The musings of a physician who served the community for over six decades
367 Topics
Downtown A discussion about downtown area in Philadelphia and connections from today with its historical past.
West of Broad A collection of articles about the area west of Broad Street, Philadelphia, Pennsylvania.
Delaware (State of) Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Religious Philadelphia William Penn wanted a colony with religious freedom. A considerable number, if not the majority, of American religious denominations were founded in this city. The main misconception about religious Philadelphia is that it is Quaker-dominated. But the broader misconception is that it is not Quaker-dominated.
Particular Sights to See:Center City Taxi drivers tell tourists that Center City is a "shining city on a hill". During the Industrial Era, the city almost urbanized out to the county line, and then retreated. Right now, the urban center is surrounded by a semi-deserted ring of former factories.
Philadelphia's Middle Urban Ring Philadelphia grew rapidly for seventy years after the Civil War, then gradually lost population. Skyscrapers drain population upwards, suburbs beckon outwards. The result: a ring around center city, mixed prosperous and dilapidated. Future in doubt.
Historical Motor Excursion North of Philadelphia The narrow waist of New Jersey was the upper border of William Penn's vast land holdings, and the outer edge of Quaker influence. In 1776-77, Lord Howe made this strip the main highway of his attempt to subjugate the Colonies.
Land Tour Around Delaware Bay Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Tourist Trips Around Philadelphia and the Quaker Colonies The states of Pennsylvania, Delaware, and southern New Jersey all belonged to William Penn the Quaker. He was the largest private landholder in American history. Using explicit directions, comprehensive touring of the Quaker Colonies takes seven full days. Local residents would need a couple dozen one-day trips to get up to speed.
Touring Philadelphia's Western Regions Philadelpia County had two hundred farms in 1950, but is now thickly settled in all directions. Western regions along the Schuylkill are still spread out somewhat; with many historic estates.
Up the King's High Way New Jersey has a narrow waistline, with New York harbor at one end, and Delaware Bay on the other. Traffic and history travelled the Kings Highway along this path between New York and Philadelphia.
Arch Street: from Sixth to Second When the large meeting house at Fourth and Arch was built, many Quakers moved their houses to the area. At that time, "North of Market" implied the Quaker region of town.
Up Market Street to Sixth and Walnut Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
Sixth and Walnut over to Broad and Sansom In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Montgomery and Bucks Counties The Philadelphia metropolitan region has five Pennsylvania counties, four New Jersey counties, one northern county in the state of Delaware. Here are the four Pennsylvania suburban ones.
Northern Overland Escape Path of the Philadelphia Tories 1 of 1 (16) Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
City Hall to Chestnut Hill There are lots of ways to go from City Hall to Chestnut Hill, including the train from Suburban Station, or from 11th and Market. This tour imagines your driving your car out the Ben Franklin Parkway to Kelly Drive, and then up the Wissahickon.
Philadelphia Reflections is a history of the area around Philadelphia, PA
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Philadelphia Revelations
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George R. Fisher, III, M.D.
Obituary
George R. Fisher, III, M.D.
Age: 97 of Philadelphia, formerly of Haddonfield
Dr. George Ross Fisher of Philadelphia died on March 9, 2023, surrounded by his loving family.
Born in 1925 in Erie, Pennsylvania, to two teachers, George and Margaret Fisher, he grew up in Pittsburgh, later attending The Lawrenceville School and Yale University (graduating early because of the war). He was very proud of the fact that he was the only person who ever graduated from Yale with a Bachelor of Science in English Literature. He attended Columbia University’s College of Physicians and Surgeons where he met the love of his life, fellow medical student, and future renowned Philadelphia radiologist Mary Stuart Blakely. While dating, they entertained themselves by dressing up in evening attire and crashing fancy Manhattan weddings. They married in 1950 and were each other’s true loves, mutual admirers, and life partners until Mary Stuart passed away in 2006. A Columbia faculty member wrote of him, “This young man’s personality is way off the beaten track, and cannot be evaluated by the customary methods.”
