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Gardeners
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As explained by the curator of The Morris Arboretum, there are a few other ferneries in the world, but the Morris has the only Victorian fernery still in existence in North America. That doesn't count a few shops that sell ferns and call themselves ferneries; we're talking about the rich man's expensive hobby of collecting rare examples of the fern family in an elaborate structure. That's called a Victorian fernery. The one we have in our neighborhood is really pretty interesting; worth a trip to Chestnut Hill to see it.
Although our fernery was first built by the siblings John and Lydia Morris, it was rebuilt at truly substantial cost by the philanthropist Dorrance Hamilton. It is partly above ground as a sort of greenhouse, and partly below ground, with goldfish and bridges over its pond. Maintaining an even temperature is accomplished by a complicated arrangement of heating pipes. The temperature the gardener chooses affects both the heating bill and the species of fern that will thrive there. You could go for 90 degrees, but practical considerations led to the choice of 58 degrees. The prevailing humidity will affect whether the fern reproduction is sexual or asexual, a source of great excitement in 1840, but survivors of Haight-Asbury are often more complacent on the humidity point.
There are little ferns, big ferns, tree ferns, green ferns, and not-so-green ferns; the known extent of ferns runs to around five hundred species. Not all of them can be found in Chestnut Hill, what with humidity and all, but there are enough to make a very attractive and interesting display. For botanists, this is a must-see exhibit. For the rest of us, it's probably the only one of its kind we will ever see, a jewel in Philadelphia's crown, and shame on you if you pass it by.
Galileo's own little telescope, along with many beautiful and historic instruments of the time are owned by the Medici family in Florence. Their collection of paintings are in the Uffizi, but you have to go to Italy to see them. However, the instrument museum is undergoing repairs, and the Franklin Institute jumped at the chance to put the materials on display while the Medici's weren't using them. The exhibit is large and splendid, including a great many astronomical and surveying instruments which were copied from the Arabs but with exquisite Florentine workmanship. You aren't allowed to look through Galileo's telescope, but a copy is provided, focused on the nine moons of Jupiter. Galileo was angling for a patronage job, so he named the first four moons after individual Medici nobles, a process not too different from what can now be noticed on K Street in Washington, any day. The museum arranged telephone number for cell phones so you can walk around with a guided tour in your hand; pretty neat. Those who have seen the recent play called Galileo will know that the old gent really didn't invent the telescope, and the Dutch are pretty sour about him because they did. But he improved it quite a bit, making his famous astronomical discoveries possible, getting him into trouble with the Jesuits, and forcing his pal the Pope to put him under house arrest even though the Pope surely knew Galileo was right. The earth goes around the sun, not the sun around the earth, but Galileo was pretty snotty about it and probably deserved some sort of rebuke.
The Franklin Institute doesn't make a point of it, but the scientific method was discovered around that time, and around that neighborhood. It's unclear whether Galileo invented the scientific method or not, but no one else claims the credit so it's a possibility. Anyone who has taken a course in Physics knows that Galileo went to the leaning tower of Pisa and proved that nickel would drop just as fast as an anvil, and made many other fundamental discoveries beyond any serious challenge. The scientific method would be a much more fundamental discovery that the sun/earth issue, which belongs to Copernicus in any event. But Galileo's habit of overclaiming in the telescope invention sort of clinches everybody's determination not to give him credit for Science, unless serious proof is forthcoming, and maybe not even then.
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Hawk
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While you are at the F. I. looking at this exhibit, it might be possible to look at the brace of red-tailed hawks who decided to build a nest on the window sill of the board room and bring up a family of real Philadelphia hawks. The young ones are bigger than you would guess, and fuzzy all over. The museum put up a monitor and displays the nest on the Internet. We patched it into this page, to save you the trouble. Hurry up, though. Galileo will be there for three months, but the hawk chicks will probably fly away in a few weeks.
