Philadelphia Reflections

Overfunding for Retirement (2)

We have begun the exploration of Health Savings Accounts, out to the edges of the potentials for the idea. Somewhat to our surprise, the idea has the potential for generating surpluses if carried out long enough, at a high enough interest rate. The immediate reaction is how to control this feature so that even if it all works out as anticipated, it does not wreck our rather fragile system of controlling the currency. The suggested technical solution lies in forcing the account to come nearer to a zero balance more frequently, a result rather easily accomplished by constraining the permissible balance transferred between existing programs, possibly even forcing it to zero. After a certain amount of experimentation, it should be possible to retain the compound interest feature for desired intervals, but imposing more zero balance constraints if it starts to get out of control. But there are other approaches.

There is always the rather simple-minded approach of forbidding what you fear, imposing fines or the threat of imprisonment for violations. Any physician would recognize that approach as merely treating symptoms, rather than getting to the root of the matter. It would seem, if the desired outcome of a surplus is achieved, it would be better to suggest a different use than health care, rather than permit potential hustlers from diverting the surplus to their own purposes. The obvious need is to fund retirements with it. There is going to be a great need for assisting retirements if improvements in health care continue to lengthen life expectancy. Still, further down the road, there is even a limit to this need, but it seems better to let signs of it appear in future generations before we actually take steps toward constraining it in some foolish way

In the meantime, the need to guard against the consequences of too little disease, death, and disability is just starting to appear, and it is huge. In the language of Congress, it makes its appearance as a deficit in the Social Security program which needs to be repaired in some way. When that need appears more imminent, it might be well to demand improvements in Social Security, or even its total replacement with a new program, rather than adopt the expedient of dipping into some other program with a? temporary? surplus. The South American approach of privatized Social Security investments was apparently bungled, but it might be re-examined for repair and revival. Much will depend on relative size; if living too long ever becomes a bigger problem than dying too soon, it would be a pity to allow the smaller program to dominate the larger one, because of tradition. It is probably not too soon to be thinking about these potential problems, but it may well be too soon to act on our plans.

Originally published: Monday, July 27, 2015; most-recently modified: Wednesday, May 01, 2019