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.
Philadelphia Reflections is a history of the area around Philadelphia, PA
... William Penn's Quaker Colonies
plus medicine, economics and politics ... nearly 4,000 articles in all
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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.
Defense lawyers frequently suggest reforms of the law which would make their job easier
Dr. Fisher
It seems entirely possible that malpractice insurance, by
creating an irresistibly attractive "deep pocket", might well be the root cause of the malpractice crisis. Insurance can certainly cause harm, at times. It can induce people to do unnatural things, like using their own brother. Graphically termed "the moral hazard of insurance," perverse incentives create a principle: society must be vigilant against insurance benefits becoming more attractive than the covered event. It's unsafe to assume people will never sink ships or torch houses to collect insurance. If they are over-insured there is still a greater temptation. Meanwhile, salesmen have a
commission incentive to sell more coverage. Frightened physicians would buy unlimited
malpractice coverage if they could get it.
So, it is legitimate to wonder if excessive malpractice insurance might actually have
stimulated malpractice claims, converting over-insured physicians into attractive targets. One of the clear duties of insurance regulators is to forestall such effects.
That can be achieved by imposing top limits on insurance coverage, regardless of outcry to buy more, or eagerness of insurers to provide it. In the past thirty years, however,
state insurance commissioners have undoubtedly turned away from their traditional goal of preventing insurance company default, and now somewhat adopt the role of consumer advocate, holding down premiums. By itself, the resulting impairment of insurance reserves may have contributed to waves of market exodus during dips in the premium cycle. Permitting unwisely higher levels of coverage to be sold to worried customers may then have been an extended consequence. Regardless
of the causative effect of these changes, however, they are too politically charged,
too difficult to prove, and too far advanced to reverse in any reasonable time, for
relief of the present malpractice difficulties.
A number of other problems exist in the malpractice insurance mechanism, which will be
discussed next. However, they all are too intertwined with conflicting issues to have realistic hope of fixing them. Compared with a mandatory cap on pain and suffering,
insurance tinkering is unlikely to have a useful effect very soon.
Mandatory Coverage. Unfortunately, many states
have sought to create more insurance coverage, not less, an unfortunate stimulus if overgenerous insurance is already creating enticement to sue. The commonest method is to make insurance coverage mandatory for those holding a license to practice. Using the self-defeating argument that the public needs to be promised restitution, mandatory coverage surely dispenses with sales resistance. It imposes premium charges on people whose personal assessment is they don't need insurance, and raises the potential limits of coverage on those who feel they can't afford more. It thus spreads premium costs from people truly at risk, out to bystanders. But ensuring people unnecessarily may
itself create a risk of their now becoming the target of suit.
The claims-made type of policy. Under this
a system, there are really two policies -- one for any claims made (filed) during the current year, and a second "tail" policy for claims that straggle in later. Whether by
genius or accident, malpractice insurance companies introduced this technical "reform"
on their own devising, and like most solutions, it generates new issues. The idea
revolves around a peculiarity of professional liability insurance: few malpractices
claims are ever filed during the first year after the event.
That makes the premium charged for the first year pretty arbitrary. Potentially, it's a
loss-leader to attract new sales, or an emergency solution for some political crisis.
Therefore, "claims-made" policies obscure underlying cost trends. Deferring the rest of
the premium into a second ("tail") policy reduces the amount available for investment,
and therefore increases the final total cost. Those are the bad features, which are
emphasized by discovering instances when the tail is more than four times as large as
the "basic" policy.
On the other hand, the risks for the insurance company are greatly reduced by the
potential to adjust most of the premium in retrospect. An industry subject to demolition every thirty years surely needs some reduction of risk. It's true that much of the risk is transferred from the company to the doctors, but ultimately the customers to pay for all costs of any vendor. By smoothing out unexpected volatility in the court environment, the legitimate costs of financing this lottery are actually reduced, although it is not known by how much. Since 60% of malpractice insurance is
sold by companies owned by medical societies, the reduction of company cost probably mostly
comes back to the doctors.
However, that may be too complacent a view. Individual doctors come and go as
customers and an opportunity to game the system is potentially created. Long-term
deferral of true costs can be adjusted to some degree, creating a temptation to market-time investments but prove wrong in the timing. Timing of these revenue flows can be used to out-guess the tax system and creates the opportunity to squeeze out competitors who have less capital. Since the tail is seldom accumulated as a single payment but is rather fed out in partial surcharges to future basic premiums, the companies have the latitude to forgive the tail completely if they happen to choose.
Since the companies are comparatively small, the potential is there for
intergenerational cost-shifting, or cross-specialty subsidies, raising an issue of how the officers are chosen. In short, this complicated obscurity can get doctors involved in considerations they do not understand, making decisions for which they have no training, amateurs playing poker with professional card sharks. For emphasis, throw in some tricky accounting, with GAP for one set of books and SAP for another, and you begin to wonder why you ever got involved. It's a way to lose your shirt, ending up
with the blame for ruining your own respected profession.
The insurance company antitrust
exemption. Considerable uneasiness revolves around the position of the
insurance industry and its federal antitrust exemption, effectively established in 1945
by the Scarring Ferguson Act. No federal agency (the Justice Department and the Federal
Trade Commission in particular) may interfere in the business of insurance except "to
the extent such business is not regulated by State law." All states passed regulatory laws, but for twenty years there were loopholes of one sort or another, gradually closed. We now face the fact that repeal of this law, which is generally an undesirable one, would very likely generate another long period of loophole closures. Whatever the merits of repeal in other fields of insurance, the potential for regulatory turmoil in professional liability insurance seem to outweigh the desirability of introducing this issue. In particular, the repeal might lead to subsidies of states with unsatisfactory court systems, by states with good ones. No one would claim that repeal of the Act would solve the malpractice problem, or that passage of the law caused it. There's
quite a difference between noticing the existence of insurance created a very tempting
target and hoping the correction of flaws in insurance management, however numerous,
would help very much.
Linking Malpractice Insurance to Health Insurance:
Don't Even Consider It.
While tinkering with insurance cannot rescue this problem, one wrong kind of tinkering
could utterly disrupt the three professions in conflict. From time to time, a lawyer
will suggest to a physician that we could all be friends again if we just got health
insurance companies to pay malpractice premiums as a "pass through." The lawyers would then have a direct pipeline into the insurance companies or better still Medicare, and the physicians wouldn't have to care how much the awards were. Strictly no hard feelings, and we all march arm in arm to the bank. Such proposals actually do get floated in medical society meetings, and there are people so desperate they actually consider them. However imperfect other proposals may be, they do not compare with this
one in betrayal of the public.