Click here to see the Hawks Live
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Lord North
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The most decisive victory of the Revolutionary War was the Battle of Saratoga, where the British lost an entire army at a critical moment. Before Saratoga, Colonial hopes were at a low point. The British then occupied Philadelphia and Washington was shivering in Valley Forge. It's probably of relevance that the Continental Congress had fled to Baltimore, then York, and Robert Morris was trying to manage the mechanics of government from Manheim, near Lancaster. Within occupied Philadelphia, the dominant Quaker population had largely abandoned involvement in politics, and although there were a handful of wealthy merchant leaders living on 3rd Street, it's questionable how much the populace listened to them. Mayor Samuel Powel, for example, was so wealthy he didn't much care who won the war and spent much of his time entertaining notable foreign visitors.
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King George III
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Defeats have consequences, and the loss at Saratoga resulted in the British replacing General Howe with General Henry Clinton. A French fleet poked at New York harbor before giving the idea up and settled on attacking Newport, Rhode Island. Although this initiative ended in a draw because of what was probably an Atlantic hurricane, it was not at all a far-fetched idea that the French fleet might position itself anywhere on the Atlantic coast. Blocking the mouth of Delaware Bay would strand Howe's army a hundred miles upriver, with Washington's newly trained troops on the far side, cutting off supplies from the countryside. It would be a precarious position, so Lord North not only replaced General Howe but ordered the abandonment of Philadelphia. General Clinton thus had an orderly retreat from Philadelphia as his first priority and was occupied preparing for it.
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Earl of Carlisle
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This was not merely a low point for the British in America. They were now also fighting world-wide wars without allies, against France, Spain, Holland, and lesser principalities. These enemies of England were making trouble, busily planning more of it. The conquest of India was in question, the West Indies Sugar islands were widely regarded as more economically important than the thirteen colonies to their north. France was organizing an invasion of the British Isles by a Second Armada in 1779, and there was to be serious rioting in the streets of London in 1780 when the Protestant Association under George Gordon reacted badly to Parliament relaxing the Catholic restraints. Behind the Gordon riots was another ominous fact; British manpower was overstretched and could use more sources of troops. Even though Lord North bore such a striking physical resemblance to King George III that it was widely rumored they were secretly brothers, the North Prime Ministry was in serious trouble. Lord North called in the thirty-year-old Earl of Carlisle and dispatched him to America to negotiate peace. His terms were essentially the ones considered for Ireland: the colonies could have a parliament of their own, in return for maintaining trade relationships with England. It was not an unreasonable time for the British to stop the war, and the terms they offered seemed to satisfy every demand the irate colonists had asked for. Behind the slogan "No taxation without representation", lay more than a century of amicable relations with the colonies, restless at most that they had not been fully treated like Englishmen. Lord North had every reason to believe these terms would be acceptable, and many reasons of his own to be done with the Colonial quarrel. The counterfactual is that if the offer had been accepted, the Revolutionary War would have ended six years earlier than it did, without much difference in the final terms, and the War of 1812 would never have happened; history would surely have applauded North's statesmanship. Unfortunately, there was not much preparation for this peace overture, and there was really no obvious power structure in America at that moment to deal with it. It seems possible the Earl of Carlisle encountered some random handful of Americans who wanted independence more than they wanted peace or British officers who wanted revenge. But it also appears likely this thirty-year-old guardian of a famous poet simply was not equal to the momentous challenge he faced. The available history is too scanty to judge.
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General Clinton
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All we now know for certain is that the Earl of Carlisle showed up in Philadelphia with an entourage, and the town mansion of Samuel Powel (not to be confused with his country place called Powelton) was commandeered, pushing the Powel family into the servants quarters. Carlisle hung around for two weeks while General Clinton was packing up, essentially got nowhere with his mission, and went back home. There's surely some astounding story behind these events; somebody on the Rebel side must have been approached, and the terms may not have suited him. Since the same offer was made four years later and more emphatically rejected, there surely were people around 3rd Street who found it easy to let the matter die. If anyone is young and energetic enough to dig into the papers of the time, this episode would at least be an excellent subject for a thesis.
