George R. Fisher, III, M.D.

Obituary

George R. Fisher, III, M.D.

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

Dr. George Ross Fisher of Philadelphia died on March 9, 2023, surrounded by his loving family.

Born in 1925 in Erie, Pennsylvania, to two teachers, George and Margaret Fisher, he grew up in Pittsburgh, later attending The Lawrenceville School and Yale University (graduating early because of the war). He was very proud of the fact that he was the only person who ever graduated from Yale with a Bachelor of Science in English Literature. He attended Columbia University’s College of Physicians and Surgeons where he met the love of his life, fellow medical student, and future renowned Philadelphia radiologist Mary Stuart Blakely. While dating, they entertained themselves by dressing up in evening attire and crashing fancy Manhattan weddings. They married in 1950 and were each other’s true loves, mutual admirers, and life partners until Mary Stuart passed away in 2006. A Columbia faculty member wrote of him, “This young man’s personality is way off the beaten track, and cannot be evaluated by the customary methods.”

After training at the Pennsylvania Hospital in Philadelphia where he was Chief Resident in Medicine, and spending a year at the NIH, he opened a practice in Endocrinology on Spruce Street where he practiced for sixty years. He also consulted regularly for the employees of Strawbridge and Clothier as well as the Hospital for the Mentally Retarded at Stockley, Delaware. He was beloved by his patients, his guiding philosophy being the adage, “Listen to your patient – he’s telling you his diagnosis.” His patients also told him their stories which gave him an education in all things Philadelphia, the city he passionately loved and which he went on to chronicle in this online blog. Many of these blogs were adapted into a history-oriented tour book, Philadelphia Revelations: Twenty Tours of the Delaware Valley.

He was a true Renaissance Man, interested in everything and everyone, remembering everything he read or heard in complete detail, and endowed with a penetrating intellect which cut to the heart of whatever was being discussed, whether it be medicine, history, literature, economics, investments, politics, science or even lawn care for his home in Haddonfield, NJ where he and his wife raised their four children. He was an “early adopter.” Memories of his children from the 1960s include being taken to visit his colleagues working on the UNIVAC computer at Penn; the air-mail version of the London Economist on the dining room table; and his work on developing a proprietary medical office software using Fortran. His dedication to patients and to his profession extended to his many years representing Pennsylvania to the American Medical Association.

After retiring from his practice in 2003, he started his pioneering “just-in-time” Ross & Perry publishing company, which printed more than 300 new and reprint titles, ranging from Flight Manual for the SR-71 Blackbird Spy Plane (his best seller!) to Terse Verse, a collection of a hundred mostly humorous haikus. He authored four books. In 2013 at age 88, he ran as a Republican for New Jersey Assemblyman for the 6th district (he lost).

A gregarious extrovert, he loved meeting his fellow Philadelphians well into his nineties at the Shakespeare Society, the Global Interdependence Center, the College of Physicians, the Right Angle Club, the Union League, the Haddonfield 65 Club, and the Franklin Inn. He faithfully attended Quaker Meeting in Haddonfield NJ for over 60 years. Later in life he was fortunate to be joined in his life, travels, and adventures by his dear friend Dr. Janice Gordon.

He passed away peacefully, held in the Light and surrounded by his family as they sang to him and read aloud the love letters that he and his wife penned throughout their courtship. In addition to his children – George, Miriam, Margaret, and Stuart – he leaves his three children-in-law, eight grandchildren, three great-grandchildren, and his younger brother, John.

A memorial service, followed by a reception, will be held at the Friends Meeting in Haddonfield New Jersey on April 1 at one in the afternoon. Memorial contributions may be sent to Haddonfield Friends Meeting, 47 Friends Avenue, Haddonfield, NJ 08033.

Bye, Bye, Banks

Fort Knox

Banking is a comparatively recent invention; in its present form, it's only a couple of centuries old. Paper certificates circulated as money, representing precious metals like gold and silver in the bank vaults, eventually concentrated in Fort Knox as Federal Reserves. When the economy grew faster than the supply of gold, silver was also monetized, then diluted by only partial reserving. Finally a couple of decades ago we abandoned precious metal reserving entirely, and resorted to partial reserving leveraged to a virtual concept known as Federal Reserves whose quantity depended on the behavior of American inflation. Almost the whole world soon depended on the American Federal Reserve to stand behind its virtual dollars, formerly redeemable in gold or silver, but now based on inflation targeting. That is, the Fed sets a target of something like 2% inflation a year, and either absorbs currency or floods the world with currency, sufficient to maintain a steady match to the target. It's a little uncomfortable to see the standard of measurement shifting, from inflation as most people understand it, to "core" inflation, which subtracts the cost of food and oil. Especially oil. It's additionally disquieting to realize that the Fed is dependent on its own computers, reading other people's computers, all subject to the frailties of computers. to determine the degree of match to the target. We sort of got into this fix because the supply of precious metals was inelastic; perhaps the present expedient could become a little too elastic because it is so heavily dependent on vast streams of computerized information. Garbage in, garbage out?

Federal Reserve Bank

Meanwhile, banks simply had to surrender to the obvious efficiencies of using electronic stored-program calculators. Paper checks, canceled checks, and bank tellers are consequently disappearing. Banks themselves are disappearing, as anyone can see by looking at the abandoned stone tombs on America's main streets. At the moment, the process is one of concentration of smaller banks into bigger ones; eventually, there will be some kind of transformation of the way they conduct business to a point where banking could effectively disappear. Who needs banks, anyway? One significant answer to that question is that, the Federal Reserve Bank needs them. And the rest of us need the Federal Reserve because that's how the value of money is determined nowadays.

