|
|
Blue Cross Blue Shield
|
Since I've alluded to the two basic problems in health financing today, perhaps I need to explain them. What's known in hospital circles as the Blue Cross discount refers to the wide disparity between what the hospital will accept from an insurance company and what they will demand in payment from someone who has no insurance. It's often double the price. It's a tragedy that forty million Americans don't have health insurance, all right, because it costs them twice as much. It's a punishment for the terrible crime of not buying insurance, to call a spade a spade.
That sounds like a pretty easy problem to fix, doesn't it? Stop overcharging them, and half of the problem of the uninsured would go away.
Furthermore, most of the people who do have health insurance are effectively able to buy it at seventy cents on the dollar, because they don't pay income tax on the money that goes for "health benefits" which is to say health insurance premiums.
Taken together, most people thus pay seventy cents for health care which will cost uninsured people two dollars. Most people would suppose that we ought to give a break to some poor devil who can't afford insurance, but in fact, we skin him alive financially. It's impossible to name any other necessity of life that's treated this way, and it's hard to think of any other problem that would be so easy to solve -- just charge everybody the same amount. If you are really bighearted, charge poor people just a little less,
Now, I refuse to get drawn into a history of the origin of these egregious situations. It has to do with price controls during World War II and the fact that investment capital for the health system was impossible to raise during the depression of the 1930s. But it doesn't matter in the slightest how this came about. What matters is how to make it go away.
Most Americans alive in 2020 will live to be ninety
|
|
Dr. Fisher
|
During the Twentieth century, average life expectancy for Americans at birth extended from a little less than age fifty, to a little less than age eighty -- roughly thirty years. Looking ahead to the next century, it's entirely reasonable to expect a cure for cancer and Alzheimer's disease to extend life expectancy to ninety-five. It's also reasonable to expect that somewhere along this path we will find such retirement expectations are more than the nation can afford. Everyone will have to go back to work.
Working ten years longer means ten years less time in retirement, and it also means ten years more time to accumulate sufficient savings for whatever time is left. Some people who are already working more than they want to, won't like that. There will be attempts to make retirement cheaper and to extract savings from novel sources, but further improvements in health care will wipe out all those efforts. The normal age for retirement will have to move to at least age seventy, probably seventy-five. If employers have problems with that, the solution will have to be second careers. So, let's shift our attention to people who are lucky enough to afford a thirty year vacation. They must go back to work, too.
A moment's reflection reveals that everyone must have a life goal of accumulating more money than is needed to live out his life. Once average life expectancy levels out to a stable point, ingenious life insurance design could bring us to the point of spending the last dime on the last day, providing we consider it worthwhile to spend the extra insurance administration cost. More likely, human psychology will always demand a little extra comfort from a little extra financial cushion, and there's a relationship with the age of retirement. The later you retire, the more likely it is you will have money to spare. For physical or mental reasons there will be people who can't work, but everyone else knows a simple solution to the problem of being able to retire: don't stop working until you can afford to quit. And by the way, the later you start saving, the longer before you can quit.
This vision of elderly America thus generates a need to create new jobs for people unable to retire, but the similarly growing number of elderly too infirm to work creates jobs for the advancing number of elderly who need a new career. Some variation of a voucher system will be needed to make this workable.
We have so far not worried much about the lucky, talented, or just miserly few who achieve life's normal goal of saving just a little more than they need; but that must change, they need to go back to work, too. Philanthropy, a very important part of American life, is struggling and needs their talent. It's likely that our business and economic success as a nation is responsible for diverting our energetic and imaginative talent toward the for-profit sector. The general attitude has been that if things are worthwhile, people will pay for them; businesses run not-for-profit can't really be worth much. That's very wrong, of course, but there's enough truth to it to require some changes.
Nonprofit organizations are often inefficient because efficiency is partly the consequence of seeking a profit. But the analysis must not stop with this hopeless truism; the manageable problem is to find new goals for efficiency which do not directly require profit-seeking. One approach would be for non-profits to create for-profit subsidiaries, later selling them off to enhance their endowment. The tax authorities would want to examine this approach to avoid harming competitive tax-paying entities, or sham arrangements in which the purported subsidiary dominates a nonprofit shell.
