The musings of a physician who served the community for over six decades
367 Topics
Downtown A discussion about downtown area in Philadelphia and connections from today with its historical past.
West of Broad A collection of articles about the area west of Broad Street, Philadelphia, Pennsylvania.
Delaware (State of) Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Religious Philadelphia William Penn wanted a colony with religious freedom. A considerable number, if not the majority, of American religious denominations were founded in this city. The main misconception about religious Philadelphia is that it is Quaker-dominated. But the broader misconception is that it is not Quaker-dominated.
Particular Sights to See:Center City Taxi drivers tell tourists that Center City is a "shining city on a hill". During the Industrial Era, the city almost urbanized out to the county line, and then retreated. Right now, the urban center is surrounded by a semi-deserted ring of former factories.
Philadelphia's Middle Urban Ring Philadelphia grew rapidly for seventy years after the Civil War, then gradually lost population. Skyscrapers drain population upwards, suburbs beckon outwards. The result: a ring around center city, mixed prosperous and dilapidated. Future in doubt.
Historical Motor Excursion North of Philadelphia The narrow waist of New Jersey was the upper border of William Penn's vast land holdings, and the outer edge of Quaker influence. In 1776-77, Lord Howe made this strip the main highway of his attempt to subjugate the Colonies.
Land Tour Around Delaware Bay Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Tourist Trips Around Philadelphia and the Quaker Colonies The states of Pennsylvania, Delaware, and southern New Jersey all belonged to William Penn the Quaker. He was the largest private landholder in American history. Using explicit directions, comprehensive touring of the Quaker Colonies takes seven full days. Local residents would need a couple dozen one-day trips to get up to speed.
Touring Philadelphia's Western Regions Philadelpia County had two hundred farms in 1950, but is now thickly settled in all directions. Western regions along the Schuylkill are still spread out somewhat; with many historic estates.
Up the King's High Way New Jersey has a narrow waistline, with New York harbor at one end, and Delaware Bay on the other. Traffic and history travelled the Kings Highway along this path between New York and Philadelphia.
Arch Street: from Sixth to Second When the large meeting house at Fourth and Arch was built, many Quakers moved their houses to the area. At that time, "North of Market" implied the Quaker region of town.
Up Market Street to Sixth and Walnut Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
Sixth and Walnut over to Broad and Sansom In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Montgomery and Bucks Counties The Philadelphia metropolitan region has five Pennsylvania counties, four New Jersey counties, one northern county in the state of Delaware. Here are the four Pennsylvania suburban ones.
Northern Overland Escape Path of the Philadelphia Tories 1 of 1 (16) Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
City Hall to Chestnut Hill There are lots of ways to go from City Hall to Chestnut Hill, including the train from Suburban Station, or from 11th and Market. This tour imagines your driving your car out the Ben Franklin Parkway to Kelly Drive, and then up the Wissahickon.
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Philadelphia Revelations
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George R. Fisher, III, M.D.
Obituary
George R. Fisher, III, M.D.
Age: 97 of Philadelphia, formerly of Haddonfield
Dr. George Ross Fisher of Philadelphia died on March 9, 2023, surrounded by his loving family.
Born in 1925 in Erie, Pennsylvania, to two teachers, George and Margaret Fisher, he grew up in Pittsburgh, later attending The Lawrenceville School and Yale University (graduating early because of the war). He was very proud of the fact that he was the only person who ever graduated from Yale with a Bachelor of Science in English Literature. He attended Columbia University’s College of Physicians and Surgeons where he met the love of his life, fellow medical student, and future renowned Philadelphia radiologist Mary Stuart Blakely. While dating, they entertained themselves by dressing up in evening attire and crashing fancy Manhattan weddings. They married in 1950 and were each other’s true loves, mutual admirers, and life partners until Mary Stuart passed away in 2006. A Columbia faculty member wrote of him, “This young man’s personality is way off the beaten track, and cannot be evaluated by the customary methods.”
After training at the Pennsylvania Hospital in Philadelphia where he was Chief Resident in Medicine, and spending a year at the NIH, he opened a practice in Endocrinology on Spruce Street where he practiced for sixty years. He also consulted regularly for the employees of Strawbridge and Clothier as well as the Hospital for the Mentally Retarded at Stockley, Delaware. He was beloved by his patients, his guiding philosophy being the adage, “Listen to your patient – he’s telling you his diagnosis.” His patients also told him their stories which gave him an education in all things Philadelphia, the city he passionately loved and which he went on to chronicle in this online blog. Many of these blogs were adapted into a history-oriented tour book, Philadelphia Revelations: Twenty Tours of the Delaware Valley.
He was a true Renaissance Man, interested in everything and everyone, remembering everything he read or heard in complete detail, and endowed with a penetrating intellect which cut to the heart of whatever was being discussed, whether it be medicine, history, literature, economics, investments, politics, science or even lawn care for his home in Haddonfield, NJ where he and his wife raised their four children. He was an “early adopter.” Memories of his children from the 1960s include being taken to visit his colleagues working on the UNIVAC computer at Penn; the air-mail version of the London Economist on the dining room table; and his work on developing a proprietary medical office software using Fortran. His dedication to patients and to his profession extended to his many years representing Pennsylvania to the American Medical Association.
After retiring from his practice in 2003, he started his pioneering “just-in-time” Ross & Perry publishing company, which printed more than 300 new and reprint titles, ranging from Flight Manual for the SR-71 Blackbird Spy Plane (his best seller!) to Terse Verse, a collection of a hundred mostly humorous haikus. He authored four books. In 2013 at age 88, he ran as a Republican for New Jersey Assemblyman for the 6th district (he lost).
A gregarious extrovert, he loved meeting his fellow Philadelphians well into his nineties at the Shakespeare Society, the Global Interdependence Center, the College of Physicians, the Right Angle Club, the Union League, the Haddonfield 65 Club, and the Franklin Inn. He faithfully attended Quaker Meeting in Haddonfield NJ for over 60 years. Later in life he was fortunate to be joined in his life, travels, and adventures by his dear friend Dr. Janice Gordon.
He passed away peacefully, held in the Light and surrounded by his family as they sang to him and read aloud the love letters that he and his wife penned throughout their courtship. In addition to his children – George, Miriam, Margaret, and Stuart – he leaves his three children-in-law, eight grandchildren, three great-grandchildren, and his younger brother, John.
A memorial service, followed by a reception, will be held at the Friends Meeting in Haddonfield New Jersey on April 1 at one in the afternoon. Memorial contributions may be sent to Haddonfield Friends Meeting, 47 Friends Avenue, Haddonfield, NJ 08033.
At first glance, the Articles of the Constitution today seem entirely descriptive, but they originally identified power and, only after protracted debate, the decision where it should best be assigned. The Constitution primarily speaks of separation of powers, not so much balance of powers, as in 19th century British foreign relations. Separating powers weakens them; balancing weakens them further. Sometimes, the original intent was flexibility. The notion of separating Kings from Parliaments, and both of them from the Courts, dates back at least to the Magna Carta. To Americans, a preference for bicameral Legislative branches is most plausibly traceable to the Pennsylvania Legislature in 1787, with Robert Morris doing battle against a headstrong unicameral body. The vertical division of power among federal, state and local lines occasionally provoked difficulties, but mainly eases confusion. Even when separation fails to quiet matters, clearer lines of separation usually prove to be required, not clever methods of balancing. Separating rather than balancing powers has been our preferred system, and for us, it often proves sufficient.
However, short little James Madison had also cast about for resources to bestow on weak states and weak government departments as protection against bullying by big ones. His life displayed an instinctive avoidance of systems requiring the weak to appeal to the strong for protection, only to find they had acquired a new master. He reasoned that state governments are able to modify state laws to the disadvantage of neighbors, and should retain that ability. He employed the concept that sovereignty began with the states and should remain there. Resulting interface friction is now seen in sales taxes at border crossings, or varying income and estate taxes. But all fifty states are restrained from laying unreasonable burdens on their own citizens by the threat those citizens might then move to another state. Although it is counter-intuitive, abusive tax systems collect less tax revenue by raising rates than by leaving them alone. In extreme cases, whole industries shift location. The outcome is that state governments have less scope for legislation that if they had no peers able to retaliate. James Madison has every right to be pleased with state legislatures slowly responding to the reality he created. Not merely that states must match taxes with neighbor states, but that fairness is the best policy.
