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.

Will Obamacare Reduce the National Debt?

It looks as though the first priority for the Obama administration is the reduction of the national debt. That may not have been the President's initial priority or even his present one, and indeed it probably has been furthest from his mind. However, almost any other priority except national security is likely to be crowded out if the debt is not reduced, and the essence of reducing the national debt is either reducing the Defense Budget or reducing the Healthcare deficit, and there are signs that he would rather reduce security than the health agenda. It does not matter as much as it seems. The cumulative long-term debts of everything the government is involved in will ultimately be reflected in the national debt, and government healthcare deficits are the largest item. If the longterm growth of debt from that source is not constrained, almost everything else is in danger of being crowded out. With restraint in government healthcare costs, attention can be shifted to educational costs, or housing costs, or foreign affairs. Without it, the bond market will dominate what he must do.

The health of the economy is the main determinant of the whole matter, not the health of the public. {bottom quote}

To state the obvious, the healthcare deficit results from expenditures running $250 billion a year greater than revenue for the program, or about half of its costs. To a degree seldom seen in the private sector, the fluctuations of revenue have almost nothing to do with healthcare, the core business of this issue. Revenue is mainly derived from a payroll tax of nearly 3%, half from employees and half from the employers. Payroll taxes go up and down with the national economy, but any connection to improved or worsened healthcare is entirely accidental. The second main revenue source would be from Medicare Part B and D premiums, whose fluctuations are likewise related to the economy rather than the core business of healthcare. From this, it can be concluded that the health of the economy is the main determinant of the whole matter, not the health of the public. Premiums are similarly related to the economy, although possibly to a smaller degree. Payroll taxes are collected on those with jobs, premiums by those who have retired. Payroll taxes are therefore more sensitive to the economy than premiums.

Unproductive to look closely at direct costs; concentrate attention on the indirect kind. {bottom quote}

Expenditures are of two sorts: direct and indirect. Although the fiction is maintained that every expenditure is related to something which generates a charge, the direct costs are more accurately audited because their relation to the core business of healthcare is readily understood. The accounting of indirect costs is much more fanciful, with the total costs aggregated and distributed among the various departments of a hospital according to such debatable theories as the proportion of floor space occupied, and sometimes leading to bizarre instructions to hospital architects about tiny accident rooms and enormous surgical nurses lounges. For the time being, it seems fairly unproductive to look closely at direct costs and concentrate attention on the indirect kind. The item sizes are generally much greater, and the justification weaker. It is here that an auditor is likely to find padding in the remuneration of officers who make decisions about the remuneration of officers. The direct costs are much more likely to rise and fall in tandem with medical activity so that computer algorithms related to the variations of direct costs would rather easily distinguish indirect costs which might require more external guidance from auditors.

So what generates the $250 billion deficit? To a large extent, it represents fluctuation in the economy or GDP, about which nothing can be done by insurance auditors, from either the public or private sectors. It does result from an unknown amount of padding in the indirect expenses, and probably a fair amount of imaginative accounting from state Medicaid programs. Hospital administrators complain that there are many unwarranted debts from unpaid deductibles and insurance copayments. And the originators of the Affordable Care Act attribute huge losses to the unpaid bills of uninsured patients.

We are now engaged in a very contentious stress test to see what the truth is. {bottom quote}

In the early days of congressional debate about healthcare reform, it used to be argued that mandatory health insurance would eliminate the bad debts from the uninsured, which would not only eliminate those losses, but reduce the cost of insurance carriers including Medicare by eliminating the need for the cost-shifting employed (through the indirect cost manipulations) to shift these costs of the uninsured into pseudo-costs of insurance. For obvious reasons, everyone was hesitant to be too specific. And so, it could be alleged, we are now engaged in a very contentious stress test to see what the truth is. The proponents of this theory have grown very quiet since they acquired better access to the facts, and it would be a very bold position to contend that the $250 billion dollar deficit is about to disappear. It is probably not even possible to stretch the true savings which will undoubtedly appear into something -- say, $100 billion a year -- which would make an appreciable dent in the National Debt, or international balance of payments, where there would then be a reason to call the experiment a real success. For that far more important goal, transforming the Medicare debt into an agricultural or Defense Department debt by creative accounting accomplishes very little. Reducing the deficit in the international balance of payments by reducing one of its main components, on the other hand, would be an astounding achievement in the face of almost universal skepticism. Just so it isn't done with smoke and mirrors.

Balancing the Books

Earlier, we introduced the concept that all health care costs ultimately are paid from earnings someone accumulated during the working years of, roughly, age 26 to 65. That reality doesn't change, whether the contributor was the individual covered by the insurance, or his parents, or grandparents. The contributor was almost surely earning a living at the time and therefore was in the working age group. Ultimately, the limit to what our nation can regularly spend on medical care traces back to what we can predictably earn, not on what we have saved, even though the same is not true for any particular individuals. The baby boom "bulge" illustrates the danger of overlooking this reality. It is now time to make additional use of the theory.

HSA deposit limits were based on a maximum of $3300 per year, from 26 to 65. {bottom quote}

First, recall the calculations of HSA deposit limits were based on a maximum of $3300 per year, from 26 to 65. That sum is the maximum contribution now legally permitted for ordinary (non-lifetime) Health Savings Accounts. It was probably arbitrary, but in a decade of use, there has been no great complaint it is too low. It is surely greater than the indigent population can afford, so for them, the pressing need is to identify the level below which subsidies are justified. An upper limit applies to people who may be solvent, but who could not afford the protection without a tax deduction. These are both important limits to determine by experience. Right now, the more important question is: what affordable average level can cover the lifetime medical costs of the entire population, probably just accepting the Obamacare subsidy levels. An average cost is a number which is not a matter of opinion, even though at present it may be unclear. From this the conclusion emerges, we should start with what we have, the present HSA deposit limit, and later improve the other two Obamacare benchmarks by experience. "Experience" raises the question of how to assemble the data.