Federal Reserve

Customers, however, don't need banks for deposits; money market funds pay higher interest rates. There's no need for banks to provide loans; credit cards do that for small borrowers, while big borrowers float bonds through an investment banker. Bank vaults may be useful to store grandmother's pearl necklace, but no one needs vaults to store securities, which are now mainly held as bookkeeping entries in "street" name. People used banks for the origination of mortgages, but other institutions could serve as well. Anyway, home mortgage origination is what broke down in August 2007, when banks eluded Federal Reserve lending constraints by selling mortgages to subsidiary corporations they often owned. To repeat, we need banks because the Federal Reserve needs banks to control the currency, through regulating loan volume, which is achieved by regulating the number of reserves that banks are required to maintain. Reflect on how that matters to currency.

Before a bank makes a loan, only the depositor owns the money in question. After a loan is made, two people have a claim on the money, the borrower and the depositor. Although there is a fine distinction between money and credit, between money and liquidity, the real point is that making a loan effectively doubles the money. If a bank is then only required to keep half of its total loan volume in reserve, the money in circulation is multiplied four times what it was, and so on. Loan volume is also controlled by its scarcity value, which is indirectly affected by setting short-term interest rates. Unfortunately, cheaper money is worthless -- the dollar goes down in relation to the currency of the rest of the world. There are probably other ways which could be devised to control the currency, but a time of frozen credit markets is a dangerous time to consider radical changes in the currency. If the Fed is forced to make such changes, they had better be correct.

It's unfortunately also true that radical changes can only be made when people are scared stiff by a crisis. Is it entirely out of the question that we may soon need to scrap the Federal Reserve system? Just think back to the bitterness when Hamilton and Jefferson, later followed by Biddle and Jackson, fought about whether central banks were necessary at all. Or, more recently in 1913, when Wall Street and the Progressive movement fought about whether there was a need to create a Federal Reserve. Disputes about financial matters have been at the core of most political party disputes, since the founding of the Republic. Decisions made in the past have not always been the right ones. Nevertheless, since the banks anyway appear to be on a long slow slope to extinction as a result of the computers that briefly made them prosperous, maybe we should revise the way the Federal Reserve controls currency. Without the Fed to defend them, banks' prospects look bleak.

U.S. and E.U. Exchange Experiences (4)

Political Cartoon

Western civilization now takes One-man, One-vote for granted in any variant of national governance, and a good thing, too. The Romans modified ancient Greek democracy models into a Republic, allowing slightly modified democracy to become practical for larger governments. Citizens elect representatives, and it is possible to imagine groups of representatives electing their own representatives to higher bodies, and so on, up to the line. As long as democracy remains inflexibly the model for a united Europe, other mechanisms must be adjusted for the obvious inequalities of huge population masses. Since money is the main means of exchange in national systems of compromises, it is a handicap for them to freeze a monetary system in place before governance negotiations have even begun. As a reminder of the American experience, remember that in 1787 Virginia was by far the largest and richest state, not at all the case at present. Indeed, the political landscape then consisted of nine small states ranged against four big ones. Virginia, Pennsylvania, and Massachusetts are no longer considered big states, and New York is fast receding from the top tier. Organizing monetary structures around the size can prove crippling to future designs of unified government, particularly if sufficient time elapses between the two steps. At the very least, leisureliness creates an opportunity to cloak opposition to unification within delaying tactics, presenting arguments to "wait and see" how the monetary system works. At worst, it creates an incentive to make certain the monetary system will not work.

Bitting Gold Coin

However, a bridge player must play the cards as they are dealt with him, and Europe has decided on a piecemeal approach to organizing an eventual political union. The first step of monetary union is in its tenth year, and in deep trouble. Therefore, a new alternative to be considered is whether to have a monetary union without a government to oversee it. Since the Spanish doubloon was for centuries the medium of maritime exchange for the whole western world, it can be done. The doubloon was a gold coin worth its weight in gold, the so-called "piece of eight". Since that kind of money proved entirely workable, the issue of feasibility is one of backing for the currency. When gold from the New World ran low, it was hard to support a growing world economy with a shrinking currency; the price of everything went steadily downward, and local shortages were common. So silver was substituted, and then the coinage became fractional. That is to say, paper money was issued in a fixed ratio to the gold in government vaults. Finally, paper money had no metal backing at all and was issued by central banks in response to the prevailing prices of goods. Using an arbitrary figure of 2% to represent population growth, if the consumer price index plus 2% goes down, the Federal Reserve (or equivalent national central bank) prints more money. Conversely, if it goes up, the Federal Reserve bank stops issuing paper money. The currency is thus "inflation indexed" and its worth guaranteed by the government against an international financial panic. World opinion has a lot to do with the value of a national currency, although in theory, the financial reserves are the sum total of all businesses and property available to the government to confiscate. By encumbering its national property, the government monetizes its assets. Even if it were possible to arrive at a tolerably accurate estimate of the total net worth of a nation, much of it is illiquid and has a considerable cost to monetize it. In practice, however, everyone realizes that the government will never sell an island or peninsula, probably going to war to prevent it happening, or simply going bankrupt or defaulting on its debts. The reserves which are listed as backing its money supply are largely frozen in the face of an actual financial panic. Everyone could name a dozen nations which would probably default, should creditors ever trust them, and there are many more who would seriously consider it. However, there are enough "speculators" who take a chance on this scenario for a fee, to keep the system running. If things start looking ugly, these intermediaries quickly disappear and the "markets are frozen". To protect their economies from this sort of chaos, governments look to merging their currencies, or to promising to rescue other member nations in trouble. A big pool of reserves is inherently safer than a small one, so currency unions are attractive to almost everyone.