To return briefly to comparison with the present debates of the European Union, speculate what advantage might be found in taking Madison literally on treating states as sovereign nations. Europe in 2012 struggles with the same problem America faced in 1787, made more difficult by diversity of languages and folklore of national sovereignty, made urgent by the failure of alternatives. The European leaders reasoned it was easier to unify nations piecemeal; start with monetary policy and work out more difficult problems later. That may seem to point to the same final result, but it does not teach the same lesson. Behind this dubious assessment of relative difficulty was the clear determination in Brussels to use a heavy hand with nationalists; pay no attention to referenda, avoid them if possible. A seeming advantage of first unifying monetary policy is that no one seems to understand it, thus transferring power to those who gruffly pretend they do. Unfortunately for this approach, it is the citizens' nation to do with as they please; they will eventually remind you of it. There is consequently little choice but to educate them to the advantages of Madison's self-disciplining systems. Essentially, keep it simple and don't hide the problems. Half the world probably does not believe honesty is the best policy, maybe even half of Europe. But we adhere to it, not because of Washington's Farewell Address, but because it seems to work.
A practical example of cross-border discipline concerns monetary policy itself, in 1913 when the American Federal Reserve system was created. The Governor of the Texas Fed soon decided to lower local interest rates to the advantage of Texas, just as he had always done. Within days, interstate bank deposits and loan originations switched direction, with everyone looking for Texas loans and no one willing to keep deposits in Texas banks; the independence of Texas banking simply vanished. What emerges is a general principle: there exists hidden pressure for inter-state prices to be uniform, despite constant overt pressure to respond to local conditions. Freed of state regulation, trade moves in the international direction. If both forces happen to pull in the same direction all will be well, but if they go in opposite directions the whole state or nation will be made to suffer for it, usually by blocking other features of bilateral trade.
At the moment, corporation taxes provide the sharpest focus for the power of uniform sovereignty. The nation to get the attention of the world was not 1787 America, but 2001 Ireland, historically a bit leftish. The Irish abruptly lowered their corporate taxes to 12.5%, attracting a sudden massive migration of Swedish, German and English corporations to headquarter in Ireland. Since Ireland is primarily agricultural, the new corporations prompted a sudden migration from the countryside to Dublin, thus generating an urban housing boom. When the boom collapsed there was alarmed commentary, but the observers who really noticed were the world's other finance ministers. Although the boom did get out of hand, the finance ministers mostly noticed that lower corporate taxes attracted business to Ireland. In spite of massive national deficits, England has since lowered corporate tax rates from 28% to 26% and proposes to lower them to 24% in 2012. (Including state taxes, the USA imposes a 40% rate). A century of theorizing that corporations are unfairly doubly-taxed had not provoked any comparable gold rush to match the Irish experience. Other nations will soon follow, and ultimately corporate taxes may go to 0%. But finance ministers are mindful of the ensuing Irish housing crash from going too fast, and therefore may take a decade to get to the end of cutting. They will surely cut until corporate taxes are uniform among major trading nations, as they probably should have been for a century. Those who are slow will now be punished for it by the markets. James Madison the main visionary of this theory, deserves a statue in the main square of Europe, right away.
Make-shift proposals to address international monetary crises after 2007, particularly confiscation of bank deposits suggested briefly in 2013 for the Mediterranean island of Cyprus, stimulated a search for a better monetary system. A gold standard sufficed for thousands of years, but the Industrial Revolution increased world economies faster than gold metal was discovered, constantly driving prices downward. It became increasingly difficult to manage the rapid growth of debt, as happens in wartime. The crisis which led to the 1944 Bretton Woods Conference was the inability to accommodate the massive national debt rearrangements of the Second World War. With the United States owning two-thirds of the world gold supply, international trade was seriously impaired.
Bretton Woods created the International Monetary Fund and the World Bank, which can be ignored for present purposes. It established the United States dollar as a "reserve currency", alone able to be exchanged for gold. Other nations were allowed to exchange their money for United States dollars. Supplemented at the Bretton Woods conference in 1944 by this gold-standard-once-removed (the U.S. dollar as a "reserve currency"), this expedient only prospered as long as the United States could maintain a positive trade balance. After 1960, the outflow of gold from Fort Knox was relentless, and in 1971 the United States was forced to abandon its buffering between gold and the world's banking systems. After 1971 the world's currencies would supposedly trust their central banks to be "lenders of last resort", but in the financial crises after 2007 many could not sustain that obligation. What they could do was devalue their currency, and even that expedient was blocked by the rules of the eurozone. Put to the test, the European Central Bank became uncertain it wanted the role of lender of last resort. At one time, the gold standard had provided the one backing for a currency which was independent of all governments' temptation to inflate away their debts. The U.S. reserve-currency buffer extended the system for several more decades, but after President Nixon cut the link to gold, the post-1971 system only provided a promise of a government rescue, without the universal ability of governments to live up to the promise. In a sense, governments backed their currency with a mortgage on the nation, and many mortgages were already overextended. For those nations, variants of the gold standard had been replaced by no standard at all. Since governments which had historically been the cause of inflation were now expected to be the source of its restraint, the private sector urgently needed to devise a new system to force the public sector to accept a new and unwelcome role.
Money on a gold standard was formerly both a storehouse of value and a means of exchange. The world supply of gold was unable to keep pace with the world's increasing wealth for more than a century, so prices were driven down, disrupting long term debts. Rising prices were just as bad; what commerce needed was price stability. What was devised for the 1971 disruption was inflation targeting. The Federal Reserve and to some extent the other major central banks, issued or withdrew currency to achieve a 2% inflation rate, thus hoping to maintain stable prices with a 2% growth rate. Skipping over the details of central banking, the Federal Reserve could safely count on the government to promote inflation at almost all times; the need was to restrain it to 2%. Unfortunately, contraction at 2% takes about as long as expansion at 2%, frustrating the hope of the public to have booms last as long as possible and depressions to be over as soon as possible. Periodic episodes of deflation are a problem. From time to time the economy expands its production capacity faster than consumption can grow, and the inevitable resulting panic not only impairs the ability of banks to lend but frightens the public away from borrowing. Without a gold standard, prices then fall even farther and faster than with gold support because money no longer has any intrinsic value. Our problem thus reduces itself to two requirements.
Without a gold or other monetary standard, and seeking to preserve the inflation-targeting system, how can we induce prices not to fall in a depression? And, how can we induce a booming economy not to increase its production capacity beyond what it can consume or sell, so that every boom period stops being followed by an uncontrollable crash? That is, much of the problem of keeping production from falling, is to prevent it from going so high it has to fall. That's not so easy in a democracy; if you stand in the way of making money when making money is easy, you will very likely be voted out of office. Price controls, by the way, have been tried many times; they always fail. The practical problem is thus pressed into the mode of forcing savings into some sort of escrow fund, during boom times. Meanwhile, the practical politician must persuade a suffering public that, once you overbuild capacity, it will probably only wear out at the same 2% rate that it took to grow so big. These are not new sentiments; the public must learn self-restraint during booms, something it has repeatedly resisted.
Fort Knox, KY
Features particularly irritating to the private sector about the Cyprus proposal had several sources, all of them heightened by annoyance that the bureaucracy would immediately try to force the private sector to pay for administrative design blunders. A gold standard permits international trade in defiance of government wishes; a currency without a physical store of value cannot exist without workable rules for international trade. If satisfactory rules cannot be made, voices will demand a return to the gold standard. No one said the Greeks and the Turks should love each other; no one said the Russians must respect private property. What is stated is if workable rules are not forthcoming, private alternatives will arise.