Data Collection. To monitor this system, and to derive these benchmark numbers, we must contend with the immensity of such data, keeping the administrative costs low by restraining it. Furthermore, the number of different companies managing such accounts might grow very large, thus multiplying the cost of data aggregation. At a minimum, we need monthly data from each managing company of 1) how many individual accounts it manages, 2) what the aggregate deposits were, 3) what the aggregate withdrawals were, and what the aggregate month-end balances were. In return, the agency selected to consolidate this data centrally should return quarterly aggregate numbers for the entire universe to raise alarms about outliers. These four numbers should not be an administrative burden, but unfortunately, the initial transition cannot be managed without data for every year age cohort separately. Ultimately, that will require a spreadsheet containing eighty or more rows representing each birth year cohort, listed in four columns. In view of the high national divorce rate, the temptation should be resisted to sub-aggregate the collection data by families, thus greatly complicating the reporting complexity. Other data for special purposes, like gender and marital status, disability, and employment, should be handled on a sampling basis, since they change infrequently, but vastly multiply the data cells. Income data is the most sensitive data of all, which HSA managers ordinarily do not possess. If at all possible, data required for establishing eligibility for a subsidy, should be obtained by maintaining a separate HSA entry on the IRS 1040 form, occasionally requesting unidentified aggregate data from the IRS. It is hoped it will not be necessary to collect data indefinitely, once the main transition is accomplished, perhaps eventually reducing it to quarterly reports, then annual ones.

A lifetime HSA system can be passive with regard to health costs, leaving behavioral issues to other agencies, {bottom quote}

From the foregoing description, it should be possible to derive a skeleton description of the central planning required to run a nationwide program, which is large in expenditure, but comparatively small in administrative overhead, thus capable of remaining largely in the private sector. It is possible subscriber income will need to be added to the data set, but such temptation should be resisted. After all, the private insurance industry seems able to function without it. At most, the goal should be annual income reporting, otherwise running on a sample basis, and need-to-know. With deposits concentrating on people of working age, patient income data should already exist in the IRS system. Meanwhile, the HSA focus would be on whether its investment and deposit income match its medical expenses, both short-term and long-term. That is, predicting whether cash shortfalls will disappear with time, or whether investment income will chronically be in surplus for certain age groups, but in shortage for others. In the latter case, some borrowing facility may be needed. In addition, a monitoring function will probably be needed for investment managers who produce less than average gains for their customers, suggesting difficulties with overhead, investment skill, or kickbacks. Although subsidies for indigent patients will be necessary, it is not necessarily the function of the HSA to set the limits. In any event, overlapping agencies should share experience, not duplicate it. It is to be hoped DRG for hospitalized patients, plus market forces for outpatients can control provider charges without reliance on financial strictures. Regional medical cost norms must nevertheless be maintained for comparison with local ones, particularly comparing Medicare data with HSA data for the same services. The overall hope is a lifetime health savings account system can in time become largely passive with regard to health costs, leaving behavioral issues to other agencies, once the HSA has detected questionable data. Otherwise, as the cop on the beat, it could become unable to detect or define solutions for emerging changes in health science.

Let's summarize with specific numbers, however uncertain their precision. Our approximations of the functioning of lifetime HSA were based on parents making virtual loans or gifts of the obstetrical and pediatric costs to their child, and of Medicare paying for grandparents with money, they or the taxpayers earned while they were wage-earners. We are proceeding from the premise: health expenses are lifelong, but revenue for them derives only from the working population. The concept thus highlights affordability for the working population as the main limiting factor, which it surely is. We make the second premise: $132,000 total contribution seems to suffice for regular HSA coverage up to the 65th birthday. If compound investment income spread over forty years could generate about $75,000 in addition to the $132,000 contribution, the $75,000 at 6% on the 65th birthday will also pay for Medicare as if it was a single-premium insurance, based on CMS statistics, providing it continued to earn 6% as it is spent down over the next 20 years. Then, we envision a yearly escrow of $1400 to achieve $75,000 on the 65th birthday, while everything else in the HSA has been spent for current medical expenses of the earning worker. Even though current medical insurance is floundering financially, its present health insurance premiums suggest a yearly contribution of $1400 is attainable for most people, and a 6% interest rate does not seem unachievable, either. One additional little quirk of the numbers is $75, 000 will cover an increase in life expectancy from 78 to 91. This last little zinger is based on the uncertain but conceivable premise that future increased longevity will be achieved by moving the terminal illness costs backward 13 years, since everyone must die, but nothing says that an extra serious illness must intervene, and be survived, during the 13 years. It probably will, but you can't be sure.

So to carry this forward, an extra contribution of unknown size would include the childhood expenses. The reason it is unknowable is that much of it is buried in the parents' costs already, especially obstetrics, and the extra cost of childhood illness (take the CHIP program for an example) is pretty trivial. Unfortunately, the timing of childhood costs comes at a time in life when the parents have very little medical costs themselves, and for this purpose that's a bad thing. Costs early in life affect the compounding of income, more than the same cost later would. But let's say $600 a year extra would do it, which seems pretty generous. With conservative estimates of everything except coming scientific advances, $2000 a year, per person, from age 26 to age 65 should pay for the whole lifetime medical experience, assuming two children per two adults. If we remember that we sort of have a $3300 budget, and index funds of large-cap funds have risen at 10% ever since 1926, it all seems pretty safe to bet on. (The uncertainty is probably not the 6% or the $132,000, but rather in how much would be left in the accounts unspent, for what periods of time. That is, whether $132,000 is really enough or whether it must be increased to generate a cushion.) We have no data on how much would have to be devoted to subsidizing the poor, or to paying off the Chinese for Medicare borrowing, but these numbers suggest we could have a stab at even doing some of that. One thing is sure: if we pre-paid for Medicare, it ought to eliminate the present payroll deductions and premiums, which now make up half of Medicare cost. And put a stop to borrowing from foreigners, which makes up the other half.