GooseStepping

Currency unions, however, look like sausage factories when you get inside and look at the details. Some parts of New England are essentially piles of pebbles with a thin layer of topsoil, while the topsoil in Illinois is mostly four feet deep. Some rivers are full of fish, others are full of pollution, and so forth. As long as we are one united country, local differences are largely ignored; if you can't farm the pebbles in Connecticut, you can move to Greenwich and sell Credit Default Swaps. If that doesn't work, you can move to Illinois, and if you don't like big city political machines, you move to Utah. There's a frictional cost to all of this, but it remains a practical alternative. For Europe, it's not so easy to learn a new language, the schools are not so good in Kosovo, and the price of a taxicab in Paris is astonishing. If you are a gypsy, you are very likely to encounter pitchforks after your first night in the campground. No doubt most of this difference between the continents would disappear after fifty years of political unification, but there would be enough problems to make the survival of the E. U. somewhat questionable for two generations, at least. During all of that time, interest rates would reflect the existence of a real risk, and occasionally crises will appear. Madison, Jefferson, and Hamilton were bosom chums in the 18th Century; within five years of the new nation, they were at each other's throats. Founding Father Robert Morris, one of the richest men in America, was denounced and his motives questioned on the floor of the Legislature by a Western Pennsylvania nobody, within weeks of the Constitutional Convention. Vice President Aaron Burr put a bullet through Secretary of the Treasury Alexander Hamilton. Social upheavals are just that: upheavals. The problems associated with piecemeal approaches to the monetary union and the political union have been mentioned. The other side of it may be that many of the unique monetary problems of Europe have been brought to the surface by the current financial panic, and political solutions to monetary difficulties can be devised in advance if anyone has time to do it.

The political side of Europe is becoming plain. The Germanic tribes to the North are rich and have a history of trying to conquer all of Europe; the Latin tribes of the South are poor and nurse a fairly recent memory of defeated military occupation. The Germans are nevertheless the only possible rescuers of the present financial panic. It will not be easy for the Latin component of Europe to humble themselves before a German financial rescue, but they must do so for decades into the future. Although both groups suffer from the debility of a Welfare mentality, the South has it worse and their financial reserves are very questionable. Unless they are ready to do unlikely things like selling real estate sovereignty, they are going to find the ownership of their companies in German hands, and very likely have to endure the sight of the children of Wehrmacht officers managing their local economy. They will have to be tolerant. The Germans are not happy to work long hours so the Greeks may work shorter ones, and must be forgiven for indignation that German funds donated to rescue the Greek Welfare state are diverted for the personal use of corrupt Greek officials. Nevertheless, such affronts eventually become tolerable; a dozen American cities are at least as corrupt, and the California beaches appear to be utterly devoid of the famous American work ethic. Nevertheless, the most likely stark alternative would seem to leave only America, India and China in charge of major viable economies.

FOREWORD, written June 28,2015

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. {bottom quote}

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.

George Ross Fisher, MD

Philadelphia

June 28, 2015

Henry Kaiser's Cleverness Out of Control

The Henry Kaiser caper. In 1943 during the Second World War, Henry Kaiser has given "Liberty Ship" contracts to build freighters for the Pacific Theater. To build ships in East Coast shipyards was to invite German U-boats to sink them as they headed for the Panama Canal. There was a price-control mandate from the War Production Board, seeking to restrain wartime inflation by prohibiting raises or bonuses. So Kaiser protested he had difficulty attracting steelworkers to California because he could not offer incentives to move. By whatever means of persuasion, Kaiser was able to obtain an exemption, permitting him to treat healthcare fringe benefits as non-salary, thus exempt from income taxation. As Cicero noticed, "In times of war, the Law falls silent." Other expedients may have been allowed, just in order to win the war, but such loopholes were apparently closed after victory was achieved. This one persisted.

Henry J. Kaiser

In later post-war years, just exactly who negotiated with whom remains unclear, but in essence, the IRS continued to treat employer health benefits as tax-exempt gifts and still does, eighty years later -- provided the employer pays the premium. This unintended post-war extension is fiercely defended by organized labor whenever someone brings it up, and they are quietly supported by the management of a big business. Congressmen are scared of the whole subject because of bad experiences with united lobbying, linking unions, and big business. In Washington, such an alliance unites the support of the leaders of both political parties. It must be mentioned here that Government itself is one of the biggest beneficiaries, acting as a huge employer offering fringe benefits, itself. Consequently, Congress itself finds it has a conflict of interest when the subject is on the floor.

The ones carrying the placards are seldom running the show. {bottom quote}

Protest Politics

The central feature is, the employer must give a gift of insurance to the employee; self-employed and unemployed persons are not entitled to it, nor would employees be, if they bought it for themselves. After a while economists agree the gift becomes an accepted part of the wage cost and the pay packet gradually falls to adjust for it. However, other taxes and charges are based as a percent of wages, and so the gift results in even greater tax benefit than the same amount in wages would. How long it takes for wages to adjust an equivalent amount can be argued, but after eighty years, it is safe to say they are fully adjusted. Since the corporate income tax is about double the individual rate, the savings to the employer are appreciably greater than the savings to the employee.

The clamor to retain this tax ruse is joined by non-profit charities and state, local and federal businesses, who are included in the favored tax-excluded group -- even though it would appear the employers do not share in this feature. Their revenues are often fixed, and their budgets have shifted to expect this gift; consequently, their noise is equally loud when discontinuation is suggested. My own medical society employees participate. As James Madison feared when he designed the Constitution, the number in the wagon being pulled outnumber the people pulling the wagon. In the lobbying case, the ones carrying the placards are seldom the ones running the show, and seldom fully understand the issue.

Small businesses are entitled to the tax exemption but many do not avail themselves of the opportunity when they discover premium rates for their group of employees are often higher than the individual rate. Furthermore, small businesses are overall less dependably profitable than big ones, so their tax rates are usually lower. The essence of the self-interest of big business for "employee" health benefits tends to concentrate in those companies who make big profits, and thus pay high corporate taxes; less profitable businesses have less tax liability to play games with. Things take time to emerge, but after eighty years there has been plenty of time for the "gift" to be taken for granted, and the pay packet gradually adjusted to recognize that fact. Nothing remains to justify it except the tax deduction.

