowsiness. One sure sign of this is that the bed partner flees to a separate bedroom.

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Scarlett O'Hara's Wasp-Waist

Victims of this affliction may, if they choose, imitate Scarlett O'Hara in that famous scene in Gone With the Wind with the slave girls pulling a tight corset even more painfully tight, but corsets are currently out of fashion. Or they can take purple pills to correct the heartburn, or regular laxatives for some of the other problems. In general, however, leg-lifting exercises strengthen the belly wall muscles (abs, I believe they are called), and losing weight by eating less does the rest. Losing weight is never easy, but in this case a few pounds can make big differences in belly circumference, as measured by the belt size. Nothing will shrink the enlarged lungs pushing down, however, and arthritis of the spine may maintain the forward stoop. Very few older people are completely without some signs of this common affliction. Even so athletic a person as the ramrod-straight George Washington, developed just a little pot. And Benjamin Franklin, of course, had a hopeless case.

Honoring the Fallen

{William Bingham class=}
F. Scott Fitzgerald

The roarin' Twenties, just after the First World War, were a time when we seemed to change conventional attitudes about Society. But in many ways the convulsive changes of the Twenties were merely a process of facing up to what we already knew. In retrospect, many of the deeply emotional conflicts of that time, now seem entirely bearable. Scott Fitzgerald's most ponderous statement, the one that says "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function," reduces itself to the trivial agonies of loving two girls at a time, or choosing to stop smoking when you always knew you shouldn't start. Just about the only instance I can think of, where two deeply loved Philadelphia institutions are in seriously troubling conflict, are the First City Troop, and Quakerism. The matter came to mind at the Right Angle Club, when a Philadelphia Trooper who simply radiated the honorable dedications of upper-class Philadelphia gentlemen, meekly described his dedication to restoring the crumbling monuments of bravely fallen comrades. The monuments he finds and restores at great personal expense are not merely war heroes, although one suspects that is the root of it. The gravestones and monuments crumbling in the dust are markers of heroes of our civilization generally. But we do forget what we owe them, and neglect their monuments.

{William Bingham class=}
Fourth Street Meetinghouse

Although the dominant Quakers of Philadelphia's early days are now reduced to a handful of practicing believers, almost every educated Philadelphian knows those beliefs pretty well. The early Friends did not even sympathize with carving their names on their tombstones. If you visit the Fourth Street Meetinghouse, you will be told that forty thousand bodies have been buried on the grounds, but only two graves have tombstones. The worship of grave markers, you will softly be told, is idolatry. The goal of a funeral should not be to mourn a death, but to celebrate a life well-lived. And although the custom of gravestones has reasserted itself, it does not take long to be gently reminded that keeping alive the memories of one war's atrocities, can eventually lead to more wars. We recently have seen wars in Bosnia and Kosovo being fought over Thirteenth Century grievances which might better be forgotten. Some of this comes from immigration over three thousand miles of ocean, but the effect is the same. I have no idea even what nationality my own 13th Century ancestors might have fought for, and I doubt if the world would be improved if I found out and sought to wreak vengeance for the inevitable atrocities.

{William Bingham class=}
Philadelphia First City Troop

But unless one is determined to denounce anything at all admirable about everything our society does to defend itself -- and there are some who go that far -- it is necessary to make a sad concession to force in successful governance. The 18th Century Quakers perhaps seldom acknowledged the need for occasional force as a condition for leadership, but they watched their children drift away from the religion, once they absorbed the lesson. Even those who choose conscientious objection for themselves, must occasionally acknowledge the debt they owe to those who do answer the call of force, and knowingly fail to survive it.

{William Bingham class=}
Society of Friends

There simply is no choice but to honor both sides of this issue, both permanently and side by side. There are some who can't, and in various ways fail to retain the ability to function. As in many of his more juvenile pronouncements, Fitzgerald does go much too far with assessing all the rest of Philadelphia as having less than first-rate intelligence. Philadelphians generally have at least a taste of the experience of holding these two opposing ideas-- the City Troop and the Society of Friends -- in mind at the same time, with approval for both. And generally seeming somewhat improved for having made the struggle.

Reflections on Immortality

{Privateers}
Notions of Immortality

When we are children, we have childish notions of immortality. Perhaps we still nourish them for lack of replacement, busying our thoughts with premature death, instead. Most of us forget the dreams of robbing candy stores or marrying a princess, and never bother to replace them. After all, everyone has to die, don't they?

So put it this way: we now have semi-realistic plans to end our lives with a thirty-year paid vacation, but what can be said about a fifty-year paid vacation, or even a hundred? Life itself is degraded by seventy years of loafing, as those who could afford it will tell you. All notions of purpose to life eventually disappear. No longer defining ourselves as soldiers and housewives; we're just cats, dogs and lice. And all our yesteryears have lighted fools the way to welcome death. As that day approaches, it will be marked by waves of awesome but fruitless literature. The Calvinist worship of work gets the last laugh of the comedy.

Subsequent generations of would-be hedonists have certainly given Calvin a hard time. Harder, in a way, than dunkings and pillories. Perhaps harder even than burning at the stake, because Calvinists had the audacity to get rich and comfortable by their effrontery. Perhaps poor and comfortable is better, and comfortable is the real goal, as Quakers were executed for advising. Once you get over the ambition to be King, what else is there?

Suggested Additions.

Soon after the release date of the first edition of this book, an article appeared in the Wall Street Journal by Lanhee J. Chen and James C. Capretta of Stanford University, entitled Instead of Obamacare: Giving Healthcare to the People. The authors were in general sympathy with the Health Savings Account approach, and made three other suggestions with which I more-or-less agree. But they add a fourth which makes me unhappy :

1. Continuous Coverage Protection. They rightly notice many mandatory auto insurance recipients take out insurance, pay a single month's premium, during which time they obtain their drivers license. And then no further payments are made for the insurance. The authors propose higher premiums for those who do the same thing with healthcare insurance, but presumably waive the higher cost if insurance is continued for a full year. There are many people who are suspicious of making anything mandatory, but if it's mandatory, it's unfair to allow obvious loopholes of this sort to persist.

2. Medicaid Reform. The two commenting authors are evidently aware of the unsatisfactory quality of many state Medicaid programs, and propose splitting Medicaid into two parts, one for able-bodied adults and their children, and another for the disabled and elderly. Essentially, this is a rewording of high-risk pools, partially achieved by splitting Medicaid from federal plans. While this division might mesh more easily with existing workers and their families in the event of universal coverage (under a single-payer system), by itself it would not address much else.

A more useful split would be between inpatients and outpatients. That would match Medicare A and B, as well as the underlying Blue-Cross/Blue Shield organization of paperwork. Moreover, splitting helpless inpatients from ambulatory outpatients could surprisingly enable the marketplace to influence inpatient costs. Since a large number of outpatient and inpatient services are identical, it would establish a comparison framework for approximating inpatient to outpatient prices through a two-step market mechanism, which ultimately approximates market prices. For those inpatient services which have no outpatient match, a relative value system would provide a more stable way to set prices for the remainder of helpless inpatients. Doing this would close a loophole commonly employed to cost-shift inpatient costs to the outpatient area, resulting in vast confusion between two pricing systems for identical procedures. Hospital administrators would resist losing the ability to shift prices, so ultimately this is an argument about who is to dominate prices, the consumers or the providers. The "market" is a compromise between the two.

3. Medicare Reform. The main reason Medicare is often preferred to Medicaid is, it is potentially available to everyone regardless of income. But Medicare itself is 50% subsidized by the general taxpayer. No wonder Medicare doesn't need to mandate coverage. Effectively Medicare is subsidized more generously than Medicaid, and thus is the main source of healthcare deficits. You might subsidize Medicaid more generously, or you could apply a 50% subsidy to a single payer system. Either way will cost more, not less. Speaking politically, it is a question of whether you wish to offend the elderly Medicare patients, or the younger indigent ones. Essentially, Congress has already chosen sides once, and is unlikely to change its preference for current voters rather than potential ones. Finally, there remains one suggestion in the article which does make me uncomfortable, because of what it fails to say.

(4.) Retaining Employer Coverage. It still costs less to provide health insurance for employees, than to pay them wages and let them buy the same health insurance with what is left. Employers are therefore better off giving the health insurance as a gift, even though recent inflation has held back wages more than health costs. Presumably this anomaly would not survive tax reform, because employer-basing has turned into one big tax dodge.

But if it should survive, it presents the alternative to rectify the injustice to the other half of (small business) employees, whose employers usually can not donate the coverage and then make it up at a spuriously higher corporate tax rate. Persisting eighty years after World War II which created the pretext, this is an unnecessary reminder of the many irregularities in the tax code. However, a one-line amendment to the HSA Law would suffice to extend the same tax exemption to outsiders, allowing other issues to remain dormant. This simple amendment would permit the premiums of a catastrophic health plan to be paid by the Health Savings Account itself, thereby extending its own tax shelter to HSA owners, at less additional commotion to the Treasury than full exemption. The present inflation distortion should not be missed as an opportunity to restore fairness, which almost everyone now recognizes to be nothing but a lobbying plum.

Exit Strategy: Medicare as the First Pearl in the HSA Necklace

Placing a termination point for Health Savings Accounts was originally occasioned by recognizing the overlap created in 1965 by Medicare for everyone. At the time, it seemed pointless to be covered by Health Savings Accounts in addition to Medicare, and there was confusion with Health Spending Accounts with their "use it or lose it" features. Pouring remaining HSA surpluses into a regular IRA retirement fund, seems in retrospect the most effective way to create some incentive to save as much as you can in the Accounts. You couldn't lose it, and might well need it. To a certain degree, the size of the resulting retirement package is determined by the frugality of the individual client during his whole medical lifetime long before, but also during, the time he is on Medicare.

He would, however not be in the position of needing to do that, if he had been born earlier. The subscriber to an HSA could continue to deposit extra tax-exempt money in the roll-over IRA for his retirement, giving the appearance of laundering it. Unfortunately, he would first have to drop out of the healthcare benefits, so he would lose the laundered tax exemption for health benefits on withdrawal. You would now have to view the extended tax exemption as repairing that unintended inequity. As Medicare began to be less generous, there were increasing gaps in coverage, and there may be many more in the future.

In what follows, we extend the retirement roll-over idea to several other medical entitlements without suggesting it be required as a universal rule. The time-honored old approach was to use an insurance surplus to reduce costs by recycling its surplus, but there are other things to consider. The first would be to imagine a theoretical sharp drop in the cost of Medicare, itself. Since 80% of Medicare is now spent on five or ten diseases, the possibility of a sudden cheap cure of one of those diseases is raised. The astonishing savings in the cost of strokes and heart attacks, created by taking a daily aspirin tablet -- shows what it might be possible to imagine as happening again. Not to promise, but to imagine.