After training at the Pennsylvania Hospital in Philadelphia where he was Chief Resident in Medicine, and spending a year at the NIH, he opened a practice in Endocrinology on Spruce Street where he practiced for sixty years. He also consulted regularly for the employees of Strawbridge and Clothier as well as the Hospital for the Mentally Retarded at Stockley, Delaware. He was beloved by his patients, his guiding philosophy being the adage, “Listen to your patient – he’s telling you his diagnosis.” His patients also told him their stories which gave him an education in all things Philadelphia, the city he passionately loved and which he went on to chronicle in this online blog. Many of these blogs were adapted into a history-oriented tour book, Philadelphia Revelations: Twenty Tours of the Delaware Valley.
He was a true Renaissance Man, interested in everything and everyone, remembering everything he read or heard in complete detail, and endowed with a penetrating intellect which cut to the heart of whatever was being discussed, whether it be medicine, history, literature, economics, investments, politics, science or even lawn care for his home in Haddonfield, NJ where he and his wife raised their four children. He was an “early adopter.” Memories of his children from the 1960s include being taken to visit his colleagues working on the UNIVAC computer at Penn; the air-mail version of the London Economist on the dining room table; and his work on developing a proprietary medical office software using Fortran. His dedication to patients and to his profession extended to his many years representing Pennsylvania to the American Medical Association.
After retiring from his practice in 2003, he started his pioneering “just-in-time” Ross & Perry publishing company, which printed more than 300 new and reprint titles, ranging from Flight Manual for the SR-71 Blackbird Spy Plane (his best seller!) to Terse Verse, a collection of a hundred mostly humorous haikus. He authored four books. In 2013 at age 88, he ran as a Republican for New Jersey Assemblyman for the 6th district (he lost).
A gregarious extrovert, he loved meeting his fellow Philadelphians well into his nineties at the Shakespeare Society, the Global Interdependence Center, the College of Physicians, the Right Angle Club, the Union League, the Haddonfield 65 Club, and the Franklin Inn. He faithfully attended Quaker Meeting in Haddonfield NJ for over 60 years. Later in life he was fortunate to be joined in his life, travels, and adventures by his dear friend Dr. Janice Gordon.
He passed away peacefully, held in the Light and surrounded by his family as they sang to him and read aloud the love letters that he and his wife penned throughout their courtship. In addition to his children – George, Miriam, Margaret, and Stuart – he leaves his three children-in-law, eight grandchildren, three great-grandchildren, and his younger brother, John.
A memorial service, followed by a reception, will be held at the Friends Meeting in Haddonfield New Jersey on April 1 at one in the afternoon. Memorial contributions may be sent to Haddonfield Friends Meeting, 47 Friends Avenue, Haddonfield, NJ 08033.
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.
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.
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.
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}
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.
This book was originally based on a notion, on a dream if you will. A whole lifetime of healthcare might be purchased, for what now only covers a quarter of a half -- those scarcely-noticed payroll deductions for Medicare, listed on everybody's payroll stub. But then politics and Supreme Court decisions came along. Turning over each pebble on a new heap, it nevertheless seems that amount might still stretch to cover all of the nation's average lifetime costs, although payroll deductions wouldn't resemble the way to do it. Reducing prices by 28% of $350,000 is a ton of money, particularly when multiplied by 300 million people. Let's lower expectations by saying the new narrower proposal might only reduce prices by 14%. That would be $39,000 times 300 million, or twice the combined fortunes of Bill Gates and Warren Buffett. The $39,000 is a substantial amount for anybody, and $ 11.7 trillion is an astonishing aggregate for the nation. That's once in a lifetime, but it's still $140 billion a year.
I decided to ignore the 42% of historical costs which Obamacare covers (age 21 to 66) until its facts emerge. Just add the cost of the earning segment (21 to 66) to estimate whole lifetime costs. That does leave a gap of one third in the middle of life. If you don't know what the Affordable Care Act will eventually cost, you can't be confident what lifetime healthcare will cost. I'm confident lifetime Health Savings Accounts would cost much less. The Affordable Care Act has not yet convincingly described any cost reductions. But to be fair, neither do Health Savings Accounts. They reduce the price by adding revenue.
The issue is how to transfer $238,000 from individuals in one group, to another group.
