George R. Fisher, III, M.D.

Obituary

George R. Fisher, III, M.D.

Age: 97 of Philadelphia, formerly of Haddonfield Dr George Fisher III

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.

Making Money (1)

Barbarous Relic

As 2005 turns into 2006, we watch an upward surge in the price of gold for the first time in three decades. The last time the gold price soared, America had gone off the gold standard completely, ending traditional promises that U.S. dollars could always be exchanged for precious metals at a specific price. A brief flutter of the exchange rate ("the price of gold") under floating-price circumstances was to be expected since it was even conceivable that the price of gold might eventually go down. It didn't, and when things settled out it was roughly true that the price had migrated from about thirty dollars for an ounce of gold to about three hundred dollars an ounce. The conversion price has experienced fluctuations since that time, gradually moving to four hundred dollars an ounce in thirty years. There was a reason to see this as a one-time readjustment. The floating prices of precious metals might drift along independently forever, responding to fashions in gold jewelry and advances in dentistry, but a matter of little interest to anything else. No doubt there would be panics in third-world politics, but anyone one who staked life's savings on predictions of wars and famines in the underdeveloped world was imprudent a nut. A gold bug.

This time, it seems to be different; all is calm. The price of gold now exceeds five hundred dollars an ounce; responsible publications even conjecture it will go to a thousand within five years, perhaps three thousand in fifteen years. You might say wild predictions are thus flying about that our savings will lose ninety percent of their value, but nowadays nobody seems willing to say this is either a crisis or just nutty talk. There is both an absence of alarm that the price of gold is predicting disaster, but also a lack of scorn for dumbbells who would actually believe such a thing. A cynic would say that the columnists in financial magazines all seem to be owners of some gold and are talking up its price. But we were told it didn't matter, so we seem to believe it.

A more reflective view would be that we are experiencing the first real test of the world's new monetary system, at least its first challenge by the marketplace since the convertible link between gold and dollars was officially severed. The value of gold seemingly has little to do with its basic utility for dentists. The value of the dollar seemingly does not attempt to relate to the actual supply in circulation, nor attempt to represent a share of all American assets; those things are too hard to measure. The number of dollars in circulation is governed by watching inflation and unemployment and having the Federal Reserve create more or fewer dollars as needed to keep inflation and unemployment at some steady, pre-determined level. The price of gold is something else, irrelevant to a civilized society. It's all terribly clever, but it ultimately depends on whether those pre-determined levels of inflation or unemployment are well chosen. And whether politicians might tinker with them.

It would, therefore, seem likely that the clearing price between gold and dollars is currently putting a high value on gold for reasons other than a current over-supply of dollars or a world shortage of the metal. We must look elsewhere for the cause of the gold-price panic. The Chinese and the Indians are getting richer; perhaps the value of precious commodities somehow reflects that relativity. Or perhaps we are dealing with political predictions; a civil war in China renewed war between India and Pakistan, a revolution in the Persian Gulf oil kingdoms. Or atomic bomb terrorism directed against the United States. Whatever political upheaval it is that bothers the gold bugs must be pretty big; neither the war in Afghanistan nor the one in Iraq or the combination of both, was enough to stir up gold prices to the present degree.

In a sense, the worst possibility would be: the gold hysteria has no rational basis at all, like the tulip bulb frenzy of several centuries ago. The immediate question gets raised whether a merely intellectualized value for the currency can withstand cataclysmic world events. But if there is no serious threat of world cataclysm, then the remaining question on the poker table becomes whether hysterical financial commentators can topple the dollar system just by mindlessly stampeding. A monetary system which cannot withstand such a trivial threat is not a viable monetary system. The financial world's eggheads would then be in a war with the financial world's green-eyeshade gamblers. It's not entirely safe to predict who will win.