If you're an optimist, that isn't the end of the reasons for optimism. Nothing is forever, and so projecting this good luck will last forever is bound to be disappointed, somewhere. But surely this discovery of compound investment income on unused premiums can generate $100,00 in savings per person before our luck runs out. That's an awful lot of money for a "failure" when you multiply it by 300 million people. Meanwhile, the candle of hope burns brightly that our medical scientists can eliminate most of our remaining diseases at a reasonable cost. The hope is that scientific research can, in the meantime, eliminate the cost by eliminating the diseases.

The really important issue here is to understand that estimates of extra revenue, to come from investing idle premiums, are pretty strong. Much more difficult is to figure out a workable way to get the money out of the system in order to spend it. Insurance has demonstrated it has great weaknesses as a method to pay for medical care. In particular, it stimulates unnecessary spending by the illusion of getting something free. However, insurance has two big advantages over HSAs, quite aside from the undeserved advantages it has acquired by lobbying Congress. In the first place, insurance automatically achieves pooling among many subscribers for the current expenses of a few. Health Savings Accounts are individually owned and controlled, so everybody has a voice to be heard about pooling. As a consequence, every contingency has to be agreed, in writing in advance. Or else recourse has to be made to the coercive force of government, which gets you back to lobbying. The second advantage of insurance is the ability to move funds around internally, without paying a fee to a counterparty. In this particular case, insurance can take money from the elderly and pay it to the young, or the reverse, and adapt more readily to the countless possibilities that the revenue curve may not precisely match the expense curve, over a period of eighty years. All in all, these two disadvantages are not enough to undermine switching the country away from a course which threatens to lead to bankruptcy. Having been present at the beginning, I know that the inclusion of catastrophic insurance linkage was fortuitous, but it is what makes this new system workable when it is a success, as contrasted to avoiding added nuisance at times when it might fail. Curiously, this may well be of importance in the approaching Constitutional debate. On the one hand, the federal government has a legitimate interest in programs with such huge tax implications. On the other hand, the Tenth Amendment to the Constitution is very explicit about situating non-federal powers in the states, and the McCarran Ferguson Act has additionally defended continued state control of the business of insurance for over sixty years. With good leadership, the political position of Health Savings Accounts could enlist considerable support as a workable compromise between the two regulatory approaches.

If Health Savings Accounts generate more funds than required, the surplus flows over to a regular IRA, where it is available for supplementing retirement income; that's pretty easy. If hospital costs are generated, they are paid by the Catastrophic Health Insurance required to accompany all HSAs. That insurance has a deductible, usually with a fixed upper limit to out-of-pocket assessments. So, it is possible to generate more medical costs than remaining in the HSA account, by a combination of these hospital residuals, as well as outpatient charges. This is more likely to occur in young people before the Account has a chance to accumulate, but it could happen at any age. On the level of theory, it is intended to threaten everyone a little, in order to restrain unnecessary spending. Furthermore, if the subscriber has other sources of savings, it is clearly better to use them than the money in the account, in order to preserve the tax shelter. Increasingly, all insurance is adopting "patient participation" features, so the difference between insurance and HSA is progressively narrowing. Indeed, the nearly universal adoption of high deductibles, co-pay features, and a new feature of Obamacare is likely to generate considerable resistance when it becomes generally applied. That new feature is the "metals" concept of covering only 60% (bronze), 70% (silver) or 80% (gold) of the bills, leaving the patient to pay the increasingly burdensome residual. Paradoxically, this could easily combine into 50% of the health cost operating outside of the insurance, considerably more than most HSAs experience. In time, this will provide an interesting experiment, testing whether coercive measures are more or less effective than the enticement of keeping part of what you save, which is the HSA approach.

Therefore, it is intriguing to conjecture whether lowering effective patient costs might help attract Medicare patients to switch from insurance to individual accounts, substituting savings from prudent health purchasing, for coercive "patient participation in costs". Since Medicare premiums are taken as deductions from Social Security, rebating some of the payroll tax would be simple to add to the check. And eliminating Medicare premiums could have an immediate impact. After a few years, many Medicare patients might have $75,000 in the account. Those who do not would build up the account rather rapidly with the payroll and premium rebates, remembering it would require an investment return of 6% to produce the same benefit as in the example given earlier. Although we have used the "lifetime" convention extensively in this book, it has seemed likely that politicians would scarcely dare mention the possibility of eliminating Medicare, triggering the "third rail" of senior citizen politics. However, the serious disease progressively concentrates into the Medicare age group, relentlessly raising the Medicare budget into the far future. The idea that the Medicare age group would begin to demand the substitution of a cheaper alternative, never occurred to me or many politicians, because it was difficult to imagine an alternative for the old folks which would seem cheaper to them. But a comprehensive approach, eliminating the Medicare premium, and the payroll deduction might just do it. To which, most politicians would reply, we must wait to see. Voluntary, to be sure, and probably very hesitantly, a few who were pleased with HSA during working years might want to continue it after they retire, using rebate of their payroll deductions, and possibly adding to it somewhat.