Don't get to the root of it, please. If we were
writing a scholarly thesis about the root causes of the malpractice crisis, instead of just trying to keep it from wrecking the health delivery system, the surmises might go as follows. The malpractice insurance business is inherently cyclic and tends to drive nearly every insurance company out of the field, about every thirty years. That strongly suggests the insurers are undercapitalized, unable to accumulate adequate reserves for severe downturns in the lean years. And the reason for this is probably political. The reserves needed to withstand cyclic downturns cannot be accumulated during the fat years when state governments (in the form of the Insurance
Commissioners) experience strong political pressure to force premiums down. State involvement in the Medicaid system possibly provides special incentives to hold down overhead costs like malpractice premiums, and competition from insurers based outside the state boundaries may provide another. If this analysis is near the correct explanation, unraveling it entails an impossibly complex agenda. At a time when
straight-forward limitation of non-economic awards is probably adequate for the purpose
at hand, a top-to-bottom insurance reform would involve the repeal of the McCarran Ferguson
Act, higher premiums in the face of huge existing reserves, a reversal of attitudes by
fifty state governments, revision of the Medicaid financing process, and patient
re-education of the public to accept all this. Such an agenda is so ambitious it
amounts to a decision in advance to do nothing effective about the problem.
Furthermore, the internal problems of the insurance industry are probably only part of
the main causes for instability.
Pointing fingers and blaming others is considered counter-productive in solving
problems, but that's not always so. "Getting to the root of it" is often quite a good way to isolate a single simple cause to be remedied. In the case of medical ability,
the root cause may well have been the creation of malpractice insurance, but that analysis leads nowhere. Physicians eagerly purchased the insurance when it was cheap,
and would now quit practice rather than go without it. Placing a cap on pain and suffering awards is not only politically achievable, but it also has a proven record of success in California and Indiana. At the moment, we are more in need of something which will work than something which advances the borders of justice. If we get twenty years of respite, perhaps pell-Melli medical progress will slow down so we can learn whether the drugs in common use have unanticipated good or bad effects, and how best to use them. Or perhaps some genius will devise a fair and reasonable judicial approach. In football, that's what is known as playing for the breaks. An insurance approach to what
may well be mostly an insurance problem is not presently visible.
Desirable Technical Reforms of the Tort System
Itself
This paper takes the position that procedural reforms, whether in the insurance
industry or the legal system is not likely to be much help in bringing the disrupted system to prompt stability, or will not do so in a reasonable time. Compared with a cap
on pain and suffering, small reforms are not worth the political cost of fighting for
them. However, there are a few other reforms that are desirable in themselves, and
since they involve money, might just prove to contribute importantly to a quick
stabilization.
Pre-trial awards bargaining. Those who might
prefer caps on insurance coverage to caps on awards, should be aware of some practices which undercut the practicality of simply limiting total awards without first subdividing them into economic and non-economic components. It is not unusual for both sides in a court case to agree in advance of the trial to setting both maximum and minimum awards. The maximum is usually the utmost limit of insurance coverage, paid if the jury finds for the plaintiff. If the jury rules in favor of the defendant, an agreed minimum amount is nevertheless paid to the plaintiff. This system holds out the promise that the actual award will not attack the defendant's personal assets even if
he loses the case, in return for which he agrees to let his insurance company pay consolation awards to the plaintiff and his attorney if they lose. This seemingly
the collusive arrangement is justified by arguing that the minimum amount is specifically
aimed at the economic damages, leaving the pain and suffering part for the jury to
decide.
Unfortunately what it does is increase the willingness of both sides to go to trial,
and it drives the award to the extreme upper limits of the policy. It has the additional bad feature of rewarding the plantiff's attorney whether he wins or loses the case, thus creating an incentive to take weak cases to court. Speaking broadly,
this system has the effect of letting the insurance limits set the award, and behind that, the insurance commissioner setting the policy limits, artificially high because of the political pressures on him. The objective fact is that plaintiff attorneys are overwhelmingly members of one political party and heavy contributors to it. Election of a governor (who appoints the insurance commissioner) from that party results in a
safe prediction of higher coverage limits, awards, and premiums. This subtlety could
not continue without at least the tacit permission of the insurance industry to the
pre-trial agreements.
Double-dipping true economic damages
(
The Collateral Source Rule). Even a quick look at medical malpractice data shows the non-economic awards called "pain and suffering" are as preponderant as they are nebulous. Some describe awards for pain and suffering as capricious and arbitrary, but at the least, they appear emotional. Awards correlate better with the degree of disability than with the degree of negligence. Awards for true economic damages are viewed more sympathetically by the public, who are unaware they are mostly already covered by health insurance, a doubling effect which juries are not permitted to know.
Furthermore, in the settlements which determine most of the overall costs of this
process, the amount set aside for pain and suffering is traditionally a multiple (seven
or eight times) of the "medicals". Since, if you dig into it, it can easily be shown
that hospital, drug and equipment charges are already highly inflated above cost, there
is a serious multiplier effect at work with the "economic damages".
The outcome of these technical quirks is that both economic and non-economic damages
are often excessive, but for different reasons under differing circumstances. For this
the reason, it is not a completely satisfactory solution to place a single combined top
limit on overall awards, or on insurance coverage limits.
Structured Payment of Damages (Periodic
Payments).
The payment of damages is an attempt to put a money value on injuries so that dispute
will come to an end. When a plaintiff is disabled, however, it is not possible to know in advance how long he will live, and what he will need. Calculations are therefore made about probable life expectancy and probable costs of long-term disability care.
The resulting damage award can sometimes be very large, be paid in a lump sum, and the plaintiff attorney is awarded a third of it. However, the plaintiff has the
responsibility to save money and invest it wisely, but that does not always happen.
An insurance company is understandably unhappy to pay out an award which is invested to
return less money than the insurance company was earning through its own investment department. And the defense side is even more understandably upset when the plaintiff dies in a few months, but his estate retains large sums that were calculated for his care but now will be spent at the pleasure of the heirs. It would be of value to have longitudinal studies of the disposition of these awards, for the guidance of future courts. Current awards could just as easily prove to be too small as too large.
Assuming the money could be placed in safe hands, it seems likely to be invested better
and last a longer period of time, if the money calculated to be a certain amount each month, were actually paid out at that rate, month by month, instead of in a lump sum. A
the more careful and more efficient system would surely prove to lower costs.
SEC. 1501. REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE.
(a) Findings- Congress makes the following findings:
(1) IN GENERAL- The individual responsibility requirement provided for in this section (in this subsection referred to as the `requirement') is commercial and economic in nature, and substantially affects interstate commerce, as a result of the effects described in paragraph (2).
