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.
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.
Custom Tour of Private Philadelphia
Philadelphia Hospitality, a non-profit group, puts together the following tour for visiting bigwigs. A good guide to what's best around here.
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.
Tourist Walk in Olde Philadelphia
Colonial Philadelphia can be seen in a hard day's walk, if you stick to the center of town.
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.
Benjamin Franklin Parkway
Benjamin Franklin Parkway
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.
One of the Wall Street's better maxims advises: Never let your competitors smell blood. Talking too much injures honorable firms because in business there is usually a vulnerable moment before opportunities can be consolidated, or miscalculations corrected. Innovation by trial and error is progress. Transparency, humbug.
This prevailing wisdom can lead to mysteries where informed professionals puzzle through dramatic events, yet after six months remain unsure how bad things really are. When the subprime credit crisis began in August 2007, the average size and total number of outstanding mortgages was approximated, and from that it appeared impossible for overall losses to exceed $90 billion. Six months later, write-offs at least that large had been declared, but estimated future losses then ranged around $600 billion, give or take $300 billion. But wait, in a zero-sum game, winners must match losers so the economy as a whole should remain unchanged. Even if winners and losers are in different nations, the result would at worst be a weakening of one currency and strengthening of the other; after which world-wide wealth would remain unchanged. Real worldwide losses in a crash related to whether wealth is created or destroyed, not whether it has been transferred from one firm to another. As an aside, the supply-side viewpoint is that taxes effectively remove wealth from the private sector for protracted periods and therefore are equivalent to dropping into a black hole; but liberals mostly dispute this, so it is not discussed here.
One of the indisputable ways to expand or contract wealth is, unexpectedly, through a change in prevailing interest rates. When interest rates rise or fall, the value of debt or bonds goes in the opposite direction. So, when derivatives or other efficiencies lower interest rates, wealth is created. When realism, panic -- or fear of inflation -- cause interest rates to rise, wealth gets destroyed. What matters most to individuals is whether they own bonds during the time when interest rates are changing. No one necessarily gets any richer; in an inflation, bondholders lose money because money truly disappears.
So recently, spreads widened, or the risk premium returned to historic levels, or subprime mortgages got more expensive, or six other ways of saying the same thing: interest rates went up, value was destroyed. Anyone holding a certain kind of bond lost money, may not be able to pay his bills, so don't lend to him. Because the problem was large and worldwide, no one could be sure who was holding the bag, transactions stopped, the credit market "froze up". Some very prominent firms soon declared losses of $5-10 billion each, so anyone might be an unsafe counterparty. Even if time passed and other firms did not declare losses, general distrust persisted, for a complex reason having to do with mark-to-market.
A Wall Street broker is required to readjust his portfolio worth to market prices, every day. Active traders, trying to keep as little inventory as possible, constantly face the possibility of imbalances, temporary cash shortages, which would make them unable to pay bills even though they had spent nothing. Therefore, when interest rates go up, Wall Street investment firms lose a lot of money on the underlying bonds in their hands and must declare so publicly. Firms hate it because it could well trigger margin calls from their lenders. If no shares are traded, however, the price of the shares appears to retain the price of the last trade. That's what is often meant by markets "freezing up"; if no one registers a sale at a lower price, it can't be meaningfully "marked to market." Banks, by stark contrast, are allowed to play by different rules. When the value of their bonds or other securities goes down, the accounting rules permit them to declare the bonds are a long-term investment, where they do not need to be marked to market. Investment banks thus must declare huge losses when they haven't sold anything, while commercial banks may hold exactly the same portfolio and declare no loss at all. Whether this disparity is wise or unwise, is entirely beside the present point. The disparity confounds the general inability to say who is in trouble, thus whether the economy is in dire straits or just experiencing a state of confusion. At the least, it makes banks appear to be solid and solvent, while other investment institutions may appear to be in worse trouble. Aside from investors losing money by making wrong choices, there is a political risk in an election year that Congress or regulators could make wrong choices. A reckless young French trader happened to underline this risk, quite pointedly.
America was having a bank holiday on Martin Luther King's birthday, so American financial markets were closed but European markets were open. While American traders sat helplessly at home watching the news, European stock markets abruptly collapsed on heavy selling. Federal Reserve Chairman Bernanke promptly dropped short-term interest rates by seventy-five basis points (0.75%) between meetings of his board, creating a panic situation the next morning. It seems in retrospect that he had not been informed that a rogue trader at a prominent French bank had obligated that bank for $75 billion of unauthorized positions, which bank authorities promptly liquidated at a $7 billion loss soon after they discovered it. The newsmedia concentrated on the racy story of a French scalawag, but there was a more important story. Because of bewildering financial convulsions whose full dimensions may not be known for another year, Ben Bernanke the financially best-informed person in the World got into a panic and made a choice he might not have made if he had the full facts. If that was the case, poor intergovernment communication unnecessarily gave us a dose of inflation to contend with. Or, perhaps Bernanke got a needed wake-up call that the economy risks getting tangled up for several years from banks trying to ride out their bond portfolios to maturity instead of making loans. Refusing to acknowledge losses is what gave Japan a recession which is now in its fifteenth year. Try this nightmare: if the American consumer quits buying imported goods, Japan then China could collapse with consequences beyond conjecture. It is impossible to imagine Congress restraining itself in such a mess, and nearly impossible to imagine their getting it right when they do act.
