Philadelphia Reflections

Co-ordinating Obamacare With Health Savings Accounts

HSA becomes HRSA, Then Emerges as the String that Threads the Pearls

The book before you is not a list of dooms and glooms, it turns into a proposal. A proposal to preserve a functioning society by regarding child, parent, and grandparent as different stages of the same person's life, with united interest in the same goal. The same goal, even for a newborn, is a comfortable retirement. While it speaks exclusively to paying for healthcare, the same principles apply to any useful but expensive commodity. That is, as much as possible, individuals subsidizing themselves at different ages rather than members of three different classes of strangers. We build upon the idea of a Health Savings Account, one account per person throughout one lifetime, as a financial way to emphasize the underlying social point. If you spend too much too early, you won't have much left for later. That sounds far less obvious when it appears within separate compartments, with separate sources of funding. Separate sources have their own budgets coming first in their minds. They compete with each other for the same money, if they can.

This unification proposal -- Pearls on a String -- is voluntary, you don't have to do it, or even part of it, but in some ways, that's another advantage. True, there is no escaping the use of insurance for unexpected catastrophes, but really, only an insurance salesman would argue for unlimited insurance for everyone, all the time. Only someone who knows very little about insurance would believe insurance is a way of printing money for the customer. Compulsory also means uniform, government-issue. Voluntary, by contrast, isn't a one-size-fits-all commitment and doesn't dump 340 million subscribers onto inadequately tested systems, all at once.

Whether voluntary or mandatory, however, some facts are just part of life. Almost completely, the working generation must subsidize its older and younger generations, but it would do it better with a focus on the same individual at different ages, instead of by whole categories of strangers. For a final twist, we unexpectedly propose to empower solutions by leveraging a new problem we scarcely noticed we had (prolonged longevity and retirement). It isn't a trick; in retrospect, everything looks as though it might have been predicted.

Three New Potentials. Curiously, the Health Savings Account had to be tested before it could be fully understood even by its originators. A bit of history may help explain the delay. The basic concept of Health Savings Accounts was developed in 1981 by John McClaughry and me, while John was Senior Policy Advisor in the Reagan White House. Derived from the IRA concept developed by Senator Bill Roth of Delaware, it started as a Christmas Savings Account, to save up for the approaching deductible of (high-deductible) Catastrophic health insurance -- which was to be linked to it. So from its beginning, there were two linked features: (1) high-deductible health insurance, and (2) a medical variant of an Individual Retirement Account (IRA). For those unfamiliar with insurance jargon, a high "front-end" deductible policy connotes the insurance company only ensures that part of a medical bill which is greater than the stated deductible amount.

Since this automatically means the higher the deductible, the lower the annual insurance premium; high deductible policies are the cheapest you can buy. When the Affordable Care Act was passed, all health insurance was required to have a "high" deductible, so the HSA idea then seemed moot. But a high deductible by itself isn't enough. Without the savings account attached to it, the client can't easily separate risk protection from pre-payment, or for that matter inpatient costs from outpatient ones. Ideally, the level of the chosen deductible is the result of tension between a high level to please the insurance company, and a low level to attract the customer. Call it luck or call it planning, a high deductible separates inpatient from outpatient, market prices versus fixed ones, optional costs from unavoidable ones, prevention from treatment, and risk protection from pre-payment. Out of these segregations, remarkable things can be achieved. The one danger is that the deductible might fail to change with circumstances. The divisions are set by the market balance between customer and provider and are rough ones. If either side succeeds in freezing the deductible, its underlying significance could disappear.

The higher the deductible, the lower the yearly insurance premium.

After experience in action, a totally new realization dawned that -- once the two parts became semi-independent -- the real deductible just becomes the unpaid portion of it. The unpaid portion of the deductible is now situated in the account, ultimately becoming zero -- but now the insurance premium no longer rises as the remaining deductible declines. Not at first but eventually, the HSA emerges looking like "first-dollar coverage" for the same low price as high-deductible insurance. The truth is, you have two insurance policies, one owned by the insurance company, and the deductible, which is self-insured, owned by yourself.

You can be as frivolous or as frugal as you please, within the self-insured deductible. The insurance could care less which it is. A great many people have no medical expenses for a whole year, so they get to keep all of it. Someone else could spend it all. Another way of saying this is, saving for the deductible has shifted into the customer's own hands without shifting any extra burden onto an insurance company. A mandatory expense now transforms into part of his disposable income. Frivolous (ie small) expenses are self-insured; necessary ones (ie expensive ones) are insurance-insured. It wasn't exactly the deductible that saved money, it was the new-found ability to exclude non-essential expenses if you chose to.