Casualty insurance formerly contained a clause making it noncancellable and guaranteed renewable. Except for disability insurance, most insurance no longer has those contractual promises, but the better ones will still "stand by their product". Prices were too unstable to permit a continuation at the same price as a legally enforceable right. In 1945, the Henry Kaiser caper changed the whole nature of the relationship, at the end of which the employees walked away with no individual renewal right at all, but got really great benefits while they had them. That was not a good bargain. Without a right of renewal, there is no good way to make internal transfers from young healthy employees to aging sick ones. Apparently, labor and management felt it was more important to get something out of the situation than to come away empty-handed. Most of these negotiations were private, and there may have been unrevealed considerations.
No individual renewal right, but really great benefits while they lasted.
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Bad Bargain.
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But the one sure outcome of this turmoil was a young employee had no assurance of health insurance if he changed jobs, and no sure way of transferring surplus benefits to his later years, even after remaining within the same employer group for decades. Older employees were plainly getting more value for their health benefit, but young ones could not be sure they would stay around long enough to enjoy it. In retrospect, this may have been a driving force in the enactment of Medicare in 1965. Employees experienced "job lock", which definitely meant they could not take stored-up benefits to a new employer, or into retirement. Furthermore, casualty health insurance was gradually changed by employers donating the policy to the purchaser, so ownership of the policy migrated into the employer's hands. The employer had to change insurance companies for the whole employee group, or not at all, so slavery begat more slavery. The negotiated group rates naturally reflected this change. The business plan of health insurance does not differ greatly from automobile insurance: Premiums are paid to an insurer at the beginning of the year; and at some time during that or subsequent years, the insurer uses the pooled money to pay the claims. In practice, there does exist one important difference between the two types of casualty insurance. Many auto insurance companies imply they hope to renew a policy if the premiums remain paid, but hardly any health insurance is "guaranteed renewable" in any sense. You can pay individual health insurance premiums for many years to the same insurer, but the insurer still reserves the right to drop you.
This largely unanticipated disadvantage grows out of the sponsorship of health insurance by employers since applicant employees are in no position to put strings on a gift. Its hidden unpleasantness was emphasized when millions of people were recently dropped from long-standing policies which did not conform to the Affordable Care Act's regulations. Original motives and understandings became unprovable after the passage of time. One could, however, easily imagine employers felt they might acquire new duties by law, and were reluctant to stand behind unmeasurable ones. One could imagine the insurers were uncomfortable with the risk an employee might move to a new state, and because of the Tenth Amendment to the Constitution, be facing insurers with no duty to continue coverage. This ACA dilemma came about in an environment with so little competition, neither the employers nor the health insurer felt compelled to wander into unforeseeable conjectures.
In this single subsequent event during the Obamacare confusion, a serious disadvantage of employer-based insurance discarded its tradition as harmless boiler-plate, revealing the enforceable facts of the matter. A health insurance company can unexpectedly walk away from an employer-based contract, even when it is needed most. The patient gets it as a gift and doesn't own it. This dispute over fairness and the original intent was surely involved in the government's decision to delay implementation of Obamacare for large employer groups.
By contrast, we must point out the Health Savings Account leaves unspent money with the individual as permanently as he can restrain himself from spending it. For this, he loses the ability to pool with others and must buy high-deductible insurance to provide the pooling feature for large costs. Interest gathered on his idle money remains his alone. By retaining ownership in the hands of the employee, HSA gains protections against much broader health-finance risks, than the Affordable Care Act's pre-existing condition-exclusion does, for its population segment.