On the other hand, it is also possible to imagine less desirable priorities getting into the competition for such a financial windfall. Confronted with the issue, the average person would likely suspect such a windfall might as likely pay for aircraft carriers as Medicare deficits. But another opinion would emerge, and should be the default position. The Medicare program and its members had experienced the unexpected -- and expensive -- consequence of more protracted retirement than they planned on (five times as expensive, by one estimate). A more just assignment of such windfall would be to pay for the extra-long retirement cost it had provoked. If other emergencies seemed more pressing at the time, they could always be given priority on the money, but by default Medicare should first pay for its own consequences. In fact, nothing of the sort occurred.

In a sense, President Obama later created the same political problem for himself with the original budget for Obamacare. He did not need to make any speeches directing attention to the diversion of Medicare money to help pay for Obamacare costs, because plenty of Republican opponents were studying the budget. And plenty of Republicans remembered Richard Nixon's advice, "Watch what I do, don't listen to what I say." Having spoken to many groups of retirees about healthcare financing, I am acutely aware that retirees are watchful for any move to strip Medicare funds for Obamacare's benefit. It's about their highest priority.

And indeed their anxiety would be heightened by discovering Medicare is already 50% subsidized by general taxation, and then unsustainably maintained by borrowing money (selling US Treasury bonds) to foreign countries like China. And still more to the point, medical costs have been and will continue to migrate from working age people to retirement age people in the future. Just about everyone who dies right now, dies at Medicare expense. Even more than that, the effect of medical science has tended to eliminate terminal medical costs for people under 65, shifting them to people who get sick when they are over 65. It can be predicted a major cause of future Medicare cost increases, compared with the cost of living, lies in this shift of disease cost to the elderly. So it's a little hard to project whether Medicare costs will go up or go down, even if the cost of illness remains the same.

Recipients will change insurance compartments. Many attempts have been made to shift Medicare costs to the non-sick working population, such as through the payroll tax deduction and hospital internal cost-shifting, but the trend continues. A more sophisticated thing for the retirees to worry about, is the instability of a system which depends for its financing on that one-third of the population who are at work -- but who are themselves becoming progressively more healthy -- to support the medical finances of the other two thirds of the population, who are sick.

Taken in summary, there exists a great political opportunity for both political parties to put a stop to this "third rail of politics" talk. And to amend the Medicare Law immediately to provide that any declines in Medicare costs be immediately transferred to Social Security, for the purpose of paying for further increases in longevity. That provision should not cost much for some time to come. But the incentive it would give to the retirees to reduce their health expenditures might be considerable. Just as the comparable position Health Savings Accounts achieved, once Medicare coverage was attained.

But its real benefit might be tested on that fateful day in the future. The day you pick up the morning newspaper and discover someone has cured cancer.

HRSA preferable to 401(k)?

A recent article in the Wall Street Journal announced to the world that Health Savings Accounts were a better bargain for the investor than were 401(k). That's certainly true if you spend the money in an account for approved medical expenses, or if you roll it over into an IRA at the time you receive Medicare. But it's also even arguable if you spend it in any other circumstance.

Let's put it this way: If you had an IRA or 401(k) but not a Health Savings Account how would you justify it? The HSA gives a double tax exemption for health services, but you are no worse off if you remain healthy. Of course you are better off with an HRSA. Of course, that may change, but then the oceans might some day pour over Chicago.

Well, you can't have an HRSA if you are under 21, over 65, or covered by a health insurance policy that doesn't have a high deductible. The Affordable Care Act mandates high deductibles for everybody, but there are still occasional loopholes, probably soon to be closed. If your policy has co-insurance features, that's actually probably an argument to switch out of it. You can't have an HSA if you are also covered by some other government plan. All three plans are sometimes subverted by self-serving intermediary fees, but you just have to shop around for the ability to choose your own investments. That may cause you to pick an inferior health insurance plan, so keep looking. Eventually, some people will reach their limits and need more than one retirement plan, but that's different. Although Health Saving Accounts are spreading nicely, there must be a hundred million people who have no reasonable answer to the question of why they have a 401(k) but not an HRSA, so please read on.

Most of the arguments for having an HSA rather than a 401(k) boil down to saying they are the same thing, but HSA gives you some health options in addition, so why not have them. However, it is possible that your employer has selected a poor 401(k) vendor, one who adds unnecessary fees and requires investments which themselves have poor performance because they are loaded with more fees. So, if you are dissatisfied with 401(k) results through your employer, you may wish to shop around for a better deal, and you might as well pick one with some health benefits attached. After all, the Affordable Care Act mandates high-deductible insurance, so that part of the requirement is likely to be fulfilled already. Since you picked it because of disappointment with your employer's 401(k) investment results, you may encounter some resistance from the Human Relations Department. All in all, there is little value in switching until the employer mandate issue is settled -- except the value of the uproar you create, trying to get treated more fairly. However, there are a few other issues if you have an agreeable employer.

Claims Adjusting for Trivial Claims. In the first place, the HSA wanted to make it possible to skip the middle-man cost and oversight, and simply pay bills with a debit card. So an "allowable" medical expense is more broadly defined than what a health insurer might allow, or at the very least it dispenses with the cost (and delay) of insurance review prior to payment. Since the Account part of the HSA was mainly intended to pay for deductibles, it didn't seem cost-effective to subject extra costs to fruitless but expensive insurance scrutiny. It also eliminated the delay occasioned by remaining on the desk of the hospital billing department for several weeks before someone submits it to the insurer to pay -- when the debit card could just as well have paid it immediately. Just how much these thoughtless design features actually add to the cost is uncertain, because it's used as an excuse for delays which may have other causes.

Skipping Insurance Claims Entirely for Small Claims. As things have turned out, forty percent of HSA accounts have never submitted a claim. Maybe they don't get sick, but more likely the client calculates it is cheaper for him in the long run to pay his small out-patient charges in cash, while letting the Account gather compound interest. Aristotle is said to have complained that most debtors don't realize how compound interest is itself compounded, and rises with time. But maybe debtors are now smarter than Greeks in a toga. A debit card directly adds 2% to the cost, while interest rates vary with the economy. Incurring costs greater than the net is a waste of money, largely growing out of a supposition the employer is paying for this as a gift, and taking a tax deduction at higher corporate rates. That's only true half the time, but the other half haven't marshaled their lobbyists to equalize the tax exemption. Apparently, Congress believes the self-employed don't deserve this tax exemption as much as employees of major corporations do. Or possibly eighty years isn't long enough for Washington to fix the flaw. Let's go on with this, a bit.

Non-trivial Returns From Saving Small Scraps. We were saying HRSAs were a better investment than 401(k). To go forward with the logic, the client is effectively taking out a loan from his 401(k) when he pays his medical bills from it, or in cash, if the purpose is to preserve the preferable interest-bearing account. Assuming both accounts pay the same (you didn't get sick), the result is a wash. But as time goes on, the effective compound interest rate will steadily rise; so the extra profit was made without incurring any extra risk. That may not seem like much, until you employ the old maxim that money at 7% will double in ten years. Two, four, eight, sixteen, thirty-two -- it rises 3200% in fifty years. The stock market may rise or fall during those fifty years, and the client may get any one of a thousand diseases. Inflation may intervene, wars are likely to break out. But the relentless superiority of this riskless choice will persist. And get this: at the conclusion of the exercise, the client who gets sick pays no tax, while the one who was scared to do it, pays the higher progressive tax rate he attains later in life. The hypotheticals have to be carefully chosen to reach any other conclusion. But remember to get started young, because to wait ten years will reduce the multiplier from 32 to 16. The millennial generation complains the tax laws are stacked against them, but I don't see it. They are offered the chance of a lifetime, but they will only get one bite at the apple.

Is that all? Well, no, but there are competitors. The deposits in a Health and Retirement Savings Account, just as surely as the deposits in a 401(k), are occasionally subject to rather extreme middle-man costs. The stock market has steadily risen by 11% for the past century. Never mind that it's true past results can be unsound future predictions, just recall that even the "buy and hold" philosophy has seldom presented the investing customer with more than 5% net-of-inflation return. That's because inflation took away 3%, and hedging against "black swan" crashes (by putting 40% of the portfolio into bonds) has taken away 2% more. That leaves about 1% for the customer and the broker to fight about. More than anything else, this slim working margin has driven the investor to choose "buy and hold" over "market-timing". The evidence continues to accumulate that "buy and hold" is at least as successful as "market-timing", but people continue to market-time when they are desperate for the occasional big winner, never mind that big losers outnumber them. To me, the conclusion is clear the public will increasingly squeeze their friendly advisors for a wider slice of the pie. And in this, our central theme is repeated; the HRSA will out-perform the 401(k). Because the shopper for an HSA manager is the customer, whereas the choice of a 401(k) manager is made by the employer. Pass all the laws you wish about kickbacks; allowing the customer to select the manager will usually beat letting the employer do it for him. There's often nothing so expensive as getting something free.

Washington's Real Motivations

Washington could occasionally display a wicked temper, but in general he was a reserved and dignified man. Physically large and unusually athletic, he tended to dominate by glaring at people rather than debating them. And so, after a lifetime of leadership and distinction, he seldom engaged in arguments. As a consequence of this studied behavior it is possible to have many opinions about his underlying thoughts, except one: he always seems to come out on the winning side. It certainly was effective: he was Commander in Chief, The President and probably the instigator of the Constitutional Convention, and the First President of the United States. To decide whether he got what he wanted means deciding what he wanted, and he hardly ever stated it.

Conrad Black, the newspaperman who went to jail, stated the Canadian point of view, which is perhaps extreme. Black's view was "the Americans" first got the British to help them throw out the French, and then twenty years later got the French to help them throw out the British. These two statements are undoubtedly true if abbreviated. Added to them was the plain history that Washington had personally started the French and Indian War. One has to wonder what was in his mind when the French aristocrat LaFayette came to join him. And later on, what he thought of Thomas Jefferson's love affair with the French Revolution. Or what he thought of the antics of the French ambassador "Citizen Genet".

Washington didn't like the Indians, and he put down the radicals of the Whiskey Rebellion with extreme prejudice. Is it so hard to perceive the barons of Runneymede acting any differently?

The Stamp Tax: Highly Innovative, Much Underestimated

One of the great books about Benjamin Franklin has just emerged, and it has an interesting current Philadelphia connection. Benjamin Franklin in London fills in the eighteen years Franklin spent in Europe, with many details and insights not possible to have with three thousand miles of ocean separating his activities from his home base. In fact, it raises the question of what was really his home in his own mind. Boston claims him because he was born there, but it takes a London writer to tell us he moved to Philadelphia because of disputes over vaccination for the small pox epidemic, between his publisher brother and Cotton Mather. XX Goodwin, writer in residence at the Craven Street Ben Franklin Museum, will forever change our views about his subject. We hope he produces much more.