Quick calculation now follows. Average lifetime healthcare expenditure (in the year 2001 dollars per person) is in the neighborhood of $350,000. That's the estimate of statisticians at Michigan Blue Cross, confirmed by Medicare. Medicare takes half of the annual cost, from birth to age 21 takes another 8%, and we don't know the cost of the unemployable of working age, but they are 10% of the population. So, the new segment we assigned ourselves, involves at least 68% of national health costs, and probably somewhat more. That represents the basis for saying the working population 21-66 must pay its own costs and somehow transfer at least 68% more to what we will call the dependent sector. At a minimum, that's 68% of $350,000 per lifetime, or $238,000. Don't take it too seriously, but that's the ballpark.
Endowment funds traditionally aim for 8% annual return (3% from inflation, 5% net). The stock market has averaged 12% gain for a century, so 4% isn't exactly missing, but its disappearance requires convoluted explanation, later in the book. Starting with those bits of information and adding a few more, just re-arranging payments would get to the same final result-- by spending one-third as much money. The cost of separating employer-based insurance from all the rest of it exceeds my abilities, so it will have to dangle. How we got to that conclusion isn't rocket science, but it isn't obvious, either. So let's make the conclusion easier: you can make a ton of money doing what is suggested. Don't complain it isn't two tons or only half a ton, it is what it is. You can put this data through a big data computer, or use a slide rule, but you are still dealing with predictions about the future, which will contain lots of uncertainty. Although it will not make healthcare free, it implies savings of about $38,000 per person, per lifetime. View that saving in two ways: it's only about $500 per person, per year. Or, viewed as a nation of 316 million inhabitants, it saves $150 billion per year. Skeptics could attack the math as exaggeration, and still get an answer in billions per year. Tons instead of billions would be even more accurate, just sound less precise.
Next might come nit-pickers. You can't get 8% investment income returns a year, unless this, or unless that. Very well, just say this is the top limit of what is possible as an average, using average investment advice. The Federal Reserve confidently promised to keep inflation at 2%, but actually experienced 3% over the past century. Chairman Bernanke tried his best to "target" inflation up to 2% but inflation just resisted going up that far, and it's pretty hard to get any agreement about why it resisted. Accuracy just isn't possible when you are predicting the economic future. That's why the unit of measurement is in tons. Tons of money. Who will save it and who will steal it, is much harder to predict.
Some doctors, deans, drug companies, financiers and politicians will always try to increase their spending to equal any available revenue. About forty percent of the public will line up at the same trough. All that is beyond my control. You won't find one word in the accompanying book to suggest I endorse such behavior. All I did was write a cookbook. The cooking is up to you.
Although this book promised, and I hope delivered, a detailed discussion of how Health Savings Accounts might work if Congress unleashed them, the original question remains. Where does so much money come from? Well, in one sense, it comes from saving $350 per year, starting at age 25 and ending at 65, earning 8% compound interest. That's if longevity remains at 83. We assume the average person has medical expenses, but we don't know how to estimate them, so we put $350 a year in escrow, and average person has to contibute more cash for medical expenses at 80 cents on the dollar (the tax exemption) until experience shows he has five or ten years pre-paid, or until he reaches an estimated cash limit. Somewhere around that point, he can stop contributing, both to the escrow fund and to incidental medical costs, until the fund catches up with him. In plain language, he gives himself a loan if his expenses are too high. These figures are based on current average costs, so the money is calculated to be present in the fund but poorly distributed. After experience accumulates, these numbers can be readjusted from present over-estimates..
The prudent way to manage future uncertainties is to over-fund them and transfer any surplus to a retirement fund.
Planning For The Future.
Curiously, if longevity goes to 93, it would seemingly only require $150 per year in escrow instead of $350. Longevity could only add ten years if we had some medical discoveries in the meantime, so let's say both the added longevity and the added cost of it, appear fifty years from now. Our hypothetical average person born today contributes $150 per year from age 25 to age 50, when he discovers increased longevity requires him to contribute $ yearly until he is 65. After that, he is all paid up until he dies at age 93. Yes, he has Medicare to account for, but his payroll withholding has already paid a quarter of Medicare cost, and if he pays Medicare premiums he will have paid another quarter of Medicare. His lifetime Health Savings Account escrow contribution would contribute $ per year, which is the present deficit of Medicare, currently being subsidized.