While it is hard to be precise, it is obvious that when things get less expensive they attract more buyers. Generally speaking, higher-wage businesses have lower health insurance premiums, because they can be more selective in their hiring, partly as a consequence of lower costs in their experience rating. Moreover, if an employee somehow gets a gift of his insurance premium, his employer actually saves more than he does, although less attention gets drawn to it. If there is anything a big business gets fierce about, it is to be deprived of savings which seem to result from its own cleverness. In this case, that argument seems more acceptable than it really is, since the benefit is now almost exclusively sustained by lobbying. The employee would have had to pay a higher income tax on a higher salary if he bought his own insurance with after-tax dollars. But that tax is based on his gross before-tax cost, including Social Security, Medicare, and other assessments, which the employer pays less of, on a lowered salary. Nor must he pay half of this and half of that, itemized on the pay stub, in matching money. This part of his cost is reduced by about 35% when he gives away the health insurance, and everything else is a tax wash. That is, other taxes have been warped to take advantage of the tax exclusion, with the result the employer community is not entirely unwilling to have unions demand they be coordinated that way.

The overall result is both employee and employer are better off than by just a straight tax deduction on the insurance premium, while the employer is far better off because he can multiply it by the number of his employees. Google, for example, has 55,000 employees, some of whom are paid extraordinary salaries. And then, the employer's tax deduction is against a 40% tax rate instead of against a blended tax rate for the employees of perhaps 20%. And finally, the insurance premium is reduced below the individual rate by forming a group and demanding hospital discounts. All of this is the result of gifting health insurance premiums on behalf of the employees. For executives with a very high salary, it can probably accomplish remarkable savings for the shareholders by giving the executive a Cadillac plan. Because it makes a good smoke-screen, no one troubles to correct wide-spread misapprehensions, especially among others who are already tax-exempt.

Gifts to employees are more tax-sheltered than equivalent salary would be. {bottom quote}

Indeed, a little multiplication is convincing that tax abatement is not only supporting a substantial proportion of health insurance, but it represents a noticeable portion of corporate profits. So, although a major portion of this distortion would soon readjust to a new climate of opinion, any move in the direction of removing it abruptly would probably unnerve the stock market for an indeterminate time. It took eighty years to build up to this condition, and it cannot be corrected in a few days. It would, therefore, be important to have a solution to it, ready to be announced. Here's my proposal.

Proposal 4: That a schedule of reduction of both the tax exemption of employer-based health insurance and the corporate income tax be prepared along the following lines: That in consultation with economists, the corporate income tax rate be reduced until it matches the average blended individual tax rate. And the tax exemption for employer-based health insurance be reduced in a step-wise fashion until it disappears. The process shall take no longer than three (3) tax years, keep the two reductions in balance, and be commented upon by the Federal Reserve, and overseen by an appropriate committee of both House and Senate.

While it is conventional to ascribe a tax evasion to the employee and to blame it on those dreadful unions, the employer gets somewhat more tax benefit than each employee, multiplied by thousands of employees in the bigger firms -- but it's just a tax dodge for both shareholders and employees, with the shareholders coming out somewhat ahead. Nevertheless, the employer advantage mostly derives from comparing an individual employee gain with an aggregated corporation gain. It may reflect union salesmanship that the aggregate employee gain is usually not displayed since that immediately makes the two more nearly equal.

Since salesmanship has come up, I might as well apply a little of it to my own proposal. I believe sober analysis reaches the conclusion that the tax exemption is about all that matters, to anyone. Following the proposal, the government would gain taxes and corporation stakeholders would have to pay them. The shareholders would be compensated by a corporate tax reduction, but the employees would not. Although the employer might argue either side, the employees would be the ones who would surely complain. But let's take it another step.

Let's recall what happened in Ireland when the corporate tax rate was reduced to 12.5% in 1983 from its former rate of 50% in 1982. Essentially nothing happened to government revenue, which has only varied at much as 10% between 1975 and 2015. There was hardly a ripple in 1983. That's not to say nothing happened, it just did not affect government revenue much. For that to be the case, it is mathematically necessary to have more corporations, each paying less tax. That's indeed what seemed to happen, but it took twenty years to convulse the Irish economy, starting from a comparatively low level. Ireland is mostly a rural nation, and new corporations came in from abroad (UK and Scandinavia, mostly) to locate primarily in Dublin, as city dwellers. That started a housing boom, which required mortgages, and eventually toppled the banks. The

Irish corporate tax rates remained at 12.5% before, during and after the crash. The present American state and the federal tax rate are the highest in the world, and our situation is that corporations are fleeing abroad to escape it. The corporate tax refugees in Ireland have so far generally remained in Ireland, probably because it is disruptive to move and the people speak English.

Judging by the Irish experience, America could similarly expect the fundamentals might change more slowly than might be guessed, but probably more quickly than they did in Ireland. The net effect on government revenues would be negligible, but the effect on employment would be strikingly positive. With higher employment, wages would rise. Somebody would lose, but it wouldn't be America; a deft new President might even be able to deploy some new power abroad, peacefully but firmly.

The current President might have to ride a bucking broncho for a few weeks. So in summary, most of the economic turmoil to be feared would likely be short-term and in the financial markets. I can easily imagine the skepticism with which the affected employees would greet this analysis and all the op-ed columns in the usual newspapers. Balanced against that, American medical care would at least get a lot of distortion wrung out of its accounting processes, and surely would be improved in the long run, by regaining control of its own finances.

Let's return to the details. It is sometimes argued the gift of insurance premiums is an addition to the salary, but almost all economists agree the salary soon re-adjusts up or down, to reappear in the pay packet. Stop calling it wages and treat it as total wage costs, and you soon see the point. No doubt it takes time to adjust, and it seems fair to say the employer benefits from corporate tax reduction more quickly than the individual employee does. The tax amount comes close to $2000 per year per employee. Because the hidden benefit lies in taxes, the profitability of the company enters in as well, and what is true of one employer may not be as true of another. In particular, it is not true of the government and non-profit sectors, who have no corporate income taxes to pay. There may be some political hope in that.