Ben Bernanke is not only the chairman of the U.S. Federal Reserve, but he is also one of the recognized academic experts on managing depression. He has spent his life studying this particular problem and occupies the most powerful position among the group charged with doing something about it. His innovation in the management of a financial crash is QE, quantitative easing. Essentially, this amounts to the creation of a fund managed by the Federal Reserve, generated by purchasing bonds with money created by the Fed. The content, size, and purpose of the fund have varied in the past few years, to the point where it amounts to a gigantic fund at his disposal, as needed, Initially, it injected funds into markets frozen with fear, and successfully unfroze them, making a profit for the Treasury along the way. He next used the fund to manage a gigantic Keynesian effort to stimulate the private economy with a federal fund. While it is possible this stimulus averted some worse disasters, the net effect was not outstanding and is generally regarded as a failure. His current effort, titled QE3, amounts to an enormous effort at what is termed "good bank, bad bank" in financial jargon. Because so many good bonds are undervalued in a recession, it is believed they will return to true market value if the truly bad bonds are removed from the market place. In Victorian days, this was accomplished by bankruptcy, but it is thought to be more humane to buy up and remove them temporarily from the marketplace. The humane approach, of course, has the disadvantage that the bad bonds may reappear later, and some critics say it is only a variant of "kicking the can down the road." It seems to have worked well for the Scandinavians however, and the final verdict cannot yet be issued. For the purposes of the present discussion, the essential point is that a three-trillion dollar discretionary fund has been put in the hands of the most powerful and most knowledgable person involved in international finance. At the moment, the fund contains most of the dubious bonds in circulation, but there are signs that Bernanke plans to replace them with U.S. Treasury bonds, thought to be the safest investment available. He can essentially do anything he pleases with this fund, subject only to the approval of the rest of the Board.
It must have occurred to Bernanke, that this multi-trillion dollar fund of the safest investments on earth would make a highly suitable substitute for gold, if it ever becomes clear that the world needs to return to some tangible commodity to back its currency, or become the new lender of last resort, if we choose to put it that way. Mr. Bernanke essentially needs no one's permission to create this fund, but to use it in some novel way would require the permission of politicians, acting in some way identifiable as the will of the American public. If it should come to that, a few suggested limitations immediately come to mind.
In the first place, one of the main purposes of imposing a gold standard on spendthrift Kings was to keep the King from spending it and substituting his own worthless paper money. Three variants of this threat, inflation, devaluation and confiscation, all amount to the same thing, which would get us back to our present predicament quite quickly, indeed. Mr. Bernanke must realize that our Constitution was written by Founding Fathers who were intensely fearful of entrusting as much power to one person as Mr. Bernanke would likely possess if this idea moved to implementation. To put it bluntly, the first action after it is done should be to surrender the ability to do it. To take another lesson from Constitutional history, it might be remembered that the functions of the Legislative Branch were established in six months, those of the Presidency evolved in the first five years of George Washington's office, and those of the Supreme Court required forty years to evolve. During all of that time, the ability to destroy the Constitution's main purposes had to be shielded from unbelievers, and an apparently unnecessary Bill of Rights had to be appended to reassure the remaining doubters. The main risk to this technical monetary reconfiguration is not monetary, but political.
Financial Crisis
But there are technical issues, as well. Because they are technical, it is more difficult to depend on wise public opinion, and thus it enhances feasibility when technical issues can be translated into political speech. Because events have demonstrated it is much more difficult to reverse a depression than a bubble, thought should be given to devising ways to use this new vehicle to reverse depression. Obviously, it should be used to unfreeze a frozen market; that's an important lesson from the success of 2009. Furthermore, the revenue from three trillion dollars of bonds is appreciable and should be used to finance tax reductions in a recession. More importantly, it should be withheld from government treasuries to restrain a developing bubble, more or less forcing governments to raise taxes during a bubble. Perhaps standards are necessary for expansion and contraction of the fund itself to supplement the use of the fund's income in those extreme situations. Indeed, to forbid the use of principal for those end-purposes might leverage the effectiveness of changing the fund balance, because it would force larger swings of principal to be adjusted. Most of these considerations come into play when a bubble is being restrained because it is easier to restrain a growing bubble than to repair the damage once it bursts. Restraining a growing bubble is not easy, and picking the right time is still less easy. Better to make most of it automatic, and related to defined market benchmarks. Benchmarks may be inaccurately chosen, but at least something is learned for the next time.
Mr. Bernanke's QE fund is not the only one which could take the place of gold in a new monetary standard. Commodities of various sorts would not be much different from gold and might soften the volatility of the mining supply. Land could be used, or fresh water, or petroleum; perhaps we could divide up the ocean in some way. Among the more attractive candidates would be world index funds of stocks or bonds; bonds seem perhaps more suitable, perhaps not. But at the moment, no one seems to be exploring any substitute monetary standard other than gold or the QE fund. Perhaps the disadvantages of each would cancel out in a basket of all the suggested standards. Perhaps inflation targeting can be improved, and no other benchmark is needed; perhaps international branch banking could cover the requirements. And perhaps it is all an academic exercise, but it would still seem helpful if academia would explore a little further, just in case we need them.
Health Savings Accounts. Medical Savings Accounts must be distinguished from Medical Spending Accounts, which unfortunately include an annual "use it or lose it" feature. These spending accounts recently styled themselves Flexible Spending Accounts, while Medical Savings Accounts became Health Savings Accounts. In time the confusion may subside, but the distinction remains important. There has recently been an employer initiative to make the payments of Spending Accounts tax-exempt, apparently intending to equalize them with Savings Accounts, but tip-toeing around the larger issue of failing to include individually purchased health insurance in the tax exemption.That would be an unfortunate splitting of political forces.
Health Saving Accounts (HSA), or Medical Savings Accounts (same thing) supplement other IRA (Individual Retirement Accounts) or 401 (k), but address medical expenses .
Tax-deductible, Health Savings Accounts do indeed accumulate unspent balances from year to year, gathering income for a future rainy day as they go, while allowing funds to be spent immediately if the rainy day comes early. If wisely invested and left untouched, they can accumulate a surprisingly large amount of money over a lifetime. They don't quite make everybody a millionaire but that isn't completely impossible if you don't get seriously sick, and pay small routine medical expenses in cash. Just why employer groups have failed to seek ways to convert their use-it-or-lose-it plans into Health Savings Accounts -- which wouldn't lose it -- is not entirely clear. But it is highly recommended that this be explored, if for no better reason than to put a stop to wasteful spending at the end of the year, just to use the money up. This book proposes to put that money to work pre-paying medical expenses in the far future with the investment income, which is a goal you would suppose is in the employer's interest. Almost enough has already been said here about this idea, so some attention needs to be devoted to those people who have HSA plans and do get sick, and can't afford their medical costs without invading the fund. If such a person does get sick, the money to pay for it is available. This feature responds to the fact that some people have major illness early in life, while some other people stay well for decades before they have a serious illness; for most people, it is a toss-up which it will be. It isn't very common for someone to be very sick for six decades, by the way, but stop-loss insurance would even cover this contingency, and it isn't very expensive because that sort of casualty is uncommon.
Because we all get tangled in this sickness lottery, the Health Savings Account is intended to be linked to a high-deductible health insurance policy. The higher the deductible, the cheaper the insurance premium will be, so progressively more money is left over to add to the Health Savings Account, compared with buying ordinary health insurance. At the moment, the best level of deductible is at least $5000, varying with inflation. The person who buys this package is on the hook for $5000 until the Health Savings Account builds up to $5000, which usually takes about three years. Those who don't already have that much savings or reserves are taking a chance for three years. That's one of several reasons why this package is most appropriate for young, healthy people.
These two linked promises are meant to discourage unwise spending, even for health, but it's your choice. What induces you to contribute annually, and discourages early withdrawal, is the income tax deduction. That's all there is to it, and it's already quite legal. From its very beginning, an HSA was intended to be linked to a high-deductible health insurance policy bought independently. The pre-funded last year of life was an afterthought for what you would do with the money if you enjoyed good health, and the accordion is provided just in case we get a cure for cancer, or some other wonderful development.
There are problems to be tinkered with. Nowadays, it usually goes the other way; the Health Savings Account is suggested and explained to customers by salesmen for high-deductible ("Catastrophic") health insurance, who could also suggest a bank with a debit card to make claims and payments both convenient and smoothly integrated, but often don't do so because there is no commission for added features. Brokers earn commissions on the insurance part, but not on the HSA part, and that's probably a flaw. Some brokers suggest the whole package, but pressuring individual banks to waive fees for maintaining them, is just asking too much. Providing for sales commissions might improve public adoption. Technically, that's all there is to HSA. The only known opponents to high-deductible insurance are a few labor unions who fought to pass state laws mandating specific small-expense items into all insurance policies in their state. Somehow they imagine circumventing those victories (by HSAs making them unnecessary) would diminish their own stature. In any event, these small-expense state mandates ought to be repealed or pre-empted. They eat into the fund which might need money later for a more serious sickness, and they inhibit the sales of high-deductible. Hospitals are very little affected by this approach, except in the reform of the ratio of charges to costs. Therefore, most of the external supervision of the program should come from physician representatives, who will be the first to notice when changes are needed.