The amount of contribution to the escrow fund could be reduced to actual costs over time, but the prudent way to manage uncertainties is to over-fund them, planning to roll any surplus over to a retirement account. Three-hundred-fifty million Americans, times $350,000 apiece in lifetime medical costs, results in a number so large it requires a dictionary to pronounce it correctly. Cutting it in half still suggests a financial dislocation of major proportions, so out of whose pocket would it come? Even if it's a win-win game, dumping that much money into the economy sounds destabilizing. These are not legitimate reasons to avoid it, but it seems hardly credible it could happen without someone noticing a big difference. What does it do to the monetary system?
If it is assumed funds generated by this system are ultimately used to pay off accumulated debts, the result should be some degree of deflation. The Federal Reserve has already purchased several trillion dollars worth of bad debt so debt repayment would not seem to pose a threat. By contrast, inflation could become a threat if corporate taxes are reduced too rapidly, but presumably, we have learned the lesson of lowering Irish corporate taxes too rapidly. Because of international ramifications, we have to assume this threat would be recognized. Because of the nature of compound interest, it has the least effect in its early stages, and there would be sufficient warning of inflation to mobilize action. Interest rates would probably rise, but there is a cushion of several years of subnormal rates, and most people would feel the elderly have suffered enough from low rates to justify some relief.
A certain amount of trouble resulted from using the "pay as you go" model, in which current premiums pay for current expenses. That is, the money from young healthy subscribers pays the bills of old, unhealthy, ones. By that reasoning, the original subscribers in 1965 got a free ride from Medicare and never paid for it. The debt has been carried forward among later subscribers, and although it is a debt which still remains to be paid, it seems very likely no one would ever collect it. Each generation makes it a little bigger by adding subscribers and running up hidden debt charges, but at least it is accounted for. In a way, there is enough guilt feeling about this matter, that it would probably be politically safe to create a balancing fund, to be used in case there are monetary issues with this unpaid indebtedness.
Let's remember that a major part of the health financing problem can be traced to the unequal taxation exemption of big business, which traces back more than seventy years to World War II. No one welcomes reducing net income in half by any means, but reducing corporate income taxes might just be one of the few ways it could be an inducement.
No taxes, no tax exemption; it sounds pretty simple until you review the trouble the Irish Republic got into when it reduced them too fast. But when corporate taxes are the highest in the world, and international trade is threatened -- is certainly the best time to do it. And politically, when wealth redistribution has just been given a thorough pounding in the polls, is also a good time to advance the idea. If everyone would be reasonable about the details, an important tool for managing international trade could be fashioned out of needed healthcare reform. It certainly is a double opportunity.
A fiduciary puts his customer's interest ahead of his own.
The End of The World?
One way or another, the success of Health Savings Accounts will depend on crossing the tipping point, where investment income is greater than borrowing cost. These accounts will be forced to do a great deal of internal borrowing, particularly at first, when some financial information does not exist, and therefore must be deliberately over-funded. We have a reasonably workable idea of total health care costs and longevity, but an uncertain grasp of the shape of the revenue and cost curves in the middle. Inevitably, certain age groups will be in chronic debt, and others will run protracted surplus; the situation demands low-cost internal borrowing. Meanwhile, the overall prediction can be made that healthcare costs will generally be lower for young people, higher for the elderly. If the premiums of young people can be invested at least 8% net, the system should work. When we learn common stocks are averaging 11% returns, and investment intermediaries frequently capture 85% of it, the whole idea of passive investing is ruined until this is repaired. Requiring Health Savings Account agents to be, and to act like, fiduciaries is just about mandatory. A fiduciary puts his customer's interest ahead of his own. The day of opaque pricing must come to an end.
We mentioned earlier, Roger G. Ibbotson, Professor of Finance at Yale School of Management has published a book with Rex A. Sinquefield called Stocks, Bonds, Bills and Inflation. It's a book of data, displaying the return of each major investment class since 1926, the first year enough data was available. A diversified portfolio of small stocks would have returned 12.5% from 1926, about ninety years. A portfolio of large American companies would have returned 10.2% through a period including two major stock market crashes, a dozen small crashes, one or two World Wars hot and cold, and half a dozen smaller wars involving the USA. And almost even including nuclear war, except it wasn't dropped on us. The total combined American stock market experience, large, medium and small, is not displayed by Ibbotson but can be estimated as roughly yielding about 11% total return. Past experience is not a guarantee of future performance, but it's the best predictor anyone can use.