A word about the museum. The Craven Street house is the only Franklin residence still standing, restored with funds from Countess XX, Anthony Biddle's XXX, who unfortunately died this year. Her daughter, Charlotte Petropolis has an apartment in Philadelphia and regularly attends meetings of the Shakspere Society at the Philadelphia Club, which is itself the oldest club in America, and second oldest in the world, according to Matt Dupee, one of the local authorities on such matters, himself a member of a great many clubs around the world. To return to the original point, Goodwin is the beneficiary of this important interest by prominent Philadelphia families in our Founding Father.

{Privateers}
Revolutionary Boston Reconsidered

One gathers from the book that Franklin had considered himself a lifelong British subject, and from the Albany Conference of 17XX to his abject public humiliation in the "Cockpit" of Whitehall in 1775, nursed the hope that Great Britain and America would join in an empire as equals. He foresaw the growth of America, and expected the capital of the joint empire to move to America. After he returned to America, of course, the gauntlet had been thrown down, and he made it his task to enlist France on our side, bankrupting France and thus eventually provoking not one, but two national Revolutions. The French stilll think of him as their darling, but the lessons of the French Revolution taught Franklin some things he needed to know at the American Constitutional Convention of 1789. Letting others like Hamilton and Gouverneur Morris do the talking, his influence at dinners and private meetings put a stop to egalitarian babble, and established a firmly Federalist nation. His activity in London would have won him a Nobel prize instead of fairy tales about kites and keys, he was friends with Mozart and Beethoven, plus about five kings. You don't humiliate a man like that without living to regret it, and King George III certainly regretted it in his saner moments.

Which, after three paragraphs, brings us back to the Stamp Tax of 17XX. To begin with, it isn't enough to want to do something, you must figure out a way to get it done. The early 18th Century colonists had learned that smuggling and counterfeiting would frustrate any tax plan for colonies so far away with diversified economies. The oceans were filled with pirates, sometimes described as privateers, and the American coastline was thousands of miles long. Furthermore, maintaining a large British navy from the Spanish Armada to the War of the Austrian Succession required thousands of British sailors, and the Navy had been stripped down to spare expense. So naturally the idea came up to have the colonies pay for their own defense at least, but how were you going to do it, in a way you could afford to continue?

A little digging in history would probably reveal the main author of the Stamp Tax Act, but such things are often the product of staff rather than the parliamentary member who introduced them. But it ingeniously solved the empire taxation problem. You just printed up the stamps and sold them, then required the objects of taxation to have a stamp pasted somewhere on them. You still would have to worry about smuggling and counterfeiting, but the whole thing was an inexpensive way of collecting the money, and enforcing the tax. It even provided some nice patronage jobs for loyal stamp sellers.

Apparently, it was much too clever by half, since the colonists could immediately see what might be ahead of them. An uproar ensued, leading ultimately to repeal of the tax, except for a token tax on tea in order to preserve the principle. But the principle was exactly what bothered the colonists, and a tea tax wouldn't do, either. The rest is history, except I don't happen to know whose idea it really was. But I do know that Franklin was in London at the time, and Franklin's inclinations were strongly in favor of a combined British Empire. Franklin almost lost his job in this uproar, and some of his fellow colonists may have suspected his person position on it.

Looking a Gift Horse in the Mouth

The Progressive Era lasted several decades, some say it still continues. Around 1910, the Progressive Era, reacting to the Gilded Age which preceded it, started doing painful things in the best interest of the individual, like the graduated income tax, the War to End Wars, and employer-based insurance.

Regardless of originator or date, employer based health insurance was imported as an idea from Germany in the nineteen-teens, getting started in the nineteen twenties, and becoming the prevailing standard by World War II. Although control later shifted from employers toward government during this period, Harry Truman was unable to move it further. It was only in 1965 that government control jumped forward, coming to a climax in the 1965 Medicare and Medicaid laws. Curiously, the employer-based format itself reached a peak in the Lyndon Johnson legislation. Since 1965, one president after another has struggled to convert the rest of health insurance to government-based, but always retaining its same general employer-based form. Along the way, two people significantly modified the model: Abraham Flexner, promoting the research-oriented teaching hospital into custodian of the standard of care, replacing the physician guilds; and Henry J. Kaiser, retaining control of a wage cost by calling it a gift, with high corporate income taxes and exempted employee income taxes reducing its effective cost to the employer. In a curious way, high corporate income taxes increased the proportion of healthcare paid for by the Federal Government, by increasing the value of the deduction. Not everyone would agree with this description of history, but I'm convinced of its essence.

Whether the gift comes from business or from government, makes little difference, except to the two contestants. Henry Kaiser seems to have become enlightened that corporate taxation higher than individual rates actually results in important tax advantages for the employer's gift. It allows employers to shift most of the cost to the government, while retaining ultimate control in employers' hands. For many decades the commercial insurance industry tried to break in, but the greatest recent threat to this collusion was accidental. All insurance is a system of cross-subsidies, but the Obama Administration superimposed a subsidy of the poor by the rich, onto an employer system of the young employees subsidizing the older ones. The mismatch between the two seemingly similar subsidies now threatens the coherence of the medical finance system. It also brings out the advantageous warping of the insurance idea by calling it a gift. Furthermore, the gift is ultimately one of money, so how did service benefits get mixed into this? What does the diagnosis have to do with paying hospital bills, except as a mechanism for obscuring the price? The insurance premiums begin with money, and the insurance intermediary ultimately sends money to the provider of care. Money-in, money-out is what the insurance industry calls indemnity insurance. They were using indemnity for centuries before health insurance came along. Why change to a unique and expensive accounting system, if final prices remain unchanged? This device probably started as a way for an insurance intermediary to check the medical validity of a remote claim, but has gradually evolved into an elaborate cost-shifting device. The unfortunate result is to blind the doctors in charge to the true costs of their options. So doctors nowadays totally disregard the posted prices which emerge, when they devise their treatment strategies. The result is very bad, no matter what the original purpose was.

There may be something to the idea that adding diagnoses and services adds enough mystery to the process to keep away competition, but there are business incentives which seem more central. Now that health cost consumes almost 17% of the gross domestic product, corporate taxes are an important part of the federal budget, largely explaining why the President might not want to lower them, even driving international businesses to consider moving abroad, rather than lower corporate tax rates. However, if the tax reduction which results from the gift is considered, the net corporate taxes actually paid are not too different from prevailing international rates. If corporate income taxes were eliminated, at least the employer would have to pay for his own wage costs masquerading as gifts. They might even discontinue them, since employers could get the same tax abatement by calling them what they are, wage costs. Following this scenario, the main benefit appears as the tax exemption in the workers' pay package, and the main victims are the competitors who do not receive the gift. If the government is willing to lose the revenue from the tax-paying half of the workforce, they could permit the Health and Retirement Savings Accounts to pay the premiums, essentially providing tax exemption to everyone. If unwilling to lose revenue, the government could start taxing the large employers, which they are now prevented from doing by the seemingly high rates. It's hard to know whom to blame, except this sort of Byzantine structure creates winners and losers, and is ultimately unhealthy.

Two simple and comparatively painless steps -- equalization of tax preferences, and lowering of corporate income taxes -- might soften the objection to indemnity, so why continue the service benefits concept? For this answer you must return to Abraham Flexner, who brought Bismarck's "der herr Professor" system to America, stimulated much research, and ultimately made teaching hospitals vastly more expensive than community hospitals for routine medical care. And now it is necessary to understand the system of calling all activities which are unrelated to patient care "indirect overhead". Although research is largely funded by outside agencies like the NIH and drug companies, it is described as indirect overhead, and distributed among the patient care bills as additional indirect overhead. Unfortunately, a great deal of bloated administrative cost is classified as indirect overhead, as well. No modern corporation could exist without a certain amount of cross-subsidy, but the present amount of it in hospitals is unreasonable. Beyond a certain level, indirect overhead should be forced out of the hospital cross-subsidy system, funded independently, or at least forced into public view. In short, too much routine care is being reimbursed at a high tertiary care level in the teaching hospitals, and this may well stimulate excessive administrative costs as well, even though it may be hard to trace how it comes about. Their competitors in the community hospitals also probably get a little raise, indirectly, to help suppress their complaints. Wall Street was once lambasted for steak dinners and Superbowl tickets from vendors, but you don't hear much about the hospital administrator version.

To make a long story short, service benefits tend to equalize the cost differences between teaching hospitals and community hospitals, ultimately raising the cost of both, but particularly the cost of routine care in teaching hospitals. Historically, this surplus subsidized the research revolution, to which we owe a thirty-year lengthening of our life expectancy. So, go figure. But nevertheless it now blinds physicians as much as the public to the true cost of their medical decisions until they are unable to respond effectively to rising prices, and don't try. A century of it is long enough to devise a better approach, so apparently some pain is needed. But any way you go about lowering them, if you want to control costs, you must start and end with undiluted true costs, not accounting fictions.

After London, Ben Franklin Revisited

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George Goodwin

George Goodwin appears to have written the best book I ever read, in Benjamin Franklin in London, which that writer in residence of the Craven Street Franklin Museum. has just produced. At least I have never read a book which proceeded to explain so much I knew puzzled me. There have been hundreds of books about Benjamin Franklin, but all of them fall back on Franklin's Autobiography which while surely authoritative, often omits significant details. Goodwin, concentrating on the eighteen years Franklin spent abroad, had access to many unnoticed personal papers. It was also written while Franklin was in England, where many things did not appear to need explanation to 18th Century Englishmen. And the autobiography was written for his son, who needed even less explanation. So it's a mistake to ascribe the autobiography's vagueness to deliberate deviousness, to say nothing of basing a whole theory of his personality on deviousness. Its hazy points now seem more attributable to his assuming his intended audience needed little explanation for what to us was seemingly left vague. And so as a first impression, Franklin himself emerges less deserving of his reputation for deceptiveness.

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Ben Franklin In London

It occurred to me as I read it, that national opinions will change so quickly, that the transitional opinions of people like me will soon be swept aside. I am no scholar, but have read twenty or so excellent books about Benjamin Franklin, and adopted a number of fixed ideas which I will have to change. Therefore, Goodwin's achievement is in danger of becoming lost in a stampede of permanently revised views. Goodwin himself may be oblivious to his own achievement, which was probably gathered slowly after poring over heaps of primary documents, and living in a London world which needed less explaining to a Londoner. Heaven knows I am no Keats, but my place in all this can possibly aspire to his goals in the poem On First Looking into Chapman's Homer.

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Join or Die

In the first place, Franklin appears to have been a staunch British subject, at least from the Albany Conference of 1754 to as late as 1774. His dream, formulated at Albany and expressed in many forms later, was that of a combined British-American empire, with its headquarters eventually to be located in America. For the largest part of his life, his attitude was not that America should be independent of Britain. It was the two nations should unite even more closely, America would inevitably grow larger, and the British Empire would become a British World. After King George III unleashed Wedderburn to excoriate Franklin before the crowned heads of Whitehall, it all changed, of course, but it did so after a personal dispute with the King about lightning rods, where Franklin never doubted he was the world-acknowledged authority. In essence, Franklin was the inventor of electricity, but King George in effect responded, "Who do you think you are, a King?" Those weren't the words they used, but that was the sense of it. Or, considering what was at stake, the nonsense of it. Franklin had been challenged to destroy the British empire if he was so smart, and that is exactly what he set about to do.