The real value of Health Savings Accounts is not what they provide, but what they make possible. One immediate consequence is to silence knee-jerk objections to a high deductible. By implication, deductibles discourage the co-pay approach by competing with it for the premium dollar, and we have earlier discussed why that would be desirable. On first learning about HSA the first reaction of many people is that no matter how small the deductible is, some poor patients could not afford it. A high deductible sounds even worse. However, under the Affordable Care Act, everyone must now carry some form of health insurance, so a high deductible makes it cheaper to finance and to buy. For some poor people, a subsidy is required, so Constitutional equal justice is, so far, in doubt here. Health Savings Accounts merely aspire to receive equal subsidies for poor people compared with other insurance, but meanwhile, provide a tax-exempt incentive for working people to accumulate funds internally to cover a deductible. With HSAs, money to cover the deductible is in the fund after about three years, and sooner if it is subsidized. In any event, subsidies would mostly be temporary, because those who do not get sick would see annual increases in the Savings Account, soon making further subsidy unnecessary. Anyone with tight finances might be advised to start with the catastrophic insurance, adding the HSA component when they can, and resulting cost savings would not be negligible, even during the present episode of abnormally low-interest rates, because the contributions themselves are tax-deductible. The temptation to delay or deplete the fund should be resisted, particularly by governmental payers of last resort, because the expense is so likely to reappear as a bad debt when indigent patients get sick. Temporary front-end subsidies for HSA, while initially objectionable to conservatives, are a far better solution than the present unsustainable expedient of cost-shifting. The first function of a high deductible is to make insurance cheaper, in this case, cheaper than simply enrolling through an insurance exchange. Because of current low-interest rates, a few banks currently charge a small fee for debit cards with a low balance, but many banks do not. Young people are apt to incur small medical expenses, not covered by the high deductible, but they can all look forward to higher expenses when they will be glad they had set the money aside. Starting out with buying both features should squeeze major financial health risks permanently out of consideration after two or three years of good health. Existing health insurance companies may thoughtlessly resist such a change, but the impending startup turmoil about the Affordable Care Act should soften them up considerably.
Speaking of fairness, HSA finally catches up with the Henry Kaiser World War II provision (see above) by extending healthcare tax exemptions to all working people, not merely salaried employees. It now could readily match a temporary subsidy for the poor to whatever permanent subsidy the government provides under the Affordable Care Act, whenever that gets untangled from the conflicting provisions of ERISA. Those are decisions independent of insurance design; if Congress changes either the subsidy or the tax exemption, the insurance can adjust correspondingly. A future budget search for smaller subsidy costs would not cripple Health Savings Accounts, as it might well cripple Obamacare. A few conservatives are so antagonized by Obamacare they would not mind crippling it, but their long-run interests are better served by creating a more workable system. That point may not be obvious, revolving around the difference between indemnity and service benefits. An indemnity (or the patient) states in advance what is affordable and hopes to negotiate the rest, whereas a service benefit describes what services it will pay for, regardless of cost. If you were a healthcare provider, how do you suppose you would react to that proposal? Indemnity is designed for ambulatory adults to bargain with but is largely inappropriate for sicker people in a hospital bed. In the HSA system, the distinction between ambulatory and bedridden appears at the level a Health Savings Account stops paying, and the deductible health insurance starts paying. That is, it depends on a shrewd choice of the size of the deductible. For this reason, Health Savings Accounts have always attempted to match the size of the deductible to the average cost of fairly inexpensive hospital admission. And for this reason it should not be tinkered by other considerations; if the deductible is raised above the level of the median hospital entry, it should apply to a separate stop-loss policy for hospital outliers.
In a well-designed system using debit cards, a transition between the two types of treatment venue could almost be imperceptible, but that also creates a hazard of changing it carelessly. As mentioned, it is in the interest of everyone to maintain the amount of the deductible below the great majority of hospital inpatient bills, while remaining above the average annual cost of office care. If that is unachievable, only the hospitalization cost should be matched. To forestall gaming of the insurance by cost-shifting, hospital outpatient costs should be treated as office visits, and Emergency Room costs as well, provided the patient is not subsequently admitted.
The Health Savings Account is thus tax-exempt and accumulates from year to year, together with the interest it earns; its sources are a portion of wages, or tax credits, or possibly in time government subsidies, varying between individuals. To prevent gaming, expenditures might be limited to health care, but there is no earthly reason to limit contributions to a system which is starved for revenue. In practice, the account is used primarily to pay for outpatient (office) services; assuring the ability to pay the deductible of a linked catastrophic insurance policy is very important, but much less frequent. It is not contemplated that it will have any co-pay or coinsurance (see above). It also might contribute to an optional pool (or reinsurance) for the less frequent risk of paying for the second instance of an annual deductible, providing sufficient funds have not re-accumulated in the Savings Account. Its essential point is to distinguish between small negotiable costs and large unnegotiable ones, not between paying hospitals or doctors, as Medicare and others do. The internal accumulation of compound interest income matches another unspoken reality; young people have few medical costs and can accumulate, while older people are mostly spending. This somewhat answers the common grievance of young people that they are subsidizing old people; they are in fact subsidizing themselves for when they are the old ones. The degree to which unmentioned problems fall into place is a great testimony to a system whose most attractive feature is simplicity. In practice, it does employ an essentially different insurance methodology between most office doctors, and hospitals, and between most young and old. It just doesn't specify it.
Marketplace Presumptive Costs (MPC). Payment by diagnosis rather than itemized bills (beginning in 1982) was a great improvement for patients too sick to pay much attention to finances, which generally describes hospital patients who need to be there. Since Canadian hospitals demonstrated (by eliminating them) that itemized bills were the main information system for cost-effective management, they are still produced in American hospitals. Although such posted charges are largely useless because of the 500% disconnect between prices and their underlying cost, the volume of individual services is depicted accurately, and could be used to link marketplace prices (reported by aggregated regional Health Savings Accounts), to the item volume within the Diagnosis Related Groups (DRG), as well as the particular patient's item volume (his bill). The result would be a new cost figure not previously available, which we will here call the Marketplace Presumptive Cost (MPC). If that is added the unique surcharges for administration, teaching, charity, and research and development, the evaluation of what these costs are all about could be brought into the open. Compared with that step forward, the relatively trivial costs of wasted paper in bills-no-one-can understand, can be ignored. Until some such transition can be accomplished, itemized bills must not be abolished in the name of efficiency, or any other motive. With the MPC, doctors would finally have a meaningful speedometer to guide their cost decisions. No sentient doctor now pays the slightest attention to the hospital bill, because it reflects nothing approaching the true cost of the service or the true cost of individual physician performance. The underlying cause of this disconnect is the enormous amount of cost-shifting taking place, but a certain amount of cost-shifting is nevertheless essential to running a hospital. The issue is to detect when it has become excessive, without necessarily changing it. The present reliance on direct costs and the present rhetoric about posted charges are both futile. A cost-to-charges ratio is therefore doubly useless. The need is to examine indirect costs, make comparisons among competitors, and decide what is necessary, what is excessive. It's fairly clear in advance that will demand some definition to indirect costs.