If a business is profitable to the full limit of corporate taxes, the nominal benefit is the full limit of the employee's tax bracket, but the offset to the employer can be about twice that rate in corporate taxes. Here, we assume a blended income tax rate of 20% for the employee and 39% top state and federal rates for the employer. In companies with 10,000 employees, financial saving alone can be considerable. Almost all corporations listed on an exchange are profitable most of the time; there might be more swing in smaller businesses.

Anyway, sometimes it just seems more attractive for small businesses to have Subchapter S tax treatment. On that subject, it is a little difficult to say what pressures motivate small family businesses. Some people allege the whole Subchapter S complexity is a reaction to utilizing this distinction and therefore should be counted as an indirect benefit of the Henry Kaiser gambit. During the 2009 Tea Party agitations however, it was noticeable that small businessmen at the microphone were extremely vocal in their opposition to Obamacare. Unfortunately, it is hard to know how well small business understands the inside operations of big businesses. As they say, Macy's doesn't tell Gimbels.

With regard to all employees as a class, it seems safe to say, people who are well enough to be employed, have mostly lower healthcare costs, and therefore seem more attractive in the eyes of their health insurance company. That would maybe result in lower premiums. Since only 25% of persons aged 25-34 are insured, Obamacare calculated they would break even if they enrolled 40% of the "young invincibles" at average rates. Generally speaking, that would be males, who -- without the Henry Kaiser gimmick -- might have an 80% avoidance rate. But remember, there's also the automobile insurance phenomenon: compulsory auto insurance induces a great many to stop paying premiums after the first month or two.

With Obamacare, the dropout rate is reported to be 13% during the first year of operation. The kids resent being overcharged for something they feel they don't need and calling them "young invincibles" inflames rather than softens that feeling. The much more important point is they don't get anything back when they are older , except sympathy. That's the central flaw in employer-based one-year term insurance, and let's hope you notice the Health Savings Account corrects the injustice. With auto accidents, young people have higher rates, and that's accepted as normal. With health insurance following the same logic, it ought to be the other way around, shouldn't it?

Taken all together, it is pretty easy to see why big business demanded a one-year exempted delay from Obamacare, which later was extended another year. No doubt they intend to keep a low profile but will keep demanding "temporary" exemptions, at least until the recession is over, and possibly forever. Until we see the eventual experience with employees, the largest group affected, it will be impossible to predict the limits of the subsidy program for the uninsured. Nevertheless, it is fairly obvious this essentially political impasse is being treated as an untouchable issue, and believable estimations of "fairness" will be a long time in coming. Businesses of all sizes like to present themselves as a big happy family. But in fact, the large common market produced by our continental boundaries means a comparatively small amount of American trade (but admittedly a growing one) is international. The main competition for big American business is small American business, and don't you forget it.

To a fairly large extent, this split is also a split between family-controlled business and stockholder-controlled business, between Subchapter S and Subchapter C corporations, and between university-educated management and small-college educated bosses. It's geographic, it's regional; it's R and it's D. If you ever watched a pro football game with businessmen in the audience, you know both large ones and small ones always feel challenged, and both intend to win, even when they might both end up losing.

Solutions: Nevertheless, the issue of revenue neutrality, at least for employer-based health insurance, is easily summarized. You don't have to be a professional negotiator to see that something close to a 2/3 exemption for everybody could make it revenue neutral. And then, through inflation and other traditional means of attrition, mid-course corrections might whittle it down.

But that's only part of it. Remember, the employee payroll deduction is only half of the issue. The employer gets the other half, by paying lower corporate taxes. His total payroll cost ends up much the same, but by this time the reader should see that doesn't matter. Corporate taxes are too high, probably in part because of class antagonisms. We have a flight of corporations abroad, and we see the Irish example that you shouldn't go too fast. But a reassuring part of this problem is we have Congress to negotiate it. Having learned how to raise food stamps by raising farm subsidies, they don't need any lessons in triangulation. No need to mention volume discounts on the insurance premiums, and discounts the insurance company shifts to the hospital. The details of such features are not public information.

Taken altogether, it sometimes appears equal treatment might be easier to attain than the elimination of the tax exemption. If everyone received a tax exemption, at least in part, we might at least eliminate the distortions imposed by rent-seeking the loopholes. It might raise healthcare prices at a time we need to lower them, so a stepwise approach might turn out to be the only feasible one. This is a time when healthcare is so expensive that only a really radical approach might be noticeable. Perhaps it is time just to get rid of the inequality, so later sacrifices for the economy will not seem so hypocritical.

There's one other misconception to be wary of. A tax reduction at the 50% employer rate is not at all the same as a 50% reduction of the employer's taxes, although it may sound like it. It's likely to be far smaller.

THREE WAYS TO ACHIEVE FUNDED HEALTH INSURANCE

Since everybody would benefit if the country found a way to pre-fund health insurance, what options are available or doing so? Or put another way, what obstacles, objections, and vested interests obstruct each possible way of doing it; how difficult would it be to overcome them?

Three general approaches might work reincarnation of Individual Retirement Accounts (IRAs) .for this special purpose, the legal encouragement of health insurance companies to sell permanent insurance or the creation of a national trust fund. Each of these approaches will now be changed to make them possible. All of them must somehow overcome the main problem inherent in payment in advance, which is that people must find spare money somewhere. while of course the disposable income could be found by reducing expenditures for non-essential luxuries, this discussion limits itself to examining how seed money might be squeezed out of inefficient practices in the existing health financing system.