As if to illustrate the point, the Carlyle Capital collapse in March 2008 demonstrated how violently markets can now be roiled by even a small quirk in the banking system when huge volumes of money are propelled through it, by ultra-fast computers before the rest of the financial world wakes up. A prudent banker would normally make a loan for appreciably less than the value of the collateral. Depending on the historical volatility of the collateral, it might be reasonable to lend 80%. But Carlyle was an investment fund, selling shares to the public worth several hundred million dollars. Borrowing $20 billion from banks, especially Deutchebank, Carlyle bought mortgage-backed securities. Before things collapsed, Carlyle had bought $21 billion of real estate loans but had received only a twentieth of that in payments from investors. The market price of the secutities thus only had to fall by 3% before the whole structure became insolvent. In the conventional 80% collateral example, a 3% decline would still have left it with a 17% cushion. Extreme leverage of this new ultra-fast sort would probably never have been considered by the German bank if it related directly to mortgages without a complicated middle-man. Whether anyone at the German bank realized this transaction was substantially the same thing at 20 times the risk is presently unknown, but it seems doubtful. The fact that at a relatively quiet moment DB suddenly called back its loan suggests that someone at the bank finally did wake up and ordered an end to the arrangement. Congress can now pass a law forbidding such structures if it wishes, but that will be mere grandstanding. Future textbooks of banking practice will surely all riducule the absurdity of this transaction. The risk of it nearly vanishes however at the moment of widespread recognition for what it is. Far worse would be for Congress to pass pious laws which essentially say that nothing innovative must ever happen for the first time, or that banks must stop using high-speed computers.
We must not conclude this little history lesson without stressing its basic point. When huge amounts of money seemed to disappear from the system, the only explanation available was that interest rates had suddenly gone up, resulting in existing bond prices going down. If so, central banking chairmen could make money re-appear by forcing interest rates down and holding them down. Conceivably, some other explanation for the vanishing money might more precise. But even so, forcing interest rates down ought to make money re-appear. This very simple description of events has been characterized as a "revival of Keynes-ism" , although most of us were accustomed to other descriptions of what Keynes attempted in the depression of the '30s. Nevertheless, it accurately capsulizes what Ben Bernanke about did in this one.
In noting that our Constitution has lasted for over two centuries, we assert that this simple short document has largely anticipated everything important to anticipate, including the Industrial Revolution, atomic warfare, and the Information Age, to name a few. When an occasional issue arises that is not only unmentioned in the Constitution but where no one is certain what to do, our system leaves us spiritually adrift. Such an issue is found in o0ur monetary system, where we have been wandering for two hundred years.
The founding fathers worried a great deal that popular majorities would abuse minorities, particularly in the case of the majority poor people voting themselves the property of minority rich ones, or that debtors in the majority might dishonor the rights of creditors. Although we have developed a welter of laws about debt and creditors, bankruptcy and taxation, they are if anything too specific. What is lacking is a few general words in the Constitution about the principles of credit and money. The problem now is the same as it was in 1787; we don't know what to say.
For a very long time, some very well educated people were strongly opposed to the creation of a bank, later to mean a banking system. Alexander Hamilton's proposition that a "national debt is a national treasure" was greeted with horror by several Presidents, as well as by Albert Gallatin, one of the most sophisticated financial thinkers of the time. Underlying this perplexing reaction to the simple proposal to create a bank was surely the perception that making the Federal Government into a substantial debtor creates a powerful ally to all debtors in their eternal struggle with all creditors; the outcome of such an unequal struggle would inevitably be to the disadvantage of creditors. In common parlance, the word capitalist seems to imply a creditor. It took a very long time for it to become understandable that debtors, too, were essential beneficiaries of a capitalist system, but that idea still often meets with dissent. However, when millions of the world population belong to religions which prohibit the payment of interest, it should not be surprising to find many Americans who cannot get their heads around the idea that debtors and creditors need each other to an equal degree.
In the case of inflation, governments have always been somewhat favorable to debauching the currency. Naturally, a major debtor hopes to repay its debt with cheaper money. Since it has more or less always been necessary to use police powers to maintain a common currency, Kings and governments have long been in control of money, whether that means gold bars or beaded wampum. And for the same length of time, governments have been discovered bending the rules in favor of themselves. Bronze has been substituted for gold, the edges of coins have been shaved, the printing presses print paper money unrestrainedly, and the consumer price index has been manipulated to encourage inflation. Political parties have sought votes from debtors by promising to regulate banks, promote silver as a substitute for gold, disadvantage foreign competitors, inhibit or manipulate the value of the currency on foreign exchanges.
For forty years we have operated without any fixed standard for money. Money for all that time has lacked any physical representation or discipline. Money has become a computer notation. At first, it was based on calculations of monetary aggregates, a bewildering concept promoted by Milton Friedman. More recently, it is entirely based on inflation targeting as promoted by Alan Greenspan. With a target of maintaining steady prices, an inflation rate of 2% is set as a specific target for the Federal Reserve. If inflation falls below that target, more money is created; if it rises above that level, less money is created. How much there is of it does not matter; it's beyond calculation. Although this simplified description fills almost any listener with doubts, it seemed vindicated by seventeen years without a notable recession. Even though events beginning in 2007 raise pretty serious doubts, it may still prove to be the best possible monetary system.
Even though this most fundamental of all commercial issues cry out for a simple principle to be stated in the Constitution so that neither populist congressmen not rapacious financiers can ruin us, it is not presently possible even to imagine what a new Constitutional amendment would, should or even could say. Meanwhile, some immense power rests in the hands of shadowy figures whom we blindly trust, for lack of a better idea about how we should select them or what we should instruct them to do.
The Divine Right of Kings is not of much use anymore, even to kings. Nevertheless, it reflects a need to define the final authority, the final word, and therefore creeps into the legal system in various ways, even within a pure democracy. Aside from these traces in the most fundamental of laws, a democracy defines the ultimate leader by the slogan, "The Buck stops here." Late at night, pondering his decisions alone, the highest ruler of the State is apt to feel that all his responsibilities are burdens without compensating divine rights. That's not entirely true. He may use his discretion to bend or break the law in the public interest. But if it fails, he may never get a second chance.