The Clash between Mandatory Coverage and Marketplace Benchmarks. Insurance was never meant to be universal, and the closest thing to it, mandatory auto insurance in no-fault states, gives a widely familiar example of what happens when insurance is overextended; the insurance adjuster rules but prices go up anyway. At least in auto repair, an extended market for metal workers, painters, electricians, and mechanics exists to create some basis for argument. By contrast, if every patient carries insurance, how can the price of almost any service be determined? How about a new operation to transplant brains, or an ingenious repair of someone who fell off a cliff? How about a badly needed distinction in compensation between doing your first operation and doing your thousandth one? Or, just sitting at the bedside, comforting the dying. Everywhere you see a disturbance of the marketplace you see a disturbance in prices, and if prices are forcibly constrained, then candy bars well known to shrink in size. Eventually, shortages appear, as they recently have with generic drugs driven off-shore, creating a monopoly for irresponsible manufacturers. The only feasible way to retain a vigorous marketplace in health care costs is to allow the market free play under a large deductible. A sufficiently large co-pay might be thought to do it, but Gresham's Law shows it is impossible to maintain two prices for two halves of a service. Since many services performed in the hospital are also performed in doctor's offices, a considerable base for determining the price of DRGs (diagnosis-related groups) is readily established, and adjusted for local and regional differences. That will be automatic if the market is allowed to adjust to costs in nearby offices, and the necessary data links are created. A blood count is a blood count, an EKG is an EKG, whether inside the hospital or inside a tent. Hospital administrators complain they have high overhead, but that's just the point, isn't it? A high deductible is the only imaginable way to preserve a marketplace within a totally insured world, and it will be a tragedy if Obamacare fails to recognize it.
The catastrophic insurance policy is thus included by the Affordable Care Act only in the sense that some kind of health insurance is mandated. Used as part of a package with Health Savings Accounts, its split usefulness in two venues relies on health costs jumping sharply as soon as a patient is sick enough to go in a hospital. We also discuss in another place, the advantage of employing internal interest build-up in the Last Year of Life proposal. At this late point in the discussion, it is only useful to mention the fortuitous advantage that indemnity plans fit together, creating a strange ability to offset outpatient health costs against terminal care costs.
In any event, politicians must note that boundaries somehow have to remain flexible enough to adjust to changes. Service benefits are so flexible they could bankrupt us, so any replacement must not go that far. In the crudest brief description, Medical Savings Accounts seek to take advantage of the cost restraints of high-deductible ("catastrophic") health insurance, while easing the necessary pain by providing some patients with the money to do it with. It probably can cover all patients only if there is some temporary subsidy for the poorest. Some may need charitable assistance, and none can expect to enjoy the benefits of compound interest until interest rates return to normal. The pooling of investments in order to have professional management seems highly desirable if investment diversification is contemplated. Experience with these plans has shown that paying the money out of a tax-exempt fund has almost as much spending restraint as paying bills fully with cash, so costs are reduced by about 30% in actual experience. There might also be a reinsurance pool to pay for the occasional patient who exceeds the money in his account repeatedly, but the medical perception is that once you start going into the hospital, you either soon get better or you don't. Either way, there are few chronic diseases left; cancer and Alzheimer's disease, and that's about it. The strategy of giving poor people the three-to-five thousand dollars was originally envisioned to level the tax playing field with employer-based insurance, which still only provides tax avoidance for salaried employees. In recent years, a number of other ways to give away money by another name (especially funded tax credits) have been devised. They are not discussed further. HSA progress has been resisted for thirty years, but one consolation is that during the interval dozens of examples have been tried out, medical costs have regularly declined for workers, and both doctors and patients are satisfied with the arrangement. These savings come disproportionately from the outpatient arena since reimbursement of hospital inpatient costs often depends on negotiations between the insurer and the hospital. The use of market-based out-patient costs (MPC) as a basis for guiding physician decisions to cost-effective diagnosis and treatment, allows indirect hospital costs to be negotiated separately with third parties without fanciful allusions to linkages to billable services. Some hospitals could withstand this type of review, others could not. But it is certainly past time to have the discussion.
The Billing Mess No reimbursement system can be entirely satisfactory until provider accounting and billing are reformed. Health Savings Accounts were once resisted by those outsiders who benefited from unique tax exempted coverage, but the current climate is now favorable to deductibles almost everywhere. At least this much has been accomplished. Progress since 1980 has been retarded, not by lack of success, but by abnormally low-interest rates at banks imposed by the Federal Reserve, and by state laws mandating coverage of specific low-cost services. It is possible that the latter is motivated by a desire to exert indirect price control, and thus provide an opportunity for negotiations. It is also unwise to mandate coverage for birth control pills, cough medicine and like because experience in nations with nationalized health systems shows a tendency to be generous with low-cost items so as to conceal appalling harshness about expensive care. Doing so also brings to the fore such contraptions as the widespread three-insurance system for paying your bills. One policy now pays about 80%, another policy pays about 20%, while a major medical policy cleans up loopholes. This costly contrivance is even used to bill for individual refills in a drug store. The resulting chaos means most medical bills are not finally settled for several months, generating mountains of paperwork beyond average comprehension. With a Health Savings Account, the patient generally pays cash and gets a receipt for it, although the use of debit cards smooths that, and adding inpatient payments to the debit card would smooth it further. Useless itemized hospital bills should be revised to substitute market-based prices for inpatient items, thus restoring their usefulness for physician and patient cost guidance. Indirect hospital costs need not be shown on the bill at all; rather, they could be subjects for negotiation with third-party payers alone. Combining direct costs and indirect ones serves no identifiable purpose, since actual payments are now DRG or diagnosis-based rather than item-based, and indirect costs have become so large and cost-shifted that the combined figure is totally misleading for the analysis of cost-effectiveness. Periodically, the item composition of DRGs does need to be re-compiled, but this can be produced on demand for monitoring purposes, and would often be more useful if aggregates were examined rather than individual cases. The "grouping" of items in the DRG with similar costs rather than medical characteristics may have convenience for the billers and payers, but the process is highly approximated, at best, for any other use. For serious analysis, the entire ICD coding system needs to be abandoned, and to revert to an updated version of the original Standard Nomenclature system, now mainly in use by pathologists (SNOMED3). Many of these small reforms may seem technical and obscure, so a sentence needs repeating: No reimbursement system can be entirely satisfactory until provider accounting and billing are intensively reformed.
Summary of Improvements useful to integrating Obamacare with Health Savings Accounts.
Enable commissions for salesmen of high-deductible health insurance to bundle their product with HSAs, debit cards, and reinsurance. This would not merely encourage this product, but assist the primary sales adviser in discouraging opportunistic fees and costs from banks who manage accounts..
Encourage state governments to eliminate small-cost coverage mandates, which conflict with the high-deductible approach.
Discourage co-pay coinsurance, which has shown little cost-restraining effect, but tends to encourage multiple claims costs.
Charge some agency with monitoring inpatient charges, for the sole purpose of suggesting needed changes in the deductible amount of insurance to match them.
Provide a system for subsidizing unpaid deductibles for poor people, which phases out when HSA accounts build up to the deductible amount but does not contain a disincentive to contribute to the Account.
Study the need and cost of a reinsurance system or pooling arrangement, for those who exhaust their HSA balance, and thus require additional subsidy. Combining this with item 5. would be ideal.
Establish a mechanism for using HSA (or other) information to establish the publication of national (and possibly regional) marketplace prices for medical items outside of institutional care.
Charge a commission with determining relative pricing for items unique to hospital inpatients, building on values relative to outpatient charges..
Re-cast DRG prices to conform to 7. and 8, with indirect institutional costs to be subject to unrelated audit and negotiation.
Recast hospital bills to reflect 7, 8, and 9. in an easily intelligible way, including amounts actually paid by third parties.
For DRG purposes, phase out the ICD diagnostic coding system, replacing it with SNOMED3 (formerly SNODO), or else use two codes for two dissimilar purposes.
Charge some Committee of Congress to determine in advance what the rules should be for unspent surpluses of HSA accounts, at the death of the owner.
When medical care was entirely a private two-party arrangement, the patient and doctor negotiated what was to be done, and often the price; if the patient could not pay, some embarrassed workaround was figured into the equation, including a vague promise to pay the doctor when he could. A surprising number of patients did pay later, and because the doctor's bill contained very little overhead, even partially paying it off created an unspoken promise that the patient would now be welcomed back.
It was the appearance of insurance forms which created secretarial overhead, even though of course it also brought along some revenue. Skeptics may doubt the extent of this, but at my advanced age as a patient I now visit four doctors of different specialties. Collectively, they seem to have fourteen assistants and fourteen computers I can count. That remains the situation even if a patient delegates decision-making to members of the family, or a hospital wants to know what is being given away to charity patients, or a bewildered patient seeks a second opinion. It changed abruptly when third-party payment seemed to entitle a government or an insurance company to be reassured that claims were legitimate. This uneasy and often resented intrusion into a private matter began to cause friction even in the 1920s, soon after third-party reimbursement made an American appearance, and as physicians gradually recognized that "utilization review" generated more overhead cost than simple claims submission. At first, health insurance companies were restrained from brisk business-like behavior, by the realistic possibility that the patient might switch back to paying bills in cash. Somehow that possibility now seems so remote that when the owner of a Korean auto manufacturing company tried to pay his hospital bill with hundred-dollar bills, the hospital simply had no procedure for handling such an unexpected request.