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King George III

Without editorializing a word, Goodwin allows us to read a line Franklin wrote in 1773, that King George was "perhaps the only Chance America has for obtaining soon the Address she aims at."

Franklin was not without British allies. Lord Chatham, later prime Minister, and Edmund Burke, author of "On Reconciliation With the Colonies" came very close to toppling the government over this issue. Even Lord Howe, Franklin's chess partner and brother of even-more-avid chess partner Lady Carolyn Howe, who was later designated to lead the British repression of the rebellion, is quoted as saying in 17XX, XXXXXXXX. Lord Howe's words are going to require some re-examination of his motives in abandonment of Burgoyne against direct orders, and redirection of the fleet toward Philadelphia. Frankin's response, of course, was to use the victory to sign a treaty of alliance with France.

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William Pitt 1st Earl of Chatham

In victorious America, of course, Franklin was celebrated for flying a kite in a rainstorm, something every schoolboy knows is too dangerous to try. It was during his time in England that Franklin performed a series of experiments which invented electricity which every physicist would agree would today win him a Nobel Prize. It made him a friend of Mozart and Beethoven, Joseph Priestley and five kings. Goodwin even restores the tarnished reputation of Peggy Stevenson.

But it isn't all for the better. Goodwin tells us Franklin didn't invent bifocals, some British optometrist did. So he raises a question, for those who are looking for it, about how many of the other American "firsts" for which he is famous, were ideas he picked up in his first trip to London in 17XX, and transported to an America eager to have what was the latest and trendiest. There are probably other innuendoes in this eminently readable but essentially scholarly work. But I missed them, and a hundred graduate students will have to put the record straight.

Innovation and Automation

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Innovator Image

The innovator is protected by patents. To some extent, the public is harmed by them, because the public wants the innovation to be cheaper. is reported to have hated patents, because they harmed the public. But less innovation harms the public, too.

Once the inventor invents an innovation, he wants to see it work. Often he employs a craftsman to make one that works, money no object. A few rich people hire artisans to make high-priced versions for various purposes, some of them noble, some just frivolous.

So, some entrepreneur risks a lot of money to build a factory, hire cheap labor if he can find it, and mass-produces a cheaper product. He hates patents, but he loves cheap labor, and he particularly hates automation, which threatens his investment.

But automation is cheaper, so it wins. The automator has to spend a lot of money to accomplish automation, but his cheaper product puts the earlier factories out of work, so they fight automation as long as they are excluded from it, but eventually surrenders. Corporations almost always defeat factories, family businesses, and artisans. Ultimately, automation, corporations and possibly inventors, tend to win. Hand craftsmen, family businesses and cheap labor tend to lose. High volume usually defeats high margins of profit, so the public usually wins, too. If the entire cycle is fast enough, the patent protects the inventor. If it's too slow, the inventor loses. It's easy to see what side each of these participants will take in the political battles, assuming the hope of profit is what motivates each one of them. The public has the votes, so at first they can do almost anything. In the long run, more innovation and cheaper prices will win public approval, but in the short run, patent impairment and job losses may hold things up.

So what is in the public interest? Job retraining and regional movement of labor are two things which come up, their expensiveness probably varies with the particular issue. But one universal good sometimes clashes with another. Is home ownership always a good thing? Are there not times when it would be better to be a renter, and move to a different employment location when your job disappears?

There are certainly times when it is better to own your own home. I finally sold my house after living in it for sixty years. The real estate agent was rueful. He saw it as his losing six sales commissions, over the years, because I did that.

Franklin and Brexit

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Minister David Cameron

In June, 2016, Great Britain voted by a million plurality, to withdraw from the European Union. The plebescite was not binding on Parliament, but Prime Minister David Cameron promptly resigned, and there remains little discussion of anything but going ahead with "Brexit". It will take at least two years to accomplish the matter, and there remains great uncertainty about the terms of separation. The British stock market took a sharp dip. Stock markets always hate uncertainty, and from the start there was little doubt Britain would experience some economic hardship, but still they went ahead with it.

{Privateers}
Archbishop of Canterbury

By the greatest stroke of good luck, I happened to be in London for this event. It had been barely noted in the Americana press before I left, and indeed a discussion group hadn't even put it on the agenda after my return. But let me tell you, the British public was talking about nothing else. From the lowest barmaid in a pub to the Archbishop of Canterbury, there was only one topic of conversation, and a very real understanding that Britain might well vote to leave the EU. Once the vote had been taken, of course, even the American public appreciated its significance, and its resemblance to the headlong tumult in our own political parties. Donald Trump might well win the election, and logic or rhetoric had little to do with it. Other countries, Scotland in particular, were teetering in the same direction of demonstrating how far a democracy was from a republic, when each "leader" had a million constituents. And how well the public appreciated the tendency of elected representatives to forget who elected them. Or else, in more rational moments, to appreciate how difficult it is for elected representatives to communicate with constituents.

{Privateers}
Ben Franklin London Townhome

To go on with this insight for a moment, my Washington daughter tells me Democrat congressmen are required to spend thirty-six hours every week in a call center, soliciting campaign funds; where do they find time to legislate? But the central background reflection I happened to have about Brexit was how enduring the political split apparently was between the Whigs and the Tories. This thought came to me from one of the real reasons I was in London, to visit Ben Franklin's imposing rowhouse on Craven Street, fifty feet from the National Museum on Piccadilly. Franklin lived there for most of eighteen years, in a style quite different from the two-penny loaf of bread in Philadelphia. He was personal friends with five kings, Voltaire, Mozart and Beethoven, as well as Priestly, Lavoisier, and Hume. Townsend may indeed have passed the Stamp Act, but he invited Franklin to spend the weekend at his hundred-room castle. The neighbors on Craven Street easily recognized the carriage of the Prime Minister when he came to call on Franklin on Craven Street. From the point of view of this social set, the uproar over the colonies was whether England should conquer them and send their raw materials to British factories (the Tory view), or should instead colonize them with Brits, give them the vote, and rule the world as a commonwealth (the Whig view). Naturally, Franklin supported the Whigs, but his loyalty to his good friend George III, never wavered until 1775. And then, lightening struck St. Paul's Cathedral.

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King George III

Quite logically, the King asked Franklin's advice. The King however insisted on a brass ball on the top of the church. Franklin resisted, saying a spire was much more effective. We don't have the exact words exchanged, but essentially the King said he was going to have his way, while Franklin in effect asked him who he thought he was talking to. In those days, far less direct wording was needed to give offense on such a central issue of the king having the last word whenever he wanted. It is intimated the King suggested to Weddeburn he should take care of the issue for him, and within a few weeks Franklin was subjected to public humiliation in the cockpit at Whitehall, threatened with arrest, and fled to America to start the war. I had never heard this story, before.

The point it leaves me with is not that Franklin lost his cool and should have known better than to express his opinion. Rather, it is the reflection that never before had a king been challenged on his divine opinion on any subject. Just think of the shock this must have caused him, to have to realize this was the first snowflake in a blizzard. With the Enlightenment and the Industrial Revolution, the world was going to be full of experts, who could make a fool of any king by disagreeing with him in public. This particular king was able to have his way, no matter what, but the day was soon approaching when any science editor, any university professor, and ultimately every barmaid in a pub, could pontificate to the Pontiff.

How to Live a Long Life and Get Rich

A long time ago, a rich oriental man flew five thousand miles to ask me a question, "What is the secret of long life?" I was so startled by the experience I never did ask him why in the world he would think I knew the answer to such a question. But after a few seconds, I blurted out an answer. "The secret of long life," sez I, " is never get sick." I don't know what his opinion of my profundity was. But I do know what he died of. He was executed by his government, so I hadn't given him the right answer to his question.

At other times, people especially my children, asked me how to get rich. After some practice, I developed a pat answer to that one, too. "The secret of getting rich is to spend less than you earn." What I realized too late to be useful, was that, "Don't get sick and don't spend more than you earn", is a peculiarly American viewpoint, a Philadelphia attitude, and ultimately a Quaker one. It probably explains why there have been so few Pennsylvania Presidents of the United States, few Nobel prize winners, and relatively few Philadelphia glitterati in general.

Because, "Avoid risky behavior" comes closer to the right answer, since risky behavior is a fairly good pathway to glitterati success, and the Quakers had figured out it was a fairly good trade-off, to prefer longevity with prosperity. When I worked at the National Institutes of Health, I was struck by how many eminent scientists went through red lights, and otherwise exhibited risky driving behavior. Everybody knows eminent politicians play around with risky sexual behavior, as do movie stars and glitterati in general. But it is less noticed that America has an even larger proportion of risk avoiders who use that method to live long and prosperously. America has developed an environment where it is possible to get old and prosperous without so much tiresome risk-taking. Kingley's famous text of, "Be good, sweet child, and let who will be clever", doesn't quite get to the root of it. It's risk you want to minimize, not cleverness.

And the verb is minimize, not eliminate. The Quaker term is "steely meekness". And a bothersome American response comes from Winston Churchill, "If the enemy comes, be sure to take one with you."

Girard College as an Entertainment Site

For many decades I have hungered to visit Girard College, sitting like the Parthenon on the Acropolis of Girard Avenue, even decorated with colored searchlights after dark. In its very earliest years, the estate of the richest man in America was entrusted to City Council, but the corruption and lack of progress toward stated goals, caused the Board of City Trusts to be created with this monumental sum of money to be devoted to the education of "poor, white, orphan boys". For many decades, to be a member of the Board was the highest honor in the business community, and several large business empires were added to the responsibilities. Girard had the foresight to state in his will that no Pennsylvania property was to be sold, and when the downtown area began to surround Reading Terminal the wisdom became apparent. His farm was made into rental rowhouses of great profitability in South Philadelphia, a hundred million dollars worth of coal was mined in Schuylkill County, and the first Industrial Revolution grew up in the hinterlands in response to the blockades of the War of 1812. Girard's estate was welll managed, indeed, as a showpiece of Philadelphia business acumen. He died with the greatest fortune in America, but that twas only the beginning of the industrial power of the leaders who really ran Philadelphia. The school for white orphan boys prospered, but not merely because of the corpus of the estate. Time wore on, however, and corruption wormed its way into the Board of City Trusts, the neighborhood around the school deteriorated, and Milton Hershey was able to compete for the dwindling supply of orphans with the benefit of Girard's mistakes and successes, in his own orphanage near Harrisburg. Finally, the great migration of black people from the South took over the electoral dominance of the city to the point of dominating the courts and politics, and black girls now outnumber white boys by a considerable number in the school. Some members of the Board have spent some time in prison, but most of scandal attached to running an orphanage has migrated to the Milton Hershey School.