In fact, this sweeping violation of a gentleman's agreement may make such arrangements unacceptable in the future. If the employer community finds it impossible to live with guaranteed renewability, they may feel forced to drop the fringe benefit. Not everyone wants to exchange the freedom of choice for freedom from the expense of it, but some do. Consequently, opening this can of worms could lead to the dissolution of the present system, which depends heavily on the tax-deductibility of the gift for employers. There is essentially no difference between an individual income tax, and a corporate income tax, except the corporate tax, is higher. The world's highest corporate tax necessarily creates the world's highest tax deductions for employers. Reduce their wage costs, and you will reduce their income tax. But reduce your own tax, and you reduce what it has been paying for. That's the bargain, and no stalling will change it.
We must, however, introduce an observation which applies to all defined-contribution plans. The advantage has switched from the older "new hire" rather markedly toward the younger "new hire", because of the addition of investment income for the younger one. This is an advantage for one, not a disadvantage for the other, but negotiators seldom recognize such arguments. The terms of the agreement should probably be adjusted for this new development, which is illustrated in the first section of this book. But since the change is due to the mathematics rather than the judgment of the donor, experts will have to see what they can do about it, before it becomes a punching bag, desired by no one, but forced on everyone.
Some rude things it would not hurt to know.
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Employer-based health insurance was once a well-intentioned gift, with a regrettable lack of guaranteed renewability. Until the First World War, most corporations were controlled by founding families, and more employees enjoyed lifetime job security. The switch to stockholder controlled to fewer benign gifts to lower-level employees. After a century of modification, the employee still is forced to bear the risk of losing his paid-for health insurance when he loses his job. The implicit good-faith guarantee of guaranteed renewability is however likely to vanish. Its implicit risk was transferred to the employee, but money to pay for it was not until the Health Savings Account came along. With that, surprising discoveries emerged. Thirty years had been added to longevity, now making compounded interest money a truly substantial issue. Furthermore, many diseases had disappeared, generating overall a protracted interval of smaller expenses during working life.
As long as the (term insurance) risk of losing the premium flow remained, it was not prudent to invest the money in higher-paying assets, so the insurance intermediary was in no position to maximize float. Curiously, the famous Warren Buffett became one of the richest men on earth by buying entire auto insurance companies to transform the one-year "premium float" into a virtually permanent source of cash flow. Substituting health insurance for auto policies, essentially the same strategy is proposed by this book, for employees to consider. Except for Jimmy Hoffa, few unions have considered such a role, and in view of colorful union history, perhaps employers resist it.
Is there enough money in this approach? Some of the limitations to be encountered in paying for healthcare are specific and final; longevity would be one of them. At present, the average longevity at birth is 83. It would take some dramatic research discovery to extend it much beyond 93, but it is reasonably safe to project it will slowly rise from 83 to 93 during the next century. The medical costs of achieving such a goal are almost impossible to know in advance, but attempts are regularly made, and the best available estimate is $350,000 on average per lifetime, using the year 2000 dollars. Women cost about 10% more than men, partly because of increased longevity, partly because of the statistical convention of attributing all obstetrical costs to the mother. There is a reason to believe all late-developing diseases originate in the dozen genes residual in the mitochondria of the mother's cells, so the conquest of diabetes, cancer, Alzheimer's disease, Parkinson's disease, and arteriosclerosis -- during the next century -- is a reasonable prediction. Furthermore, new cures while generally expensive at first, eventually become cheap. Mix it all together, and while the costs of the next century may at times be towering, it seems entirely conceivable healthcare costs will become comfortably sustainable, a century from now. If we can generate the means to get to that point, give some of the credit to Warren Buffett, and John Bogle.