However, this and similar approaches merely continue the present mindset about the role of the donors and the volunteers. Nonprofit organizations tend to gravitate toward a professional staff with nominal trustee oversight, relegating the donors to the function of giving or getting donations. If philanthropy is to acquire a new drive toward efficiency to supplant the absent profit motive, the donors must be actively employed in the organization, noticing any waste or inefficiency, sharing the gossip, and appreciating the triumphs. To some degree, a form of this model is found in the auxiliaries of hospitals and museums, where staff administrators generally chafe in private about the class distinctions and disruptive ability to cut across management hierarchies. If this system is to work effectively, it needs to be studied for ways to be less threatening to the younger employees, and to get more useful work from the older ones.
|
|
The Economist
|
Some waggish but wise publication, perhaps The Economist, reported on the accuracy of predictions at various times in the future. Predicting what you can accomplish in a year is almost always an over-estimate; you can't possibly accomplish that much in a year. Predicting twenty years in advance has the opposite flaw; things will change so much in twenty years, the average person will almost invariably under-estimate the future. So, what's the best time for predictions? According to The Economist, it comes out to be about six years.
Five years seems somehow easier to remember, so let's state a principle of financial planning: review your goals every five years with some professional help. The young fellow needs to have a lawyer review his will because he probably doesn't have one. He needs someone to take a hard and skeptical professional knife to the insurance salesmen who are currently circling their prey. And someone needs to review all of the government, tax and regulatory changes that will affect a young family. For most young people, the investment decisions about stocks and bonds are small because accumulations are small for everyone except professional athletes and entertainers.
If your investment pile is small enough, you can fool around a little. My father used to say the best thing that can happen to you is to lose some money when you are young. When you become tired of that, just make regular automatic deposits into a low-cost widely diversified no-load mutual fund that is very large, say, holding a trillion dollars in assets. It will pretty surely grow steadily in good times and bad, and serve as a warning benchmark for assessing all those fly-by-night investment managers who will besiege you when you accumulate enough money to be worth fleecing.
It's a pity to waste ten or so years of investment opportunity, however. Money at 7% will double in value every ten years. You will probably want to double your nest-egg as many times as you can, which is likely to have a ceiling at 10%, so figure doubling every seven years the rest of your life expectancy, and it is easily shown that frittering away those opportunities to double is a regular, pathetic, loss of opportunity for most of us between the age of sixteen and thirty. Take your hoped-for nest egg at retirement age and double it two and a half times, and you will see what a huge opportunity is regularly lost by just about everyone.
Your parents can improve on that by making investments on your behalf, starting the day you are born. That would cause five extra doublings of your investment accumulation at retirement. But plenty of people have learned the disappointments of betting on infant futures. If you can essentially afford to throw the money away as bad luck, go ahead and do it, but if you are risking someone's college education to do it, then you had better stay away.
A probably more serious debate can be generated by discussing the risks of giving money to teenagers, who may then get all out of social control, throwing in your face, "It's my money and I'll do as I please". The main answer to that offensive discussion is to point out just what it is that most teenagers would do if they had the freedom to do it. Some frugal cultures like the Pennsylvania Dutch will give children some money, hide it secretly in a safe-deposit box without telling the child, and then reveal it when the child seems to be sensible enough to withstand the fever of a gold-rush. The worst outcome of all is to drain the incentives, depriving the child of reasons to work hard. Unfortunately, most teenagers now grow up in a suburb, where it is difficult to conceal the probable existence of assets.
SEC. 1251. PRESERVATION OF RIGHT TO MAINTAIN EXISTING COVERAGE.
(a) No Changes to Existing Coverage-
(1) IN GENERAL- Nothing in this Act (or an amendment made by this Act) shall be construed to require that an individual terminate coverage under a group health plan or health insurance coverage in which such individual was enrolled on the date of enactment of this Act.
(2) CONTINUATION OF COVERAGE- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act, this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply to such plan or coverage, regardless of whether the individual renews such coverage after such date of enactment.
(b) Allowance for Family Members To Join Current Coverage- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act and which is renewed after such date, family members of such individual shall be permitted to enroll in such plan or coverage if such enrollment is permitted under the terms of the plan in effect as of such date of enactment.
(c) Allowance for New Employees To Join Current Plan- A group health plan that provides coverage on the date of enactment of this Act may provide for the enrolling of new employees (and their families) in such plan, and this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply with respect to such plan and such new employees (and their families).
(d) Effect on Collective Bargaining Agreements- In the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before the date of enactment of this Act, the provisions of this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply until the date on which the last of the collective bargaining agreements relating to the coverage terminates. Any coverage amendment made pursuant to a collective bargaining agreement relating to the coverage which amends the coverage solely to conform to any requirement added by this subtitle or subtitle A (or amendments) shall not be treated as a termination of such collective bargaining agreement.