(2) EFFECTS ON THE NATIONAL ECONOMY AND INTERSTATE COMMERCE- The effects described in this paragraph are the following:
(A) The requirement regulates activity that is commercial and economic in nature: economic and financial decisions about how and when health care is paid for, and when health insurance is purchased.
(B) Health insurance and health care services are a significant part of the national economy. National health spending is projected to increase from $2,500,000,000,000, or 17.6 percent of the economy, in 2009 to $4,700,000,000,000 in 2019. Private health insurance spending is projected to be $854,000,000,000 in 2009 and pays for medical supplies, drugs, and equipment that are shipped in interstate commerce. Since most health insurance is sold by national or regional health insurance companies, health insurance is sold in interstate commerce and claims payments flow through interstate commerce.
(C) The requirement, together with the other provisions of this Act, will add millions of new consumers to the health insurance market, increasing the supply of, and demand for, health care services. According to the Congressional Budget Office, the requirement will increase the number and share of Americans who are insured.
(D) The requirement achieves near-universal coverage by building upon and strengthening the private employer-based health insurance system, which covers 176,000,000 Americans nationwide. In Massachusetts, a similar requirement has strengthened private employer-based coverage: despite the economic downturn, the number of workers offered employer-based coverage has actually increased.
(E) Half of all personal bankruptcies are caused in part by medical expenses. By significantly increasing health insurance coverage, the requirement, together with the other provisions of this Act, will improve financial security for families.
(F) Under the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.), the Public Health Service Act (42 U.S.C. 201 et seq.), and this Act, the Federal Government has a significant role in regulating health insurance which is in interstate commerce.
(G) Under sections 2704 and 2705 of the Public Health Service Act (as added by section 1201 of this Act), if there were no requirement, many individuals would wait to purchase health insurance until they needed care. By significantly increasing health insurance coverage, the requirement, together with the other provisions of this Act, will minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums. The requirement is essential to creating effective health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.
(H) Administrative costs for private health insurance, which were $90,000,000,000 in 2006, are 26 to 30 percent of premiums in the current individual and small group markets. By significantly increasing health insurance coverage and the size of purchasing pools, which will increase economies of scale, the requirement, together with the other provisions of this Act, will significantly reduce administrative costs and lower health insurance premiums. The requirement is essential to creating effective health insurance markets that do not require underwriting and eliminate its associated administrative costs.
(3) SUPREME COURT RULING- In United States v. South-Eastern Underwriters Association (322 U.S. 533 (1944)), the Supreme Court of the United States ruled that insurance is interstate commerce subject to Federal regulation.
(b) In General- Subtitle D of the Internal Revenue Code of 1986 is amended by adding at the end the following new chapter:
`CHAPTER 48--MAINTENANCE OF MINIMUM ESSENTIAL COVERAGE
`Sec. 5000A. Requirement to maintain minimum essential coverage.
`SEC. 5000A. REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE.
`(a) Requirement To Maintain Minimum Essential Coverage- An applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month.
`(b) Shared Responsibility Payment-
`(1) IN GENERAL- If an applicable individual fails to meet the requirement of subsection (a) for 1 or more months during any calendar year beginning after 2013, then, except as provided in subsection (d), there is hereby imposed a penalty with respect to the individual in the amount determined under subsection (c).
`(2) INCLUSION WITH RETURN- Any penalty imposed by this section with respect to any month shall be included with a taxpayer's return under chapter 1 for the taxable year which includes such month.
`(3) PAYMENT OF PENALTY- If an individual with respect to whom a penalty is imposed by this section for any month--
`(A) is a dependent (as defined in section 152) of another taxpayer for the other taxpayer's taxable year including such month, such other taxpayer shall be liable for such penalty, or
`(B) files a joint return for the taxable year including such month, such individual and the spouse of such individual shall be jointly liable for such penalty.
`(c) Amount of Penalty-
`(1) IN GENERAL- The penalty determined under this subsection for any month with respect to any individual is an amount equal to 1/12 of the applicable dollar amount for the calendar year.
`(2) DOLLAR LIMITATION- The amount of the penalty imposed by this section on any taxpayer for any taxable year with respect to all individuals for whom the taxpayer is liable under subsection (b)(3) shall not exceed an amount equal to 300 percent the applicable dollar amount (determined without regard to paragraph (3)(C)) for the calendar year with or within which the taxable year ends.
`(3) APPLICABLE DOLLAR AMOUNT- For purposes of paragraph (1)--
`(A) IN GENERAL- Except as provided in subparagraphs (B) and (C), the applicable dollar amount is $750.
`(B) PHASE IN- The applicable dollar amount is $95 for 2014 and $350 for 2015.
`(C) SPECIAL RULE FOR INDIVIDUALS UNDER AGE 18- If an applicable individual has not attained the age of 18 as of the beginning of a month, the applicable dollar amount with respect to such individual for the month shall be equal to one-half of the applicable dollar amount for the calendar year in which the month occurs.
`(D) INDEXING OF AMOUNT- In the case of any calendar year beginning after 2016, the applicable dollar amount shall be equal to $750, increased by an amount equal to--
`(i) $750, multiplied by
`(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting `the calendar year 2015' for `the calendar year 1992' in subparagraph (B) thereof.
If the amount of any increase under clause (i) is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.
`(4) TERMS RELATING TO INCOME AND FAMILIES- For purposes of this section--
`(A) FAMILY SIZE- The family size involved with respect to any taxpayer shall be equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of a deduction for personal exemptions) for the taxable year.
`(B) HOUSEHOLD INCOME- The term `household income' means, with respect to any taxpayer for any taxable year, an amount equal to the sum of--
`(i) the modified gross income of the taxpayer, plus
`(ii) the aggregate modified gross incomes of all other individuals who--
`(I) were taken into account in determining the taxpayer's family size under paragraph (1), and
`(II) were required to file a return of tax imposed by section 1 for the taxable year.
`(C) MODIFIED GROSS INCOME- The term `modified gross income' means gross income--
`(i) decreased by the amount of any deduction allowable under paragraph (1), (3), (4), or (10) of section 62(a),
`(ii) increased by the amount of interest received or accrued during the taxable year which is exempt from the tax imposed by this chapter, and
`(iii) determined without regard to sections 911, 931, and 933.
`(D) POVERTY LINE-
`(i) IN GENERAL- The term `poverty line' has the meaning given that term in section 2110(c)(5) of the Social Security Act (42 U.S.C. 1397jj(c)(5)).
`(ii) POVERTY LINE USED- In the case of any taxable year ending with or within a calendar year, the poverty line used shall be the most recently published poverty line as of the 1st day of such calendar year.