During that most recent prior century, we had a lot of crisis events, which normally bump the stock market up and down. A standard deviation is an amount it jumps around, and one standard deviation plus or minus includes by definition two-thirds of all variation. During the past ninety years, the standard deviation has been 3 percent per month or 11% per year. Standard deviations for the whole century are not meaningful because of more or less constant inflation. Throughout this book, we repeatedly describe investment income as 10%, for a simple reason: money compounded at 10% will double every seven years. Using that quick formula, it is possible to satisfy yourself what 11% can do if you hold it long enough. Since no one knows what will happen in the next 100 years, it is futile to be more precise. We may have an atomic war, or we may discover a cheap cure for cancer. But 10% is about what you can reasonably expect, doubling in seven years if you can restrain yourself from selling it during short periods when it can deviate less or more. The most uncertain time is immediately after you buy it before it has time to accumulate a "cushion". As we see, your money earns 11%, but it isn't necessarily what you will earn.
Your money earns 11%, but that isn't necessarily what you will earn.
Expecting it and getting it, can be two different things, therefore. And even if Congress establishes it, as they say in Texas, "You can't turn your head to spit." Because, for one thing, most expenses for a management company also come in its first few years, on their first few dollars of revenue. Wide experience with a cagey public, therefore, teachers experienced managers to get their costs back as soon as they can. Until most managers get to know their customers, in this trade, charging investment managing fees which amount to 0.4% annually is considered normal for funds of $10 million, so charging 1-2% for accounts under a thousand dollars is common practice. These things make it understandable that brokers are slow to lower their fees, or 12(1)bs, or $250 charges to distribute some of your proceeds. But our goal as customers is to negotiate fees reasonably approaching those of Vanguard or Fidelity, which have fees of about 0.07% on funds amounting to trillions of dollars. Such magic can only be worked by purchasing index funds from a broker who aggregates them, and also develops a smooth-running standardized service with minimal marketing costs to cover the debit card, help desk, hospital negotiating, and banking costs. And who, by the way, may make really serious income from managing pension funds, so they remain wary of antagonizing corporate customers who get a big tax deduction from giving employees their subsidized health insurance. Remember, stockbrokers are not fiduciaries; they are not expected to put the customer's interest ahead of their own. A broker sells stock to anyone who wants to buy it, even if two successive customers are bitter rivals of each other. One of the better-known brokerage houses advertises charges of $18 a year for HSA accounts over $10,000, but only after it reaches that size will it permit the customer to choose a famous low-fee index fund. With $3300 annual deposit limits, it eats up three years of your earnings even to get there. You really have to feel sorry for an industry experiencing such a general decline of net worth, but the incentive it creates is obviously for you to get the account to be over $10,000, as fast as you possibly can. To many people, those sound like staggeringly large amounts, but they are realistic at this stage of the market, if not entirely accessible to everyone.
The last few paragraphs sound like a digression, but they aren't. The question was, Where does all this money come from? Would there be wealth creation if the system favored the retail customer more, or wouldn't there be. I don't know the answer, but one likely approach is, let's try it.
Medicare's payment-by-diagnosis system requires a diagnosis code for its computers to specify the payment. Codes are the way doctors can conduct their activities on a medical level while revealing to the billing department what the activity is worth. The billing department knows well enough these values will be later smudged and bloated, so why make work for yourself being accurate? Careful, fellows, your foot is on a slippery path.
High-handed Codes. The government could have chosen a coding system called SnoMed (Standard Nomenclature of Medicine), which specifies several million diagnoses in detail. Or it could have specified ICDA (International Classification of Diseases), which in its various iterations can identify several thousand. What it did choose was DRG, or Diagnosis-related Groups, specifying about two hundred. With various adjustments and offsets, this translates: there are only two hundred different price buttons to push -- for millions of diagnoses. The theory is, some cases will cost more, some will cost less, but in the long run, it all comes out just exactly right. Saves work for the billing clerks, that way.
Careful, fellows, you have stepped over the line of what is allowable latitude. Buried in your computer cubicles, hidden behind green eyeshades, you have convinced yourselves the world will tolerate anything you do for your own convenience. Try talking to one of them some time -- you will surely find the door is locked, or the boss is out to lunch, or it isn't company policy to allow accountants to talk to outsiders. If you have credentials, you may talk to a spokesman who seems to keep repeating himself. It does not seem to have occurred to anyone that the public wants to know if the charges are fair, and at the very least has a right to know if they are accurate. How can they be either fair or accurate, if millions of activities are reduced to two hundred price buttons?