Start with the example of Euclidian Geometry, where each step is a tightly proven consequence of other steps until you get 'way back to basic fundamentals, called axioms. Axioms are assumptions which have to be made without any proof. The axioms are probably true, but they have to be taken on faith, with the frank acknowledgment that if the axioms are changed, everything dependent on them must also change. The ancient philosophers mostly fell back on God to be the source of axioms, but in modern times it is more customary to rely on "Nature" as the source. During the Eighteenth century Enlightenment period, the "deists" fell back on "Nature's Creator" as a way of saying God without exactly saying it. The deists thus were able to say they believed in God, but only to the extent that He wound up the clock which now runs by itself. If you frankly haven't any idea where these axioms came from, you attribute them to one or the other of these concepts and go on with practical business. Just to take no chances on leaving a gap, a populace which universally believed in God was told that the King was the sole confidante, the sole agent, of God. As things evolved, the King had a divine right which extended to political matters, and the Priesthood was the local authority about matters of morals and spiritual consequence. As priesthood declined in popularity among protestants, Judges assumed the role of deciding "difficult questions", sometimes delegating the role to juries. Kings when they are little princes often get the idea that they are entitled to be capricious, otherwise what good is it to be King? This attitude is sometimes not discouraged when it relates to castles and fancy cars, maybe even to girlfriends. But if it is carried too far there is a danger that arbitrary capricious decisions may seem like a habit, carried over to issues the population has reserved to decide in other ways. When the king does it anyway, he is called an absolute monarch, not always a term of praise, and sometimes the first stage of incipient revolt. Nevertheless, there are inescapably some decisions which must be made, right or wrong, and somebody must make them and take the consequences.
When American Independence was declared, but much more when the Constitution was ratified, it was the first time the former colonists were confronted with living in a system where every citizen was considered equal and sovereign, and nobody else was a contender. A representative Republic provided the practical means for collective expression, and for forty or fifty years the public nursed their fantasy of Every Man a King. Politicians were however soon nibbling at the margins, and the practicalities of running the country did require certain practical concessions. The unexpected growth of the population, from one representative for 30,000 inhabitants to the present 600,000 inhabitants confronted America with a choice it never seemed to accept: a Congressman with 600,000 constituents can never remain in touch with their wishes. But a Congress with 6000 debaters cannot function, either. We have outgrown the original model, but have been unable to devise a satisfactory modification. The sovereignty of the people under such circumstances is much more limited, and the need for arbitrary decisions by the elected monarchs increases. All that remains of control rests in the periodic elections. And the realities of those elections are grim. Political parties dominate the nomination step. Gerrymandering concentrates domination of proportional representation into "safe seats" which permit party control of a majority of the representatives. Incumbency, instead of simply augmenting experience, leads to the electoral power of "name recognition" which all too often is recognition of the name of some relative of the actual candidate. The cost of campaigning among such large population groups greatly magnifies its concentration in parties or interest groups. And the social distance between voter and candidate reaches the point where voters are more easily deceived, by a mountebank. The talent of getting elected has decreasing relation to the talent of governing. Something will be done about these problems, but not necessarily very soon, or very adequately.
So we are reverting back toward sovereignty remote from the people, slowly and only partially we hope. Some of the features of remote sovereignty persist for that reason. We are forced to concede the decisions about atom bombs to the President, about the assassination of terrorists to the security agencies, the currency to the Chairman of the Federal Reserve, and the containment of epidemics to the CDC in Georgia. We delegate such authority to hierarchy in millions of daily ways. A guard was asked whether he would shoot a fellow citizen who was protesting something. His grim answer was, "I will shoot anyone the Sergeant tells me to shoot." It isn't a completely satisfying situation, but it is a variation of what John Marshall called "due process of law". We attempt to limit local discretion by organizing rules for every contingency which would require individual discretion, thus minimizing the chance of a capricious decision. The paradox is that most of this rule by regulation was promoted by the political party of Thomas Jefferson, who was our first experiment in making an instinctive anarchist into our leader. The responsibilities of office made Jefferson retreat in many ways, but it was his cousin John Marshall who knew him intimately and applied the brakes. Marshall, Ellsworth, and Story shared a vision of what the legal system could be, helped ease it into that posture, and then laid out a system of behavior which was at its root, "Honesty is the best policy", the theme of George Washington's Second Inaugural address. Marshall was an absolute ruler of the legal profession and was not above bending its rules to his design. He thought he knew what the Constitution was meant to be, and was determined to make the Judiciary enforce it. What was most distinctive was his insinuation of those principles into daily life, the culture of the nation. After the last vestige of the Federalist political party had disappeared, he intentionally made the American culture a Federalist culture, while seemingly confining his writ to the Federal Judiciary.
Health Savings Accounts. Medical Savings Accounts must be distinguished from Medical Spending Accounts, which unfortunately include an annual "use it or lose it" feature. These spending accounts recently styled themselves Flexible Spending Accounts, while Medical Savings Accounts became Health Savings Accounts. In time the confusion may subside, but the distinction remains important. There has recently been an employer initiative to make the payments of Spending Accounts tax-exempt, apparently intending to equalize them with Savings Accounts, but tip-toeing around the larger issue of failing to include individually purchased health insurance in the tax exemption.That would be an unfortunate splitting of political forces.
Health Saving Accounts (HSA), or Medical Savings Accounts (same thing) supplement other IRA (Individual Retirement Accounts) or 401 (k), but address medical expenses .