It is my understanding that the walll surrounding the school was considered to be entirely too high, so they tell me half of the stonewall is buried beneath the ground, to conform to the donor's wishes about height, but also to remain a more reasonable height on the outside. He also provided that no ordained minister should set foot within the walls, a provision which greatly discomfited the religion department. An old gentleman named Mr. Witherbee was once my patient, and told me he refused his diploma at the graduation ceremonies, and spent the rest of his life teaching Religion at Girard College after the School found he had perfect credentials for the job, but lacked the stain of ordination. The President of the Dallas Federal Reserve was once a student at Girard, as was the President of the Insurance Company of North America when it was the largest casualty company in the business. Daniel Webster was engaged to represent the College in Court while he was still in the Senate. I'm told that the boys were dressed by Brooks Brothers, and on and on. I'm also told the new managers of the Board of City Trusts ran down the endowment considerably.

Well, I finally got a chance to see the inside of Girard College, when the Shakspere Society held its annual dinner there, and it is indeed everything it was reputed to be. The Society was in black tie, having cocktails on the portico of what looked like an exact replica of the Parthenon, wafted by spring breezes and later bathed in spotlights, just like the real Parthenon in Athens. There were real guards at the gates. Dinner was superb, held in a main library, beneath a 48-step marble staircase to the second floor exhibition halls, overseen by a curator, and filled with Chinese porcelains, leather carriages, towering book cases, and the like. The place was immaculate, and the staircases so wide you could climb dizzying heights without getting dizzy if you stayed close to the wall. No white orphan boys in evidence, however. And for that matter, no black girls, either. Looking out at Girard Avenue, you can see a splendid avenue stretching to the casinos at the far end. And the trees were so tall, you couldn't see what was behind them.

What Long Term Thinking Looks Like.

Let's apply a Due Diligence approach to the technical steps of this proposal. That is, skip past the overwhelming detail of existing data, to focus on conclusions to test. First, divide the population into three groups: dependent children, the working age group, and retirees, and start with Medicare. That's ignoring the advice that Medicare is the "third rail of politics--touch it and you're dead". The easiest place to begin is with the elderly, because they have the greatest medical cost, and anyway if we continue to "kick the can down the road", we are admitting defeat before we even start. Medicare is not only where most of the costs are, but predictably where they will migrate further. It's only half paid for by the recipients, while a major goal is to break even. Indeed, as science cures diseases, surplus should be consumed into a retirement fund, so realistic projection errors could overstate the revenue. As the old Quaker observed, the best way to have enough is to have too much.

The Composition of Medicare. With the single important exception of disabled persons, Medicare eligibility is age-related not income-related. Everyone between the ages of 65 and death (averaging now 84 years) is eligible, regardless of finances. We also contemplate funding children out of this source by transferring 5% for them. It's not much, but it is central, and it dramatizes the cost distribution. The raw data is blindingly comprehensive, sometimes to the point of obscuring important conclusions, so rather than starting with it, we should come back to data after we see what we need.

A fair working assumption is that Medicare borrows about half its costs, while Medicare totals constitute about half of total medical costs. So at least a quarter of all medical costs are already indebted. Medicare's actual sources of hard revenue are about evenly divided between payroll deductions from future beneficiaries, and premiums from existing ones, or about an eighth of total costs, each. So about twice as much is borrowed, as pre-paid in wage tax (one quarter of total cost borrowed, versus one eighth pre-paid). Since lifetime costs are estimated by actuaries to be $350,000 in year 2000 dollars, the problem is to take $42,500 and turn it into $85,000 in 21 years in a post-mortem trust fund--seemingly at only half the rate of a reasonable rate goal of 7%. Average costs are even somewhat overstated, because the 9 million disabled come from younger age groups who also contribute less than average. Furthermore, leftover revenue would probably be available for covering gaps in healthcare coverage in other age groups, as yet to be decided by Congress. You might cover these gaps by doubling the wage withholding tax, but it would be uncomfortable. Our proposal is to substitute compound interest principles, which are harder to explain, but easier to accept.

At present, the Health Savings Account is the only medical payment system which could adjust to the predicted migration from healthcare to retirement care, and it is the only component which could then fund all children with about a 4% carry-over from each grandparent to an average of 2.1 children per mother. HSA currently provides for money still left in the account at the time of achieving Medicare coverage, to flow into an IRA which can be spent on anything. If you are lucky with health problems, you can even seem to use the same money twice. That's something to brag about, but it could be made even better. Right now, for a system hoping for millions of subscribers, it is too rigid and uniform. The idea of post-mortem Trust Funds (see 1b) somewhat smooths this out as well as generating a four-fold increase in revenue. Money is left over from Medicare for retirement, and then if there is no debt left over from retirement, you do not need a Trust Fund. But flexibility would be particularly useful during the transitions; some will need it, some won't. The fact that you don't know in advance, enhances the ("Old Quaker") incentive to overfund the balances.

I see no reason for HSA/IRA migrations to be so uniform, so one-size fits all. Surely there will be subscribers who would prefer to accumulate funds for later life, rather than as soon as possible. There is no reason to demand that everyone be within a certain age group, or to stop depositing at a certain age. If there is some such reason, it ought to provide for a court or agency to approve exceptions. The same court could handle the vagaries of marriage affecting grandchildren (see 2.0, below).

For example, there is even no reason to terminate accounts at the time of death. The transition will uncover numerous exceptional situations, and some people would even want to create an HSA at age 64. If they want to do it, why spend hours figuring out how someone might somehow game the system with his own money? If their parents can fund an HSA at birth, why not get started twenty years sooner and add four times as much accumulation by age 21? If there must be disincentives to accumulate money, apply them after the termination of the Trust Fund, when family responsibilities are mainly (but not invariably) coming to an end.

Growth. Money at 7% doubles in ten years, so one specific proposal is to re-direct the money already being collected during 60 years, doubling it during a gradually declining 104 years. The money must earn 7% within a Health Savings Account if it is to pay for Medicare plus a million dollars per person left over for retirement. (Bear inflation in mind, however: money at 3% gross might not grow at all.) Compounding should start early in life, remaining in one continuous storage location for as long as possible, with escrowed compartments for specific goals, like buying out or consolidating shorter-term vehicles and anticipating some marital ones. Tweaks to current Health Savings Accounts will suffice, but must be at least mentioned in the legislative language, to guide the long-term regulatory one.

Only a few present limitations on HSA prevent this lifetime compounding from beginning immediately, and 7% annual returns are expected back from financial intermediaries over the longer term. Even though raw stock market returns have averaged 12% annually over the last century the financial community will probably object to 7% return for the customer from total market index funds because of its 3% inflation assumption within the middleman portion, and the intermediaries have already shown they resent the security measures. (Fear of the trial bar probably plays a role in fiduciary disputes.) But the reward for winning the lobbyist war, is funding half of the shortfall deficit by placing risk on the proper shoulders. Two principles guide revenue enhancement : begin to save early, and relentlessly escrow inescapable life goals. Benefits from careful adjustment of terms with legal permission, might range all the way from doubled returns, to cutting them in half.

Running through this dispute with your financial advisor is the need to use the "annual total returns" on major domestic total stock market indexes as a benchmark to be exceeded to escape penalties for ethical misbehavior. The principle in Law is well established that if there is no injury, there is no case.

1. Creating Revenue Instead of Floating Bond Issues.

The underlying problem is to fund retirements after you have funded Medicare, when both of them begin at the same time. Suggested technical steps now follow, trying to co-ordinate designated approaches as beginning with as little amendment as possible, until the fate of the Affordable Care Act is decided. Beyond that, it is a possibility that, if the tax exemption of employer based insurance is equalized, funding might become easier for the other half of the employable population. At the time of closing down the trust, there are only two eligible recipients, the Medicare Trust fund, and the IRS, so it usually makes no difference how the Government got the money during the long transition phase, and the extra administrative cost would be considerable.

1b. Post-Mortem Trust Funds. Some parts of this proposal are not obvious, and should at least be mentioned in the statute to guide the subsequent regulatory phase. For example, I see no good purpose in limiting Health Savings Accounts by age or occupation. Expenditures from these Trust Funds should only pay off Medicare-related debts. This trust fund concept alone would quadruple available revenue (and beneficiaries during a transition.) The Health Savings Account already devotes any surplus after 65 to a retirement IRA; why not make the timing optional, and hence more flexible? Underneath any regulation you will usually find a lobbyist.

The transition from our present system to a better one will be the biggest problem; why make it harder to manage? If someone is aged 64 when the program starts, why not give his estate twenty more years to invest and retire when it judges he can afford it? With a trust fund, if he is dead and has money left in the account, why write off his retirement debts immediately after he dies? The money in a trust fund will continue to grow until it becomes a perpetuity -- one lifetime plus 21 years. That means his estate will have four times as much money to pay his debts--what's the matter with that? The central point is to expand the number of people able to pay back what they owe -- to the government; who cares if they are alive or not when the money is paid. Effectively, an index-fund certificate is funding an escrow account. Why not "take delivery" of the certificate by the creditor, whether or not the debtor is alive? The result would be many more funded accounts, not more bad debts.

1c. Last Four Years of Life Reinsurance. Alternately, a more complicated 50% partial buy-out of Medicare could continue present systems at half price. Eventually the cost can be adjusted from actual payment histories, both individual and collective. The outcome might be halving the transition time by pre-payment and repayment to Medicare at death, as well as replacing a liability with an asset. This is hard to explain, and post-mortem trust funds are probably politically preferable.

1d. Revenue Estimation By Exclusion. This discussion envisions lifetime coordination, but since future revenue is uncertain, adopts the temporary hypothetical that ACA is revenue-neutral. Like Frank Sinatra's song about "making it" in New York, if the idea is feasible without ACA and/or tax exemption revenue, it surely would be even more feasible with those two Laws adding revenue. Without such revenue, this proposal still addresses the majority of present medical cost, but would need to be endlessly integrated with whatever emerges from ACA. One tweak is apparent: catastrophic insurance is mandatory in an HSA, but there may be long periods of employment or marital situations when a lifetime depositor has two health payment systems at once. Therefore, if a Health Savings Account has not made a health payment for a year, the premium for catastrophic coverage should be waived for the following year, substantially reducing its overall cost. The underlying assumption is that when you have two health insurances, you especially don't need two reinsurances. To pay the premium by the HSA itself would greatly ease this problem.