A second realization emerges from the tendency of non-insurance HSA managers to use debit cards for medical reimbursement, instead of insurance claims forms. (This freedom may well be a consequence of concentrating frivolous expenses into the deductible.) Although in the absence of strict scrutiny there might well be more temptation to cheat, a debit-card system depends on the client to howl if he suspects his money is being mis-spent. Otherwise, it will be lost. (When you spend a third party's money, there's less concern than in spending your own.) A decline of policing cost might even be said to expose a lack of overall effectiveness of the third-party approach to policing of claims. Since it is obviously more costly to police than not to police, that particular hidden cost of using third parties only emerges after it gets eliminated. (This same reasoning applies to a diagnosis-based payment for helpless hospital inpatients, a related issue which is now segregated into the insurance compartment of HSAs, but crippled by the crudeness of its DRG coding system.)

The foregoing describes two potentials, broader coverage, and less administrative cost, but an even more gratifying development might be a decline in elective claims, despite the reduced cost-containment effort. This is harder to prove, but highly likely. At first, this likely saving seemed attributable to the ("adverse") selection of unusually frugal applicants. But over time, a more likely incentive emerged: added provisions of the HSA act permitted any surplus remaining at age 65 to be turned into an Individual Retirement Account. That is, an incentive was created to save health money for retirement, by substituting personal responsibility for insurance company vigilance. All in all, it would not be a bad outcome. So far as I know, it is the only form of health insurance which has this feature, which every one of them ought to use, by means of attaching their "bead" to the "string". All other health insurance returns a surplus to lowering the costs for others; that only works if you never change companies, and even then, the temptation of management to skim it is undeniable.

The second implication of this third zinger in the system took even longer to sink in because nobody wanted to believe it. It suggested our path might never lead us out of the financial hole we were in. Not eventually, but never. The situation was this: As improved health care spread among the elderly, the elderly lived longer. Gradually and grudgingly, it was acknowledged extended longevity was a hidden cost of Medicare, unanticipated perhaps, but universal. Its pain first started to hurt beyond the insurance boundary, accounting for the delay in recognition of the link. There was Social Security, of course, left in the dust of thirty years of longevity added since 1900. Increased longevity was first discovered as destroying the attractiveness of defined-benefit retirements. But as it became acknowledged that good health and longer longevity were two manifestations of the same effort, the doubled cost began to be seen as insupportable. What's worse, the future cost of retirement is even harder to specify that the future cost of health care, because everyone has his own definition of a "decent" retirement. Underfunded retirement is an even stronger incentive to watch your pennies than a specified one because there is absolutely no one, not even that demonized one percent of rich folks, who can be certain there will be enough money left at the end, to last out his lifetime. Wasn't that combined incentive enough to get everybody's attention?

HSAs are the only health insurance with the incentive to save for retirement whatever you don't spend for healthcare.

The Driving Force. For the purposes of this book, the power of that unfunded retirement incentive was the HSA's most important new insight. Almost anybody could tell at a glance the high cost of Medicare was what stopped "single payer" in its tracks, what paralyzed Congress on healthcare, and defied solutions from any other direction. Medicare was the "third rail" of politics -- touch it and you're dead. But with a retirement entitlement looming behind it almost making Medicare costs seem laughable, it was a new ball game. Once retirement begins, retirement savings get steadily depleted, whereas serious health costs are usually episodic. Both begin at the same time.

Six conclusions emerge:

1. The Health Savings Account, as is, is quite adequate (if funded, of course) to cover healthcare costs in replacement of existing health insurance. It's surely cheaper, although possibly not as much as the 30% reported in early trials. There are several reasons why that should always remain the case, although it does require more management by the customer. It is entirely suitable for intermittent use as employers and government programs change.

2. The HSA already contains the mechanism of the customer funding up to its present $3400 yearly limit, with annual cost of living adjustments but excluding the cost of the attached health insurance, gathering investment income for decades, and turning it over at age 65 as an IRA retirement fund. In honor of this feature, it is proposed to rename HSA to HRSA (Health, and Retirement, Savings Account.) As such, it would supplement any other retirement source but could stand alone. Its main flaw is easily corrected; the law limits coverage to employed people. No children, no supplements after age 65, but that would be simple to fix. There is a political risk in allowing the annual deposit limits to be at the mercy of changing political administrations.