Pure and simple: A rationing system.
DRG
I remember well, sitting in the Congressional hearing room when this proposal was first made. I giggled over Congress letting someone even utter such nonsense, let alone pass a law to go ahead with using it. But now I have to listen to reports this system has been in place for twenty years, and it works just wonderfully fine. A friend of mine was a graduate student at Yale, helping to develop the DRG system in its original form. He, too, is appalled that such an unexpected usage could even be considered, for what had an entirely different original purpose. The DRG was part of a coding system devised to assist the Professional Standards Review Organizations in monitoring insurance claims for errors and fraud. The behavior of each diagnosis group was studied for its general outline, and general patterns were identified. If a case fell outside the norms, it was tagged for investigation. Just how well DRG's worked out for that particular purpose, I have no idea. But to extend it for the actual payment of particular claims, simply boggled the mind, and still does.
Children Playing With Matches. When you let people do things like that, some pretty unexpected things happen. In the first place, using a system tailor-made for Medicare, you need at least one extra system to pay for patients who don't have Medicare. However, Medicare accounts for about half of average hospital revenue, so there is automatic pressure on everybody to conform to the system of the big cajun. An elaborate system called Chargemaster was devised for itemized services to be listed on an itemized bill, which now runs to dozens of pages for each patient. Since nobody much was going to use anything but DRG, the reasoning went that constant revision of thousands of itemized charges would be a big and useless task. Since you had to do it, you set the charges so high you wouldn't have to come back and revise them so often. Countless reporters have asked dozens of hospital administrators to explain the itemized bills which emerge, and almost every administrator admits he doesn't understand Chargemaster, and never looks at it.
Chargemaster. The billing clerks of the hospital look at it, however, and the patients look, and reporters look. Itemized bills totaling tens of thousands of dollars are sent, first to the patients, and then to the bill collectors. Stephen Brill's America's Bitter Pill is filled with "Tom and Mary of Tuscon" anecdotes, so let me add a couple of personal ones. For example, I received a bill for Seven thousand dollars from my own hospital accident room for twenty minutes treatment for a sprained wrist; the hospital clerk had joined in such a welcoming reunion for old times' sake, he forgot to collect my insurance numbers. After several strikingly threatening letters, communication eventually stopped. I have to assume they eventually found my insurance numbers on the record of an earlier admission. In another case, I discovered that another of my hospitals sends its bills when tests are ordered, not when they are performed. Consequently, a patient I discharged from the accident room without having the tests the interne had ordered, received an astonishing bill for the services, anyway. Since he was vice-president of the insurance company which covered him, there were some gratifying repercussions. On a later occasion, my oldest son received a bill for $8,500 for a colonoscopy from a famous Boston Hospital, and asked me what I thought was fair. I said it was worth a couple of hundred dollars, so he called his insurance company, following which the revised bill was one thousand dollars. He fell all over himself writing a check, for what I still say was a gross overcharge. Notice one theme running through all of these true stories. They all involved outpatient services.
You see, the hospitals were all shifting to a Chargemaster system for outpatients because the inpatient charges (often for the same services) were frozen by the DRG. In fact, it is widely quoted that inpatient profit margins were 2%, accident room profit margins were 15%, and the outpatient area made a profit of 30%. If anything approaching that is true, well, what would you do in their place? The next time you go past your local hospital, try to notice if a construction crane is working on a new building. The chances are excellent you will find it's a new outpatient building.
If you put physicians on salaries, you get an instant forty-hour week. Soon, you get physician shortages.
After all, with the Federal Reserve promoting the zero interest boundary, mortgages are pretty cheap. Right now is an excellent time to build a building, if you ever think you might need one. So, some of these buildings might be designed to house group practices. If a hospital plans to go into the outpatient business, it needs a lot of doctors. A shrinking minority of physicians are still in private practice, so it's getting hard to find a doctor. Hospital-salaried physicians are easy to hire, but hard to get on the telephone, and even harder to find on nights and weekends. If you put physicians on salaries, you will get an almost instant forty-hour week. As the husband, father, and nephew of female physicians, it is a little unbecoming of me to observe that a majority of medical students are women these days, and of course it delights the feminists. But it's also true that women physicians have a biologic need for regular hours, retire earlier, and seek out specialties which accommodate them. Women like to be in groups because there are fewer times to be on call for holidays and weekends which you can share more widely. You will need more women physicians to do the same job that men do, so the public can eventually expect higher costs for the same service. By the way, with three women physicians in my immediate family, I never once heard a complaint from them about male discrimination.
