Philadelphia Reflections

The First Year of Life, Leading to the Rest

Locked Savings

We have already discussed how relatively easy it would be to anticipate the average medical costs of everyone's last year of life, put the money into a securely locked piggy bank, and gather interest to help pay for that dreadful last year in the same way whole life insurance pays for funeral costs. One hard part is to keep Congress from dipping into the lockbox, or the Federal Reserve from robbing its real value by allowing inflation. However, if protecting the Lifetime Escrow can be presented as financing everyone's health into old age, the public might well rally to it. Any agitation necessary to defend the piggy bank might by itself be a boon to reminding the public what is at stake for them. By comparison, generating the funds might actually be the easy part.

But what about the first year of life, whose expenses have already been spent? (The term is loosely applied here to include pregnancy and post-partuum, plus pediatrics). The concepts are introduced of pre-funding terminal care, paying off the debts of getting born, and current-funding the long healthy stretch through most of life. The proposal is to merge it all after transition steps taking decades, fully recognizing that some people will have to pay twice for having been born, and some will never pay for having to die. Indeed, in any insurance plan, there is some unfairness in order to remove risk. First, get the terminal care fund established and funded, showing benefits in the first year or two as proof of the concept. Then, start collecting additional contributions to the terminal care fund for the moral debt each citizen has for his early childhood costs, and do it for perhaps ten years. Add this money to the terminal care fund, but make its finances as visible as if they were separate. Meanwhile, keep chipping away at the maternity and childhood costs of litigation. The first chip is to recognize that malpractice costs are disproportionately concentrated in this group, so the fund would greatly benefit from tort reform. Vaccine costs are also strongly influenced by liability costs. One subordinate goal is to present the cost of childhood as partly a score-card on progress in tort reform, broadly defined, ultimately rallying the public to restrain itself in the jury box. The mechanism would be to dramatize the disproportionate concentration of these costs by local and national aggregation, letting the news media speculate on the variation.

Finally, it should be said the Health Savings Accounts are a vastly more flexible way of paying for health care than using the service benefits approach, at a time of great flux in the system. These accounts are described in greater detail in subsequent sections, but the main advantage at this point is to translate fund transfers into money without service benefit attachments, to make unification and substitution more plausible.

To some degree, service benefits are in conflict with indemnity benefits, in a manner resembling the conflict between debt and equity in the banking sphere. The best one can hope for is to shift the location of the interface between service benefits and indemnity, bringing the friction out into public view, and equalizing the power of contending sponsors. Therefore, the best place to present the issues is to regard DRG diagnosis groups as service benefit subsets, and outpatient costs as aggregated indemnity. But one of the main mistakes of the DRG system was to extend it to every hospitalized inpatient. This is particularly important in situations where the diagnosis has no relationship to a particular length of stay or average cost level. Inpatient psychiatry should be paid for as if it were an outpatient service, and chronic diseases such as Alzheimer's disease should be excluded from DRG as well. Emergency room visits should also be separated into two groups, depending on whether the patient is subsequently admitted to the hospital.

We started by saying these issues should be chipped away, during the period when more pressing issues are being addressed head-on. The first and last years of life are disproportionately expensive, so they need special attention to cost reductions. But the list of other small issues is a long one, providing ample opportunity for trade-offs within ambiguous opportunities. The main goal of these new proposals is to redirect cost-shifting perceptions from something to escape if possible, into a vision of advancing sensible provision for your own risks at a different age. The notion of generating investment income is not a small part of the notion of prudent behavior.

After this short treat, of a long-term vision, we now return to more practical short-term proposals. The heart of them is the Health Savings Account, but several preliminary features must be explained in advance.

Originally published: Tuesday, June 11, 2013; most-recently modified: Friday, May 31, 2019