Tax-deductible, Health Savings Accounts do indeed accumulate unspent balances from year to year, gathering income for a future rainy day as they go, while allowing funds to be spent immediately if the rainy day comes early. If wisely invested and left untouched, they can accumulate a surprisingly large amount of money over a lifetime. They don't quite make everybody a millionaire but that isn't completely impossible if you don't get seriously sick, and pay small routine medical expenses in cash. Just why employer groups have failed to seek ways to convert their use-it-or-lose-it plans into Health Savings Accounts -- which wouldn't lose it -- is not entirely clear. But it is highly recommended that this be explored, if for no better reason than to put a stop to wasteful spending at the end of the year, just to use the money up. This book proposes to put that money to work pre-paying medical expenses in the far future with the investment income, which is a goal you would suppose is in the employer's interest. Almost enough has already been said here about this idea, so some attention needs to be devoted to those people who have HSA plans and do get sick, and can't afford their medical costs without invading the fund. If such a person does get sick, the money to pay for it is available. This feature responds to the fact that some people have major illness early in life, while some other people stay well for decades before they have a serious illness; for most people, it is a toss-up which it will be. It isn't very common for someone to be very sick for six decades, by the way, but stop-loss insurance would even cover this contingency, and it isn't very expensive because that sort of casualty is uncommon.
Because we all get tangled in this sickness lottery, the Health Savings Account is intended to be linked to a high-deductible health insurance policy. The higher the deductible, the cheaper the insurance premium will be, so progressively more money is left over to add to the Health Savings Account, compared with buying ordinary health insurance. At the moment, the best level of deductible is at least $5000, varying with inflation. The person who buys this package is on the hook for $5000 until the Health Savings Account builds up to $5000, which usually takes about three years. Those who don't already have that much savings or reserves are taking a chance for three years. That's one of several reasons why this package is most appropriate for young, healthy people.
These two linked promises are meant to discourage unwise spending, even for health, but it's your choice. What induces you to contribute annually, and discourages early withdrawal, is the income tax deduction. That's all there is to it, and it's already quite legal. From its very beginning, an HSA was intended to be linked to a high-deductible health insurance policy bought independently. The pre-funded last year of life was an afterthought for what you would do with the money if you enjoyed good health, and the accordion is provided just in case we get a cure for cancer, or some other wonderful development.
There are problems to be tinkered with. Nowadays, it usually goes the other way; the Health Savings Account is suggested and explained to customers by salesmen for high-deductible ("Catastrophic") health insurance, who could also suggest a bank with a debit card to make claims and payments both convenient and smoothly integrated, but often don't do so because there is no commission for added features. Brokers earn commissions on the insurance part, but not on the HSA part, and that's probably a flaw. Some brokers suggest the whole package, but pressuring individual banks to waive fees for maintaining them, is just asking too much. Providing for sales commissions might improve public adoption. Technically, that's all there is to HSA. The only known opponents to high-deductible insurance are a few labor unions who fought to pass state laws mandating specific small-expense items into all insurance policies in their state. Somehow they imagine circumventing those victories (by HSAs making them unnecessary) would diminish their own stature. In any event, these small-expense state mandates ought to be repealed or pre-empted. They eat into the fund which might need money later for a more serious sickness, and they inhibit the sales of high-deductible. Hospitals are very little affected by this approach, except in the reform of the ratio of charges to costs. Therefore, most of the external supervision of the program should come from physician representatives, who will be the first to notice when changes are needed.
The real value of Health Savings Accounts is not what they provide, but what they make possible. One immediate consequence is to silence knee-jerk objections to a high deductible. By implication, deductibles discourage the co-pay approach by competing with it for the premium dollar, and we have earlier discussed why that would be desirable. On first learning about HSA the first reaction of many people is that no matter how small the deductible is, some poor patients could not afford it. A high deductible sounds even worse. However, under the Affordable Care Act, everyone must now carry some form of health insurance, so a high deductible makes it cheaper to finance and to buy. For some poor people, a subsidy is required, so Constitutional equal justice is, so far, in doubt here. Health Savings Accounts merely aspire to receive equal subsidies for poor people compared with other insurance, but meanwhile, provide a tax-exempt incentive for working people to accumulate funds internally to cover a deductible. With HSAs, money to cover the deductible is in the fund after about three years, and sooner if it is subsidized. In any event, subsidies would mostly be temporary, because those who do not get sick would see annual increases in the Savings Account, soon making further subsidy unnecessary. Anyone with tight finances might be advised to start with the catastrophic insurance, adding the HSA component when they can, and resulting cost savings would not be negligible, even during the present episode of abnormally low-interest rates, because the contributions themselves are tax-deductible. The temptation to delay or deplete the fund should be resisted, particularly by governmental payers of last resort, because the expense is so likely to reappear as a bad debt when indigent patients get sick. Temporary front-end subsidies for HSA, while initially objectionable to conservatives, are a far better solution than the present unsustainable expedient of cost-shifting. The first function of a high deductible is to make insurance cheaper, in this case, cheaper than simply enrolling through an insurance exchange. Because of current low-interest rates, a few banks currently charge a small fee for debit cards with a low balance, but many banks do not. Young people are apt to incur small medical expenses, not covered by the high deductible, but they can all look forward to higher expenses when they will be glad they had set the money aside. Starting out with buying both features should squeeze major financial health risks permanently out of consideration after two or three years of good health. Existing health insurance companies may thoughtlessly resist such a change, but the impending startup turmoil about the Affordable Care Act should soften them up considerably.