Health Banking The first approach to be examined has been known by several names. When Michael J. Smith of Louisiana proposed it, he called it the CHIP proposal (Consumer's Health Investment Plan). When John McClaughry and I independently proposed something similar, it was called the Health Protection Account, Peter J. Ferrara of the Cato Institute, who likewise got the idea independently, had the genius to call it the IRA for Health. The IRA for Health has the great beauty that the title itself does most of the explaining; most people know what an IRA is, or was. An IRA for Health is obviously an IRA whose use is limited to health care costs. Unfortunately, congressman, whose cooperation is vital to the success of the idea, have gone through the experience of repealing the tax exemption of IRA's trying to reduce the national budget deficit. Congressmen have the mindset that IRAs will worsen the deficit, or at least that their constituents might think so. It isn't a correct perception, but the catchy H-IRA title has become a hindrance and must be replaced. Health Banking is here offered as a substitute title for Health Iras because it suggests an interest group who might assist the process of public persuasion because they would benefit from it. The definition of what constitutes a bank is in the process of change; perhaps there is room for health banking in some future compromise revision of the Glass-Steagall Act. For example, the mutual fund industry could become interested in health banking as part of their vision of non-bank banking. Perhaps the moribund savings banks could be entrusted with a trillion-dollar consolation for their regulation-induced troubles.

Whatever institution might aggregate and invest the funds, the main idea is that the tax-sheltered money which employers now spend on health benefits would be deposited in individually named accounts, and invested according to some rule of prudence. Withdrawals from the accounts would only be permitted for specified health purposes. It is absolutely central to understand that nothing is here proposed to be tax sheltered which is not already tax sheltered. For better or worse, employer contributions for health benefits are already tax-sheltered, and will almost surely remain so. Even recent deficit-desperate congresses have not dared to threaten that $50 billion annual revenue cost to the Treasury. Indeed, when Congress does develop the courage to curtail the tax exemption of health benefits (for employed people), perhaps then health banking could be described as costly. Until such time, however, it remains fair to generalize that reestablishment of IRAs, limited to health expenditures, has no Federal cost.

In the next chapter, we will discuss the investment issues which are raised. For the present, we should assume that the institution which becomes custodian or health banker will generate a safe and adequate stream of revenue; what rules must govern the way it is spent? Ideally, a health investor would want to accomplish the following goals:

-He would want to pay for essential health care.

-If he lives a long time and has money to spare, he would want to provide for custodial care in his old age.

If he dies and has money left over, he would want it to go to his estate.

But these are decreasing priorities. The first rule is survival. If he cannot pay for his old age, he must plan to throw himself on the mercy of family, friends, and community. If he has nothing left for his heirs that is no worse than a pity when he has no dependents, but tragic if he does.

To the foregoing self-evident principle should be added two more which are less adequately appreciated. The first is that the federal government has long addressed the problem of aid for dependent children, and ordinary Social Security benefits are quite generous for survivors. No doubt these programs for widows and orphans could be more generous, but they are as generous as twenty congresses have decided to be; it is unrealistic to include provision for dependent survivors in a new program proposal.

The second mitigating principle is nature's trade-off. Nothing is more clear to a doctor than the experience that ten percent of his practice develop ninety percent of the illness. If you get very sick very often, you need not worry greatly about the prospective costs of living for years in a retirement home. Dying young is a tragedy, and outliving your income in a shabby old age are both tragedies, but relatively few people experience both of them. To the extent that some people are needlessly insured against both disasters, it should be possible to create insurance efficiencies by combining both risks in one funding mechanism.

By reflecting on the general principles of prudent provision for the future, we arrive at the following proposed rules for releasing money out of healthy banks (aka IRAs for Health). Vouchers may be issued, or disbursements made directly, to pay health insurance premiums, front-end deductibles, nursing home insurance, entrance fees for life-cares communities, specially designated trade-offs with Medicare, and payment of any residual balance to the individual's estate. Investment income would not be taxed, but the estate tax would apply after age sixty-five. Since this statement of benefits is technical and terse, the following explanatory footnotes are necessary:

Payment of front-end deductibles. If the health bank only paid the present premiums of health insurance there would be nothing left over to invest. It is anticipated that premiums would initially be lowered y purchasing health insurance with at least $500 yearly deductible, and the amount of the "front-end" deductible would later gradually rise as funds accumulate in the account. This process would, in turn, cause a progressive lowering of the premium of the health insurance, accelerating the savings. When expensive illness occurs, the fund would reimburse the subscriber the full amount of the deductible, upon presentation of evidence that his health insurer had paid out amounts in excess of it.

Special trade-offs with Medicare, Nursing home care, Life-care communities. It will be necessary for the reader to be patient for these proposals to coordinate health banking with the entitlements under Medicare and federal catastrophic health insurance. The subject is dealt with in the section of the book devoted to Prescription II: Last Year of Life Insurance.

Payment of Residuals to Estates.No doubt there would be an instinct to examine whether the program could be made less expensive if residuals were forced to revert to the federal treasury. To permit an estate to retain these funds would seem to enrich the heirs out of funds which were largely made possible by federal income tax exemption. True enough, but long experience in my medical practice with life tenants of trust funds has been that they will relentlessly seek ways to spend money on pseudo medical care if there is no other way to get their hands on what they regard as their rightful money. Some incentive must be created to prevent "health insurance companies" from creating benefits like suntan oil and health spas in warm climates, whose only real purpose is to collude with beneficiaries. To attempt to prevent this sort of behavior with regulations is laughable.

That's not all you could do with health banking, however. If individuals should die young or use up all of their funds with repeated expensive illnesses, they might seem to be about where they are now without health banking, minus the extra layer of administrative overhead. But they have achieved portability. They can become unemployed, change employers, or retire early without the same concern that they have lost their health insurance. If they have developed a chronic problem, it has not become a "pre-existing condition" in the eyes of some new insurance carrier. They can quit their jobs without fear that a new employer with company self-insurance would regard them as potentially expensive employees. They need not fear that post-retirement health benefits will be blown away by a corporate raider, or that the company where they worked for years will subsequently go bankrupt and leave them with empty promises instead of health insurance. Portability.