Hospitals are busy buying up physician practices because of the indirect effect of the DRG. Furthermore, the prices are high and the government is paying the bill through the hospital reimbursement system. My old friends smile, and a wink they will go back into practice if the hospital reimbursement declines. That long-term cost has to be factored in, although I doubt it will happen as they age. But if it does, the cost of reconciling a physician surplus might have to be included in the eventual reckoning of what the DRG did or did not save.
When you get down to it, the DRG is an excellent rationing tool, and rationing invariably creates shortages. Robert Morris learned that lesson the hard way during the Revolutionary War. He didn't speak much during the Constitutional Convention in 1789, but he was utterly determined that we not construct a command economy -- which is rationing on a grander scale. He kept his attention on his own business, while his protege Alexander Hamilton did the talking, and his best friend George Washington did the listening. How is the DRG a rationing tool? The government makes the rules, sets the prices, and monitors the outcome. However you choose to achieve a 2% inpatient profit margin, its economic effect is remorselessly judged as 2% revenue, operating within a 2% inflation rate, achieved by a 2% inflation target at the Federal Reserve. All the slack in the system has seemingly been driven into the out-patient and accident room areas. Except it hasn't. Everything the inpatient system asks for shall be given to it, on a 2% cost-plus basis. Profit margin, indeed. What we have is a cost-plus procurement system.
One secret of success for Classical Health Savings Accounts lies in recognizing a single approach is inadequate; at least two approaches are required. Catastrophic health insurance spreads big risks (mainly hospitalizations), while tax-free accounts promote more frugal spending for small ones (mainly ambulatory care). Combined in an HSA, they do what neither does alone, by covering overlaps. Now I contend, six principles in combination can create even greater savings, when separately they might create more confusion.
1. Redesign Insurance. Health insurance has traditionally been upside down. Starting with "first dollar" coverage, really sick people feared bankruptcy when medical costs outran policy limits for the last dollar. Obviously, it would be better to ensure big catastrophes first, skipping small ones if funds run out. If we must have mandatory health insurance, the thought ran, let it be the high-deductible catastrophic variety, with out-of-pocket limits protecting outliers. To a certain extent, the Affordable Care Act moved in that direction, possibly opening room for compromise. Deductibles should be high, but co-payments are useless and should be eliminated. Subsidies should subsidize people, not specific programs, and should avoid taxing the same program they are supporting.
2. Indirect Transfers Between Age Groups. Working-age people largely finance the health system but most don't get sick themselves, whereas sick people are mostly retired and on Medicare. That makes young people restless, while Medicare breaks the national budget with a 50% subsidy. (It's largely accomplished through bond-loans from foreign countries, like China.) The age-related funds' transfer is desirable but is now largely left to hospital cost-shifting. The cost could be lessened by letting the worker keep health money in his HSA, earn interest, and spend it on himself when he ages. 2b. Furthermore, I propose we shift the cost of the two most expensive medical years of life to individual escrow funds during the period of investment. To be specific, shift the cost of the first and last years of life from coverage by catastrophic health insurance and Medicare -- to repaying average national cost (reported by Medicare) back to the insurers who originally paid the bills. That's technically known as first and last years of life reinsurance.
3. Funds Creation. How might we pay for this transfer? Well, in the first place, living people are assumed to have somehow already paid for their birth year. It will be forty more years before new ones are even half-way phased in. Even terminal care costs will not level out until life expectancy stops lengthening. Revenue, on the other hand, could commence immediately. The hard part of revenue production lies in fixing "agency" failures. That is, avoiding spending it in the meantime, and keeping middle-men from poaching on it. I propose individual escrow accounts are preferable to agency management by either government or private sector financial institutions. Saving for your own rainy day is much more palatable than taxing for transfers between demographic groups. The cost of passive investment in index funds is small, and long-run gross returns approach 11%, or 7% net. But middle-man costs are often too high. Considering the trillions in index fund potential, these inert investments might even be considered for a substitute currency standard. Gold is too rigid, government judgment always proves too inflationary.
