Philadelphia Reflections

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

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Future Directions for Health Savings Accounts
New topic 2016-03-29 20:37:09 description

A Dream World: Lifetime Health Savings Accounts

For years I have regarded HSAs as "term insurance", or one-year term-of-risk insurance. That's being mindful of the difference between term life insurance and "whole life" life insurance, and universally regarding whole-life as much superior. That's because so many people drop their term life insurance without collecting anything, so the dirty secret is most of the profit of term insurance comes from people dropping their policies. That doesn't sound so good, but it's a free country and people can drop insurance if they want to. Originally, it could be said the dropped policies are a safety feature of term insurance, protecting the company against people who might otherwise bankrupt them by failing to do the sensible thing. Or it could be said term insurance is just insurance, making no claim of generating income. These are reasonable positions, with no cause for attacking them. I'm really quite indifferent to this issue; the important feature to me is that whole life seems to generate more income, and HSAs are premised on earning more income. So why not have Lifetime HSAs and generate more income for everybody?

To go on with this thought, consolidating all of the pieces into a single company ought to generate more income, and put the decisions in the hands of experts instead of the common man. Efficiency and good management could be rewarded, expert actuaries could guide policy. It just has to be better. However, term HSAs are savings accounts, not life insurance, so there is not much loss in stopping deposits, nor many points to dropping the account. The risk of escheat is lessened by having the deposits guarded by a company who could be sued for stealing it; after all, lots of people do forget they have what they have, or where they put it. Yes, you do have to worry about excess overhead. Life insurance started a few blocks away from my medical office in Philadelphia, and high taxes made it move away. So, I have observed the Taj Mahal excesses, or even the Temple of Karmac excesses, of the former president's offices in those converted buildings. Nevertheless, I still have the strong feeling that whole life insurance generates greater efficiencies than term insurance does, and am attracted to the idea of consolidating the whole operation into a whole-life insurer -- instead of depending on millions of individuals to do the same thing, and competently handle what they are doing.

True, life insurance companies have armies of salesmen to persuade young folks to pay higher premiums than term insurance would require. The amount of premium for term HSAs would, however, have to approximate the $ 350,000-lifetime medical costs which the average American now sustains. Perhaps that's a good enough balance, particularly if it is front-end loaded.

What really bothers me is that it would take such a long time, perhaps 90 years, to prove that what you were doing had clear superiority. As I mentioned before, it puzzles me that whole life companies could survive long enough to establish the little rules of the game which make a difference between success and failure. True, they have enjoyed favorable tax treatment, but there is nothing new about that. Somehow, they figured out how to vindicate their methods in shorter time periods than a lifetime, even though they were undertaking lifetime risks. If some of them know the secrets, I hope they will step forward with proposals, but at my age, I'm not going to try to undertake such a risky voyage without a compass. Meanwhile, term HSAs are pretty darned good.

Originally published: Tuesday, March 29, 2016; most-recently modified: Friday, May 10, 2019