As long as a secretary was sitting there filling out forms, she might as well answer the phone for appointments. In this way, appointment systems became routine, including hidden extra revenue loss generated by broken appointments. Insurance pre-payment is always complicated by the realities of emergency care, where considerable expense must sometimes be incurred before the third-party has a chance to review the facts; in this lies the origin of the term "reimbursement". The third-party acquired the ability de facto to delay or deny reimbursement, an action immediately regarded as high-handed, since expenditures had already been made in good faith and could not be recovered. The right to deny such claims was implicit, and at first it was used gingerly by insurance companies trying to establish themselves. Now that insurance is considered normal, any incurred costs must be handled in some way, so other subscribers are charged extra to keep the hospital solvent. The cost to the system is exactly the same this way, but no other way has been suggested to maintain the credibility of insurance oversight. When I once told the owner of a department store that I had 2% bad debts in 1955 (ten years before Medicare) he replied that my bad debts were less than his and my bookkeeping was far more elaborate. True, some hospitals could not survive without the insurance system, but if others in better locations examined their experience extensively, they might discover their accident rooms are net losers for the insurance. Third-parties slowly retreated, hospital prices crept upward and the system readjusted, but no one is entirely satisfied with this showmanship masquerading as a balance of terror. When you see a sick or injured person turned away from an emergency department for lack of insurance proof, you can be sure there is either not enough slack in the system, or not enough administrative imagination.
Senator Wallace Bennett
Early in the 1970s, Senator Wallace Bennett of Utah devised a solution to this problem, and persuaded the rest of Congress to endorse a nation-wide system of Professional Review Organizations (PSRO), run by the medical profession but paid for by Medicare. Although many physicians muttered about the "creation of new elites", and hospitals were particularly uneasy about the migration of power, the new system worked reasonably well. If the physicians in the local PSRO approved a service, it was paid for. If payment was denied by a local PSRO, an appeal to a state-wide body of physicians was provided. In that way, prevailing local standards were respected, while appeal to distant physician judges was also provided, to guard against local vendettas ganging up on someone they disliked. Inevitably, a few localities would elect an unsatisfactory PSRO, so a voluntary national organization was formed to educate, inform and defend the process, and better able to discipline it with peer pressure than might be supposed. The national organization was pleasingly benevolent, sometimes apologizing for its role as a necessary one to weed out constituent PSROs whose bad behavior might discredit the others and start up the usual chatter about professional self-government: The foxes were guarding the hen house, and must be replaced by wolves. The PSRO gradually adhered to an unspoken rule of rarely boasting of success; it saw its role as redirecting unsatisfactory behavior, not vanquishing wrong-doers. It soon became evident that successful PSROs were of two types, rural and urban. In localities where a single hospital served a county or more, physicians were of all types mixed together, and the need was to strengthen the emergence of the natural leaders, often by placing them on the PSRO board. In large cities, however, a sorting-out process had usually resulted in strong hospitals and weak ones; birds of a feather flew together. The weaker hospitals were soon identified and urged to elect stronger leadership; sometimes it was necessary to suggest that the institution might serve better as a nursing home. Throughout the process ran the threat of exposure; successful PSROs usually relied far more on peer pressure than the threat of withholding payment.
What ultimately defeated the PSRO was its success, not its failures. Many pre-existing elites were content to see a new governance structure fumble, but felt highly threatened by a successful one. Moreover, the AMA leadership seemed particularly concerned about the direction of "regulatory capture", and was not completely certain whether the PSRO was beginning to dominate the Washington bureaucracy, or the AMA House of Delegates, or a little of both. The PSRO fraternity was definitely a large national organization of doctors who knew and respected each other, and many of its leaders were in the AMA House. Matters finally came to a head in a famous vote opposing the PSRO, by 105 to 100. The opinion of organized medicine meant a great deal to Congress. When representatives of the PSRO next testified before the Senate Finance Committee, the Chairman of the Committee wryly announced the next speaker from the AMA was one who was "presumably here to explain to us the difference between 105 and 100." The PSRO law was soon amended, and insurance review took its place.
AMA House of Delegates
For the time being, utilization review in the future is apparently currently limited to Medicare, under the Medicare Accountable Care Act. With the foregoing bit of history to warn the Accountable Care Organizations about what they are getting into, a simple set of principles can be stated. Utilization review encounters two components of cost: the volume of care, and the price of the services. Doctors control the volume, hospital administrators control the prices. Determining the proper volume of services is a job for practicing physicians, alone and unhampered. To some extent, under the new law an incentive to keep it that way was created by sharing with the provider members a portion of any cost savings associated with the patient group. But the ability to change the sharing will probably be a a one-sided government decision unless the physicians fiercely insist that it remain negotiable. Agreeing that the physician voice should be dominant in the issue of service volume should not imply agreement to exclude their inspection of the prices of services. When physician income becomes linked to their choosing less expensive alternatives, physicians must not continue to be blinded to what the true cost of components truly is. While it remains conceded that hospitals and vendors must retain some flexibility in adjusting the ratio of charges to costs, any deviation from a standard bandwidth must be negotiated with the physicians affected. Past experience should be ample proof of the fairness of this demand.
The volume of most medical services at present is about right, but prices will keep rising when they bear little relation to the underlying direct costs. Furthermore, the Medicare (or similar) Cost Report of every hospital must annually report the ratio of cost to charges, probably by item rather than department. And this ratio must be monitored. Complexity is no argument against doing so; the Chargemaster system has never been resisted because of its complexity. It has been no secret for thirty years that a twenty-dollar aspirin tablet has a very high ratio of charges to its actual cost. Other items are provided at a loss, and the mixtures are highly variable between hospitals. Everyone concerned knows this situation is unsustainable, but everyone recognizes that total denial of reimbursement is entirely too destructive if no slack remains in the system. If it is successful an appeal mechanism will become necessary, because new treatments can be resisted by old treatments, but the optimum rate of change will vary by local situation.
Rather than overcomplicate matters, the goal should be total denial of reimbursement for denied services, because the public will demand it. It must however, be coupled with an adequate profit margin on approved services, to service the costs of retrospective review. Designation of the optimum ratio of cost to charges is a critical decision, much like the function entrusted to the Federal Reserve, of picking the best average interest rates for the national economy. If the agencies selected by Obamacare get this point very wrong, very often, the public must quickly be in a position to let everyone know of its displeasure.
The other source of circumvention is the hospital system of enforcing a physician hierarchy reporting to a physician chieftain, but insisting that the chieftain himself be financially beholden to the hospital administration. In that way, financial health of the institution sometimes dominates the health of the third parties, who then find a way to retaliate. if this issue is neglected a deadlock could affect the health of the patients. Since a three-way balance must be preserved, governance must be fairly shared three ways. Those who believe this is a minor issue because the third party obviously has final power, have a great deal to learn.
The principles of compound interest are thought to have been a product of Aristotle's mind. The principles of passive investing are more recent, mainly attributed to John Bogle of Vanguard, although Burton Malkiel of Princeton has a strong claim. In the present section, we propose to merge the two methodologies, compound interest with passive investing, trying to give the reader some idea why the combination could supply Health Savings Accounts with seriously augmented revenue. Because there is so much political flux, it cannot be an actual plan until the politically-controlled numbers have some finality to them.
The proposal to accumulate funds, however, shifts responsibility to the customer to spend wisely, even resorting to employing some of the individual's taxable money to pay small medical costs, thus preserving the tax shelter. (Or to use escrow accounts, or over-deposit in some other way, such as reducing final goals.) HSA doesn't directly reduce health costs, it eliminates some unnecessary ones but provides lots of extra money to pay for essential ones. At the outset we want to state, schemes of this sort have a history of working effectively up to a certain level, and then begin to interfere with themselves as eager money rushes in. There's no sign of that so far, but it might appear. Therefore, we advise modest hedged experiments rather than attempts to pay for all of healthcare, reducing health costs perhaps by only a quarter or a half, since those smaller levels would still amount to large returns. Balancing the risks with investments outside the HSA -- is just another prudent way of hedging the bet.