Inverted Yield Curve: The Depositors' Viewpoint

Much has been made of risks for giant creditors in the 2007 credit crunch. What about the little creditors, the depositors with their savings at stake? {bottom quote}

An old friend, than over ninety years old, once growled that Paul Volcker, the esteemed even heroic Chairman of the Federal Reserve, was only interested in saving "the banks". It's certainly true that many members of that board are elected by banks in the different regions, but it isn't easy to see how the Chairman could help banks if he wanted to, or why he would want to. It takes only a moment of reflection to realize, however, that all banks would naturally want to charge the highest possible interest for their loans and pay the lowest possible interest to depositors. Essentially, everybody is their adversary.

Except the Federal Reserve, which needs its regulatory power over banks to control the amount of money in circulation, in order to stabilize the currency both at home and abroad. In another place, we discuss the remarkable ingenuity and the worrisome weaknesses of this arrangement, but for now, let it suffice that it's the arrangement we have.

The difference between the prevailing return on deposits and the return on loans is called the yield curve, because short term rates, which the Federal Reserve controls, normally slope upward toward higher long term rates, which the Federal Reserve does not control. Essentially, the Fed controls what depositors are paid, but has no direct control over what borrowers are charged. Depositors are savers, and it is widely agreed that Americans do not save enough. To some degree, that must be the fault of the Federal Reserve. And when market conditions force a decline in the rates charged borrowers, the Federal Reserve must allow the banks to squeeze the depositors' rate of return, or banks will go bust. That's all my old friend was trying to say when he criticized a national hero. Luckily for Volcker's reputational legacy, he needed to boost interest rates dramatically in order to stop inflation, and that put plenty of interest in the pockets of old folks with money in bank deposits, while unfortunately, it throttled borrowers unable to obtain loans except at very high prices. He stopped inflation in its tracks, but at the price of hurting business.

For over a year before the 2007 credit crunch, short-term rates (and depositors' interest return) were higher than long term rates (and borrowers' interest cost), an infrequent occurrence called an inverted yield curve. The difference between the Bernanke problem and the Volcker problem was that this time long rates were stuck at historically low levels, probably because of international situations. Depositors were protected and banks were made to suffer, although their reserves were invisibly eroding. One has to suspect the housing bubble was allowed to go on, to some degree to rescue the banks. With inflation starting to appear, interest rates needed to be raised, and with a national election approaching, deposit returns needed to rise to placate elderly savers. Furthermore, banks had a relatively new competitor for deposits, the money market funds.

The inverted yield curve put savers in a strange position. Normally, they had to balance in their minds the higher interest rates obtainable by investing in bonds, against the inflexibility of locking up the money for long periods. With an inverted curve, however, bonds looked like the dumbest possible investment when they paid less interest than money market funds. Bonds were thus under pressure to raise rates, but they didn't rise. Greenspan's conundrum still persisted, but the situation highlighted one of the unpleasant consequences of correcting it. If interest rates rise, the price of existing bonds must go down; somebody's going to lose money. That's what was soon going to happen, once the credit collapse got started. Bond prices might dip and return if you didn't actually sell, but if you urgently needed cash in the meantime, you had to call on your money market savings. The spreading of the problem from one asset class to another was likened to the spread of a contagion.

In a sense, that's isn't quite accurate, because the similarity of bank deposits and money market funds is to some extent an illusion. Money market funds are minibonds. These bundles share the characteristic with bonds that rising interest payments result in falling prices for the principal involved. To preserve the appearance of interest-bearing cash they have a par value of a dollar a share, and the interest they pay is really a dividend. To preserve the appearance further, when interest rates must rise, fund owners make strenuous efforts to avoid "breaking the buck", or lowering the principal value, even to the extent of investing their own money to support the price. Rising interest rates are hard on money market funds, and most funds are owned by banks. The banks are under pressure by other factors in the credit squeeze, so it would not be inconceivable that they would be forced to break the buck. Elderly savers would not like that development and in an election year could make their displeasure felt. A great many people might wish to shift their savings from money market funds back to bank deposits, which are largely insured. A commotion of this sort would bring more attention to a comparison of different funds, leading to the wide-spread discovery that the money market funds, which stock brokerage accounts employ as "sweep" funds for dividends and spare cash, have long paid substandard interest rates because of ignorance and inertia by the clients. And so, the contagion threatens to spread further.