A Change in Direction

For whatever reasons, much of the Affordable Care Act is still shrouded in mystery. After three years, an employer-based system is still predominant, and it remains unclear where a big business wants it to go, or perhaps what makes business reluctant to go ahead. It is even conceivable big business just wants a vacation from healthcare costs, hoping to go back to the old system of supporting the healthcare system by recirculating tax deductions. Once an economic recovery restores profits enough to generate corporate taxes, it will once again be worth saving them by giving away health insurance and taking a tax deduction. Otherwise, it is hard to see what value there is, in a year's respite. Under the circumstances, it begins to seem time to look at some new proposal, neither sponsored by an opposition party nor motivated by antagonism to the Administration initiative. Let's reverse its emphasis, testing how much it is true the financing system now drives the health system, not the other way around.

Both big business and big insurance have been remarkably silent about their goals and wishes for the medical system, while quite obviously agitating for some sort of change by way of government, and quite obviously leaving their own agendas off the visible negotiating table. Let's illuminate the situation, with the medical system speaking out about how employers, insurance, and investment should change while leaving the medical system alone until we better understand the finances which are driving it. The proposed way to go about all this is to harness Health Savings Accounts, with its two different ways of paying for healthcare (cash and insurance), with two-time frames for the public to explore (annual and lifetime), and passive investment of unused premiums versus concealed borrowing. So yes, it's technical, and necessarily it's been simplified. Two important features, multi-year insurance and passive investing, are outlined in this book. But one theme runs throughout: the customers, individually, should have choices. Nothing should be mandatory, everything possible should be left for individual customers to select.

Don't take on too much at once. Health Savings Accounts have grown to over 12 million clients, so it isn't feasible to do more than repair a few loopholes, and let it grow. The next logical step is to get rid of "first-dollar coverage". Not by eliminating insurance, but by making high-deductible the normal standard for health insurance. If we must make something mandatory, it ought to be ensuring big risks before insuring small ones. Catastrophic indemnity insurance is a well-established, known quantity; it's not likely to need pilot studies to avoid crashes. It doesn't need government nurturing; it needs big insurance companies to see the writing on the wall. So let's get along with it, without any mandatory coverage rules. If the old system of employer-based and tax-warped coverage can get its act together, that's fine. Because as I see it, the main danger in Catastrophic coverage is it will penetrate the market too quickly; let people have a level playing field to watch the game unfold. When we have two viable competitive systems, the customers can decide between them, and both will emerge healthier.

An observation seems justified. In a system as large as American healthcare, changes should be piecemeal and flexible; win-win is strongly preferred to zero-sum. Sticking to finance for the moment, we slowly learn to avoid zero-sum approaches, while strongly applauding aggressive competitors. Napoleon conquered Europe, and Genghis Khan conquered Asia by smashing opposition, but it isn't an American taste. Since everyone would prefer saving for when he needs that money for himself, (compared with being taxed to support someone else's healthcare), let's see how far and how fast we can arrange that. The recent extension of life expectancy creates a long period between healthy youth and decrepit old age. About 20% of those born in the lowest quintile of income, will eventually die in the highest quintile. That's a good start, but the process can't go much faster just because someone beats on the table with his shoe.

Nevertheless, a larger proportion of people could save a small amount of money when they are young, and by advantageous investing in a tax-sheltered account, accumulate enough money to support their healthcare costs while old. Some people will never be self-supporting, of course, but the idea is to shrink the size of the dependent population as much as we can. We can at least try it out, on paper so to speak. And if it produces good numbers, perhaps we are ready for pilot projects. That ought to be the next step in our long-term plan to reform the health system without attacking it -- switching from one-year term insurance, to multi-year whole-life insurance. The underlying insurance principle is called "guaranteed re-issue". We aren't ready for that yet, but we are ready to call in the experts in whole-life life insurance and ask for their guidance while setting up information gathering systems to navigate the reefs and shoals. The exercise does seem feasible and is partially explored in the rest of this book. Meanwhile, medical science is steadily reducing the pool of acute illness and lengthening the average longevity. Actuaries are my best friends in the whole world, but I think they are wrong about one prediction. Like retirement planners, both professions assume future taxes and future health costs are going to go up. But I am willing to predict, net of inflation, they will go down as longevity increases. Just wait until you see an enthusiastic medical profession attack the problem of chronic care costs. The nature of retirement living must change. Both things will change because of changes in the nature of investing and finance, the lowering of transaction costs, and the effect it has on the economy. Because: investing is based on perceptions, and a general disappearance of the acute disease will certainly re-direct perceptions of what is important.

Over thirty years have elapsed since John McClaughry and I met in the Executive Office Building in Washington, but a search for ways to strengthen personal savings for health marches on, trying to avoid temptations to shift taxes to our grandchildren, or make money out of innocent neighbors. Most of the financial novelties to achieve better income return originated with financial innovators and the insurance industry. But the central engine of advance has come from medical scientists, who reduced the cost of diseases by eliminating some darned disease or another, greatly increasing the earning power of compound interest -- by lengthening the life span. My friends warn me it must yet be shown we have lengthened life enough or reduced the disease burden, enough. That's surely true, but I feel we are close enough to justify giving it a shot. Before debt gets any bigger, that is, and class antagonisms get any worse.

While Health Savings Accounts continue to seem superior to the Obama proposals, there is room for other ideas. For example, the ERISA (Employee Retirement Income Security Act of 1974) had been years in the making but eventually came out pretty well. In spite of misgivings, ERISA got along with the Constitution. And we had the Supreme Court's assurance the Constitution is not a suicide pact. So, still grumbling about the way the Affordable Care Act was enacted, I eventually stopped waiting to describe an alternative. The long-ago strategy devised in ERISA, by the way, turned out to be fundamentally sound. The law was hundreds of pages long, but its premise was simple and strong. It was to establish pensions and healthcare plans as freestanding corporations, more or less independent of the employer who started and paid for them. Having got the central idea right, almost everything else fell into place. Perhaps something like that can emerge from Obamacare, but its clock is running out.