Money earning seven percent will double in ten years.
The rough rule of thumb is, money earning seven percent will double in ten years; money at ten percent will double in seven years. Seven in ten, or ten in seven. You can use simple maxims to verify the attached ideas. An early realization is that compound interest accelerates with time, and is highly sensitive to small interest rate changes. An improved rate of interest generated by (Twenty-First Century) passive investing gets multiplied by (Twentieth-Century) extended life expectancy. This idea might not have worked, a generation ago. And it will not work in the future if future catastrophes shorten life expectancy, or interest rates rattle around. As happenstance, interest rates today rest near the "zero boundaries", but interest risk is not totally eliminated. Interest rates have a way of bouncing, and irrational exuberance is part of our system.
In fact, we have a tragic example in the nation's pension funds. A few decades ago, pension managers were tempted to invest in stocks rather than bonds, and then the stock market crashed, stranding pensioners with low rates of return, rather than the high ones they had hoped for. I want readers to understand I am well aware of the cyclicity of markets, and make these suggestions, regardless. As long as we include a thirty-year "Black swan" contingency by limiting coverage to a quarter or a third, it should be reasonably safe, but savings would still be enormous. There are other, more traditional ways of protecting endowments from stock crashes. With people of every age to consider, the long transition period alone would almost automatically buffer out black swans.
Having issued a warning to be a conservative investor, let's now introduce some notes of reassurance. Younger people are always likely to be healthier. Those who save their money while young therefore need not use all of it for healthcare -- for several decades. Compound interest works to magnify savings, the longer its horizon the better. We'll describe passive investing later, but it too should increase the average rate of return. These investments after some successes increase the incentives to save. If no one buys Health Savings Accounts, the incentives were apparently not large enough. If everyone rushes to buy, perhaps the incentives were unwisely too attractive. Right now, the financial industry is observing a rush to passive investing; nearly fifty percent of mutual fund investors are switching to "index funds" in spite of capital gains taxes on selling other holdings. Since the marvel of compound interest has been accepted for thousands of years, a mixture of compound interest and passive investing isn't an especially radical idea.
What's radical is the idea that all those highly-paid advisors can't do better than random coin-flippers. What's radical is to discover that the main ingredient of poor performance is high middle-man fees. Low fees won't assure high returns, but high fees will assuredly lead to low returns. If that new idea gets replaced in turn, it will be replaced by something better, and everyone should switch to it. But if compound interest is here to stay, this proposal is safer than it sounds. The investment income rate or continued employment of your agent is what isn't guaranteed, which is why business relationships (between customers and managers of HSAs ought to remain portable and transparent by law. Your manager might move, or you might decide to move away, from him.
Start by looking at what happens if you jump your interest rate curve from 5% to 12%, or if you lengthen life expectancy from age 65 to age 93. That's what the graph is intended to show, and we stretch the limits to see what stress will do. Jumping to the highest rate (12%)the interest rate gets the balance to a couple of million dollars pretty quickly and lengthening the time period further enhances that gain. The combination of the two easily escalates the investment far above twenty million. The combination of extra time and extra interest rate thus holds the promise of quite easily paying for a lengthening lifetime of medical care, regardless of inflation. In fact, it gets the calculation to giddy amounts so quickly it creates suspicion.
Average lifetime health costs: $350,000 per lifetime
The actuaries at Michigan Blue Cross, verified by the Medicare agency, estimate average lifetime health costs to be around $350,000 per lifetime. That's just an educated guess, of course, but increasing interest rates and life expectancy will very easily surpass that minimum estimate. How do we go about it, and how far dare we go? Remember, our whole currency is based on the notion of the Federal Reserve "targeting" inflation at 2%, but in spite of spending trillions of dollars, they seem unable even to achieve more than 1.6%. We had better not count completely on schemes which require the Federal Reserve to target interest rates, because sometimes, they can't.
One person who does have practical control of the interest rate an investor receives is his own broker. The broker shares the income, but usually takes the first cut of it, himself. Covering a full century, Roger Ibbotson has published the returns on various investments, and they don't vary a great deal. Common stock produces a return of between 10% and 12.7% in spite of wars and depressions; if you stand back a few feet, the graph is pretty close to a straight line. You wouldn't guess it was that high, would you? If you don't analyze carefully, a number of brokerages offer Health Savings Accounts which produce no interest at all -- to the investor -- for the first ten years. Indeed, the income of 2% also amounts to nothing at all during a 2% inflation. In ten years, 2% approaches a haircut of nearly 20%, explained by the small size of the accounts, and by the fact that customers who know better will generally just politely look for another vendor. Since the number of accounts has quickly grown to be more than fifteen million, it might be time for some sort of consumer protection. The prospective future size of these accounts should command greater market power, quite soon. After all, passive investment should mainly involve the purchase of blocks of index funds, all with fees of less than a tenth of a percent . Much of this haircutting is explained by the uncertainties of introducing the Affordable Care Act during a recession and taking six years just to get to the point of a Supreme Court Test, to see if its regulations are legal and workable. It can be used to provide high-deductible coverage, but it's expensive.
That's the Theory. The rest of this section is devoted to rearranging healthcare payments in ways which could -- regardless of rough predictions -- easily outdistance guesses about future health costs. When the mind-boggling effects are verified, skeptics are invited to cut them in half, or three quarters, and yet achieve a worthwhile result. The purpose here is not to construct a formula, but to demonstrate the power of an idea. Like all such proposals, this one has the power to turn us into children, playing with matches. By the way, borrowing money to pay bills will conversely only make the burden worse, as we experience with the current "Pay as you go" method. By reversing the borrowing approach we double the improvement from investment, in the sense we stop doing it one way and also start doing the other. In the days when health insurance started, there was no other way possible. The reversal of this system has only recently become plausible, because life expectancy has recently increased so much, and passive investing has put that innovation within most people's reach. The environment has indeed changed, but don't take matters further than the new situation warrants.
Average life expectancy is now 83 years, was 47 in the year 1900; it would not be surprising if life expectancy reached 93 in another 93 years. The main uncertainty lies in our individual future attainment of average life expectancy, which we don't know, but probably could guess with a 10% error. When the future is thus so uncertain, we can display several examples at different levels, in order to keep reminding the reader that precision is neither possible nor necessary, in order to reach many safe conclusions about the average future. Except for one unusual thing: this particular trick is likely to get even better in the future. Even so, it is best to do only conservative things with a radical idea.
Reduced to essentials for this purpose, today's average newborn is going to have 9.3 opportunities to double his money at seven percent return and would have 13.3 doublings at ten percent. Notice the double-bump: as the interest rate increases, it doubles more often, as well as enjoying a higher rate. If you care, that's essentially why compound interest grows so unexpectedly fast. This widening will account for some very surprising results, and it largely creeps up on us, unawares. Because we don't know the precise longevity ahead, and we don't know the interest rate achievable, there is a widening variance between any two estimates. So wide, in fact, it is pointless to achieve precision. Whatever it is, it will be a lot.
One Dollar: Lifetime Compound Interest
Start with a newborn, and give him a dollar. At age 93, he should end up with between $200 (@7%) and $10,000 (@10%), entirely dependent on the interest rate. That's a big swing. What it suggests is we should work very hard to raise that interest rate, even just a little bit, no matter how we intend to use the money when we are 93, to pay off accumulated lifetime healthcare debts. Don't let anyone tell you it doesn't matter whether interest rates are 7% or 12.7%, because it matters a lot. And by the way, don't kid yourself that a credit card charge doesn't matter if it is 12% or 6%. Call it greed if that pleases you; these "small" differences are profoundly important.
If that lesson has been absorbed, here's another:
In the last fifty or so years, American life expectancy has increased by thirty years. That's enough extra time for three extra doublings at seven percent, right? So, 2,4,8. Whatever amount of money the average person would have had when he died in 1900, is now expected to be eight times as much when he now dies thirty years later in life. And even if he loses half of it in some stock market crash, he will still retain four times as much as he formerly would have had at the earlier death date. The reason increased longevity might rescue us from our own improvidence is the doubling rate starts soaring upward at about the time it gets extended by improved longevity. In particular, look at the family of curves. Its yield turns sharply upward for interest rates between 5% and 10%, and every extra tenth of a percent boosts it appreciably.