John Bogle may not have invented the idea you can't beat the index, but he certainly evangelized the news that 80% of mutual funds managed by experts, somehow don't beat the index. Let's explain. When you finally get over the idea of getting rich by out-performing the stock market, the idea reverses itself. The whole stock market is a proxy for the economy, and so although some people do get rich faster than the stock market grows, hardly anybody gets richer in the stock market without using some form of leverage, a genuinely risky approach. Professor Roger Ibbotson of Yale has compiled extensive data for the previous century, and convincingly demonstrated how relentlessly the American equity stock market has grown quite linearly, depending on the asset class, but largely disregarding stock market crashes, and numerous wars, large or small. While small stocks have grown at a rate of 12.7%, blue-chip stocks have consistently grown at about 11%. With big cheap computers, we can see investors in stocks have received a return of 8%, paying a penalty for the small investor's inability to ride out really long-term volatility in any way but buy and hold. Perhaps, over time, we can find ways to narrow the overhead and return more than 8%. But for the time being one must be satisfied with 8% net, although 11% might become some ultimate goal. To go on, the 8% we get is made up of 3% inflation, so we better not count on more than 5% actual return. What will that achieve toward paying an average lifetime cost of $350,000?
The table plots how $400 will grow, starting at birth and ending at 83 and 93 years, with 5% compound interest. We've already described why 83, 93, and 5% were chosen, but why $400? It's a personal guess. It represents the amount I think would be achievable as a subsidy to "prime the pump". It might someday be a government subsidy for handicapped people who could never support themselves. And since it would be at birth, it would have to seem bearable to young parents. Many readers would react that $400 is too stingy, but politics is politics, and what people can afford is not the same as what they will vote to afford. In any event, we here are testing the math as a preliminary to announcing we can save a bundle of money by changing the system we are used to. Choose your own number, remembering we are attempting to reduce what is now reliably estimated as 18% of the Gross Domestic Product, and competing with a presidential proposal to give it to everyone. Further, the only thing you need to know about dynamic scoring is that making it free will assuredly escalate its eventual true cost.
Compound interest always surprises people with its power, and in this example, 5% just about makes the goal. There's not much room for error or contingencies. All of the known factors are conservatively estimated, and it passes the test. What isn't covered is the unknown factor, atom wars, a stock market collapse, an invasion from Mars. To be on the safe side, we had better not count on this approach to pay for all of the health care. Just a big chunk, like 25%, seems entirely feasible. In the immediately following section, we examine the first "technical" problem. The first year of life is effective as unaffordable as the last year of life, and newborns generally can't dip into savings.
This study of Health Savings (and Retirement) Accounts was begun thirty years ago, and with increased intensity in the past five years. During most of that time, paying for health costs was the central concern. Paying a big chunk of health costs would be an achievement, paying for it all would be an impossible dream. Therefore, paying for the whole healthcare system became a goal of my proposals -- to extend the duration of the compound interest generated. If it fell short, well, it paid for a big part of it. Either way, we could afford to leave Medicare alone. But once Medicare came into focus as the main impediment to solving an even bigger problem for exactly the same age group, "saving" it becomes a relatively smaller issue. There had to be some money left over for retirement living, which meant all of Medicare must first be covered, and then, new revenue must be found. The quality of care must not be injured, and -- most of all -- public opinion must be re-directed. This is a specialist's game, but the public is now the supervising coach. Whether they realize it or not, a dependable agent is what they are going to need. And the agency has a long history of imperfection.
The New Goal: Legitimate Healthcare, plus a modest retirement.
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Resource Assessment. Adding up all the other economies of Health (and Retirement) Savings Accounts, but now also including the retirement costs, the most optimistic goal is that
HRSAs might pay for substantial health costs, and some but not all retirement costs. Any politician who promises more is counting on a research miracle curing one or more expensive diseases. And the warning is: you will probably get less. Much of the shortfall comes from difficulty stating a "decent" retirement payment which would satisfy most people. That's enough for a Trappist monk is not enough for a movie star, and what will be called decent in 60 years is pretty hard to say. So the most we should promise is
healthcare plus some retirement; supplement more generous retirement as you are able. Even promising that much is a stretch, but is certainly superior to healthcare plans without the discipline of individual ownership. Unfortunately, it forces the individual to some choices he must make for himself, versus allowing some big anonymous corporation to do it all for him at a hefty markup. Let's specify the two big dangers he must navigate:
Imperfect Agents Theoretically, the best result anyone could provide would be to give a newborn baby a couple of hundred dollars at birth, let a big corporation do the investing, and pay a million dollars worth of bills over the next ninety years on his behalf, at no charge. The long investing period would provide some astonishing returns, and it would be entirely carefree for the customer. But that really overstates things quite a lot.