`(d) Applicable Individual- For purposes of this section--
`(1) IN GENERAL- The term `applicable individual' means, with respect to any month, an individual other than an individual described in paragraph (2), (3), or (4).
`(2) RELIGIOUS EXEMPTIONS-
`(A) RELIGIOUS CONSCIENCE EXEMPTION- Such term shall not include any individual for any month if such individual has in effect an exemption under section 1311(d)(4)(H) of the Patient Protection and Affordable Care Act which certifies that such individual is a member of a recognized religious sect or division thereof described in section 1402(g)(1) and an adherent of established tenets or teachings of such sect or division as described in such section.
`(B) HEALTH CARE SHARING MINISTRY-
`(i) IN GENERAL- Such term shall not include any individual for any month if such individual is a member of a health care sharing ministry for the month.
`(ii) HEALTH CARE SHARING MINISTRY- The term `health care sharing ministry' means an organization--
`(I) which is described in section 501(c)(3) and is exempt from taxation under section 501(a),
`(II) members of which share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs and without regard to the State in which a member resides or is employed,
`(III) members of which retain membership even after they develop a medical condition,
`(IV) which (or a predecessor of which) has been in existence at all times since December 31, 1999, and medical expenses of its members have been shared continuously and without interruption since at least December 31, 1999, and
`(V) which conducts an annual audit which is performed by an independent certified public accounting firm in accordance with generally accepted accounting principles and which is made available to the public upon request.
`(3) INDIVIDUALS NOT LAWFULLY PRESENT- Such term shall not include an individual for any month if for the month the individual is not a citizen or national of the United States or an alien lawfully present in the United States.
`(4) INCARCERATED INDIVIDUALS- Such term shall not include an individual for any month if for the month the individual is incarcerated, other than incarceration pending the disposition of charges.
`(e) Exemptions- No penalty shall be imposed under subsection (a) with respect to--
`(1) INDIVIDUALS WHO CANNOT AFFORD COVERAGE-
`(A) IN GENERAL- Any applicable individual for any month if the applicable individual's required contribution (determined on an annual basis) for coverage for the month exceeds 8 percent of such individual's household income for the taxable year described in section 1412(b)(1)(B) of the Patient Protection and Affordable Care Act. For purposes of applying this subparagraph, the taxpayer's household income shall be increased by any exclusion from gross income for any portion of the required contribution made through a salary reduction arrangement.
`(B) REQUIRED CONTRIBUTION- For purposes of this paragraph, the term `required contribution' means--
`(i) in the case of an individual eligible to purchase minimum essential coverage consisting of coverage through an eligible employer-sponsored plan, the portion of the annual premium which would be paid by the individual (without regard to whether paid through salary reduction or otherwise) for self-only coverage, or
`(ii) in the case of an individual eligible only to purchase minimum essential coverage described in subsection (f)(1)(C), the annual premium for the lowest cost bronze plan available in the individual market through the Exchange in the State in the rating area in which the individual resides (without regard to whether the individual purchased a qualified health plan through the Exchange), reduced by the amount of the credit allowable under section 36B for the taxable year (determined as if the individual was covered by a qualified health plan offered through the Exchange for the entire taxable year).
`(C) SPECIAL RULES FOR INDIVIDUALS RELATED TO EMPLOYEES- For purposes of subparagraph (B)(i), if an applicable individual is eligible for minimum essential coverage through an employer by reason of a relationship to an employee, the determination shall be made by reference to the affordability of the coverage to the employee.
`(D) INDEXING- In the case of plan years beginning in any calendar year after 2014, subparagraph (A) shall be applied by substituting for `8 percent' the percentage the Secretary of Health and Human Services determines reflects the excess of the rate of premium growth between the preceding calendar year and 2013 over the rate of income growth for such period.
`(2) TAXPAYERS WITH INCOME UNDER 100 PERCENT OF POVERTY LINE- Any applicable individual for any month during a calendar year if the individual's household income for the taxable year described in section 1412(b)(1)(B) of the Patient Protection and Affordable Care Act is less than 100 percent of the poverty line for the size of the family involved (determined in the same manner as under subsection (b)(4)).
`(3) MEMBERS OF INDIAN TRIBES- Any applicable individual for any month during which the individual is a member of an Indian tribe (as defined in section 45A(c)(6)).
`(4) MONTHS DURING SHORT COVERAGE GAPS-
`(A) IN GENERAL- Any month the last day of which occurred during a period in which the applicable individual was not covered by minimum essential coverage for a continuous period of fewer than 3 months.
`(B) SPECIAL RULES- For purposes of applying this paragraph--
`(i) the length of a continuous period shall be determined without regard to the calendar years in which months in such period occur,
`(ii) if a continuous period is greater than the period allowed under subparagraph (A), no exception shall be provided under this paragraph for any month in the period, and
`(iii) if there is more than 1 continuous period described in subparagraph (A) covering months in a calendar year, the exception provided by this paragraph shall only apply to months in the first of such periods.
The Secretary shall prescribe rules for the collection of the penalty imposed by this section in cases where continuous periods include months in more than 1 taxable year.
`(5) HARDSHIPS- Any applicable individual who for any month is determined by the Secretary of Health and Human Services under section 1311(d)(4)(H) to have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan.
`(f) Minimum Essential Coverage- For purposes of this section--
`(1) IN GENERAL- The term `minimum essential coverage' means any of the following:
`(A) GOVERNMENT SPONSORED PROGRAMS- Coverage under--
`(i) the Medicare program under part A of title XVIII of the Social Security Act,
`(ii) the Medicaid program under title XIX of the Social Security Act,
`(iii) the CHIP program under title XXI of the Social Security Act,
`(iv) the TRICARE for Life program,
`(v) the veteran's health care program under chapter 17 of title 38, United States Code, or
`(vi) a health plan under section 2504(e) of title 22, United States Code (relating to Peace Corps volunteers).
`(B) EMPLOYER-SPONSORED PLAN- Coverage under an eligible employer-sponsored plan.
`(C) PLANS IN THE INDIVIDUAL MARKET- Coverage under a health plan offered in the individual market within a State.
`(D) GRANDFATHERED HEALTH PLAN- Coverage under a grandfathered health plan.
`(E) OTHER COVERAGE- Such other health benefits coverage, such as a State health benefits risk pool, as the Secretary of Health and Human Services, in coordination with the Secretary, recognizes for purposes of this subsection.
`(2) ELIGIBLE EMPLOYER-SPONSORED PLAN- The term `eligible employer-sponsored plan' means, with respect to any employee, a group health plan or group health insurance coverage offered by an employer to the employee which is--
`(A) a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act), or
`(B) any other plan or coverage offered in the small or large group market within a State.