Now, hear this. In the past century, inflation has averaged 3%, and small-capitalization common stock averaged 12.7%, give or take 3%, or one standard deviation (One standard deviation includes 2/3 of all the variation in a year.) Some people advocate continuing with 3% inflation, many do not. The bottom line: many things have changed, in health, in longevity, and in stock market transaction costs. Those things may have seemed to change very little, but with the simple multipliers we have pointed out, conclusions become appreciably magnified. Meanwhile, the Federal Reserve Chairman says she is targeting an annual inflation rate of 2% of the money in circulation; the actual increase in the past century was 3%. If you do nothing at 3%, your money will be all gone in thirty-three years. If you stay in cash at 2%, it will take fifty years to be all gone.
But if you work at things just a little, you can take advantage of the progressive widening of two curves: three percent for inflation stays pretty flat, but seven percent for investment income starts to soar. Up to 7%, there is a reasonable choice between stocks and bonds; but if you need more than 7% you must invest in stocks. Future inflation and future stock returns may remain at 3 and 7, forever, or they may get tinkered with. But the 3% and 7% curves are getting further apart with every year of increasing longevity. Some people will get lucky or take inordinate risks, and for them, the 10% investment curve might widen from a 3% inflation curve, a whole lot faster. But every single tenth of a percent net improvement will cast a long shadow.
But never, ever forget the reverse: a 7% investment rate will grow vastly faster than 4% will, but if people allow this windfall to be taxed or swindled, the proposal you are reading will fall far short of its promise. Our economy operates between a relatively flat 3% and a sharply rising 4-5%. In other words, it wouldn't have to rise much above 3% inflation rate to be starting to spiral out of control. Our Federal Reserve is well aware of this, the public less so. A sudden international economic tidal wave could easily push inflation out of control, in our country just as much as Greece or Portugal. On the other hand, as developing nations grow more prosperous, our Federal Reserve will control a progressively smaller proportion of international currency. Therefore, we would be able to do less to stem a crisis that we have done in the past.
To summarize, on the revenue side of the ledger, we note the arithmetic that a single deposit of about $55 in a Health Savings Account in 1923 might have grown to about $350,000 by today, in the year 2015, because the stock market did achieve more than 10% return. There is considerable attractiveness to the alternative of extending HSA limits down to the age of birth, and up to the date of death. It's really up to Congress to do it. If the past century's market had grown at merely 6.5% instead of 10%, the $55 would now only be $18,000, so we would already be past the tipping point on rates. In plain language, by using a 10% example, $55 could have reached the sum now presently thought by statisticians -- to be the total health expenditure for a lifetime. By achieving a 6.5% return, however, the same investment would have fallen short of enough money for the purpose. Like the municipalities that gambled on their pension fund returns, that sort of trap must be avoided. Things are not entirely hopeless, because 6.5% would remain adequate if our hypothetical newborn had started with $100, still within a conceivable range for subsidies. But the point to be made provides only a razor-thin margin between buying a Rolls Royce, and buying a motorbike. If you get it right on interest rates and longevity, the cost of the purchase is relatively insignificant. That's the central point of the first two graphs. For some people, it would inevitably lead to investing nothing at all, for personal reasons. Some of the poor will have to be subsidized, some of the timid will have to be prodded. This is more of a research problem than you would guess: a round-about approach is to eliminate the diseases which cost so much, choosing between different paths of research to do it, or rationing to do it. Right now we have a choice; if we delay, the only remaining choice would be rationing.
Commentary.This discussion is, again, mainly to show the reader the enormous power and complexity of compound interest, which most people under-appreciate, as well as the additional power added by extending life expectancy by thirty years this century, and the surprising boost of passive investment income toward 10% by financial transaction technology. Many conclusions can be drawn, including possibly the conclusion that this proposal leaves too narrow a margin of safety to pay for everything. The conclusion I prefer to reach is that this structure is almost good enough, but requires some additional innovation to be safe enough. That line of reasoning will be pursued in a later chapter.
Revenue growing at 10% will rapidly grow faster than expenses at 3%. As experience has shown, it is next to impossible to switch health care to the public sector and still expect investment returns at private sector levels. Repayment of overseas debt does not affect actual domestic health expenditures, but it indirectly affects the value of the dollar, greatly. Without all its recognized weaknesses, a fairly safe description of present data would be that enormous savings in the healthcare system are possible, but only to the degree, we contain next century's medical cost inflation closer to 2% than to 10%. The simplest way to retain revenue at 10% growth, on the other hand, is by anchoring the price to leading healthcare costs within the private sector. The hardest way to do it would be to try to achieve private sector profits, inside the public sector. This chapter describes a middle way. It's better than alternatives, perhaps, but not miraculous.
Cost, One of Two Basic Numbers. Blue Cross of Michigan and two federal agencies put their own data through a formula which created a hypothetical average subscriber's cost for a lifetime at today's prices. The agencies produced a lifetime cost estimate of around $300,000. That's not what we actually spent because so much of medical care has changed, but at such a steady rate that it justifies the assumption, it will continue into the next century. So, although the calculation comes closer to approximating the next century (than what was seen in the last century) it really provides no miraculous method to anticipate future changes in diseases or longevity, either. Inflation and investment returns are assumed to be level, and longevity is assumed to level off. So be warned. This Classical HSA proposal, particularly with merely an annual horizon, proposes a method to pay for a lot of otherwise unfunded medical care. The proposal to pay for all of it began to arise when its full revenue potential began to emerge, rather than the other way around. If a more ambitious Lifetime HSA proposal ever works in full, it has a better chance, but must expect decades of transition before it can. Perhaps that's just as well, considering the recent examples we have of being in too big a hurry. Rather surprisingly, the remaining problem appears merely a matter of 10-15% of revenue, but all such projection is fraught with uncertainty.
Revenue, The Other Problem. The foregoing describes where we got our number for future lifetime medical costs; someone else did it. Our other number is $150,750, which is our figure for average lifetime deposit in an HSA. It's the current limit ($3350 per year of working life) which the Congress applied to deposits in Health Savings Accounts. No doubt, the number was envisioned as the absolute limit of what the average person could afford, and as such seems entirely plausible. You'd have to be rich to afford more than that, and if you weren't rich, you would certainly struggle to afford so much. To summarize the process, the number amounts to a guess at what we can afford. If it turns out we can't afford it, this proposal must be supplemented, and the easiest expedient is to raise the contribution limits. Other alternatives are pretty drastic: to jettison one or two major expenses, like the repayment of our foreign debts for past deficits in healthcare entitlements, or the privatization of Medicare. Not privatizing Medicare sounds fine to most folks, but they probably haven't projected its coming deficits. It would leave us considerably short of paying for lifetime health costs for quite a long transition period, but it might be more politically palatable, like Greece leaving the Euro, than paying more. Almost anything seems better than sacrificing medical care quality, which to me is an unthinkable alternative, just when we were coming within sight of eliminating the diseases which require so much of it.
Escrow Accounts and Over-Depositing. The main unpredictable feature of these future projections is you can't predict when you will get sick and deplete the account. Money withdrawn early is much more damaging than money withdrawn late in the cycle. Catastrophic insurance will somewhat protect against this risk, but the safest approach is to use segregated, somewhat untouchable, escrow accounts for future heavy expenses. That, combined with deliberate over-depositing, is the safest approach. If Obamacare would settle down, it might serve that function, as well, but the political situation is pretty unsettled until a large-group design is made final, and that seems to mean November 2016 at the earliest.
109 Volumes
Philadephia: America's Capital, 1774-1800 The Continental Congress met in Philadelphia from 1774 to 1788. Next, the new republic had its capital here from 1790 to 1800. Thoroughly Quaker Philadelphia was in the center of the founding twenty-five years when, and where, the enduring political institutions of America emerged.
Philadelphia: Decline and Fall (1900-2060) The world's richest industrial city in 1900, was defeated and dejected by 1950. Why? Digby Baltzell blamed it on the Quakers. Others blame the Erie Canal, and Andrew Jackson, or maybe Martin van Buren. Some say the city-county consolidation of 1858. Others blame the unions. We rather favor the decline of family business and the rise of the modern corporation in its place.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