1e. Steadily Improved Longevity v. Steadily Greater Retirement Cost. For the first time in history, longevity has increased by 30 years in a century, followed by 3 more years in the past decade. That's a good thing, of course. But someone neglected to plan for increased retirement costs, in some ways a "bad" thing, directly caused by living longer. That is, while the present working third of the population is paying for its parents, the cost of transition will double in size, but costs of the retired third who benefit may increase tenfold. By that time, the contributors will evolve into becoming retired beneficiaries without employment, so revenue will not increase tenfold, and the situation becomes impossible to correct. The imperfect precision of these projections is irrelevant to their gloomy conclusions. Furthermore, the interests of the citizen and his government will often get into conflict, an inherently disruptive situation which interferes with solutions.

2. Grandpa Pays For Grandchild With Newly Created Funds.

A vexing parallel situation is the location of children in the scientific cost curve. Medical costs for children may sometimes seem impossibly high, particularly if obstetrical costs are lumped with them. But they are really quite small when compared with the late-in-life compounded revenues of retirees. In our plan, the money is newly created, belonging to no person, so it can be shifted with less resistance. Costs of children are disproportionately troublesome because of their timing within the context of their entire family. Politically, they insure a lot of people at not much insurance cost, so expect a lot of new children's hospitals to be built if they are insured.

2a. Shifting the Cost of Obstetrics and Pediatrics From Mother to Child, and Having Deceased Grandpa pay the Bill. The lifetime medical cost curve is J-shaped, with the lowest point at about age 17, rising steadily until death averaging age 84. The shape of the J-curve is emphasized by half of Medicare cost being experienced during the last four years of life. (This conclusion is blurred somewhat by adding 9 million younger disabled to the Medicare rolls. That adds to lifetime average Medicare cost, appearing to portray lifetime cost as even more J-shaped.) Even accounting for the distortion, financially struggling young parents have a hard time managing medical costs, made even worse for unmarried mothers. Middle-aged women often have gynecologic costs which lack a satisfactory resolution if they also have marital financial problems. Most of these distortions are artificial. Stripping them away by assigning them to the child would expose a steeper incline to the J-shaped cost curve of both sexes. From a politician's standpoint, equalizing medical costs of the two sexes would soften some political noise, by reducing employer costs, reducing female wage inequality, even affecting immigration by raising the citizen birthrate.

2b. How Is Money Transferred from Grandpa to Grandchild? The answer is simple: it is transferred from HSA to HSA at Grandpa's death, or Grandchild's birth, as a 5% transfer. The math means one transfer suffices for 2 grandchildren, at a 2.1 birth ratio.

3. The Working Age Group From 18 to 64.

Our basic position is simple: we ignore the working age group until business and government reach agreement. Meanwhile, we treat both Obamacare and Employer-based insurance as unchanged and revenue-neutral, while fervently hoping for some surplus revenue to reduce the cost of the dependent two thirds of the population. Employer groups have resisted being taxed for indigents since long before the Affordable Care Act, arguing that hospital cross-subsidies were already more than their fair share of charity. We hope things will evolve as two new systems, one of which is an HSA with temporary waivers of catastrophic premiums, but both employer groups and ACA have regarded their negotiations as nobody else's business. Blue Cross seems to be taking a cautious look at HSAs. We wish they would read one of John Bogle's books.

3a. Employer Donated Employee Groups and Tax Implications. Two other vexing laws stand in the road of peaceful resolution. The first is the Henry J. Kaiser tax loophole, apparently the largest tax loophole for individuals of all time. So much profit is at stake, one scarcely blames big business for trying to extend it, but it seems nevertheless un-Constitutional to permit a tax loophole of this size to persist for 70 years for half the population, while stone-walling extension of it to the other half. It is as though no one could read the "equal protection" clause. There is little doubt the fairest solution would be to abolish the health-insurance double tax exemption for everyone, but the resultant confounding of world trade prices would be daunting. The simplest solution is to have Health Savings Accounts pay the catastrophic insurance premium, thereby extending a full tax exemption to everyone. That maneuver would reduce federal revenue, which would then have to be adjusted in the coming Tax Reform legislation.

3b. Big business seemingly has no pre-existing condition problem, but in fact they avoid hiring impaired people to avoid this issue if they can, leaving it to their smaller competitors to wrestle with last hired, first fired. So a small issue became a big one; in a sense they created it.

3c. Medicaid: A Special Age Class Trying To Become An Age-Independent Income Class.

Finally, there is the Affordable Care Act, with missteps addressed. Medicaid was originally a state-sponsored program for mothers and dependent children. The Affordable Care Act tried to expand it to all poor people, and met with mixed success in different states, so Medicaid expansion potentially invades the working age groups. It is uncertain whether the nation can afford expansion, and its fate probably depends on the decision, possibly on constitutional grounds. If healthcare is ever to pay for itself, extra funds must ultimately derive from the working third of the population. (Children have no means to pay for future care, while retirees are largely without working income until the very end.) In this analysis we treat the net cost of age group 18-64 as revenue-neutral. That means this one third of all inhabitants must generate its own costs, plus enough surplus to cover the deficits of the other two thirds who are dependents. Reduce the dependent cost, and you will reduce the strain on the employee group. Furthermore, the J-shaped medical cost curve means most new costs will increasingly arise among retirees. Already, Medicare is 50% subsidized, and then re-borrowed with bonds. That means it is already 50% laundered and can scarcely stand more burden. It is very difficult to make long-term plans when the finances of ACA are so obscure, and its margin for error so narrow. In one form or another, we repeat this performance every time political control reverses. The private sector could not survive without a better form of "due diligence" than this. I suggest the President immediately assemble a due diligence team for his own information, mostly consisting of accountants, to give him the news, however bad, of where we stand. And then, ways must be found to extend the "surplus" from employed people to the unemployed two thirds, stretching a tiny surplus to meet a big shortfall. Without that tiny surplus, medical finance is close to a cost spiral.

4. Constitutional Issues.

For the most part, the rest of the uproar about the cost of medical care is mostly man-made, thus seemingly should be negotiable. The problem with this attitude is the man-made problems are so numerous and of such long standing, they appear more intractable than one would suppose is realistic. In the first place, the Tenth Amendment of the Constitution clearly makes the licensing and regulation of medical care reside exclusively in the several states, even in spite of greatly increased nation-wide transportation. Both specifying state regulation (for instance, the McCarran-Ferguson Act) and national regulation (ERISA) are so clear and carefully worded it is hard to guess why both have not been challenged, or indeed which side would win an appeal. The Maricopa 4-3 Supreme Court decision clouds judicial resolution along anti-trust lines. Reams of legislation by State Legislatures suggesting one organizational pattern, and voluminous Congressional legislation suggesting the opposite, allow the citation of precedent to be almost anything. Certainly, no one wants another Civil War.

5. Pay As You Go. A major mistake was made in 1965, when Medicare adopted the "pay as you go" system.The program might never have started without it, so Lyndon Johnson cannot be exclusively blamed. But the first year recipients were enrolled free to the beneficiaries, and since then, revenues have been spent as fast as they are generated. No interest was generated on this enormous foregone revenue, and the recipients are now dead. Continuing revenue consists of payroll withholding of 2.9% of income during working years. It also consists of premiums amounting to a similar total. Before the books were scrambled with ACA subsidies and $30 billion for "meaningful use" of electronic medical records from the stimulus package, this revenue source would almost have paid for Medicare if it earned 7% income. At present, it will have to be amortized. I suggest we change the recipient address on the envelope of this revenue, from Washington DC to individual Health Savings Accounts, who would then employ John Bogle's system of passive investment of index funds, hoping to achieve 7%. In time, the numbers could be adjusted to be revenue precise. When the due diligence team reports the equilibrium state of affairs, further adjustments will have to be made. They won't be revenue neutral, but we are starting 70 years late.

6. Substituting Passive Investment for Pay/Go. So far, we have only explored one approach to paying for lifetime healthcare for everyone -- take the money already being spent on Medicare, deposit it into escrowed individual Health Savings Accounts instead of milking it for pay-as-you-go, when index investing could on average double it at 7% tax-free returns in ten years (sixteen-fold increase in forty years, thirty-two in fifty years, etc). Doubling its revenue should make it self-sufficient, easily surpassing almost any expected inflation after a ten-year transition. Because Medicare costs are age-stratified, not income-stratified, this heaviest of Medical costs now subsidizes no other age groups except disabled persons, so paradoxically, voluntary participation is facilitated.

7.The hardest thing to explain to non-mathematicians is the power of compound interest to increase virtual interest rates, a concept that baffled even Aristotle. Essentially, compounding explains why increasing longevity steadily increases effective interest rates, a saving grace for this whole idea for beating inflation. In fact, this saving grace increases effective interest rates after age 60 by so much, that paying for a grandchild's health cost is fairly trivial, compared with the struggle their young parents might endure. A five percent dollar transfer would hardly be noticed by grandpa's heirs at age 84, whereas it might seem an insurmountable amount to his young children, acting on behalf of his grandchildren. Simultaneously protecting grandchildren and grandparents with a single rearrangement may strike some as fraud, but it isn't. What's really strained are two things: convincing 300 million people to do the simple math quietly, and to keep the custodians from spending the boodle, whether on stockbroker income or on aircraft carriers. In fact, I have omitted much mention of "last year of life re-insurance" as unneeded, but to be held in reserve in case a chaotic transition requires shortening.

8.Why use Health Savings Accounts, when we could just use single payer? Well, that translates to, Whom do you trust not to misappropriate it? Robert Morris of Philadelphia took great pains to arrange the Constitution and the First Congress to prevent the federal government from ever owning shares of a business, because of fear of "imperfect agency". That is to say, Morris foresaw greater danger in diverting medical money to battleships, than to Credit Default Swaps. No doubt your victorious government would share some of your money with you if it won a war, but what if it lost a war? You can make your own translation of what Morris meant, but it was essentially what is very wrong with medical cost control in general: Nobody spends someone else's money, as carefully as he spends his own.

9. There are other approaches to paying for medical care, and we may need them all. In addition to earning income on idle cash balances, we could thus display the cost of care by moving most patients from the hospital, to the home or retirement community, and exposing the internal cost subsidies (usually transferred through indirect overhead charges). The wrong people are doing the medical commuting; shifting the center of care to the retirement community, along with doctors' offices, laboratories and parking lots, would reduce costs by reversing the commuting. Its biggest cost savings would come from disrupting the internalized accounting, getting control of malpractice awards, rationalizing wage and executive costs, and removing middle-man costs from supplies, especially drugs. But I predict these streamlining efforts will prove to be disappointing. The public is proud of its hospitals, and will defend them.