What's a Derivative?

The intention of the next few sections is to sort out some of the confusing components of the credit crunch of 2007, in which novel financial instruments called derivatives played a central part. Before we get into that, let's try to answer the question just posed: why did the monetary authorities respond to a surplus of cheap credit by apparently making it worse, flooding the economy with still more cheap credit? The sudden return to normal interest levels, it would appear, posed a threat of recession so severe it seemed necessary to make inflation worse in order to combat the impending deflation. The Federal Reserve may, of course, be planning only a brief inflationary move, or a sharp inflationary move soon followed by a sharp deflationary reversal. Its purpose appears to be, to prevent an impending wave of mortgage foreclosures by holding interest rates down, disregarding the abnormally low long-term interest spreads which had recently seemed such a problem. Whatever it's tactical purposes, such bewildering reversals are a signal the Federal Reserve regards the present situation as dangerous. Some degree of inflation, possibly a large one, is going to be created but the Fed seems to think it has no choice. Before getting to that dilemma, let's sort out some of the ingredients of the credit crunch that seems to have triggered this mess.

A derivative is really pretty clever. It sorts out and monetizes any or all of the risks of a business. It frees up capital by putting a price on risks, just as insurance does, without requiring ownership of the whole company or industry. Flexibility is created, and in the case of real estate loans, surplus cash in one region can be redeployed in another region where the money is tight. Flexibility allows for an increased velocity of transactions, and increased velocity of turnover is equivalent to having more money to work with. It was not so long ago that mortgages were obtained from the local building and loan, and thus were constrained by the savings deposits of the local community. Far Eastern and Arab savings are now no longer held captive by primitive local banking systems.

There are worries about derivatives, however. For all their advantages, derivatives remain strange and mysterious, and thus, always a potential target for populist politicians. They are also a zero-sum game, which means that for everyone who makes money there must be someone else who loses exactly the same amount. That's, of course, true of debt in general; it's true of loans, and of bonds, but derivatives are new. Finally, derivatives were a quick success, which makes them dangerous competitors in the creative destruction game. It even makes them annoying to non-competitors, who get trampled by stampedes.

In the particular version of derivatives of concern in real estate, derivatives stripped away the risk that borrowers would default on their payments. That made mortgages available to more marginal borrowers, adding only a small cost for the insurance provided. It allowed more accurate, hence lower, pricing of mortgages by assessing the rate of default in a whole region rather than house by house. The theory was good and the savings to everyone were considerable. But success became a problem. No longer inhibited by a shortage of capital, mortgages and home ownership were greatly promoted. Unfortunately, the demand for mortgages in America had been artificially stimulated by implicit government protection against foreclosure, by government sponsored mortgage agencies with implicit government backup, and by the tax deductibility of mortgage interest which was denied to other forms of household borrowing. If a loan was needed, some way was sure to be devised to make it a mortgage loan.

Brunnemeier's Explanations for the 2007 Crash

Ben Bernanke

The Chairman of the Federal Reserve from 2005-2014, Ben Bernanke, spent much of his time explaining current economic tangles to committees of Congress. At a hearing, his suffering audience asked for some homework. "Please suggest a few articles you think we should be reading." Two of his four resulting suggestions were written by Markus K. Brunnermeier, Professor of Economics at Princeton. Some of what Brunnermeier said was already known, some of it was novel. Of greater significance was that Bernanke, a scholar of economic collapses, and then vested with the power to investigate just about any lead, would make a public endorsement of Brunnermeier's analysis to Congressmen who actually held the power to implement laws. They weren't talking to an audience of helpless college students. Congressmen knew less about the minutia of the topic, but they had the power to act on their beliefs.

No doubt, further investigation will uncover more kinks in the hose, and subtleties will prove particularly arcane, or particularly blameworthy. Nevertheless, we seem to have probably reached the point to assume the main features of the catastrophe were on the table, articulated to people not easily deceived. Moreover, Congressmen had already adopted one 2000 page law that almost none of them had read; this must not be permitted to keep happening. So among other things, let's hope they have at least learned to be careful. If Brunnermeier and Bernanke have given us a list, let's expose it to public discussion. What's usually important is what they do, not what motives they claim.