Unfortunately, experience over thousands of years has demonstrated agents eventually extract much of the profit for themselves. When they form large organizations with a business plan to maximize profits, the plan becomes institutionalized. Countless kings have been known to shave the edges of gold coins, even more, have been found to have employed inflation of the currency to pay their own bills. Investment managers are almost invariably well compensated, usually for mediocre returns to the investor. William Penn, the largest private landholder in history, was put in debtors prison by his wayward agent, as was Robert Morris, the financier of the American Revolution. Whole-life insurance companies are the closest approximation to an agent for a Health Savings Account who might propose to get paid a level premium for decades before paying out a limited benefit for a dead client. They seem to survive by promising a single defined fixed-dollar benefit and counting on inflation to work for them as it does for dictators, overseen by a politically appointed insurance commissioner. Unfortunately, they have the moral hazard of falling back on other surviving competitors to bail out bankruptcy, and the political hazard of trying to force premiums downward for the taxpayer without any reliable benchmark. Just how much they have been rescued by lengthened longevity is something only an actuary knows. Long ago, the situation was summarized by the question, "And where are the customers' yachts?"
Inexperienced Solo Management. If Warren Buffett had an HSA, he would have no problem managing it, and neither would a great many other savvy folks. The problem is to make the management so simple and standard that expenses can be kept low without injuring investment returns, for the average citizen. This consideration almost drives the conclusion that lifetimes would be best divided into at least three component parts, with benchmarks and averages published more regularly, since the medical and beneficiary problems divide into the same three (childhood, working age, and retirement) components. It begins to look as though a new profession of fee-for-service advisors needs to become educated and distribute themselves widely, perhaps in local bank branches, and they must develop a professional ethic of fiduciaries. As will be described in later sections, the need is for the income stream at least to be kept in balance with the probable expenditures, adjusted for inflation or deflation -- and volatility. It is not to achieve the maximum possible revenue return, regardless of risk. That is to say, the purpose of the HRSA is not to make as much money as possible, but to be sure as much medical need as possible can be provided by the revenue available. Let's put it all in a nutshell: There's a big difference between designing a system to cover a public need inexpensively -- and designing a business model to make a profit. But that's not nearly as big a problem, as doing both at the same time, because it tempts the agent to be too timid.
If you spend too much too early, you won't have anything left for later.
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After Assessing Obstacles Comes Strategy. Most HSAs make cash payments with a debit card compatible with long-term passive investing (utilizing total market index funds) by staying within the stream of cash deposits, on behalf of inexperienced investors and for otherwise unevaluated accounts. If deposits fall, or expenses are unexpected, they may need reserves. Theoretically, a single investor with a single advisor may reduce this need and improve the overall return. However, there's a technical problem: the earning period is not the first stage of life; it's the second, following nearly a third of life in childhood and educational dependency or debt. Health expenses in the childhood third of lifespan may be comparatively small, but the earning capacity of children is essentially zero. This unconquerable fact leads to splitting investment considerations into three stages, the first and last thirds subsidized by the middle one. The result is, two systems feeding off the middle third in opposite ways, requiring opposite approaches. Somehow, it must all come out in balance at the end. And remember, it starts with a deficit in the obstetrical delivery room unless we re-arrange something else. That's the biological situation, against which financial systems must lean their weight. Therefore, there is a need for different agents for different age groups. This has not yet been fully worked out, so there is a constant need for transferability of accounts between agents.
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.