Such term shall include a grandfathered health plan described in paragraph (1)(D) offered in a group market.
`(3) EXCEPTED BENEFITS NOT TREATED AS MINIMUM ESSENTIAL COVERAGE- The term `minimum essential coverage' shall not include health insurance coverage which consists of coverage of excepted benefits--
`(A) described in paragraph (1) of subsection (c) of section 2791 of the Public Health Service Act; or
`(B) described in paragraph (2), (3), or (4) of such subsection if the benefits are provided under a separate policy, certificate, or contract of insurance.
`(4) INDIVIDUALS RESIDING OUTSIDE UNITED STATES OR RESIDENTS OF TERRITORIES- Any applicable individual shall be treated as having minimum essential coverage for any month--
`(A) if such month occurs during any period described in subparagraph (A) or (B) of section 911(d)(1) which is applicable to the individual, or
`(B) if such individual is a bona fide resident of any possession of the United States (as determined under section 937(a)) for such month.
`(5) INSURANCE-RELATED TERMS- Any term used in this section which is also used in title I of the Patient Protection and Affordable Care Act shall have the same meaning as when used in such title.
`(g) Administration and Procedure-
`(1) IN GENERAL- The penalty provided by this section shall be paid upon notice and demand by the Secretary, and except as provided in paragraph (2), shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68.
`(2) SPECIAL RULES- Notwithstanding any other provision of law--
`(A) WAIVER OF CRIMINAL PENALTIES- In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.
`(B) LIMITATIONS ON LIENS AND LEVIES- The Secretary shall not--
`(i) file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section, or
`(ii) levy on any such property with respect to such failure.'.
(c) Clerical Amendment- The table of chapters for subtitle D of the Internal Revenue Code of 1986 is amended by inserting after the item relating to chapter 47 the following new item:
`Chapter 48--Maintenance of Minimum Essential Coverage.'.
(d) Effective Date- The amendments made by this section shall apply to taxable years ending after December 31, 2013.
SEC. 1502. REPORTING OF HEALTH INSURANCE COVERAGE.
(a) In General- Part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by inserting after subpart C the following new subpart:
`Subpart D--Information Regarding Health Insurance Coverage
`Sec. 6055. Reporting of health insurance coverage.
`SEC. 6055. REPORTING OF HEALTH INSURANCE COVERAGE.
`(a) In General- Every person who provides minimum essential coverage to an individual during a calendar year shall, at such time as the Secretary may prescribe, make a return described in subsection (b).
`(b) Form and Manner of Return-
`(1) IN GENERAL- A return is described in this subsection if such return--
`(A) is in such form as the Secretary may prescribe, and
`(B) contains--
`(i) the name, address, and TIN of the primary insured and the name and TIN of each other individual obtaining coverage under the policy,
`(ii) the dates during which such individual was covered under minimum essential coverage during the calendar year,
`(iii) in the case of minimum essential coverage which consists of health insurance coverage, information concerning--
`(I) whether or not the coverage is a qualified health plan offered through an Exchange established under section 1311 of the Patient Protection and Affordable Care Act, and
`(II) in the case of a qualified health plan, the amount (if any) of any advance payment under section 1412 of the Patient Protection and Affordable Care Act of any cost-sharing reduction under section 1402 of such Act or of any premium tax credit under section 36B with respect to such coverage, and
`(iv) such other information as the Secretary may require.
`(2) INFORMATION RELATING TO EMPLOYER-PROVIDED COVERAGE- If minimum essential coverage provided to an individual under subsection (a) consists of health insurance coverage of a health insurance issuer provided through a group health plan of an employer, a return described in this subsection shall include--
`(A) the name, address, and employer identification number of the employer maintaining the plan,
`(B) the portion of the premium (if any) required to be paid by the employer, and
`(C) if the health insurance coverage is a qualified health plan in the small group market offered through an Exchange, such other information as the Secretary may require for the administration of the credit under section 45R (relating to credit for employee health insurance expenses of small employers).
`(c) Statements To Be Furnished to Individuals With Respect to Whom Information Is Reported-
`(1) IN GENERAL- Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing--
`(A) the name and address of the person required to make such return and the phone number of the information contact for such person, and
`(B) the information required to be shown on the return with respect to such individual.
`(2) TIME FOR FURNISHING STATEMENTS- The written statement required under paragraph (1) shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.
`(d) Coverage Provided by Governmental Units- In the case of coverage provided by any governmental unit or any agency or instrumentality thereof, the officer or employee who enters into the agreement to provide such coverage (or the person appropriately designated for purposes of this section) shall make the returns and statements required by this section.
`(e) Minimum Essential Coverage- For purposes of this section, the term `minimum essential coverage' has the meaning given such term by section 5000A(f).'.
(b) Assessable Penalties-
(1) Subparagraph (B) of section 6724(d)(1) of the Internal Revenue Code of 1986 (relating to definitions) is amended by striking `or' at the end of clause (xxii), by striking `and' at the end of clause (xxiii) and inserting `or', and by inserting after clause (xxiii) the following new clause:
`(xxiv) section 6055 (relating to returns relating to information regarding health insurance coverage), and'.
(2) Paragraph (2) of section 6724(d) of such Code is amended by striking `or' at the end of subparagraph (EE), by striking the period at the end of subparagraph (FF) and inserting `, or' and by inserting after subparagraph (FF) the following new subparagraph:
`(GG) section 6055(c) (relating to statements relating to information regarding health insurance coverage).'.
(c) Notification of Nonenrollment- Not later than June 30 of each year, the Secretary of the Treasury, acting through the Internal Revenue Service and in consultation with the Secretary of Health and Human Services, shall send a notification to each individual who files an individual income tax return and who is not enrolled in minimum essential coverage (as defined in section 5000A of the Internal Revenue Code of 1986). Such notification shall contain information on the services available through the Exchange operating in the State in which such individual resides.
(d) Conforming Amendment- The table of subparts for part III of subchapter A of chapter 61 of such Code is amended by inserting after the item relating to subpart C the following new item:
`subpart d--information regarding health insurance coverage'.
(e) Effective Date- The amendments made by this section shall apply to calendar years beginning after 2013.