Markus K. Brunnermeiere

1. Following the dot-com collapse in 2001, the Federal Reserve held interest rates abnormally low, claiming fear of even more severe deflation from the bubble bursting uncontrolled. By this description, the housing bubble was really the second dip of a double bubble. Within endless successions of bubbles, a futile issue is which tooth of the buzz saw cut off your finger. What determines your conclusion is the point where you chose to start. In this case, the preceding seventeen year period of "Great Calming" may perhaps make routine stress-test analysis possible. For contrary example, was a seventeen year quiet period without a major recession actually a coiled spring? If you can guard against such exceptions, perhaps correct conclusions may be reached.

2. The emergence of the developing world, especially China, from extreme poverty into relative affluence generated huge wealth surpluses which no economy was ready to absorb without danger of inflation. There is a feeling that China should have allowed its currency to rise. However, the same was said of Japan two decades earlier, and in any event, we may not have had the power to change it.

In summary, then, the emerging problem was one of too much cheap credit. Because of related uncertainties, this was a storm we probably could not prevent. {bottom quote}

3. For decades, America has sought the goal of universal home ownership. Borrowing to buy a home has been encouraged by tax-favored mortgages, loosened credit, and bankruptcy standards, and weak borrowers have been supported by government guarantees in the form of FHA, Fannie Mae, Ginny Mae, and Freddie Mac. The Savings and Loan crisis can be viewed as another variation on the theme of wider home ownership. Meanwhile, renting has been discouraged by low returns for the landlord, with the additional hazard of reducing the mobility of the workforce, particularly in a recession.

4. Home mortgages have traditionally been issued by local lenders. However, cheap credit was primarily available from China, so new conduits needed to be constructed. The process of securitization of mortgages through aggregation and packaging as marketable bonds was a swift and effective way to put the cheap Chinese credit to work, serving the acknowledged national desire to promote home ownership.

In a second summary, cheap credit from the Orient pushed us toward some sort of bubble. Our own encouragement of home ownership assured the bubble would be a housing bubble. Perhaps some other form of a bubble would be preferable; if that is the case, our government is at fault. {bottom quote}

The first four bullets in this analysis constitute conventional argument why we had the collapse of a housing bubble in August 2007, and this collapse in some way is supposed to have led to a recession. In his recent memoir, Tony Blair of England reduced the argument to a politician's catchy phrase. "We didn't have a market failure, we had a failure of one sub-segment of one portion of the market." But that is not exactly true. In August 2007 the markets experienced a sudden liquidity crisis, a lack of ready cash to pay immediate bills. A sudden worldwide shortage of cash caused a halt to the trading of just about everything. People could not collect their bills so they could not pay their bills. Survival in this environment depended less on how wealthy you were than on how much loose unemployed cash you happened to have when the music suddenly stopped. Possibly because of the real estate bubble, and possibly for other reasons, the whole world was in a trading frenzy, and cash was king. At this point, Brunnermeier is surely right that the comparatively small amount of real estate defaults was tiny in comparison with the trillions of dollars lost in the crash. He searches for "amplifiers". The possibility exists however that panic and hysteria resulted in bizarre losses, simply because everything uses money, so a shortage of money paralyzes everything. Consider the following issues:

5. It is said that 70% of stock market trades are now conducted between two unattended computers. The finest mathematicians in the world are probably programming those computers, but transaction speeds are now measured in nanoseconds. There is no time to evaluate events; it is inconceivable that every event has been anticipated. Imposing sudden pauses in trading, even for five or fifteen minutes, has proven to be remarkably effective in combating false rumors. However, the shift in trading from deposit banks to investment banks has created a whole host of unexpected advantages for the first trader who ducks out of the market. A traditional "run on the bank" is essentially based on first-mover advantage. But when short-term loans must be turned over in a day or two, simply pulling out for a day amounts to a run on the bank of a slightly different sort. It's the exploitation of the first-mover advantage in commercial credit, money market funds, repo's, daily auctions and many other nooks and crannies. A liquidity crunch makes many people into first-movers who didn't intend to be one.