Speaking of fairness, HSA finally catches up with the Henry Kaiser World War II provision (see above) by extending healthcare tax exemptions to all working people, not merely salaried employees. It now could readily match a temporary subsidy for the poor to whatever permanent subsidy the government provides under the Affordable Care Act, whenever that gets untangled from the conflicting provisions of ERISA. Those are decisions independent of insurance design; if Congress changes either the subsidy or the tax exemption, the insurance can adjust correspondingly. A future budget search for smaller subsidy costs would not cripple Health Savings Accounts, as it might well cripple Obamacare. A few conservatives are so antagonized by Obamacare they would not mind crippling it, but their long-run interests are better served by creating a more workable system. That point may not be obvious, revolving around the difference between indemnity and service benefits. An indemnity (or the patient) states in advance what is affordable and hopes to negotiate the rest, whereas a service benefit describes what services it will pay for, regardless of cost. If you were a healthcare provider, how do you suppose you would react to that proposal? Indemnity is designed for ambulatory adults to bargain with but is largely inappropriate for sicker people in a hospital bed. In the HSA system, the distinction between ambulatory and bedridden appears at the level a Health Savings Account stops paying, and the deductible health insurance starts paying. That is, it depends on a shrewd choice of the size of the deductible. For this reason, Health Savings Accounts have always attempted to match the size of the deductible to the average cost of fairly inexpensive hospital admission. And for this reason it should not be tinkered by other considerations; if the deductible is raised above the level of the median hospital entry, it should apply to a separate stop-loss policy for hospital outliers.
In a well-designed system using debit cards, a transition between the two types of treatment venue could almost be imperceptible, but that also creates a hazard of changing it carelessly. As mentioned, it is in the interest of everyone to maintain the amount of the deductible below the great majority of hospital inpatient bills, while remaining above the average annual cost of office care. If that is unachievable, only the hospitalization cost should be matched. To forestall gaming of the insurance by cost-shifting, hospital outpatient costs should be treated as office visits, and Emergency Room costs as well, provided the patient is not subsequently admitted.
The Health Savings Account is thus tax-exempt and accumulates from year to year, together with the interest it earns; its sources are a portion of wages, or tax credits, or possibly in time government subsidies, varying between individuals. To prevent gaming, expenditures might be limited to health care, but there is no earthly reason to limit contributions to a system which is starved for revenue. In practice, the account is used primarily to pay for outpatient (office) services; assuring the ability to pay the deductible of a linked catastrophic insurance policy is very important, but much less frequent. It is not contemplated that it will have any co-pay or coinsurance (see above). It also might contribute to an optional pool (or reinsurance) for the less frequent risk of paying for the second instance of an annual deductible, providing sufficient funds have not re-accumulated in the Savings Account. Its essential point is to distinguish between small negotiable costs and large unnegotiable ones, not between paying hospitals or doctors, as Medicare and others do. The internal accumulation of compound interest income matches another unspoken reality; young people have few medical costs and can accumulate, while older people are mostly spending. This somewhat answers the common grievance of young people that they are subsidizing old people; they are in fact subsidizing themselves for when they are the old ones. The degree to which unmentioned problems fall into place is a great testimony to a system whose most attractive feature is simplicity. In practice, it does employ an essentially different insurance methodology between most office doctors, and hospitals, and between most young and old. It just doesn't specify it.
Marketplace Presumptive Costs (MPC). Payment by diagnosis rather than itemized bills (beginning in 1982) was a great improvement for patients too sick to pay much attention to finances, which generally describes hospital patients who need to be there. Since Canadian hospitals demonstrated (by eliminating them) that itemized bills were the main information system for cost-effective management, they are still produced in American hospitals. Although such posted charges are largely useless because of the 500% disconnect between prices and their underlying cost, the volume of individual services is depicted accurately, and could be used to link marketplace prices (reported by aggregated regional Health Savings Accounts), to the item volume within the Diagnosis Related Groups (DRG), as well as the particular patient's item volume (his bill). The result would be a new cost figure not previously available, which we will here call the Marketplace Presumptive Cost (MPC). If that is added the unique surcharges for administration, teaching, charity, and research and development, the evaluation of what these costs are all about could be brought into the open. Compared with that step forward, the relatively trivial costs of wasted paper in bills-no-one-can understand, can be ignored. Until some such transition can be accomplished, itemized bills must not be abolished in the name of efficiency, or any other motive. With the MPC, doctors would finally have a meaningful speedometer to guide their cost decisions. No sentient doctor now pays the slightest attention to the hospital bill, because it reflects nothing approaching the true cost of the service or the true cost of individual physician performance. The underlying cause of this disconnect is the enormous amount of cost-shifting taking place, but a certain amount of cost-shifting is nevertheless essential to running a hospital. The issue is to detect when it has become excessive, without necessarily changing it. The present reliance on direct costs and the present rhetoric about posted charges are both futile. A cost-to-charges ratio is therefore doubly useless. The need is to examine indirect costs, make comparisons among competitors, and decide what is necessary, what is excessive. It's fairly clear in advance that will demand some definition to indirect costs.
The Clash between Mandatory Coverage and Marketplace Benchmarks. Insurance was never meant to be universal, and the closest thing to it, mandatory auto insurance in no-fault states, gives a widely familiar example of what happens when insurance is overextended; the insurance adjuster rules but prices go up anyway. At least in auto repair, an extended market for metal workers, painters, electricians, and mechanics exists to create some basis for argument. By contrast, if every patient carries insurance, how can the price of almost any service be determined? How about a new operation to transplant brains, or an ingenious repair of someone who fell off a cliff? How about a badly needed distinction in compensation between doing your first operation and doing your thousandth one? Or, just sitting at the bedside, comforting the dying. Everywhere you see a disturbance of the marketplace you see a disturbance in prices, and if prices are forcibly constrained, then candy bars well known to shrink in size. Eventually, shortages appear, as they recently have with generic drugs driven off-shore, creating a monopoly for irresponsible manufacturers. The only feasible way to retain a vigorous marketplace in health care costs is to allow the market free play under a large deductible. A sufficiently large co-pay might be thought to do it, but Gresham's Law shows it is impossible to maintain two prices for two halves of a service. Since many services performed in the hospital are also performed in doctor's offices, a considerable base for determining the price of DRGs (diagnosis-related groups) is readily established, and adjusted for local and regional differences. That will be automatic if the market is allowed to adjust to costs in nearby offices, and the necessary data links are created. A blood count is a blood count, an EKG is an EKG, whether inside the hospital or inside a tent. Hospital administrators complain they have high overhead, but that's just the point, isn't it? A high deductible is the only imaginable way to preserve a marketplace within a totally insured world, and it will be a tragedy if Obamacare fails to recognize it.