3. New means of investment, such as passive investment of total market index funds, seem as safe as most investments now offered. Cheaper ways to increase effective returns should be explored, particularly in dividing returns between HSA management and their customers. I suggest published "fee-only" arrangements would give the public a chance to shop around. Later on, ways might be explored to balance voting power in health companies against the medical prices reflected in the price of their stock. Demonstration projects might be in order. Present owners of HSAs will probably be shocked to hear the total market has averaged 11% returns during the Obama eight years; how many HSAs paid customers more than 3%?

4. With minor legal adjustments, the HSA could serve as the investment conduit for: surplus generated by Medicare, a proposed Childhood Transfer System, an end of life reinsurance system (to be described), and any other health program which changes its proposals to transfer surpluses to retirement, as an incentive to become a frugal shopper. For the time being, however, it is intended to remain entirely independent of the Affordable Care Act until politics clarify.

5. The ultimate goal is to construct a lifetime framework for HSAa, to serve as a financial vehicle for connecting all health plans around a common investment and retirement framework. It might easily include such things as bounties for below-average health expenditures and rewards for superior performance of other sorts.

6. The longer-term goal is to re-arrange pieces of this network to increase investment returns, starting with Medicare (see below), Last Four Years of Life Reinsurance and First Twenty-five Years Gift Transfers, with the rest of life added, accordion-style. These terms should become clearer after later discussion.

In the existing environment, third-party reimbursement of healthcare now stands in the road of everybody's retirement, by being disjointed. That's not to suggest unifying whole programs, an overwhelming task, but merely to unify their transfers and their retirement termination, as well as the age and employment limitations of individual pieces. So long as left-overs ultimately belong to the individual, and the separate pieces are all available for compound interest along the way, the affiliations can be quite loose. On the other hand, if further program integration seems cost-effective, nothing stands in its way.

Medicare's financing problems might even become a symbol the problem was not just a lobbying benefit to be defended blindly by its current beneficiaries. Increased retirement cost was, in short, an overlooked cost of health care all along, and anyone who stood in the way of coordinating things has misjudged the ultimate necessities. Standing closest to retirement, Medicare is in fact the very first program you must change. But you better do it very carefully. And by the way, you better do it pretty soon.

The Grand Plan for HRSA Networks, Very Briefly

So, we discover Health Savings Accounts are not snake-oil, a quick-fix solution to every healthcare problem ever complained about. No good idea is improved by such exaggeration. What is offered here is a long-term plan for greatly reducing the cost of healthcare, conceivably cutting it in half. It has some features which would show quick results, and we must devise a transition plan which puts them first. But it might take fifty years to achieve it all, and much can happen to upset plans in fifty years. The plan of this book is to suggest what should be done, in more or less the order of when to do it. But first to sketch in -- very briefly -- the final goals for doing any of it.

What Have You Done for Me, Lately? What I propose is a healthcare network of existing systems, linked together one by one with the retirement and investment incentives of Health (and Retirement) Savings Accounts. The short term value of the network is to create a unified transfer system to the more distant goals, providing some time to reach them. The HSA will be tempted to wander from its mission but should remain as simple as possible -- a gussied-up transfer vehicle for healthcare funds. Most of the elements are in place for this, although some enabling amendments might be suggested. Meanwhile, the option must persist for using HRSAs by themselves as total lifetime coverage, since transitional changes may leave some people without suitable alternatives. But repairing existing programs rather than replacing them--Medicare, in particular--usually offers the advantage of shortening the transition time. The long transition period is certainly what people will find hardest to accept.

With the framework in place, the institutions attached to it should be gradually coaxed into externalizing their surpluses (dividends or their equivalent) instead of re-investing them, allowing surplus to flow between low-cost and high-cost eras of consumers' lives within the network, ultimately ending up as individual retirement financing in the private sector. That last part may be hard for people working in the public sector to accept because it removes the government as the insurer of last resort for pensions. But for reasons too obscure to describe here, that was never possible as long as Congress controlled the extension of the national debt. And that, in turn, was driven by the conviction the private sector was a superior creator of wealth, not an unlimited source of taxes. Ultimately, our model is the goose that laid golden eggs.