6. Globalization has tended to externalize transactions within an international corporation into many sales steps between suppliers and assemblers all over the world. While this transformation has been accomplished with remarkable ease, it still vastly increases the volume of short-term loans, subject to the new form of a bank run, by hesitation whenever liquidity dries up.

Boom times and inexperience with new techniques created unsuspected instabilities. Major examples are found in computerization, globalization, derivatives, and -- curiously -- diversification. {bottom quote}

7. For fifty years, diversification has been regarded as a safeguard, particularly when the various components are in independent environments. A liquidity crunch wipes out the advantages of diversification, however, because every sale involves money. Just as important is the hidden risk that failure in one area may drag down another. The most drastic example in the recent crisis was in the "Monoline" insurers, who insured only municipal bonds until recently when they diversified into insuring mortgage-backed securities. And of course, when subprime mortgages collapsed, they took down municipal bonds, with many more ripple effects after that. Diversification improves safety, but only if the entities which fail are inconsequential to the whole portfolio. Innovative bundling and tranching of securities can create hidden aggregates with the power to spread contagion if they injure the credit rating, or bond rating, or reputation rating of a company. Advanced mathematics could probably establish guidelines for the danger points, but then other advanced mathematics will find ways to evade the analysis.

8. Credit default swaps are merely short-term insurance policies against definable risks, and they have greatly increased the willingness of international commerce to take risks they would otherwise avoid. However, they are also hidden over-the-counter transactions; when they grew in a couple of years to be several times the size of the entire stock exchange, they frightened the regulators. When the crunch came, regulators were not reassured to be told that most of these swaps were in opposing directions, which would surely "net out" to a comfortable equilibrium. As matters turned out, credit default swaps did not apparently cause many financial failures. But when it was learned that it would take nearly three years to untangle all the paper at AIG, it was highly unsettling. Innovators and mathematical quantitative traders will always outwit regulators because they have a far greater incentive to get ahead of the curve. But more midnight accusation sessions at the time of a crash simply cannot be tolerated. If clearing credit default swaps through an exchange does not improve transparency, something else must be suggested and tried. The issue here is the huge volume of transactions. It should not be impossible to devise volume standards, above which all future innovations must develop transparency mechanisms.

In the fourth summary, the default of subprime mortgages was fairly serious, perhaps amounting to two or three hundred billion dollars. However, the liquidity crunch was much more serious, requiring $850 billion just to get the markets open, and leading to stock market losses in the trillions. More research is needed to decide how much of the difference is explainable by the existence of amplification mechanisms, as Brunnermeier believes, or whether a more substantial explanation for the recession lies in world-wide leveraging and deleveraging. The size of the mortgage defaults was clearly not large enough to explain the crash, but it may have been large enough to destabilize key elements of the system into a domino effect of some sort. The distinction is somewhat semantic, with its main value in moderating political opinion about the issue of "too big to fail". That is, the general public perception of the role of huge economic forces, as opposed to blunders by a few key firms.{ILQ-End} {bottom quote}