Every tennis racquet has a "sweet spot", a place within the stringed area that hits the ball just exactly right with minimum effort, and for that matter, does so with a minimum of noise. If your aim is good, the shot is much improved by whacking it with the sweet spot. In health savings accounts, the sweet spot is that combination of fixed choices over which you have no control, like your age, and independent choices over which you do have some control, like the amount you deposit into the account, or the shrewdness with which you choose your agent. There's a somewhat different sweet spot for males and females, and it will vary with the state of the stock market, or international warfare, during the era in which you had the highest earning potential. In other words, the cost of sickness is the only chance catastrophe we are aiming to protect against. For that narrow purpose, the uncontrollable factor which makes the most difference is
The age at which you started your spending account. Compound interest requires time to work; persons who start their accounts late in life no longer have to pay for their earlier expenses, but they must have some traditional insurance protection during the transition to full dependence on the account, or else some other form of savings. That's why you need catastrophic insurance coverage, but in the early stages of getting established, even that could be inadequate, and nothing can be offered unless the government offers to subsidize it. In order to find a way to capture twenty extra years of compound interest, it is tempting to begin depositing at birth, which is presently prevented by the HSA rule that you must be working to start an HSA. But children have health costs to be managed. In particular, 3% of all health costs are reported to occur in the first year of life. If Congress will allow it, we have a plan in later sections for doing it expeditiously.
Subsidies for the Unemployable, Such as Children. Please do not compare subsidy with lack of subsidy, because the subsidy is always cheaper in the short run. . Furthermore, subsidies are created by the government, and are therefore under pressure to demonstrate equity. Protection in extreme cases must rely on reasoning which placates the "Equal Protection" clause of the Fourteenth Amendment. All forms of insurance contain some incentive not to invest but to squander, and channeling that choice is part of insurance design. Here it attempts to balance a singular opportunity to select the best possible investment opportunity, with the unique ability to spend the proceeds on anything you choose after your health cost has been met. Unfortunately, we have already gone so far with borrowing for health, that many people are of a mind to believe balance can't be achieved. We could go on with this, but a quick summary is there are thousands of possible sweet spots, most of which are partly beyond anyone's control or ability to predict. There are even some circumstances where an individual would be better off putting reliance on Obamacare, trusting the government to bail him out with subsidies; if the nation decided to give equal subsidies for every payment alternative, however, most of these short-term advantages would disappear. The best we can suggest for people who dislike both HSA and Obamacare is, go see your congressman. In this book, we merely suggest that most people would be better off with HSA.
Trying not to be repetitious, there's nothing you can do about your age and sex, or previous state of health. You should have stopped smoking twenty years ago, but you can't help it now if you didn't. Twelve million people already have HSAs; if you aren't one of them, the best you can do is start one now. It's very difficult to imagine a situation in which a late start would inflict harm which subsidy couldn't help. On the other hand, if you make a bad choice of agency, make sure you are allowed to switch to a better one if you can find it. Some brokers charge too much, some of them pick poor investments to get a kickback. Some demand too large a front-end investment, although that may do you a favor in the long run. Essentially, your own choices affect the result, and your main recourse is to invest more than you planned. For the most part, the more you invest the better. If you invest as much as you can and it still isn't enough, you made an investment mistake. It's only a real catastrophe if you then get sick, and Congress didn't provide for those few who inevitably make such a double blunder. In that case, it will have required three misjudgments for a serious mistake to emerge, because even this mishap will be adjusted by aggregate subsidies costing less than the program is able to diminish overall costs -- a very likely outcome.
Interest Rates. Unless you are within a few years of death, or within a few weeks of a stock market crash, in the long run, you are generally better off with stocks than with bonds or money market funds. According to Ibbotson who published the results of all asset classes for a century, the stock market has averaged 11-12% total return for the past century. However, if you maintain internal reserves against a depression, you will probably only receive about 8% as an investor, of which 3% is due to inflation, so figure on a steady 5% after-tax, after-inflation return over the long haul. Use 8% as your shopping guide, resign yourself to 3% inflation loss, and content yourself with complaining about the 4% attrition seemingly imposed by the financial industry. You will find our charts use 5% tax-free as a standard, but show a family of curves up to 12%, just in case someone figures out a better system for harvesting the return. For 3-5 year depressions ("black swans" occur about every thirty years), we show curves of lower returns. Notice endowments and professional investors also figure on 5% overall from a 60/40 mixture of stocks and bonds, because they have a payroll to meet, but you may not. A conservative investor can feel comfortable with a 5% "spending rule", but that assumes a long horizon and the need to make expenditures. Some people have a short horizon and may be able to gamble on a pure stock portfolio because they have some other way to meet medical expenses up to the deductible on their catastrophic high-deductible insurance. But they better know they are gambling, and may, therefore, encounter a black swan they can't cope with. Such people probably need financial advice, because it is also possible to be too conservative if your deductible is comfortably covered. Fear of underfunding may cause the account to become overfunded, but that is scarcely a tragedy because you can withdraw your money without penalty after age 66. In fact, a policy of deliberately overfunding the account at all times never has any great downside, and lets everyone sleep better.
Age at Beginning an Account. If you begin to use an HSA during late working years, you have the consolation that you no longer need to plan for paying for the first forty or fifty years of your own health. However, the years of heavier medical expenses begin around age 45, by which time you have already paid for most of your Medicare payroll deduction, which is about a quarter of Medicare costs. The older you get, the more you have paid with a payroll deduction, but fewer years are left for compound interest to accumulate within the account. Balanced against this is the likelihood you are entering your highest earning years, which carried too far, may tempt you into unwise early retirement. You may need some accounting advice about what is best and still feasible. And you may need legal advice if the laws change.
Younger working people have contributed less to payroll deductions but have longer to earn compound interest in their HSA. People seem to have figured this out, and the largest group of new subscribers are in their twenties and thirties. This is the group with most to gain by proposing a buy-out of Medicare. A quarter of Medicare is paid for with payroll deductions, another quarter by Medicare premiums after you reach 66. If Congress could be persuaded to drop these contributions, what would be left is the half the government pays by borrowing from foreign sources. If you, in turn, agreed to pay off this indebtedness, the government might be tempted to match it by foregoing part or all of your payroll deductions and premiums. Since one about balances the other, the compound interest you earn on your deposits is pure profit. From the government's viewpoint, it might seem a great relief to know the debt would stop growing. Older people are generally so deeply committed to Medicare they would resist, but younger people -- and the Treasury Department -- would find it quite a bargain. Once again, financial advice from somebody good at math is highly advised. When the politics of this matter settle down, it should become possible to state a particular age, below which a Medicare buy-out is safely advisable for anyone. It's almost always in the Government's favor, so independent advice is only prudent. In summary, starting an HSA at almost any age is safe and wise. A Medicare buy-out is wise below a certain age, yet to be determined. In other circumstances, a buy-out is wise if personal finances are comfortable, but right now it would take financial advice to do it. And, of course, a friendly politician to convince Congress to make it legal.