CHAPTER ONE: Re-Examining the Revenue Premises of Medicare

Chapter One:

We propose a comprehensive reform of American healthcare finances, resulting in a drastic drop in costs. This is payment reform, not medical reform, although the practice of Medicine cannot escape upheavals in its finances. It must all withstand critical review, but some of the future is simply not knowable. Defense of future predictions relies on extrapolations of history, but brief explanation nevertheless forces some things out of chronological order. We must, however, begin somewhere, repeating ourselves a little when the loop is finally closed.

So, we begin with Medicare, which has worked well for fifty years. Its data are easily confirmed on the Internet. Costs are known, minor faults have had time to be been corrected. Medicare is not the central focus of this book, but it's familiar. Seeing where Medicare fits in, gets the reader a long way toward understanding the system and where it needs to be modified.

Begin understanding Medicare with how it gets paid for, in three parts. (1) About a quarter is pre-paid, originating as a payroll deduction from the paycheck of every working person and mostly matched by an equal amount from his employer. (2) A second 25% of Medicare expenditure is supplied by the retirees themselves, as various sorts of insurance premiums. (3) And the remaining half is contributed by the federal government, but it originates in everybody's graduated income tax. In recent years, national finances have been strained, so a considerable part of the subsidized half is "temporarily" borrowed from foreign countries. There is general approval of the Medicare program, but it has grown expensive, a crisis usually blamed on the approaching retirement of the baby boomer generation. In a sense, maybe Medicare is a little too popular. Everybody likes a dollar that seems to cost fifty cents.

Focus attention on the pre-paid quarter of the costs, the payroll deduction. It's to be found in a mass of other numbers on any paycheck stub, often mixed with pre-payment of Social Security, and consists of 1.45% of salary for most people, 3.8% for those who earn more than $200,000 a year. The average worker earns $42,000 per year, and thus contributes $630; half of the workers contribute less, half of them, more. Persons earning less than $200,000 are matched by equal contributions from their employer. This has been going on for so long, most people could not guess how much it costs, would overestimate the proportion of their contribution, and underestimate its full cost.

In our proposal, we ask that $360 (of this average of $609), a dollar a day per working person, be set aside in an untouchable "escrow" fund every year, $180 from the beneficiary, $180 from the employer. Essentially, that's a seventh (14%) of the matched average $1218 pre-payment already being made on behalf of the average worker, although it might constitute all of his personal pre-payment if that worker only earned $5,000 a year. (It's a flat tax, but it does not go to zero at zero income.) In forty years of working life, the escrow would total $14,400. (It currently becomes the government's money, so the transaction is a tax reduction as well as an increase in personal income. For the moment, let's skip over the people below the poverty line, who obviously have to be subsidized, and ask, "What do you propose to do with a seventh of a quarter (3.6%) of the average total cost of Medicare coverage?" We're asking for $14,400 spread over forty years, which is 7% of what a person costs for a lifetime of Medicare ($200,000), or 4.5% of what is generally guessed to be one person's health cost for an entire lifetime ($325,000). What are we proposing to do with the money?

Answer: We propose to invest the $14,800 at 8%, and offer one choice about some of it on the individual's 65th birthday, as well as a second choice about it at any time thereafter, including his will. Because we plan to earn 8% interest on it, the $14,800 has turned into $93,260, and by the way, $7400 of the $14,800 was probably contributed by the employer, who got at least $3700 in a tax deduction for it. Furthermore, most economists agree employer contributions effectively reduce the paycheck by an equivalent amount, describing all fringe benefits as just part of employee costs. We will unravel this later, but the point right now is illustrating the largely unappreciated power of compound interest. This little exercise was conjured up to illustrate the power of compound interest, which it does quite nicely; but we aren't quite through. A dollar a day has resulted in 93,260 by age 65, but by age 83 (the present life expectancy) the 93,260 has turned into $360,000, just by sitting in Medicare unused, and $360,000 is the generally accepted figure for the total lifetime healthcare cost of an individual. One conjecture is 8% interest is too high, but we devote a whole later chapter to defending that number, which is merely the highest that can readily be defended.

Remember, however, this gain. equal to Medicare's total cost was achieved by investing only $360 of the $609 actually paid in salary withholding for Medicare. There is another $249 paid to the Medicare "trust fund". At 8%, this has reached $64,505 by the 65th birthday and grows by $6054 a year until age 70. Medicare averages $11,000 a year costs until age 83, the expected age at death. If the second fund makes up the $5946 difference. The two funds are in the position of earning 8% and shrinking at a total of $11,000 per year in combination. By the age of xx, the escrowed fund is growing at more than $11,000 a year, and the surplus fund is shrinking to make up the difference between $11,000 a year and the deficits of the escrow fund. Once the escrow fund is earning more than $11,000, there is a growing surplus which at present would transfer to an IRA.

Well, obviously no one is actually going to do what's suggested in the example, at least not more than once, but it does bring out some important points. The first is that apparently Medicare could be privatized for about one-quarter of what it is now costing, just by depositing and investing what is already collected in payroll deductions. Is it really possible we could also stop collecting Medicare premiums from the beneficiaries entirely, and stop accepting its 50% federal tax subsidy entirely, which we must now borrow from foreigners? Well, sort of. It would all depend on whether you could get 8% from Wall Street, as well as an income tax deduction from the IRS. Since the government doesn't pay itself taxes, the comparison boils down to whether you can get that 8%. A later chapter is devoted to the question.