9. The liquidity crisis of the summer of 2007 was a brief, almost total, lock-up. This is not to imply that worldwide cash shortages had necessarily been building up for months until the system crumpled; simple miscommunication could explain a brief lock-up just as well. But there can be little doubt that chaos convinced major decision-makers they would be wise to conserve their own cash more carefully. The instantaneous main conclusion was that certain interest rates had been too low, and would soon go up. A rise in interest rates forces a decline in the value of the loan, the bond, or the guarantee. If interest rates double, the principle will be worth only half as much for the duration of the loan; even refusing to sell the asset leads to an opportunity loss throughout the duration to maturity. For a while, there was uncertainty just how many roles the subprime mortgages were playing, but it scarcely mattered. Alan Greenspan had famously remarked that low long-term interest rates were a "conundrum". If they went back up to conventional levels, it would not so much matter that foreclosures would rise from 5% to 10% or even 20%. What would matter was that the 80-95% of un-foreclosed mortgages would become 5% bonds in a 10% bond environment, and hence destroy many times as much wealth. Since that cat was out of the bag, it might be a long time before it got stuffed back. Looking back for causes, it was suddenly clear that we had created a situation where everyone was terrified interest rates would become normal. If they became normal suddenly, bankruptcies would be wide-spread. If they went back slowly, fearful paralysis might last a long time. The Federal Reserve had already lowered short-term rates to nearly zero, so their efforts to ease the pressure on deposit institutions led to the purchase of long-term bonds. It was not reassuring to see that if long rates went up later, the lender of last resort would then likewise be in the position of losing money.

10. At a time when commercial liquidity was weak, the public started to draw down its cash reserves. The protracted experience of low short-term rates was particularly hard on unemployed people, especially retirees, who tend to live on the interest on money market funds and CDs because of a concern for the safety of principal. When ready cash is depleted, such people invade their long term securities; when times are precarious, even the affluent ones decline to invest and limit discretionary consumption. The nation thus begins to use up its cash reserves, and the consumer goods segment of the economy starts to weaken. In a primitive country, this sort of response soon leads to famine; in more affluent America, it is less obvious that cars are getting older, clothes are getting worn out. Meanwhile, businesses are declining to expand or to hire, and cash reserves are possibly even expanding, waiting for a more suitable time to invest. If the subprime mortgages and similar toxic debts can be cleaned up before the nation really exhausts its hidden cash reserves, the recession will pass. If cash reserves ever do get depleted beyond a tipping point, industrial growth will slow, and a twenty-year recession such as the Japanese are suffering, cannot be completely dismissed.

How to spend

------------------------------------------------------------------------------------------------------- Throughout this discussion of the design of Health Savings Accounts, lifetime version, we have attempted to follow the underlying design of what we already do. That is, parents usually pay for children, old folks usually pay out of savings. So, once the money is in the Account, we try to imagine how it is now usually disbursed for healthcare, and even occasionally what the sources of it are. Our general choice is to follow established patterns where we can. Nevertheless, we favor debit cards in place of insurance claims forms, for all outpatient claims which fail to trigger the re-insurance deductible. Paying 10% for someone to pay your bills for you, is just unacceptable.

Children almost always have their medical bills paid by their parents or their parents' insurance. Where to place the upper limit on childhood is a puzzle, but recent law has included children up to age 26 on their parents' health insurance. Since that seems to meet general approval, we adopt it, although it might be wise to allow emancipated children to opt out. Regulations on the use of parents' HSAs for their children are a little unclear, but we assume they would be easily changed if they conflict with reasonable practice. That parents-pay-for children system does complicate a smooth estimation of the future growth of the parent's Account, however, particularly in the event of a divorce of two parents with such accounts. It also interferes somewhat in the child's future right to claim compounded growth, so there is a brief temptation to give it to all three at once. However, the deposit was only one deposit.

In some ways, it is easier to have both parents contribute to the child's one-time initial deposit, in order to have longer for their compounding to continue, and to have the child's account begin with their contributions. This makes a $150 contribution at birth become $300, and you really can't keep responding to problems that way, without destroying the universal appeal of the plan. However, it is easier to imagine acceptance of double contribution with a later rebate of half of it, than to imagine a single contribution later cut in half. Perhaps it is easier to give people their choice of the two approaches, but it certainly muddles future projections. We opt for double contributions, with an optional rebate of the half at the child's 26th birthday, if the parents have had a falling out. With double contributions, there should always be a small surplus in the child's account, whereas sharing even minimal deficits is apt to cause more trouble in an already strained marriage. Double deposits as a default, single deposits as an option. Optional rebate at child's age 26.