4. Compounding. Meanwhile, it helps to recall what the Ancient Greeks knew about compound interest. Money at 7% doubles in ten years, and therefore with life expectancy now at 84, can expect to double more than eight times. 2,4,8,16,32,64,128,256, (512- 1024). Unfortunately, the rounding errors also get compounded. Therefore, although the general concept is unchanged, one dollar at birth actually grows to about $289 at the average time of death by present expectations of it. By that time, life expectancy will likely grow by unpredictable amounts, so it might actually transform one dollar into $500 if inflation is held to no more than 3% -- or to some other value, more or less. The main hope for price stability lies, not so much with the Federal Reserve, as in medical science reducing the burden of disease and increasing the productivity of the delivery system. I feel confident last-year costs can be covered, either by patient contribution or by government subsidy, if -- transition costs are absorbed over the first decade or so, if the Federal Reserve can successfully hold inflation below 3%, and if medical science can cure one or two major diseases inexpensively in the next fifty years. Otherwise, this could merely be a proposal for generating tons of new revenue but would fall short of paying for all the healthcare affected. Even covering by only 10% would produce staggering sums, however.
Let me remind you, those extrapolations are for only one dollar invested. More specifically, the goal of the proposal is to pay for the last year of life by some variant of one-time investing of $150 at birth, possibly even as much as $50 per year. This should be enough to relieve the debt pressure on Medicare and to reduce the cost of catastrophic care for the rest of the population considerably. It's still much less costly than continuing the present approach.
5. Adding a Generation to the Family. To include the cost of children, we propose increasing the $150 at birth to $200 (potentially, $25 a year) and transferring the resulting surplus, from the grandparent's "bequest" to the Health Savings Account of no more than one grandchild at birth, thereby adding 21 years of compounding, broadening the scope to the first 21 years of life, and further reducing the premiums of catastrophic coverage for the rest of the population. Child-care costs are far more significant than they sound, and all health care plans have faltered on them. It is nearly impossible to refund the day you are born, particularly when the responsible parents are young and financially insecure, facing the cost of an automobile, a house, college education, and another child. For a remarkably small dollar cost, compound interest can greatly relieve this social environment, and therefore I advocate the small additional cost of extending the first year of life to the first twenty-one of them. And funding them via the grandpa route.
6. Tax Equity. Additional required regulations are more or less self-evident, but the most important one would be to permit paying for catastrophic insurance premiums by the Health Savings Account itself, thereby creating tax exemption equivalent to employer-based insurance.
(7) The overall result presented here is to shift the costs of children up to age 21, plus the last year of life, to a longer compounding period and to their ultimate source, which is working people from age 22-66. It adds a major source of revenue through extended compounding, and it does this at the reinsurance level, mostly insurance company to an insurance company. By shifting these costs, other programs cost less, and cost-shifting at the hospital level should greatly be reduced. As scientific research reduces costs, Medicare is destined to shrink, so its revenue can gradually be shifted to retirement income. That isn't exactly privatization, although politics may describe it so. In the far, far, future, health care might reduce along with a designated pathway to nothing but the first and last years of life. Or, the concept may be dismantled and pieces of it used in other ways.
(8) The alternative for tax equity is much more drastic -- of reducing corporate tax rates, sufficiently to compensate companies for losing their existing tax preference. For years, reformers have advocated tax equalization by eliminating the tax deduction for employees. It hasn't been successful, so now we advocate equalization first, reduction later. If that is blocked, there is no choice but to lower corporate taxes, paradoxically the source of the problem.
109 Volumes
Philadephia: America's Capital, 1774-1800 The Continental Congress met in Philadelphia from 1774 to 1788. Next, the new republic had its capital here from 1790 to 1800. Thoroughly Quaker Philadelphia was in the center of the founding twenty-five years when, and where, the enduring political institutions of America emerged.
Philadelphia: Decline and Fall (1900-2060) The world's richest industrial city in 1900, was defeated and dejected by 1950. Why? Digby Baltzell blamed it on the Quakers. Others blame the Erie Canal, and Andrew Jackson, or maybe Martin van Buren. Some say the city-county consolidation of 1858. Others blame the unions. We rather favor the decline of family business and the rise of the modern corporation in its place.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
