Philadelphia Reflections

Simple Gifts

So much for expecting foreigners to help us. They remain grateful to America for winning World War II, but that was seventy years ago. Forget about reserve currencies, a declining surplus of gold bars, the Marshall Plan, Truman Plan, and all that. After seventy years of thanking us, foreigners quite rightly expect us to pay for our own health care without monetary subsidies from them. Or protectionist trade policies, either.

To begin with healthcare basics, lifetime medical costs over the past century have progressively migrated toward the end of life, and the end of life has itself moved later. Lifetime earnings remain concentrated near the middle of life, so a gap widens. Collectively, the population accumulates wealth during its working years, spending its savings for healthcare after it retires. If lifetime health costs could be pre-paid and funneled into savings, with the savings professionally invested, a large proportion of medical costs might be paid out of investment income. It could be called the difference between pre-payment, and insurance, except whole life insurance, employs the same principle. Considerably expanded, this insight could markedly reduce the cost of healthcare, making it more affordable without changing it. Because medical care is undisrupted, the hidden cost of disrupting it might vanish, too. It creates what the Japanese call a virtuous cycle. (It wouldn't hurt to read this last paragraph a second time.)

If lifetime health costs could be pre-paid and funneled into savings, with the savings professionally invested, a large proportion of medical costs might be paid out of investment income.

The average American healthcare costs we are discussing are in the neighborhood of $10,000 a year, surely somewhat less for younger people^Footnote . They are about double that for the last year of life, somewhat less than that for the first year of life. Medicare is about 50% paid for by subscribers, 50% subsidized by additions to the national debt. Ignoring inflation and tax effects, the net average real lifetime health cost at such rates would be at most $800,000, of which $400,000 would be additions to the national debt. Remember, projecting healthcare costs seventy years in advance is a very hazy business. We certainly hope these projections prove to be a gross over-estimate, but to remain on the safe side the proposal here is to make a lifetime investment to cover only the first and last years of life because the heavy costs of birth and death affect 100% of the population. The projected cost of these two benefits would be $30,000, from which $15,000 could possibly be subtracted as the national debt, or else subtracted as double-counting the cost-shifted expenses of indigents. Meanwhile, removal of the first-and-last year costs would reduce annual costs by about 4%, or $30,000 lifetime. So it seems safe to start with a $ 15,000-lifetime goal, which could be achieved by investing $8 at birth at 7% tax-free return. That's right, eight bucks. Different assumptions produce different answers; the only purpose of the example is to demonstrate easy feasibility of the approach. Multiply the initial contribution by five or ten times, and you reach the same conclusion.

Scientific advances during the last century greatly changed the shape of two curves, of lifetime income and lifetime medical expenses; future advances will surely do the same. The life expectancy of Americans roughly lengthened by thirty years and continues to increase. The logic of compound interest demands that money at 7% will double in ten years; the longer you live, the more times it will double; that's pretty old stuff. What is new and unique is the way adding three extra doublings helps the virtuous cycle, maybe changes it significantly, because 2,4,8,16,32 keeps getting a lot bigger at the far end. Three more doublings make the difference between 32 and 256, and that's a drastic difference.

But, whoa, on the other hand, the longer you keep money in a bank, the more opportunity there is for financial crashes, inflation, "moral hazard", mismanagement, changes in political philosophy, wars and a thousand other things. Eighty years is a long time from now; who says the money will be there when you need it? And even if all the 19th Century nightmares are merely pipe dreams, an awful lot of Americans remain mistrustful of financial institutions. Presidents Jefferson, Jackson, Van Buren and an equal number of nearly-successful candidates for president were even in favor of abolishing banks. A large and possibly growing number of Americans distrust the Federal Reserve, and with some reason. After all, a dollar in 1913 when the Federal Reserve was founded, is now worth a penny. Pause for a moment, reader. You have now heard both sides of the argument, the opportunity and the risk. Everything from here on details. At some point in the next century, investing a few dollars at birth will generate enough income to pay for both being born and dying, the two medical conditions which are 100% certain. It might even generate enough to pay for lifetime medical care, and more, but that isn't the point. What matters is for us to have the wit, and the courage, to take advantage of something which sort of crept up on us.

^Footnote The data used here are rounded-off and approximated 2011 data obtained from HHS reports. It is intended that a later edition of this book will contain an appendix of actual 2013 statistics, the last year before the Affordable Care Act became operational.

Originally published: Tuesday, August 06, 2013; most-recently modified: Wednesday, June 05, 2019