10. The best way to reduce costs is by research. Much of research is wasted money, and there are hundreds, perhaps thousands of diseases. But scientists are not fools, they concentrate on the expensive and devastating diseases. It is estimated that a majority, perhaps 80%, of medical cost is spent on four to ten diseases. I'm afraid that eradicating diseases like cancer and diabetes might lengthen longevity somewhat, while other diseases like Parkinsonism and Alzheimer's could take their place. After a while of course the disease burden will diminish, and within a century perhaps the cost effect will be to reduce health costs to the first and last years of life. In the meantime however, the cost of research, new drug development, etc, may even raise medical costs. In the meantime, the immediate effect of research on costs could be uncertain. When a tough-minded drug czar is finally appointed and faces down public clamor, we may well discover how to identify and direct the efforts of good researchers. Generally speaking, research is a young man's game; they burn out. Because they are young, they make poor administrators. Somehow, the system needs shaking up, so unproductive researchers can be identified sooner and shifted to teaching, administration, and clinical practice, without fear of stigma or shame. That's mostly identifying research failures. Identifying scientific brilliance is an entirely different thing, because brilliance is in great demand, financially and otherwise. I'm afraid the American system is expensive but effective: we throw money at a goal until it succeeds. No other nation can afford to match that. Some time within the next century, I expect we will be down to the expensive first and last years of life, plus a horrendous retirement expense. We should arrange our systems to direct unspent medical money into more comfortable retirements, without exactly knowing when the two requirements will mesh. That's why a self-adjusting overflow surplus has great advantages.

At present, the Health Savings Account is the only medical payment system which can currently adjust to this predictable change from healthcare to retirement care. HSA currently provides for money still left in the account at the time of achieving Medicare coverage, to flow into an IRA which can be spent on anything. That's something to brag about, but it could be made better. For a system hoping for millions of subscribers, it is too rigid and uniform.

11. The final point to be made concerns Subsidies. The foregoing discussion focuses on Payment Structure. Whoever considers costs must add the cross-subsidies which shift real costs from poor patients to insured ones. At first, reimbursed systems appear cheaper than straight-forward ones, simply with prices re-named reimbursements. But be sure to include subsidy cost before deciding which structure is really cheaper. If you want to subsidize this system, go right ahead.

George Ross Fisher M.D.

203 Chews Landing Rd

Haddonfield, NJ 08033

grfisheriii@gmail.com

(Cell) 215-280-6625

(Office) 856-427-6135

(Fax) 856-427-6136

Rescuing Medicare from Its Short-Term Thinking.

Ben Franklin expected a hospital to pay for itself by returning sick people to employment. That misconception runs through medical payments even today.

Instead, our good intentions have created a more expensive problem, with its solutions always just out of reach. If you live longer, you get more retirement to pay for, because society also asks for an age limit to employment. Like Franklin we might miss our target, but at least we see the goal. Right now the inevitable consequence of eliminating disease is extension of longevity. Because retirement is continuous while illness comes in episodes, the extra retirement cost (Social Security payments, if you please) might even become more costly than Medicare. Science may eventually cure enough disease to shave costs down to the first and last years of life, starting if possible with the most expensive diseases first. All fine enough, but not right now.

We must devise a better system than that, which like Health Savings Accounts, could expand from cradle to grave (and 21 years beyond death), generating a surplus by age 65, retaining unused medical surpluses for retirement, and taxable only at death. Because of compound interest, such a result is actually achievable, but requires a discouraging length of time. We can buy more time with more money, but the public must agree it is worth it.

A lifetime perspective has six new features, because we begin with a deficit and end with a surplus: 1) Passive investing of reserves as a new revenue source 2) Twenty years of post-mortem Trust Funds to pay for transition 3) Redeployment of current Medicare payments to individual Health Savings Accounts without changes to its delivery system 4) Hooking the pieces together on individual Health Savings Accounts like beads on a string, to increase compounding. 5) Funding retirement with unused augmented Medicare funds, as diseases become cured by science. 6) Reaching zero balance at age 18, by grandparents half-funding the first 18 years for each of 2.1 grandchildren out of HSA surplus. These are unfamiliar concepts, consuming the rest of this essay.

Unfortunately, even if Congress devises a system to do all this, a century is a long time to leave your money in the hands of strangers. There would be one invariable consequence. Whether money is diverted to bankers' salaries or to aircraft carriers, rulers always prefer inflation to long term taxes, and sometimes prefer "imperfect agency" to other short term solutions. Even the Roman Empire eventually succumbed to this conflict. No one oversees other peoples' money as carefully as he would spend his own, so we stand warned by Milton Friedman that your own money management is the only peaceful oversight with a chance of wide-spread success. Even that success depends on running dual systems during transition, one fading out and the other fading in. In the technical section which follows, ways are suggested to manage this dilemma, but above all it seems best to prevent false starts by planning for them. Allow duplication, the ability to make mistakes, and a certain amount of waste from repairing bad choices, as the cost of doing business. Most flaws start as proposed solutions, so it will prove best if winners and losers are widely visible.

This Lifetime Health Savings Account is not a competition of ideologies; it is a series of seemingly unrelated mid-course corrections relating to changing age environments. It leans heavily on putting idle money to work at compound interest, preferably by John Bogle's total market indexing. Even Bogle's system works best with some initial lucky timing. But after a few decades it would scarcely matter when you started, it only matters how much time you have left. Since the beneficiary is dead by the time of settlement, the ones who will really care are those who must pay off the debts. It is up to beneficiaries to fund it, and to educate their descendents to begin early. A single system for everyone will probably never prove universally sensible for hundreds of millions of people. A voluntary system with age quotas seems the most painless way to smooth out an admittedly protracted transition. This is a long term plan with short term concessions.

Non-profit systems are not very good at weeding out failures, so for-profit competition is advisable, to speed things up. But anti-trust violation is a common for-profit short-cut, so modern approaches concentrate on preserving competition, not necessarily efficiency. Always remember we probably have plenty of money, never plenty of time. Young people almost never see it that way.

No other large nation has the money or the brashness to attempt so much change all at once, so there are few foreign models. We are pioneers, and costs will be higher for it. Scientists are not fools, they concentrate research on the eight or ten fatal diseases which (they are told) cause 70% of present costs. But several hundred other diseases wait in line, undermining cost prediction for the coming century. Nevertheless, there are only three stages in life with transitions to consider: childhood, working years, and retirement. Two out of these three are dependent on the remaining one at any particular time; but everybody gets a turn. The easiest way to pay for children is for grandparents to donate at death; the best way to pay for retirement is to add compound interest to what we already have saved, and all the rest depends on working people doing more saving, or less spending than they formerly did. There are lots of gimmicks, but that's the basic plan, while we pray for scientists to eliminate the most expensive disease instead of marking time, counting the number of grains of sand on every beach.

A good plan uses demonstration projects and accepts the possibility of occasionally slowing down. Research and development can be costly at first, before costs eventually decline. We may be--or may not be-- as lucky as we were with heart attacks, in which the commonest cause of death was greatly diminished by a daily aspirin tablet. Or we may struggle on as we did with pernicious anemia and diabetes. Both diseases are treated with injections discovered almost a century ago. But pernicious anemia is treated at trivial cost while diabetes struggles as the most expensive chronic disease we have, prolonging life but not extinguishing cost. Only Americans would plunge ahead anyway, while a President would be foolish to try to change deep cultural attitudes too rapidly. We are warned not to see ourselves as exceptional, but we do see ourselves as exceptional, no matter what the facts.

The facts are the Medicare age group has most of the costs, younger people generate most of the savings. Third rail or not, the problem is to manage a gigantic funds transfer between generations, while avoiding imperfect agents who divert money to their own purposes. In some ways it is more a financial problem than a medical one. We watch private insurance pay its executives multimillion dollar salaries, and we watch our government divert medical money for battleships and babysitting. It is time to stop watching, and try modified individual ownership, putting our idle money back to work. Saving our own money for our own retirement if given a choice, instead of forcibly moving money among demographic groups of strangers. Choices should be voluntary and for-profit, so people will actually notice which approach works best, and then switch to it when convinced. This being political, some people will put their thumbs on the scale. But this being America, the public will not be fooled for long.

So this summarizes the idea. What follows is a general outline of vital technical details for pulling it off.

Abe Rosenthal Letting Go

Other Voices: Rethink Lifetime Health Finance

(Revised)

Medical finance is an inter-generational funds transfer. Sickness costs migrate later, workers age 18-64, get less sick. Retirement seemingly replaces sickness, but -- so far -- merely displaces it later, without added revenue. One eighth of lifetime medical cost now transfers between generations by payroll taxes, another quarter must be borrowed. Nine million disabled-under-65 are paid revenue originally intended for the elderly. The rest is roughly balanced, or was before the Affordable Care Act raised alarm about government's indifference.

Since 1965, Medicare collects 2.9% payroll deductions, immediately spent for their parents as "pay-as you-go ", gathering no income. Lifelong debt concentrates into Medicare debt, as healthcare migrates toward the elderly. Politicians, terrified to touch "the third rail" of Medicare, respond at the wrong end of life. Thirty years are added to longevity, while healthcare debt evolves into retirement costs. And then, the money runs out. Statistics are rough, but retirement deficits equal Medicare's laundered debts getting worse as healthcare improves. Talk about conflicted incentives.

A solution: view one eighth of revenue as accumulated over 42 years, whereas a quarter of costs could be more than recovered by compounding the same idle money over 104 years. Try it free on the Internet. This achievable result comes from: 1) extending age limits of Health Savings accounts down to birth and up to a trust Fund's perpetuity, defined in common law as a lifetime plus 21 years, while using an unfunded HSA to unify unspent compounded income for his own retirement, not for demographic groups of strangers. 2) Investing the payroll tax at no less than total market index funds, assuming a 3-7% lifetime return. 3) applying grandpa's surplus $4000 to grandchild's underfunded $4000 shortfall. (Please read that twice).

The compounding period is extended upward by post-mortem Trust Funds escrowed for Medicare related costs only, extinguished when transition debt ends. It is extended downward 21 years by grandparents transferring approximately $4000 to one grandchild or equivalent, as HSA to HSA. Trust funds finance the transition deficits. This has the advantage of terminating Health Savings Accounts around age 18, when medical costs are lowest. Add the additional possibility of transferring the mother's obstetrical costs to the child, thus reducing premium costs for the 18-45 year age group as well. Much of this magic lies in the superiority of compounded rates over inflation rates. Long-term solvency appears likely, and borrowing is ended.

George Ross Fisher MD
3 Haddon Avenue South
Haddonfield, NJ, 08033

Cell 215-280-6625
office 856-427-6135
Email: grfisheriii@gmail.com

Michael Dell, the Millionaire Teen-ager.

The Franklin Institute gives out an annual award for business innovations, and a few years ago it was given to Michael Dell. The banquet is very splendid and well-attended by people willing to pay high prices. So, it happened that the founder of Dell Computers was wandering around the dinner table where I was seated. Being a gregarious sort of guy, he introduced himself and told his story.

As he relates it, his mother gave him a new IBM portable computer for his 19th birthday. So, he took it upstairs to his bedroom along with a screwdriver, and took it all apart.