There are two more steps to this transition. But before getting to them, it seems best to run dual systems while you phase one out and phase the other in. It may even prove to be best to run two systems indefinitely. Three principles emerge:
I. It would be pretty hard to run dual systems without also running subsidies for both. This would be part of Equal Justice Under the Law. It's hard to run dual subsidies until you know what the final rules would be. Some subsidies may be difficult to match, and require equivalent subsidies, which are harder to devise.
II. Dual systems and patchwork fixes always provide loopholes for someone seeking to take advantage. Some agency must be designated to keep this in line, using the principle of each system being charged with watching the other one. When you deal with one-seventh of the GDP, tremendous scams are entirely possible. A system of balanced whistle-blowing could effect great savings without the same surveillance costs.
III It isn't necessary to pay for everything. The reader will, of course, have noticed that paying for all of the medical care would save perfectly stupendous amounts of money. But paying for half of it would also save stupendous amounts. And even paying for only a quarter or a third of everything medical would save the economy two or three percent of Gross Domestic Product. That wouldn't be a failure, it would be a tremendous success.
In fact, it might be all the change the economy could withstand for a few years.
The Intergenerational Roll-Over.
The Coming Shift From InPatient to Outpatient Care.
The Affordable Care Act was announced as mandating health insurance for everyone, but about thirty million people were specifically excluded. The healthcare problems of seven million prison inmates, eight million unemployable, and eleven million illegal immigrants were too specialized to be included in a program which hoped to be one-size fits all. Quite properly, such special outliers would be better handled by special programs designed for their special needs.
The Affordable Care Act (ACA) is now central to Administration attention, and Medicare may be deemed too hot to handle in an election campaign. Nevertheless, we elected here to discuss Medicare but not the ACA. Retirement, childhood, and how to unify complete the list--pretty much all that's left surrounding, but excluding the ACA, election or no election. That emphasizes what had been evaded or neglected, and avoids direct confrontation with the ACA, preparing for the day when that big gorilla is either confirmed or abandoned. It's obviously too expensive, and it remains to be seen whether it can be fixed, or must be abandoned. In our alternative scheme, all of the lifetime healthcare would be financially connected to a single lifetime Health Savings Account, one account per person, but the delivery systems would remain semi-autonomous. ACA could surely live in peace with the HRSAs, and could even peacefully adopt the HSA approach. That would save money, but the questions left are whether it would save enough to be worth the trouble, and whether politics will allow it. Like the European Union, it's surely easier to describe than to accomplish.
Retirement as a Medical Issue. The news is precarious for retirement funding. We begin with the far end of life, where most health cost and all retirement cost concentrates. While retirement is parallel in time to Medicare, we begin to recognize increased longevity as an outcome of better health. If one is to help pay for the other, they must, in the Medicare case, draw their funds from the same pool. That's Medicare, which most people don't want to change, but is the first thing which must change. Because unchanged it costs too much to leave anything for retirement.
Although the Industrial Revolution brought many lifestyle improvements in the past two centuries, it also brought turmoil. The idea of leisure time may once have been a reward for the upper 1%, but actually, most of the population never dreamed of any leisure time. The novels of the "Lost Generation" after the first World War often revolved around the discovery of unfamiliar leisure pursuits by members of social classes newly learning about such things. The moral, then and now, seems to be that leisure is no bed of roses.
We must assign a reasonable definition to a "decent" retirement, provide for a marginal one, and leave the rest to our own sources of wealth.
The cultural response seems to be that leisure was best reserved for retirement, although the younger generation sometimes rebelled, wanting some of it sooner. In any event, Medicare surely extended retirement longevity. (Overextended it, if you believe it will be impossible to pay for.) After all, retirement is a continuous cost, while illness is episodic. There are ways of calculating costs which depict retirement as five times as expensive as healthcare. But Medicare cost averages thirteen thousand dollars a year and rising. That's a pretty meager retirement, and when you discover Medicare is 50% borrowed, you question how many people could retire on $26,000 a year per person, on public sector revenues. If you see retirement as a couple of old folks, you wonder where they would get $52,000 a year, for thirty years. Add Medicare to retirement, and you begin to get absolutely impossible numbers. There seems no possible way to handle this except to provide for subsistence retirement, plus Medicare, and let everyone find some way to get whatever extra he needs, or defines as "decent". And that defines retirement cost as equal to medical costs when both costs could rise appreciably. The Health Savings Account method of accomplishing this is to put retirement at the end of the financial line, funded by the residuals of the other pearls on the string. You keep what's left. Another way is to retire later, or best of all, find some remunerative way to fill your time and use your experience.
Medicare As a Financial Issue. Medicare is about half paid-for, half borrowed, but it's really totally under water. According to Mrs. Sibelius, about half of Medicare expenditures are supported by the general fund or general taxation. The general fund is in deficit, however, providing some fairness to the description of Medicare as a fund borrowed from the Chinese, although China and Japan combined only purchase 13% of ten-year Treasury bonds. In the event of Medicare default, the main creditor victims will be U.S. citizens. The purchasers may change, but the deficit looks to be permanent. Until deficits are paid off, it will remain true that Medicare provides a dollar of care for fifty cents. That sounds wonderful until it suddenly sounds terrible. Medicare is bleeding money. If you want to know how brutal our government can get, read the section later on, about the Diagnosis Related Groups.
About half of the Medicare deficit is paid as you go, about another half is borrowed; only a quarter of the budget is current revenue from the beneficiary age group.
An accountant might say, Medicare's cash revenue is roughly divided between premiums paid by the beneficiaries, and pre-paid as a payroll tax of 3% on workers not yet old enough for benefits. (About half of this wage tax comes directly from the employee, another half from the employer. We skip over the technicalities that some parts of the program are tied to one fund, other parts to another, and also some are subject to higher income tax). About a quarter of Medicare is paid in advance on a "pay-as-you-go" basis, which is to say some people pay current costs of other people -- they are definitely not saved in anticipation of the contributors becoming beneficiaries, as the term "Trust Fund" implies.
A second quarter is indeed paid and spent by current beneficiaries as Medicare premiums. That is, about half of the deficit is paying as you go, another half is borrowed from foreigners; only half of the deficit is matched by current revenue from the beneficiary age group. Nevertheless, the payers of pay-as-you-go are about thirty years younger than the spenders of it. If we put the youngsters' cash to work for thirty years, what interest rate would it take to grow one dollar into three? The answer is about five to seven percent. For quicker understanding, a few unfamiliar tools are needed:
First and Last Years of Life Re-Insurance By far the best proposal for refinancing Medicare, however, is to anticipate the way science is going to re-design costs. In the long, long, run, there should be very little medical cost left, except for the first and last years of life. We have no idea how long it will take, but that's the direction things are almost sure to be going.