Immediately we must expect an outcry about poor mothers who can't afford it. But every other proposal suggests a government subsidy for this purpose, and so do we. The ultimate savings to the government of putting up $150 per baby, would be enormous, but they would not be totally realized until the child was forty, and the government would be "loaning" the expenses in the meantime. An important reservation is the health expenses of the indigent are usually higher than average, obscured by the fact that many of them are not paid.

Grandparents. Children are repaying a debt to their parents, which parents frequently forgive; the parents initially pay it out of their own accounts. With the elderly, there are often no children or grandchildren; the elderly either have some savings, or they are indigent. Where there are descendants, they are not always willing to back the defaults of the elderly. If they bought out Medicare (with roughly $40,000, adjusted) after attaining age 65, they will, in summary, stop paying Medicare premiums, pay outpatient costs with a credit card, and their catastrophic insurance will pay the hospital an updated (we hope) version of the Diagnosis Related Groups (DRG) for inpatients. To adjust for contingencies the insurance might make a deposit in the patient's HSAccount for other medical costs (ambulances, for example), which the patient pays by credit card. Emergency care may well fall into this ambiguous category. The catastrophic insurance company is expected to have negotiated reasonable charges with the hospital, and to defend the patient against unreasonable ones. Rent-seeking in the outpatient area is more the patient's responsibility to detect, to object to, and to negotiate below a certain amount. Generally, the principle sought is to assume no responsibility for recognized overcharges, unless they have been agreed to in advance of the service.

Working people, age 26-65, and/or their employers. At present, much of the health care of working people are voluntarily paid for by employers. Therefore, it is their choice what to do about a diminishing cost, absorbed in this system by their employees. Since the source of most of this windfall is an investment in the stock of their companies, perhaps everyone will benefit. Time alone will answer that issue, and perhaps it is too early to be making decisions about it. So for the moment we abstain from the fairness issue and do not greatly object to a gradual adoption of the HSAccounts for Lifetime Health Insurance, which is inherent in making it voluntary. However, it is clear that the employees are often spending for what they formerly got free, and as a beginning might well be gratified to have a roll-over of their Flexible Spending Accounts into Lifetime Health Savings Accounts. That would require the passage of no law, and perhaps ought to be requested politely. A surrender of industry's stance against income tax equity on health expenses would be nice, even though the Editorial Page of the Wall Street Journal cautions restraint in this effort, even restraint of the Tea Party members of the Republican Congress. I'm afraid I disagree on this significant point, which seems to put me to the right of the Tea Party.

That would seem to leave working-age people paying for themselves, their children, maybe their parents, and the indigents. Before that, for many of them, it was once all free. With that description, it is natural to expect some grumbling. But the cost to them is only a fraction of the former cost to the nation, and they get a great deal more control over an important part of their lives. It must be obvious that the old way was too expensive to continue, and it won't continue long. If for no other reason, unions will demand that everyone else feel some pain. Working-age people will end up with a bill of thirty or forty dollars a month, an undisturbed medical system, and no more yearly health insurance premiums. The employer has the employee health insurance cost gradually lifted from his back, and know very well that he will be pressed to spend some part of it for employee costs. Let him pay some into the HSAccounts, particularly during the early transition stage, when there will be very little investment "cushion".

And finally, it must be pointed out the federal government has been supporting a lot of this cost for nearly fifty years, but their instinct is to hide it. Fifty percent of Medicare costs are paid for with general tax money, quite effectively concealed in the budget term "Transfers from the General Account". Borrowing from foreigners is largely traceable to this source, and no one can be sure what will happen to world finance if it stops. Because this fifty percent subsidy would have to be extended to every citizen if we adopted a Single Payer system, even extreme liberals hesitate to press that solution, or imaginary solution to our problems. For now, leave it alone, and see how things are progressing.

Premiums and payroll taxes* Catastrophic Insurance= Debit Cards* Revised DRG= Personal funds* Direct Marketing= Internal loans* Escrow funds* Federal Reserve monitoring and midcourse adjustment. Deliberate overfunding of HSA*

Philadelphia Reflections

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

Obituary

George R. Fisher, III, M.D.

Making Money (1)

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