Data has not been collected to test this idea directly, but some suggestions are intriguing. Medicare reports it spends about $11,000 per year per Medicare subscriber, whose average life expectancy is to age 83. That would imply Medicare is now costing about $200,000 per subscriber per lifetime. Future longevity is unknowable in advance, but it seems plausible it will level off at 93, sometime this century. One way of looking at this is to multiply $11,000 per year, times 27 years instead of 17, and get a future total lifetime Medicare average cost of $352,000. That's quite a wallop, but revenue from compound interest of 8% would be paid longer as well, taking it from $198,000 to $726,000. Old people getting cheaper is quite a surprise. Among the various things suggested is we have no idea how much 2035 technology would cost if it's good enough to extend longevity by ten years. Take a cure for cancer, for example. Would it be $100,000 per treatment, or would it be like aspirin, just lying around waiting to be discovered lowering heart attacks by 50%, at a nickel a pill? Or take another direction: perhaps living ten years longer would result in ten more years on the golf course or bridge table, followed then by the same terminal illness. An unchanged lifetime medical cost, in other words, just spread out over a longer time. Like a tulip on a longer stem. Since we obviously don't have the faintest idea about these projections, we will just have to strike an average, and hope for the best. But to return to a deeper question latent in the discussion: Do we have to worry that living on investment income will reach a point where it can't maintain a decent living in the face of improving technology? The encouraging answer seems to be: There's nothing on the horizon to suggest it.

Choices at age 65 have therefore become more complicated. If you had already reached your 66th birthday, and your choices included taking the $180,000 in cash, of course, you can just take the money and run. You might well be required to pay income tax on the lump sum, reducing its net amount by 15-30%, depending on your tax bracket. Perhaps a better choice has already been created, to roll it over into an IRA. In that case, the tax is deferred until you take minimum distributions for retirement purposes, which start paying a gross taxable amount (calculated by dividing it by your life expectancy, which at 66 is currently 17 years) of $10,500 per year. Considering this the return on an original $7400 cash investment, that's pretty substantial. And even recognizing your employer contributed half of it, it's still pretty good.

But consider another direction, entirely. Suppose by then the laws have been liberalized to allow "grandparents" to transfer a certain limited amount (see below) from their own Health Savings Account into a child's newly-created unique Health Savings Account if the recipient child is any age less than 35. At "grandpa's" death, again if the laws then permit it, the amount (specified below) may be transferred to other accounts. In the past, a child's account would have had more than three doubling opportunities in a 26-year span, but an infant baby has no money to double, and occasionally no way to create an account.

Whereas under our proposed new hypothetical rules, the baby's HSA might contain $8,000 at age 26, if grandpa transfers $1000 at birth and nothing else is spent out of the account until the child is 26, as a hypothetical illustration. The proposal is made that special Catastrophic insurance is also needed for this situation. Nevertheless, the potential should be exploited to create a bridge which connects an age group which is often overfunded with a generation that is usually underfunded, and always incapable of managing its own financial affairs. The extra $8000 at that particular moment in a 90-year cycle would have an immense effect on the cost of the entire scheme at all ages. So immense, in fact, that it undoubtedly would require safeguards against creating a nation of perpetuities in a few generations. My own suggestion is that a surplus from inherited sources should reach its conclusion at age 35, after which any surplus from "grandpa" sources should be transferred to the U.S. Treasury, subject to appeal to the local Orphan's Court. With such a rule in place, the system would readjust its arithmetic in the great majority of cases to accommodate special circumstances. The compound investment income alone will start this cycle all over again, if it throws off $325 a year for, say, the last ten years, including consuming its principal to do so. To repeat, an estimated $6000 of the eventual $8000 is consumed by the process of paying for the baby's birth and pediatric expense, with perhaps $2000 used to fund the child's own HSA up to $3250 at age 36, getting consumed in the process. Since this hypothetical began with only $1000, the starting amount could easily be tripled without disturbing the conclusion. With actual experience, these estimates can be fine-tuned. Tax-exempt funds like this should probably not be permitted to become perpetual, but allowing them to extend to a grandchild's 35th birthday would provide very desirable bridge funding for a period of life from birth to 36, which is both medically and financially quite vulnerable, and hence requires real-life insurance data (i.e. not hospital charges). He's going to have to go out and earn a living to sustain his own health insurance (see below), but his retirement Medicare costs are already a third paid up.

Just imagine: such a scheme might encourage more women to have children at an earlier age, which would be biologically very desirable, poorer people would be able to go to college without health financing concerns, and probably with reduction of the burden of disease from untreated medical conditions. At the same time, money would remain available for grandpa's health because he got to it first. Invisibly in the background, it assures generosity in the disability costs of the increasing volume of elderly indigents, which have been widely viewed with apprehension. And although all such benefits would entail some costs, at least they could not break the national fisc, within this financing design.

Other choices for the use of this "found" money are suggested in later chapters, and still, others are readily imagined, including perhaps some undesirable ones. At this point in the narrative, we will break off in order to heighten attention to the central feature of this health "reform", perhaps better described as reformulation. The central feature of this reformulation, is to exploit the sociological changes in healthcare created by advances in science: a much longer life expectancy, with an initial period of low health expenses, followed by a shift of burdensome illness toward its far end. Such change in lifestyle is ideal for gathering compound income early in life, augmenting it while it remains idle, and spending it toward the end. Since the reformulation pushes money toward an uncertain end, it inevitably creates some surpluses, which can best be recycled to assist the difficult costs of some relative's young life that, in the larger view, are quite modest.

So far, we have only looked at reformulation as a way to generate revenue. Another proposal to choose as an alternative is to drop Medicare, and simply pay medical bills out of the health savings account plus fail-safe catastrophic coverage. While at the moment few would have the courage to make such a switch, a credible threat to do so would at least perform the public service of discouraging mission creep, cannibalism by other agencies, and/or administrative bloat. It will always be impossible to determine how much of the present cost overrun was avoidable, but it's a fact, and a source of restlessness. Its best preventative is some viable competition.