(e) Definition- In this title, the term 'grandfathered health plan' means any group health plan or health insurance coverage to which this section applies.
If we aim for lifetime (or "whole life") health insurance, using a Health Savings Account, provision must be made for the vast majority of people who do not buy it with a single premium at birth, as we use for a simple example. If we know the lifetime goal and the expected average rate of return, it is easy to project the average growth of accounts by any future year. A simple table of such projections becomes useful for displaying the "buy-in" costs for any age. Naturally, it incidentally underlines how costs increase for late-comers since essentially the same costs are distributed among fewer remaining years. Conversely, compound investing while you are young is very attractive. These are important selling points and are valuable lessons to learn. But no strong argument is improved by exaggeration. This is not a way to reduce the cost of medical care, it is a way to pay for some unnecessarily added costs inherent in choosing a "pay as you go" design. The use of compound income does indeed give the initial appearance of something for nothing but should be viewed as a more efficient insurance design.
If it does nothing else, lifetime health insurance clarifies where this money is coming from. Under Medicare, for example, a person contributes all his life but gets no income on that contribution. At some advanced age, he spends that money at prices which reflect the Federal Reserve's 2% inflation of the money, but he pays no taxes on the gain. Meanwhile, some younger person pays his bills at the inflated rate, and in due course inflates it again before he spends it. In the case given, the last of three generations are spending money which includes eighty years of inflation at 1-2% tax-free. However, he has an opportunity cost: the money could have been invested in index funds which Ibbotson has shown would have grown at 12% per year over the same time period, tax-exempt if he put it in a Health Savings Account. And it wasn't even mostly his own money at work. It really doesn't sound impossible for that amount of compound earning to pay for a great deal if not all of the lifetime cost of one person's healthcare, providing he does not pay excessive investment costs to do it. And since this conclusion is based on considerations which have almost nothing to do with the cost of medical care or increasing longevity, it is nevertheless impossible to make precise predictions. Any investment outside the insurance plan will result in a considerable revenue gain, probably a big gain, and possibly pay for all medical costs. Fundamentally, this money is generated by obtaining a higher return on the money, and not sharing much of it with financial agents, or other contestants for your wealth, like the health industry, or like the luxury goods industries. In that sense, it's just like any other wealth.
It also should not matter much whether the planning design aims for the account to terminate at death or when Medicare takes over. Naturally, the same lesson applies to the terminal end as to the buy-in date; the more you delay withdrawals, the more time there is for growth of the principal. With a growing tendency for costs to cluster around the last year of life, many "young old" retirees have only minimal medical expenses for ten or more years after retirement. Since invested money at 7% will double in ten years, there would be a considerable advantage for latecomers in transition. If the latecomer intends to terminate deposits at an attained age of 65, he will need about $40,000 to see him out. If he intends to terminate at death, he will need about $300,000, but the buy-in price at any age before 65 should be the same. As experience gathers, there probably will emerge some distinctions matching health status changes, but curiously the costs seem to decline after age 85. After the preliminary layering by age, the annual lump sum can be broken into installments more realistically matching the income and health practicalities of individuals. Each annual step of a table would represent the "buy-in" price at that age, which is also the average account size achieved by a lump-sum at birth by that age, without withdrawals. The point about "without withdrawals" should be seriously considered as a reason to substitute out-of-pocket payments for trivial expenses. With the passage of time, it can be made more precise by experience. But it should be kept in mind that a regular HSA only hopes to make as much income as possible, while a lifetime HSA seeks an average lifetime target. As experience accumulates, it may be found that required balances actually shrink with advancing age, as the individual lives past the time when expenses had been expected but not experienced. However, without experience, the best conservative assumption is that expenses steadily rise with age.
Since a Health Savings Account tries to serve several purposes, a particular account may not have enough deposit content to match the deductible, for example, because the cost of an individual's illness has little to do with his investment history. The manager of an account will create rules designed to protect his own position, and for example might have a minimum designed for investment purposes, which happens to be considerably short of what the high-deductible insurance company needs as a deductible for a particular age-group's sickness experience. For another example, a gift from a grandparent at birth may be adequate to cover lifetime expenses, but not at first. Only after it has multiplied several times will it be enough to meet the deductible. Some managers impose fees on the first $10,000 of deposits rather than reject the account, and it really only becomes an attractive investment a decade or more later. At present, accounts have an annual limit of $3300 for deposits, so it takes three years to reach a suitable size, and perhaps ten years if only a single deposit is made. Investors must learn to be highly resistant to brokerage fees, especially in new accounts. True, the regulations are likely to be highly changeable in the first few years, so investors much learn to pay fees from outside sources, in order to protect the tax advantage when it is most needed. Unfortunately, educating young investors about complex new regulations can be expensive for the investment advisor, so it is, unfortunately, true that the interests of broker and client are not well aligned in the early years.