For the vast majority of participants, however, another whole new concept becomes possible after a few years. We are now back to Benjamin Franklin and perpetual insurance. The health bank was just a transitional stage to reach it. The ingredients of perpetual health insurance are:

The fund has grown so large that its investment income is big enough to pay the premium on a high-deductible health insurance policy without any further contribution

And the fund is big enough to pay all of the deductible portions of a major illness

And there is still enough investment income to pay the premium of a reinsurance policy which covers the unusual instance of sustaining two or more major illness.

As a guess, such a fund would be in the neighborhood of thirty thousand dollars. As a further guess, most people would continue to work past the time the fund went perpetual, and further contributions would accumulate. Individuals who reached this happy state of affairs would almost by definition be fairly healthy, and in all likelihood would look forward to a long and dreadful sojourn in a nursing home. For a quick overview of the situation, the next time you go to a high school reunion, take a stroll over to the area where the fifty-year class is meeting. About half of the class will be in attendance, some in wheelchairs, but the other half of the class will be in memoriam. Fifty-fifty at the fiftieth.

What has been briefly described is a mechanism for designating a considerable amount of funds for long term care that are not now available. It was achieved without financial or other barriers to healthcare access except possibly some self-denial since full reimbursement for healthcare is available to every participant. If someone wants to put up with his hemorrhoids in order to have more money for later nursing home care, or if he wants to hold off entering a nursing home in order leave more money in his estate, well, those are his options. If he holds off getting treated for his cancer "for those same reasons", in my medical experience those wouldn't have been the true reasons", in my medical experience those wouldn't have been the true reasons at all and he would have held off no matter what his insurance arrangement might be. So, what's the magic? Where did this money come from?

From the operation of compound interest of between 3% and 8%, depending on the amount of equity risk assumed.

From self-denial of borderline necessary or even frivolous medical expenditures in response to the development of an incentive to save.

From the downward pressure on medical prices created by a more cost-involved public.

From the out-of-pocket contribution of health care expenses which fail to exceed the yearly deductible amount.

From reduced administrative costs of processing small claims through first-dollar coverage rather than paying them out-of-pocket. The reader is invited to consider this issue in more detail in Prescription IV: Insurance Tangles.

Will all this be enough to carry the project? Hard to know. What isn't hard to know is that savings of just 1% of a $500 million annual medical cost, amount to $5 billion per one percent saved.

Health Insurance Companies Unchained.Observers of the economic scene, especially the Washington political-economic scene, will be well aware that health banking is a proposal from the conservative side of politics. It had origins in the Reagan administration and the libertarian Cato Institute. A staunch Virginia conservative, Representative French Slaughter, introduced a bill (HR 536) along these lines, and he has been supported by the Republican Study Group under the chairman of Representative David Dreier of California. Just exactly because the proposal has this sort of appeal, it has a strong weakness. The idea is strongly rooted in the idea that individuals should make their own choices, even to the point of being allowed to make wrong choices. Individual citizens should be allowed to have their own way with their own money, even if their betters think their choices are not in the best interest of society or even best for the particular individual.

Well, that's just fine, but unfortunately in this instance, it comes up against a pretty big problem. Even when the IRA was available, only 14% of the eligible public availed themselves of it, there were vast numbers of people who had never heard of it. I spent endless hours fruitlessly attempting to persuade several of my secretaries to create an IRA, and even some of my children had to be prodded pretty hard. An executive of one of the largest corporations in the country told me of the dispiriting experience at his company with a 401 (k) plan, which is essentially an IRA. The company offered to match contributions dollar for dollar and conducted a large and continuous education program. This man made the estimate that in the whole corporation no more than a dozen unmarried women availed themselves of the opportunity, and the workforce included plenty of women lawyers and accountants. With an experience of only 14% enrollment in the IRA, it certainly isn't fair to point to just single women as having an anti-saving mentality, although I suppose there is something to it if he says so. In doing my little bit to encourage the world to establish IRAs, I noticed that one of the most effective inducements among those who did it was the wicked pleasure of beating the government out of some taxes.

So, we enthusiasts must make a grudging concession that if health banking is to succeed on a major scale any time soon, it must do more than just make itself available and then wait for everybody to get smart enough to buy it. It isn't necessary to share the rhetoric one union president unleashed on me, "You've got to find a way to keep the working man from spending his wages on drink". The paternalism of that degree is too much for me, but I will concede that something must be done to prod people a little. And that missing ingredient just might be a vast army of glib commission-motivated insurance salesmen.

It must not be assumed that health insurance companies are straining at the leash, impatiently lobbying for legislative release from their inability to sell funded health insurance. In fact, most of them do not have much sales force since health insurance is typically marketed in bulk to employer benefits departments. Most of them do not have much investment portfolio management department, especially outside the area of the short-term paper. There is minimal research on the subject of lifetime health costs. Incentives are weak; health insurance is typically regarded as a loser by full-line companies, Blue plans which dominate what is left are non-profit concerns. Insurance companies are fiduciaries, custodians in trust of other people's money. If careless paying obligations they get sued, if they can't pay their obligations they go bankrupt. If they make big profits they get bad press or ruinous competition, it doesn't matter which.