The catastrophic insurance policy is thus included by the Affordable Care Act only in the sense that some kind of health insurance is mandated. Used as part of a package with Health Savings Accounts, its split usefulness in two venues relies on health costs jumping sharply as soon as a patient is sick enough to go in a hospital. We also discuss in another place, the advantage of employing internal interest build-up in the Last Year of Life proposal. At this late point in the discussion, it is only useful to mention the fortuitous advantage that indemnity plans fit together, creating a strange ability to offset outpatient health costs against terminal care costs.
In any event, politicians must note that boundaries somehow have to remain flexible enough to adjust to changes. Service benefits are so flexible they could bankrupt us, so any replacement must not go that far. In the crudest brief description, Medical Savings Accounts seek to take advantage of the cost restraints of high-deductible ("catastrophic") health insurance, while easing the necessary pain by providing some patients with the money to do it with. It probably can cover all patients only if there is some temporary subsidy for the poorest. Some may need charitable assistance, and none can expect to enjoy the benefits of compound interest until interest rates return to normal. The pooling of investments in order to have professional management seems highly desirable if investment diversification is contemplated. Experience with these plans has shown that paying the money out of a tax-exempt fund has almost as much spending restraint as paying bills fully with cash, so costs are reduced by about 30% in actual experience. There might also be a reinsurance pool to pay for the occasional patient who exceeds the money in his account repeatedly, but the medical perception is that once you start going into the hospital, you either soon get better or you don't. Either way, there are few chronic diseases left; cancer and Alzheimer's disease, and that's about it. The strategy of giving poor people the three-to-five thousand dollars was originally envisioned to level the tax playing field with employer-based insurance, which still only provides tax avoidance for salaried employees. In recent years, a number of other ways to give away money by another name (especially funded tax credits) have been devised. They are not discussed further. HSA progress has been resisted for thirty years, but one consolation is that during the interval dozens of examples have been tried out, medical costs have regularly declined for workers, and both doctors and patients are satisfied with the arrangement. These savings come disproportionately from the outpatient arena since reimbursement of hospital inpatient costs often depends on negotiations between the insurer and the hospital. The use of market-based out-patient costs (MPC) as a basis for guiding physician decisions to cost-effective diagnosis and treatment, allows indirect hospital costs to be negotiated separately with third parties without fanciful allusions to linkages to billable services. Some hospitals could withstand this type of review, others could not. But it is certainly past time to have the discussion.
The Billing Mess No reimbursement system can be entirely satisfactory until provider accounting and billing are reformed. Health Savings Accounts were once resisted by those outsiders who benefited from unique tax exempted coverage, but the current climate is now favorable to deductibles almost everywhere. At least this much has been accomplished. Progress since 1980 has been retarded, not by lack of success, but by abnormally low-interest rates at banks imposed by the Federal Reserve, and by state laws mandating coverage of specific low-cost services. It is possible that the latter is motivated by a desire to exert indirect price control, and thus provide an opportunity for negotiations. It is also unwise to mandate coverage for birth control pills, cough medicine and like because experience in nations with nationalized health systems shows a tendency to be generous with low-cost items so as to conceal appalling harshness about expensive care. Doing so also brings to the fore such contraptions as the widespread three-insurance system for paying your bills. One policy now pays about 80%, another policy pays about 20%, while a major medical policy cleans up loopholes. This costly contrivance is even used to bill for individual refills in a drug store. The resulting chaos means most medical bills are not finally settled for several months, generating mountains of paperwork beyond average comprehension. With a Health Savings Account, the patient generally pays cash and gets a receipt for it, although the use of debit cards smooths that, and adding inpatient payments to the debit card would smooth it further. Useless itemized hospital bills should be revised to substitute market-based prices for inpatient items, thus restoring their usefulness for physician and patient cost guidance. Indirect hospital costs need not be shown on the bill at all; rather, they could be subjects for negotiation with third-party payers alone. Combining direct costs and indirect ones serves no identifiable purpose, since actual payments are now DRG or diagnosis-based rather than item-based, and indirect costs have become so large and cost-shifted that the combined figure is totally misleading for the analysis of cost-effectiveness. Periodically, the item composition of DRGs does need to be re-compiled, but this can be produced on demand for monitoring purposes, and would often be more useful if aggregates were examined rather than individual cases. The "grouping" of items in the DRG with similar costs rather than medical characteristics may have convenience for the billers and payers, but the process is highly approximated, at best, for any other use. For serious analysis, the entire ICD coding system needs to be abandoned, and to revert to an updated version of the original Standard Nomenclature system, now mainly in use by pathologists (SNOMED3). Many of these small reforms may seem technical and obscure, so a sentence needs repeating: No reimbursement system can be entirely satisfactory until provider accounting and billing are intensively reformed.
Summary of Improvements useful to integrating Obamacare with Health Savings Accounts.
The accuracy of predicting future longevity, future health costs, and future stock markets -- is individually very low, so aggregated numbers can be (at least) equally misleading. However, they are the best available guides to the future. The purpose of deriving them (Mostly from CCS data) is to surmise whether it is safe to proceed with a trial of concepts. While the differences are great their direction is nevertheless pretty clear: Substituting the HSA would surely save a great deal of money, compared with Obamacare or Medicare. Why not substitute it for both Obamacare and Medicare? Transition costs are not estimated, and no doubt would be considerable, even if one plan replaced several others. Overall HSA cost is inversely related to investment income; three levels of income are presented, but a conservative conclusion is argued.