Viable competition would include both luxury care for those willing to pay extra, and bare-bones care for those who cannot afford the standard variety. Both these desirable competitors would require some mechanism for extracting a fair financial equivalent from the standard product's expense account, and transferring it to the competitive systems. Needless to say, the existing system would resist, but a proposal might additionally be devised to resolve state/federal Constitutional problems in parallel with the money.

The Constitution's Tenth Amendment is decisively opposed to any centralized national healthcare system so this issue will continue to arise. To drive a not-so-subtle point home, it is only fair to conclude that many perhaps most citizens would prefer to impair employer-based health insurance -- if the only alternative offered, is to impair the Constitution. To state the matter in a conciliatory manner, there exists a widespread consensus not even to speak critically about the Constitution, unless a sincere bipartisan effort has first been conducted, trying to work around a problem. We tried the nullification alternative in 1860, and the results proved discouraging.

So, I propose we have at least two state-based healthcare systems, and eventually, a third national system exclusively limited to interstate issues, conflicts between jurisdictions, etc. That's what the Constitution wanted, and until we give it a chance, the state/federal uproar will be recurrent. It appeals to me to envision a hospital-based system and a retirement-village-based system, taking care to restrain medical schools, the federal government, or major employers from dominating either one. That gives state governments a chance to dominate locally, but the condition of state governments makes it unlikely that more than a handful would be up to the task. Governors, possibly, but legislatures, not so likely. A unique obstacle is to discover many sparsely settled states do not have the actuarial numbers necessary to support more than one health insurance company.

And so, since big changes are expensive, we need to find some extra money. As the reader will see, I believe Medicare could be paid for by reformulation at a fraction of its present cost, with a compound income of about 8%. The precise fraction and its compound income can be juggled around, but it looks achievable. If finances are tight, and 8% is unachievable, perhaps the Federal government could supply block grants which would support 8%, just as an example. However, any such expedient is a stunt that can probably only fail once, so we better study it hard. But if it can be done with Medicare, the pattern can be repeated with other age groups.

Finally, there really is a scientific end in sight, to a problem which science largely created. Just find an inexpensive cure for five or six diseases, and the main problem which will loom is spending too much money on non-serious complaints, cosmetic enhancements, and flummery. It may surely come to that in another fifty years.

Because of the extent and complexity of the problems, this first chapter only states the premises and gives a few examples; later chapters will explore more details needed to understand certain poorly understood features. But if there is doubt about the goal, let's make an explicit statement of it. We have been convulsed by health care reform since at least the time of President Theodore Roosevelt, but every ten years it keeps coming back. Let's stop thinking small and start thinking big. Let's fix it right and get on with it.

Finding the Sweet Spot

Every tennis racquet has a "sweet spot", a place within the stringed area that hits the ball just exactly right with minimum effort, and for that matter, does so with a minimum of noise. If your aim is good, the shot is much improved by whacking it with the sweet spot. In health savings accounts, the sweet spot is that combination of fixed choices over which you have no control, like your age, and independent choices over which you do have some control, like the amount you deposit into the account, or the shrewdness with which you choose your agent. There's a somewhat different sweet spot for males and females, and it will vary with the state of the stock market, or international warfare, during the era in which you had the highest earning potential. In other words, the cost of sickness is the only chance catastrophe we are aiming to protect against. For that narrow purpose, the uncontrollable factor which makes the most difference is

The age at which you started your spending account. Compound interest requires time to work; persons who start their accounts late in life no longer have to pay for their earlier expenses, but they must have some traditional insurance protection during the transition to full dependence on the account, or else some other form of savings. That's why you need catastrophic insurance coverage, but in the early stages of getting established, even that could be inadequate, and nothing can be offered unless the government offers to subsidize it. In order to find a way to capture twenty extra years of compound interest, it is tempting to begin depositing at birth, which is presently prevented by the HSA rule that you must be working to start an HSA. But children have health costs to be managed. In particular, 3% of all health costs are reported to occur in the first year of life. If Congress will allow it, we have a plan in later sections for doing it expeditiously.

Subsidies for the Unemployable, Such as Children. Please do not compare subsidy with lack of subsidy, because the subsidy is always cheaper in the short run. . Furthermore, subsidies are created by the government, and are therefore under pressure to demonstrate equity. Protection in extreme cases must rely on reasoning which placates the "Equal Protection" clause of the Fourteenth Amendment. All forms of insurance contain some incentive not to invest but to squander, and channeling that choice is part of insurance design. Here it attempts to balance a singular opportunity to select the best possible investment opportunity, with the unique ability to spend the proceeds on anything you choose after your health cost has been met. Unfortunately, we have already gone so far with borrowing for health, that many people are of a mind to believe balance can't be achieved. We could go on with this, but a quick summary is there are thousands of possible sweet spots, most of which are partly beyond anyone's control or ability to predict. There are even some circumstances where an individual would be better off putting reliance on Obamacare, trusting the government to bail him out with subsidies; if the nation decided to give equal subsidies for every payment alternative, however, most of these short-term advantages would disappear. The best we can suggest for people who dislike both HSA and Obamacare is, go see your congressman. In this book, we merely suggest that most people would be better off with HSA.