What he discovered annoyed his mother, but intrigued the birthday guests. Every single part of the computer was composed of articles obtained from other manufacturers. So he got in touch with these parts makers, and asked for their prices. His discovery was that he could assemble a duplicate computer for half the price his mother had paid. One thing led to another, and he was soon producing Dell computers for much less than IBM was selling them. Naturally, there is a market for such a product, particularly if they were sold without middle-men, mail-order. And in the course of a short time, he became a billionaire, IBM got out of the business, and it was all his. As is so common with stories like this, he eventually went bust, and was soon engaged in new adventures. But he took his screwdriver to other tables, and we never did hear about those later exploits.

The Lawsuit That Ate Philadelphia

Hastings Griffin ("Haste") died last week in his nineties. The Orpheus Club put on a concert at his memorial service, and probably the Squash world put on something, because he was the reigning world champion for his age group. And his wife was there in all her glory, having married and outlived three men, all of whom were roommates at Princeton; among women, that's a champion on a different level. I knew Haste as a fellow member of the Shakspere Society, where his booming voice was an arresting feature, particularly when you knew his motorcycle was parked outside, ready for the 30-mile trip home at night to his home near Valley Forge. But I knew him to be most famous as the lawyer who was on the losing side of a lawsuit which cost Philadelphia the whole computer industry.

As a matter of fact, I am very friendly with Ben Heintzen, the lawyer on the winning side of the same case. So, over a period of years I was able to piece together the main facts of the case, checking remarks from one side against the recollections of the other. First of all, the computer as we know it was assembled by Mauchly and Eckert, on the faculty of the University of Pennsylvania. Eckert had patented it, but the University had a rule that patents of the faculty belonged to the university. Unfortunately for that position, all of the money was government money. Right there, you have the makings of a big lawsuit, but there was much more. Ben Heitzen had discovered a paper by a midwestern professor, Iowa I believe, who seems to have put the patent in the public domain by publishing the main substance of it, or what lawyers contended was the essence of the case. Furthermore, the case had many plaintiffs and defendants, working more or less together, but under the team leadership of Sperry Rand for the defendants, and Honeywell for the plaintiffs. The case dragged on for more than eight years, to the delight of the law firms and dismay of the Judge, who had been heard to growl that he didn,t want to spend the rest of his life listening to this same case. All a losing lawyer had to do was wait for the verdict to tell you who won, and then file an appeal that the Judge had acted in prejudice. Furthermore, the Judge expressed the opinion that IBM wanted to mass produce computers, whereas Sperry was really only in the "patent infringement business." Somebody said that, perhaps it was the Judge. Well, there's more.

It happens that Sperry Rand had round holes in their punch-cards, and IBM had square holes. The hanging chad issue became famous in the Gore-Bush presidential election, and you would suppose square holes would have more of a tendency to hang their chads than round ones, but it was actually the other way around. It seemed so to Sperry Rand, too, so they finally hired IBM engineers to tell them what the matter was, and those IBM engineers were hanging around while the trial was going on. They must have picked up the gossip in the lunch room, and reported back to Tom Watson at IBM something like, "Do you know what these people are doing with computers?" So they were given orders to stretch out the hanging chad matter and see what else they could learn. When Watson heard more, he told his lawyers to ask what Sperry wanted in return for letting IBM out of the lawsuit, and the answer came back,"Ten million dollars". To which Watson replied, "Pay them immediately, because we are going to mass-produce those things." At that time, there were only a handful of computers, all doing such things as calculating field artillery aiming instructions. So Watson was essentially betting his whole company on success.At that time, General Electric, RCA, Sperry, Burroughs, Honeywell and others were in Philadelphia, trying to imitate what they had heard the machines were capable of, so it was not a sure-fire gamble at all, but it was certainly successful in moving computers to upstate New York, and eventually to Silicon Valley.

Since half of this story comes from Griffin, let me reconcile a point that came up at his funeral. One of his partners heard him boast he had never lost a case, and when challenged on it, replied that it didn't matter what the jury decided, it was the judge who must approve the size of the settlement. His claim was based on getting settlements down to much less than the client was afraid it might be, and was therefore persuaded he had been lucky. Well, in this case it was a little different. The chief lawyer of the firm took the case away from Griffin and carried it himself. Shortly later, Griffin was heard to shout at the boss, "You are going to lose this case!". The next morning he was standing at the airport, next to the President of Sperry Rand. The President came close and asked him, "How do you think this case is going?"

To which Haste replied, "Well, sir, you'll have to ask my boss."

Broad Brush

Other Voices: Rethink Lifetime Health Finance

Barron's recently invited 1000-word summaries of radical change proposals. tg.donlan@barrons.com

(Revised 2x)

Health insurance financing is a gigantic wealth transfer system. Politically, it is described as a transfer from rich to poor. But it really is a transfer from one age bracket (working people) to two non-working ones, children and retirees. Add thirty years of longevity by curing the diseases of one age group faster than another, and the balance between age and wealth distributions gets bent out of shape. Socially, it's dangerous. It gets even worse to base one-year casualty insurance on employment, tempting employers to dump a system which ends when employment does, patched together by tax incentives. Average employment duration is around three years, so almost every condition soon becomes a pre-existing one, whenever employees lose their insurance. Insurance companies see what's coming, and cannot be blamed for getting out before it collapses.

More revenue would help, but existing sources are almost exhausted at 18% of GDP, while rapid change in health delivery would flirt with disaster. But one thing remains: using the idle money in pay/as/you/go to fund a transition matching a change in spending incentives, or even scientific research eventually eliminating disease. It would work with income returns of between 3-7%. Compound interest on money already collected would pay the deficit. Extension of the age limits on Health Savings Accounts would stop the borrowing, and trust funds would extend the compounding for 21 years past the average age of death upward, to the point it would far exceed the need for retirement funding through taxation or borrowing. Transfer of $4000 of each grandparent's HSA surplus (at death plus 21) to the HSA of one grandchild would add another 21 years to compounding downward, leaving several millions of dollars per person for retirement, curing a number of social turmoils in the process. That probably wouldn't happen completely, but a Medicare surplus rather than a deficit would allow any transition to be much speedier. The present 2.9% employment tax presently collected from working people would equal or exceed what is needed if compounded. Since the new fiscal limits would be enforced by the laws of mathematics, there would be far less temptation to spend it on battleships. Further extensions of longevity would increase revenue faster than inflation could undermine it. Essentially, it would be asked to match 104 years of compounding--with what took 42 years to accumulate. There's plenty of slack if you try those simple numbers on a free compound interest calculator, found on everybody's Internet. A second chance to do what we should have done in the first place.

True, the necessary change in incentives would come from unifying three systems into one lifetime one, incentivized by noticing the remarkable savings already created by millions of Mid-Western subscribers to HSA. A few sentences of amendments to existing law should be all that Congress needs to struggle with, since these are existing programs. Whereas the R's need to see a single-payer system has become a single-saver system, the D's can save face by asserting they are the same thing.

George Ross Fisher MD 3 Haddon Avenue South Haddonfield, NJ, 08033 Cell 215-280-6625 office 856-427-6135 Email: grfisheriii@gmail.com

Fraud and Abuse in Medicare and Other Government Programs

Fraud and Abuse is a common debater's ploy to avoid serious reform in government programs. Just eliminate that cost which everyone would deplore, and some pesky reform proposal won't be necessary, is the implication. Usually everyone acknowledges this unanswerable way of playing on anti-government voter sentiment, because taxes are just the cost of self-government. Other governments may be crooked, but Americans can be trusted, and so forth. So it becomes useful to have some reasonably accurate estimate of just how serious this issue really is. To make short work of it, this is really a serious issue.

The U.S. Government Accountability Office (GAO) had been keeping data on itself for some time, and now reduces it to a simple graph. Fraud is twice as bad as it was eight years ago, and that figure was twice as bad as thirteen years ago. We seem to be talking about 100 billion dollars a year, hardly small change or a thing of the past. Medicare paid out about 600 billion dollars in 2016, and Medicaid another 360 billion; the fiscal 2017 amount will surely total over $1 trillion. Using GAO figures, 100 billion dollars were spent on government health claims "that were not delivered, were unnecessary or were otherwise erroneous". Since Medicare is only half of total medical care billed by essentially the same approach, why would anyone assume a single payer system would save money? Remember, none of these estimates includes anything at all to run the program itself, so it is entirely reasonable to suppose a single-payer system could cost 15% of $2 trillion, or $300 billion dollars per year just to transfer the money. Expenses of that sort approach $1000 per year for every man, woman and child, whether he gets sick or not, in order to shift $9000, mostly to other people. Such drastic proposals justify examination of wholly different approaches.

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Azaleas and Rhodedendrons at Tyler Arboretum

Philadelphia has more arboretums than anywhere else, probably dating from the days when Quakers frowned on aesthetic entertainments, but held lots and lots of land. Curiously, azaleas are a Quaker thing (remember Swarthmore College and Friends Hospital), while anti-azalea feelings are growing among non-Quakers. It all has to do with bugs.

Azaleas flourish in Korea, where the hills are covered with pink bushes in the spring, and Quaker merchant ships brought them home to sell as curiosities. Both Korea and Philadelphia are on the 40th parallel, so azaleas flourish in both places. But Japan and Korea escaped the glaciers, so their plant life was sort of isolated and unique until inter- continental merchants came along. The rest of the world therefore contained few natural predators, and they grew unhindered, here. Generally speaking, azaleas are an East Coast phenomenon; it is not uncommon for midwestern visitors to exclaim they never saw them before, although it is true rhodedendrons love acid soil, and rather suffer from the alkaline midwestern soil left over from the seashells of the ancient central sea bottom.

On the other hand, there is a growing anti-azalea craze among avid gardeners, taking the form of pro-nativist feelings much like R vs. D. The recent hatred of imported flowers reflect a reaction to "invasive" weeds brought here by importing other globalized products and dumping them along the banks and shorelines. The common denominator is lack of native weed enemies to both the globalized weeds, and azaleas, which caused a withering of the bugs which eat the plants, and in turn are eaten by birds. So this discovery by the University of Delaware took root in Mount Cuba, the duPont estate which is exclusively and consciously planted with nativist plants, and promoted by socially prominent families who like birds more than show-gardens -- and enjoy tax benefits from botany favored land preservation.

This results in an alarming pressure to encourage Philadelphia's many arboreta to play down the showy azaleas they formerly favored, making enemies out of friends. It seemingly pits those who love birds against those barbarians who love gardens. It seems unnecessary for the bird lovers to attack the innocent gardeners, when the focus might be turned against the bugs, where many fewer would take offense. Just think of the possibilities of Girl Scouts taking up the cause of bug hybridization, running around the countryside with glass jars to capture likely natural predators to the bugs which plant- predators favor to promote the right kind of birds. That way, we might have our birds -- and preserve our azaleas too. Meanwhile breeding the right sort of bug no one would notice, or inhibiting the wrong sort of bug if that proves the easier path to follow. Maybe Dow Chemicals could make a fortune with a selective bug-killer spray, and keep the former duPont company from entering this dispute between seemingly natural friends.

 

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