In short: HSA could just about replace both ASA plus Medicare, with a long transition period. But one must be more hesitant to suggest they can stretch to reducing accumulated Medicare debts from past spending. My guess is preventing more international debts is all we can promise. Someone else must figure out how to pay the existing debts. Why include Medicare, then, if predictions are sketchy? Two main reasons: my opinion is that funding Medicare is a worse problem than insuring younger people; it is not fixed, nothing else can be successfully fixed.
Second, it is such a political third rail of politics to talk of revising Medicare that someone with nothing personal to lose, like myself, must start the discussion. Some other funding source must probably be found to eliminate the existing Medicare debt, but there's not much risk of needing the money very soon. I am also a little apprehensive about the decline of existing Treasury bonds when interest rates rise because so many of them have been issued to cope with the recession. Any appreciable reduction of Medicare costs could accelerate a rise in bond interest rates, which would send the market price of existing bonds downward. Therefore, even a move in the right direction must include a reverse button, and be coordinated with the Federal Reserve. It is most unfortunate that Medicare is both more serious and more manageable, while at the same time it is so politically dangerous.
Paying to Replace Medicare and Debts with Health Savings Accounts. At least, savings to the consumer for the combined ASA and Medicare replacement would be returned to the subscriber as payroll-deductions and premiums-eliminated, (i.e., About half of the Medicare cost.) Savings from replacing Obamacare would be even greater, but from my viewpoint, such savings would all be poured into rescuing Medicare. That's ironic because it is the reverse of what the elderly are fearing. Even Obamacare advocates should welcome the elimination of Medicare because its losses are dragging everything else down. Unfortunately, this is not well understood by the public, who love Medicare. (Everybody loves to get a dollar for fifty cents.) Somebody has to say this can't last, and I guess I'm it.
To be confident Medicare's costs plus its debts would actually be manageable, the average subscriber would have to contribute about $1600 a year for 40 years to an escrow fund at 6% annual income. That's to achieve a total of $246,000 on his 65th birthday, paying his ordinary health debts from 25 to 65 with the other $1700 of his allowed Health Savings Account deposits, to pay average medical expenses for age 25-65. In my opinion, it can't be done.
You might subsidize poor people in the name of fairness, but this is how much you have to find, somewhere, to pay present costs. You might try raising the annual limits for deposits into Health Savings Accounts, but this would prove futile if too few people could afford to pay it. If you please, health expenses would then have to be cut enough to pay for the subsidies, unless the subsidies are cut to pay the health expenses. With that and a continuation of 6% return as long as the paying subscribers live and the fund remains solvent, we might make it. It is my hope that using private markets rather than Treasury rates, pay down of the debt can be accomplished with higher interest rates, but it is uncertain even this can be done. High rates like that are only likely to appear if inflation starts to gallop, or some other cataclysm intervenes, with the following result: the virtual value of the Medicare debt erodes, and the creditors lose much of their loan in real value. Some individuals might be able to manage their cost, but it's very hard to believe it could be an average performance for the whole nation. This is not an easy problem, and it becomes impossible if disillusioned Democrats block it.
And yet, the nation has already made it official it is going to spend nearly twice that amount, while only getting Obamacare in return. If the President is right about his side of it, then getting Medicare free in addition, is do-able by this Lifetime Health Savings Account alternative. If not, then both have to be scaled back. Big business is about the only hope, using a cut in corporate taxes as bait. This would be a big step since if they don't pay corporate taxes, they don't need a tax exemption for healthcare; they already have cut their tax bill.
Present law permits $3300 annual HSA deposits to age 65, or $132,000. With only 6% compounded interest income included to reduce the cost, Health Savings Accounts could only have a net lifetime out-of-pocket cost of $58,000, no matter what healthcare expenses are actually incurred. By my estimation, this is only half of enough. Sometime in the future, inflation will force this limit to be raised, and it should be linked to some external inflation measure like the Cost of Living Index, although a healthcare cost of living index would be closer to what is needed. Inclusion of tax exemption for the premium of catastrophic high-deductible policy which is required by law, would not only be more equitable but perhaps could provide both a superior COLA and an external measure of average Catastrophic premiums for marketplace judgments. It is probably undesirable to create an arbitrage opportunity between taxable and after-tax choices with infrequent, steep-step, changes in the deposit limits, so these limits should somehow be adjusted annually. Annual limits should be supplanted with lifetime limits whenever the account is depleted below a certain fraction of the buy-out price, which should be maintained and upgraded for this purpose. Since expenditures are limited to healthcare, a liberalization of this catch-up limit is urged.
There is thus room to spare, here, as well as for increasing 6% return in the direction toward 10%. Since the investment scene is in flux, more experience may be necessary for better guidelines. Depending on the interest rate actually achieved, and the choice between maximum allowable, or less out-of-pocket, lifetime Health Savings Accounts could cost somewhere between 58 and 132 thousand dollars, lifetime total average, in the year 2014 dollars. The Medicare escrow part of that would be $10,000, and Catastrophic coverage for 58 years of Medicare life expectancy would add $58,000. The deposit costs for the Obamacare years 25-65 would themselves total $10,000, and estimated Catastrophic insurance would add $16,000, to a total lifetime cost of $26,000. If contributions are raised, there's room for it under the $3300 yearly limit. The hard question is whether we could get $3300 on average for forty years, and I'm not sure we can. Please note: HSA deposit costs should remain linked to the 40 working years 25-65, but investment income would be realized over the entire 58 years. For the purpose of extending interest income, HSA coverage could be extended another 40 years, but this would mostly be an illusion. Real wealth is only generated during the working years. Depositing extra money in an HSA is not entirely a bad thing, because if you deposit more than you need for medical care, you will get the excess back, multiplied by tax-free investing. However, if people can't afford to do it, they won't. Obviously, the same cannot be said of buying too much insurance, where the insurance company profits from those who drop their policies..