However nothing important is easy, and we want them to peddle our product. What's their problem? Their central problem turns out to be the fact that funded health insurance asks the company to assume the risk, and no one knows how to price the risk. Using the health banking approach, the individual subscriber assumes the twin risks that future health costs will inflate at a predictable rate and that investment results will equal the historical record. Who knows if we will have inflation like a banana republic, a depression like the one in 1933, or the development of medical miracles no one can afford? That's a risk, which the individual holder of a tax-sheltered medical account might assume willingly on the argument that any outcome could be no worse than unfunded health insurance. Put an insurance company's guarantee into the hands of that person, however, and you had better pay your promise if you want to stay out of court. Life insurance companies are just beginning to experiment with best-efforts investing, using the name of variable annuity life coverage, and that sort of approach would surely be necessary for funded health insurance. Predicting the average life expectancy of a large group of healthy people is however a minor mathematical exercise compared with estimating the aggregate average health care costs for the next thirty-five years. The actuary doesn't even know for certain how many people will have any health cost at all; at least the life actuary knows that everyone is going to die. The advent of a new and fatal epidemic like AIDS shows you what these predictions can be worth. The price Dr. Starzl's hospital charges to transplant your liver startled even me when I heard it last year.

Quick reflection on the issues brings the firm conclusion that health insurance companies could only be expected to offer best-efforts investing, without any insurance guarantee at all. They would surely market the product skillfully, as we desire they should, but the cost increment would be quite appreciable. The sales cost for life insurance is typically equal to the entire first year's premium, while an additional profit must be offered the company to induce it to handle the product. Investment experts will have to be paid to manage the money, and they characteristically value their own services highly. It's too bad to have to say it, but if you are too dumb to manage your own money you are going to pay through the nose to have someone else do it.

Perhaps this is an appropriate time to mention the idea that some large unions have toyed with, of becoming self-insured for the health benefits of their members. All that means is they would expect the employer to give them the money, and they would pay it out. In order words, they propose to become insurance companies. Most everything which has been said about other health insurance, therefore, applies to them, too. In addition, it might not hurt to mention Ricardo's principle of relative advantage, which roughly states that people with professional experience in a field often do the best job at it.

Publicly Managed Trust Funds. The third general method for achieving pre-funded health insurance is one which the American Medical Association as a method for basic restructuring of the Medicare program. In a widely discussed report of the AMA proposed the creation of an independent federal agency to receive the health insurance payroll taxes which now flow into the Medicare trust funds, invest them, and issue vouchers to the elderly which would permit them to purchase private health insurance. The agency would also fill the badly needed role of a group of experts charged with overseeing the course of national health inflation, demographic and health practice changes, and the national investment climate.

The AMA employed expert advice in the preparation of this plan, and it is likely their financial estimates are sound when they project that Medicare could become totally pre-funded by 2016, using tax rates achievable close to present taxation. This plan would include provision for working off the present unfunded liability for existing beneficiaries, honoring commitments previously made to the elderly. It is a great testimonial to the flexibility of the AMA in recent years. as well as to the tremendous power of compound interest, that such a monumental problem could be effectively addressed. After all, the AMA in 1965 quite correctly warned the country that the Medicare program would quickly pile up mountains of unfunded obligations if it adopted a "pay as you go" financing method. Not everyone who has been vilified for being right will subsequently adopt a constructive problem-solving approach to repair the accurately predicted damage.

The creation of an independent board of expert overseers supplies a need which health banking through the IRA doesn't, and creations of a government agency create a guarantor of last resort, even though it might be stoutly denied. Lots of Americans trust their government to keep its promises. However unsophisticated that attitude may be m, it helps get national support for the idea of pre-funded insurance in a way no television spot commercials could do, and no insurance salesman could do over the kitchen table. Every government since the Lydians invented coinage might have remorselessly devalued its currency, and it would not matter. A very large proportion of Americans trust government bonds as they trust nothing else in society.

However, a sizeable group of people simply will not have this approach, and a number of them are in Washington. The AMA made a small tactical error in describing the proposed independent agency as roughly comparable to the Federal Reserve Board in its independence and suggested a similar method of appointment. Apparently, the AMA had no idea of the violence with which the Federal Reserve Board is hated by certain influential members of both legislative and executive branches, or of the decades of bitterness between mid-western bankers and the New York banks which control the open market committee of the Fed. In a sense, the Federal Reserve is actually owned by the banks it regulates and tends to defend their interests. The whole investment community is at war (nice polite war, of course) with banks, struggling for turf in some pending revision of that Treaty of Versailles, the Glass-Steagall Act. Every election year, the Federal Reserve gets embroiled in bitter controversy as to whether its policies are slanted to cover up for congressmen who want the Fed to do their dirty work and have it within their power to abolish the whole agency if it does not comply. Independent as the Fed. Foo.

Let a Hundred Flowers Bloom. No doubt this inflammation can be soothed with diplomacy, but there are more serious worries about the investment difficulties which are unique to a trillion dollar fund run y the Federal Government to be addressed in the next chapter. In the meantime, the three funding mechanisms can be summarized as having certain flaws and certain strengths which are peculiar to each. It seems unlikely that the country could agree to permit only one of them to be designated to the exclusion of the other two. To a serious proponent of the general approach, it seems imperative that we authorize all three approaches while forcing them to remain in competition with each other. After all, we are talking about a system which addresses the needs of everyone no matter how different the circumstances. People who take wild chances should be restrained from becoming public charges, ignorant people should be protected against those who would fleece them. As Adlai Stevenson said, "It used to be said, a fool and his money are soon parted. But nowadays, it can happen to anyone."

There is, however, no certain way to know the future even if you go to Princeton to learn it. Let the banks and mutual funds exploit their lower marketing costs, let the insurance companies sell rings around them. Let the private sector shame the mediocre performance of the public trust fund, while the trust fund stands as a tower of strength among self-serving investment pitchmen. So long as the public is allowed to switch around, things should work out, in an investment version of the system of checks and balances.

Philadelphia Reflections

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

Obituary

George R. Fisher, III, M.D.

Bye, Bye, Banks

U.S. and E.U. Exchange Experiences (4)

FOREWORD, written June 28,2015

Henry Kaiser's Cleverness Out of Control

THREE WAYS TO ACHIEVE FUNDED HEALTH INSURANCE