The rules should be adjusted to recognize this problem, even though many people would find it unnecessary. A subscriber may have enough savings to make a single-payment deposit but is hampered by the $3300 rule. Finally, an account might once be large enough to be self-sustaining, but be reduced below that level by one or two depletions to pay deductibles. Generally speaking, the conventional HSA does not need to concern itself with such issues, which only become a serious problem if lifetime Health Savings plans are contemplated.
Consequently, the regulations should be modified in the following ways:
1. A family of tables is prepared, showing the deposit required to equal the total average future health cost for each yearly age cohort of life, from now until the average death expectancy, using various extrapolation assumptions. It is possible to reach the same goal with almost any investment assumption, or almost any time period, or almost any starting deposit, but only so long as the other variables are adjusted to conform to that specification. A family of tables would show several investment levels of compound interest reaching the same goal, let us say $40,000 at age 65, at ten percent; seven percent; and five percent. Obviously, a higher interest rate gets you to the goal sooner. Attention should be focused on achieving $40,000 at age 64.
Any subscriber should be allowed to buy into the lifetime Health Savings Account for a one-time deposit of $30,000 at age 48 assuming 5% return, at age 55 assuming 7%, or at age 57 assuming 10%, merely as a rough example. The subscriber may not have savings of that size, of course, and a separate calculation should be made for time payments, also reaching the same goal. If such tables are displayed on a computer terminal, it should not be difficult to make a selection, but "user friendliness" is often more difficult to achieve. As are later modifications, if life circumstances change. The relentless mathematics will soon demonstrate that the more money deposited, and the earlier it appears, the more attractive the investment becomes.
2. Salesmen for HSA should be required to carry their illustrations out to the goal of $40,000 at age 64, supplying achievement benchmarks along the way. So long as the account contains less than the buy-in amount for the subscriber's age, the manager of a fund should be allowed to wager a guaranteed band of investment results; let us use an example of 7% and 10%. If the funds make more than 10%, the manager keeps the excess. If the fund achieves less than 7%, the manager must make up the difference, either by reinsurance or by offering to be at risk for it. If fund results fall between 7 and 10%, the investor retains it all. This mandatory arrangement may (not must) terminate when the fund reaches a buy-in level, so long as it resumes if illness depletes the account.
The actual limits should be set after consultation with managers in active practice since the purpose is to create incentives to get the funds to self-sustaining levels without kickbacks to investment vehicles. The tension is between a subscriber who has investment choices to make, and a fund manager who must cover his expenses. In the long run, it is to everyone's advantage to maintain a steady view of the risks and rewards of income compounding, while serving the goal of paying as much as possible toward everyone's health care costs in a free-market system. It is best if the limits are realistic, and they should be chosen to drive all the participants toward the highest safe level of performance. Ultimately, the subscriber should recognize that an unsafely high level (with leverage, for example) will make paying his health bills more difficult, not easier.
3. The easiest definition of the top limit is the running cumulative average of the stock market, so total-market index fund results are ideal for the purpose. However, index funds differ in their results, so transparent competition should even be able to squeeze out somewhat better results than the 10% compounding which has characterized the past 90 years. Curiously results significantly worse than the market is not a sign of safety. Consequently, freedom to change managers should be as unhampered as possible, comparative results and costs widely available, and exit fees discouraged.
4. In general, single premium policies are rarely used. However, since starting an HSA at birth adds 26 years to the compounding, and while the amounts at first are so small they are somewhat unattractive to HSA managers, they could nevertheless become an important feature of their future. Throughout childhood, the paradox will be common that the necessary deposits in an account for lifetime coverage of health costs are nevertheless far too small for a deductible which is sensible for children with such low health expenses. Therefore, provision should be made for supplemental policies which cover this gap in childhood between the amount in the account and the amount of the deductible, which is often set with an eye to the parents' situation, not the child's. Intuitively, such insurance supplements ought to be quite cheap.
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.