So, phase in a restructuring of funding for both children and elderly first, and then add in the rest of a lifespan, step by step. That way, you first fund an obligation you are always sure to have. Be sure to do it in such a way that maximizes the investment income at compound interest. This might be a project under construction for decades, but its first step would be to begin funding for the Last Four Years of Life, which happens to be an early proposal in refinancing Medicare. Since the reader may be unprepared for the topic, it is considered in a free-standing way, in the next section.
Pay at the time, or pre-pay in advance?> At first, it might seem frugal to have people pay for what they spend; let them pay for what it costs, when you know who ran up the cost. But in the case of birth and death, it's going to be 100%, and the amount of it is a lottery. By far the more important issue is the compound interest you earn by paying in advance. Using the rule of thumb that money at 7% will double in ten years, a life expectancy of 90 should double 9 times from birth to death. That is, a dollar at birth is worth $512 at death.
What's more, 50% of Medicare is reported to be spent in the last four years of someone's life. That's likely to represent terminal care, but it doesn't matter. If you prepay those four years, the rest of Medicare has its cost cut in half. In those two simple statements is found the nut of paying for half of Medicare for $100 -- ninety years from now. It's up to actuaries and accountants to find the "sweet spot", of the most revenue enhancement for the shortest time of investment.
We knew this election was coming; we didn't know who was going to win it. Whether Hillary Clinton would replace the Affordable Care Act with her own plan, or whether Donald Trump would replace the ACA with a different plan, was far less certain. In either case, the many flaws in the Affordable Care Act would be addressed. One thing seems certain: the Affordable Care Act will start off 2017 with a bigger deficit than was expected. My previous four books on the subject were forced to assume the ACA was cost-neutral, offering proposals for lifetime health finance for every age group except age 26 to 65, the working years of life. This book mostly concentrates on that gap.
Cheaper. The core of this lifetime proposal is the Health Savings Account. It was devised by me and John McClaughry of Vermont in 1981, when John was Senior Policy Advisor in Ronald Reagan's White House and I was a Delegate to the American Medical Association's House of Delegates. It flourished after John Goodman of Texas wrote a book about it, Bill Archer of Texas pushed it through Congress, the American Academy of Actuaries found it saved 20-30% of the cost of more usual Health Insurance, the AMA endorsed it, and thirty million accounts were established by June 2015. It consisted of two ideas welded together: a high-deductible catastrophic health insurance policy, and a double tax-exempt Savings Account, acting as a sort of Christmas Savings Account for the deductible. It wasn't free, but it helped a poor man get coverage as cheaply as we could devise it. The individual patient or client owned his own account, so it had no "job lock" to hinder changing jobs. In that sense, it was patterned after Senator Bill Roth's IRA or Individual Retirement Account. A significant improvement followed the question of what to do with an unspent surplus which remained
in the HSA (Health Savings Account) if you turned 65 after being healthy and then got Medicare. The Law was changed to turn such surplus into an IRA.
Retirement Funding. In correcting this oversight, the right thing was done for the wrong reason. Before anyone really understood Medicare was 50% underfunded, a retirement fund had been created. Since increased longevity was an inevitable consequence of better healthcare, it seemed natural for this "Medicare money" to pay for the extended retirement. It soon became apparent that retirement came at the same time as Medicare, and Medicare was thus underfunded. Even though the $3400 annual limit to Health Savings Account deposits was not enough to pay for soaring Medicare costs, it was not needed for that purpose for up to forty years. So augmented funds became available for healthcare at age 26 but had to be invested for fifty years or more until sickness made its appearance later in life. Emergencies might come up before then, but the Catastrophic health insurance took care of them. After many state laws mandating small-cost expenditures were amended, the high-deductible product took off, particularly in California and New York. Millions of policies were issued before anyone took the trouble to count them. When the Affordable Care Act made high-deductible insurance widely mandatory, Health Savings Plans took off like pursuit planes.
So, when competitive plans -- like HMOs, Preferred Provider Plans, First-dollar Coverage, Employer-sponsored plans, and a host of others -- started to encounter criticism, Health Savings Accounts became much more popular. Their flaws, instead of provoking consumer resistance, provoked demand for legislative relief. It was a mistake to limit ownership to people who were employed, or who were age 26 to 65; what good purpose did those age and employment restrictions serve? The advent of DRG payment limits to hospitalization and debit-card payment for outpatient services raised a question of the usefulness of insurance claims processing, which was certainly expensive. Prohibiting the HSA from purchasing the required catastrophic health insurance seemed to hamper unnecessarily a tax deduction which its competitors widely enjoyed. One or two amendments were all that would be needed to enhance sales considerably. People change jobs a lot; why would anyone want to prohibit dual coverage if someone wanted to pay for it, for his own personal reasons? The changes needed to enhance Health Savings Accounts were short and simple and could be enacted over a weekend. Why wait?
Improved Investment. Changes in the HSA Law to permit higher returns on invested deposits, are certain to provoke resistance but should be addressed very soon. If you are serious about replacing the old with the new, there are some zero-sum tradeoffs, especially within the finance industry. Go to the library or the internet, and look up the graphs of Professor Ibbotson of Yale about the performance of stocks and bonds for the past century. You will surely find the total stock market has risen at 9-11% for the past century, and what people describe as crashes and disasters seem like small wiggles in the line -- in retrospect. Some opportunities are better than others, but the main determinate of investing is the year you happen to have been born. In spite of these retrospective results, you will find very few investors who received half of that, but John Bogle and Burton Malkiel have demonstrated that random selection of stocks in a total market index fund beats expert active investors more than half the time, at a hundredth the cost. Bogle has something like 3 trillion dollars invested in his funds, and they have grown so fast he has trouble satisfying the demand. The average investor should be getting 5% on his money over the long run, and regulatory changes ought to aim for 7%. Money invested at 7% tax-free will double every ten years. With an average life expectancy approaching 90 years, that's ten doublings, or 512 times the initial investment in 90 years. And it still leaves 9-12% minus 7% (2-5%) for the finance industry.
But that's only half the problem. If you invest massive amounts of money for 90 years, there are plenty of cheerful brigands out there. Inflation is the main one -- it averages 3% a year -- because governments issue bonds, and enjoy low-interest rates. Federal Reserve and other central bankers are the nicest people in the whole world, mandated to preserve independence from the rest of the government. But they read newspapers and know who appoints whom. Bankers and brokers are also nice people, overvaluing rigidity because counterparties cheat when vigilance gets relaxed. One way or another, spreads should be narrowed.
The present system, plus stronger management, plus a few simple legislative amendments, would suffice to get us started with something workable, while we immediately roll up our sleeves and plan for a revolutionary future, better, system.
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.