Trying not to be repetitious, there's nothing you can do about your age and sex, or previous state of health. You should have stopped smoking twenty years ago, but you can't help it now if you didn't. Twelve million people already have HSAs; if you aren't one of them, the best you can do is start one now. It's very difficult to imagine a situation in which a late start would inflict harm which subsidy couldn't help. On the other hand, if you make a bad choice of agency, make sure you are allowed to switch to a better one if you can find it. Some brokers charge too much, some of them pick poor investments to get a kickback. Some demand too large a front-end investment, although that may do you a favor in the long run. Essentially, your own choices affect the result, and your main recourse is to invest more than you planned. For the most part, the more you invest the better. If you invest as much as you can and it still isn't enough, you made an investment mistake. It's only a real catastrophe if you then get sick, and Congress didn't provide for those few who inevitably make such a double blunder. In that case, it will have required three misjudgments for a serious mistake to emerge, because even this mishap will be adjusted by aggregate subsidies costing less than the program is able to diminish overall costs -- a very likely outcome.

Interest Rates. Unless you are within a few years of death, or within a few weeks of a stock market crash, in the long run, you are generally better off with stocks than with bonds or money market funds. According to Ibbotson who published the results of all asset classes for a century, the stock market has averaged 11-12% total return for the past century. However, if you maintain internal reserves against a depression, you will probably only receive about 8% as an investor, of which 3% is due to inflation, so figure on a steady 5% after-tax, after-inflation return over the long haul. Use 8% as your shopping guide, resign yourself to 3% inflation loss, and content yourself with complaining about the 4% attrition seemingly imposed by the financial industry. You will find our charts use 5% tax-free as a standard, but show a family of curves up to 12%, just in case someone figures out a better system for harvesting the return. For 3-5 year depressions ("black swans" occur about every thirty years), we show curves of lower returns. Notice endowments and professional investors also figure on 5% overall from a 60/40 mixture of stocks and bonds, because they have a payroll to meet, but you may not. A conservative investor can feel comfortable with a 5% "spending rule", but that assumes a long horizon and the need to make expenditures. Some people have a short horizon and may be able to gamble on a pure stock portfolio because they have some other way to meet medical expenses up to the deductible on their catastrophic high-deductible insurance. But they better know they are gambling, and may, therefore, encounter a black swan they can't cope with. Such people probably need financial advice, because it is also possible to be too conservative if your deductible is comfortably covered. Fear of underfunding may cause the account to become overfunded, but that is scarcely a tragedy because you can withdraw your money without penalty after age 66. In fact, a policy of deliberately overfunding the account at all times never has any great downside, and lets everyone sleep better.

Age at Beginning an Account. If you begin to use an HSA during late working years, you have the consolation that you no longer need to plan for paying for the first forty or fifty years of your own health. However, the years of heavier medical expenses begin around age 45, by which time you have already paid for most of your Medicare payroll deduction, which is about a quarter of Medicare costs. The older you get, the more you have paid with a payroll deduction, but fewer years are left for compound interest to accumulate within the account. Balanced against this is the likelihood you are entering your highest earning years, which carried too far, may tempt you into unwise early retirement. You may need some accounting advice about what is best and still feasible. And you may need legal advice if the laws change.

Younger working people have contributed less to payroll deductions but have longer to earn compound interest in their HSA. People seem to have figured this out, and the largest group of new subscribers are in their twenties and thirties. This is the group with most to gain by proposing a buy-out of Medicare. A quarter of Medicare is paid for with payroll deductions, another quarter by Medicare premiums after you reach 66. If Congress could be persuaded to drop these contributions, what would be left is the half the government pays by borrowing from foreign sources. If you, in turn, agreed to pay off this indebtedness, the government might be tempted to match it by foregoing part or all of your payroll deductions and premiums. Since one about balances the other, the compound interest you earn on your deposits is pure profit. From the government's viewpoint, it might seem a great relief to know the debt would stop growing. Older people are generally so deeply committed to Medicare they would resist, but younger people -- and the Treasury Department -- would find it quite a bargain. Once again, financial advice from somebody good at math is highly advised. When the politics of this matter settle down, it should become possible to state a particular age, below which a Medicare buy-out is safely advisable for anyone. It's almost always in the Government's favor, so independent advice is only prudent. In summary, starting an HSA at almost any age is safe and wise. A Medicare buy-out is wise below a certain age, yet to be determined. In other circumstances, a buy-out is wise if personal finances are comfortable, but right now it would take financial advice to do it. And, of course, a friendly politician to convince Congress to make it legal.

There are two more steps to this transition. But before getting to them, it seems best to run dual systems while you phase one out and phase the other in. It may even prove to be best to run two systems indefinitely. Three principles emerge:

I. It would be pretty hard to run dual systems without also running subsidies for both. This would be part of Equal Justice Under the Law. It's hard to run dual subsidies until you know what the final rules would be. Some subsidies may be difficult to match, and require equivalent subsidies, which are harder to devise.

II. Dual systems and patchwork fixes always provide loopholes for someone seeking to take advantage. Some agency must be designated to keep this in line, using the principle of each system being charged with watching the other one. When you deal with one-seventh of the GDP, tremendous scams are entirely possible. A system of balanced whistle-blowing could effect great savings without the same surveillance costs.

III It isn't necessary to pay for everything. The reader will, of course, have noticed that paying for all of the medical care would save perfectly stupendous amounts of money. But paying for half of it would also save stupendous amounts. And even paying for only a quarter or a third of everything medical would save the economy two or three percent of Gross Domestic Product. That wouldn't be a failure, it would be a tremendous success. In fact, it might be all the change the economy could withstand for a few years.

The Intergenerational Roll-Over.

The Coming Shift From InPatient to Outpatient Care.

Philadelphia Reflections

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

Obituary

George R. Fisher, III, M.D.

Will Obamacare Reduce the National Debt?

Balancing the Books

A Change in Direction

CHAPTER ONE: Re-Examining the Revenue Premises of Medicare

Chapter One:

Finding the Sweet Spot