Compared With the Affordable Care Act. Now, compare: the cheapest bronze Obamacare cost (covering 60% of healthcare, age 26 to 65) is $288,000, accumulated and paid for over a 40-year span. Adding Medicare adds $95,400, made up of $23,800 of payroll deductions, $23,800 of premium collections, and $47,700 of debt, accumulated over 18 years, paid for over 40 working years. Obamacare followed by Medicare is what we are officially destined to get. Total average lifetime costs are thus projected to be $383,300, plus the 40% estimate of uncovered ACA costs under the Bronze plan. Considering different inflation assumptions and rounding errors, that's pretty close to the $325, 000 which was calculated by Michigan Blue Cross and confirmed by federal agencies, for year 2000. To repeat, this is what we will get unless it is changed. Restating the calculations in words, healthcare is, therefore, being treated as if it were entirely self-funded, generating no losses but also generating no income on the sequestered premiums. The hidden restatement would be: the present and projected healthcare system is running at a loss, it generates no net income on what ought to be very large reserves, and nothing is being done to make it break even, to say nothing of generating income.
This outcome makes me absolutely confident we can do better. The lifetime Health Savings Account would create immense savings, which by rough calculations would be somewhat less confidently stated to be savings of $190,000, in year 2014 dollars, per lifetime. Multiply that number times 340 million citizens, and you get a result in the trillions of dollars. It's pretty staggering to confess that even this much improvement may not be enough.
Lifetime Health Savings Account (68 yrs.)............vs................Medicare alone.
..............$80,000 single payment(40 yr. deposit of $850 =$32,000 cost, 68 yrs.@4% cmp. Interest)..*(+$18,000)
..............$160,000 single p. plus existing-debt service (40 yr. annual deposit of $1700=$68,000 cost, 68 yrs.@4% cmp. Interest)*(+$18,000)..
..............$150,000 both + subsidy (40 yr. annual deposit of $1600=$32,000 cost, 68 yrs.@4% cmp. Interest)*(+$18,000)..
..............$246,000 stretching (40 yr. deposit of $1600=$64,000 cost, 68 yrs.@6% cmp. Interest)*(+$18,000)..
..............$706,000 workplace insurance (40 yr. deposit of $3300=$132,000 cost, 68 yrs.@10% cmp. Interest)*(+$18,000)..
..............*$18,000 (Catastrophic Insurance, est. @$1000/yr for 18 extra years)
--->Total Extra Cost per Individual including Catastrophic for 18 yrs. estimate: $98,000 (18-118,000)<---
--->Present Medicare Pre-payment Costs: $196,200 plus 196,200 in debt.<---
Yearly Personal Expense for Forty Years, Age 25-64 (HSA vs. Obamacare)
|Health Savings Account Deposits|
|@ 10%.....$65 per year (plus $1000 for Catastrophic coverage.)Lifetime Cash:$2600 plus $58,000=$60,600|
|@6%......$400 per year (plus $1000 for Catastrophic coverage.)Lifetime Cash:$1600 plus $58,000=$76,600|
|@ 2%......$2200 per year (plus $1000 for Catastrophic coverage.)Lifetime Cash:$88,000 plus $58,000=$146,000|
|....$3300(Maximum Legal Limit)............Lifetime Cash:$132,000 plus $58,000=$190,000|
|Affordable Care Act "Bronze" Premiums: $5500-$7200 (for 60% coverage of Healthcare costs)Lifetime Cash:$220,000-$288,000|
@10%...............@6%...................@2% ..|||||...............Payroll tax...................Premiums......................Debt............
$45.................$250.00..................$1400...........|||||||............$1320......................$2640 (x18yrs).............$2725 (x18yrs.).............
Total Cost if health insurance were tax deductible including Catastrophic for 68 yrs. estimate: $88,800.
Limit per Individual, Exclusively used for Medicare Pre-payment: ($3300/yr x40= $132,000, realizing $1,460,000 at age 65 @10%.)............................
Multi-year Health Savings Account (40 yrs.)............vs..............60% of Affordable Care alone.
Total Cost per Individual, median estimate.
Multi-year Medicare Escrow Deposits (40 yrs.)............vs..............80% of Affordable Care alone.
Multi-year Medicare Escrow Deposits (40 yrs.)............vs..............60% of Affordable Care alone ("Bronze").
...............$80,000.($850/yr @4%, 150/yr @10%, contributing from age 25-65 ). ..........................$288,000
Estimated $18,000 Catastrophic Coverage Escrow (18 yrs.), escrow released at age 65
...............$ 8000 ($200/yr @4%, $40/yr @10%, contributing from age 25-65)
Total Medicare Escrow Cost per Individual, median estimate: $89,600 ($1050/yr @4% investment income, $190/yr @10%)
Lifetime HSA plus Medicare............vs................Affordable Care plus Medicare
.........$120,000 (1800-58,000)............................$484,000 plus 196,000 in debt.
................($166/mo}.......................................................................... Total Savings per Individual, median estimate: $190,000
All costs assuming age 25 to start depositing. Transition costs at later ages are not calculated. ---------------------------------------------------------------------------------------------------------------------------------------
The Right Angle Club of Philadelphia -- Club Matters
The Exchange luncheon club of Philadelphia, then meeting at the Bourse, withdrew from association with other Exchange Clubs on a point of principle -- hence the name it adopted, the Right Angle Club.
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.
Sociology: Philadelphia and the Quaker Colonies
The early Philadelphia had many faces, its people were varied and interesting; its history turbulent and of lasting importance.
Nineteenth Century Philadelphia 1801-1928 (III)
At the beginning of our country Philadelphia was the central city in America.
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.