An easy early step would be to create following-year bonuses for low expenditures within the "pearls" on this string. Much will depend on intervening national politics, and it is intended to avoid including ACA or employer-based insurance until the direction clarifies. Meanwhile, everyone might have the option of adopting an HRSA fully, plus Medicare, plus the childhood transfer mechanism. The ultimate unified vehicle would be an accordion-structured First and Last Years of Life Reinsurance (see below), although if several variants emerge, that would be fine.

The final step, integrating the ACA and present employer-based systems is left entirely out of the project for the first few years. But driving it onward, posing the threat of retirement destitution if you don't, would be the availability of retirement financing from every penny you legitimately save from healthcare, from the day of birth to the day of death. Since no one wants to die, and very few enjoy living in poverty, restraining this vast incentive must rest with its health beneficiaries, since everyone is its ultimate beneficiary. When scientists finally do cure the worst diseases cheaply, the retirement folks may be permitted to start to win the healthcare vs. retirement pension competition.

Special projects and program outliers, such as prison inmates, mentally and physically disabled, and illegal immigrants, are left for us to find solutions more tailored to their needs, and here are not dealt with further. This proposal deals with the great majority of Americans who are not in poverty, not handicapped, and not poorly treated. Surely they should have a voice in such a vital topic, which from their perspective could be considerably cheaper, and rather easily improved over present uncertainties. Along the way, if they themselves could devise something beyond golf, bridge, gardening, and travel to occupy thirty years, it would be an enhancement to the community. Arguments can be made for regulating immigration, but not ones for providing servants for a rentier society.

We begin integration with the big gorilla, Medicare. In the first place, the program is bleeding money. The first step in saving money should be to stop losing so much of it, and that definitely won't be easy as long as serious illness keeps migrating into the Medicare age group. Furthermore, it contains the most expensive item of all, terminal care. The transfer of terminal care out of Medicare by the Last Four Years of Life transfer, should facilitate this decision. Other programs may get financially healthier if we do nothing. If we do nothing about Medicare, it probably will only get into deeper trouble.

At the moment, our best dream is the scientists will find something as cheap as aspirin, which will cure something as expensive as cancer. A century ago and roughly simultaneously, scientists discovered cures for pernicious anemia and type I diabetes, both fatal conditions. Pernicious anemia has virtually disappeared with occasional injections of a vitamin, while diabetes has grown to be about as expensive as anything, despite lifesaving injections of insulin. Unless you want to gamble on similar mixed outcomes in the future, read on.

A Small Gamble for Big Returns

Although the Pearls on a String design seems to hold great promise for matching American health finances to the medical lifetime it proposes to finance, it contains the flaw of taking 90 years to test it in action from birth to death. That is, almost no one would live long enough to know if it, for certain, worked the way it promised. But on the other hand, there is a significant chance scientists will discover cures for many expensive diseases during the next ninety years-- and so it might work far better than anyone expected. What kind of bet would we be asking people to take?

To be blunt about it, if some fool blows up the earth with atom bombs, it scarcely matters what kind of health insurance anybody had. And if some expensive diseases are cured, all you get for your hundred dollars is a return of $5000 to $29,000. So the main risk is mismanagement. A good idea badly managed can be as risky as a poor idea. Mismanagement includes poor design at the beginning, or poor management along the way. In this case, it's pretty much up to Congress, to neglect it or to use it as a piggy bank. So it's a little early to judge the risk, but it's not too early to anticipate the problems. Congress needs to enable the program, but not to overspecify it. Somehow, the program has to anticipate the early adopters will be those people who are in a position to regard the loss of a hundred or two hundred dollars as no big deal (mostly richer ones) but to leave the door ajar for later entry of timid folks, poor folks, and those who will take no risk except on a sure thing. That means voluntary entry with graded incentives for late-comers (a dollar at birth, 2 dollars at age 10, 4 dollars at age 20, etc.) And it means avoidance of political control except to close it down if its managers misbehave, with the ability to re-open it after the loophole has been fixed. If it works, early adopters will have made a pile of money. And if it doesn't work, well, you only lost a few bucks.

What Are the Reasons to Believe Science Will Cure Some Significant Diseases in the Next Century? 1. In the first place, the National Institutes of Health research budget is currently $33 billion a year. It concentrates on basic research, leaving applied research to patent-seeking companies in the private sector. That is, drug companies and medical device makers. When the private sector produces a patent, the product price is initially high enough to pay for the research and some hefty profit; after a few years, the price comes down. If private sector research should ever seem to diminish, some sensible modification of the Kefauver "efficacy" requirement or its enforcement ought to kick-start it, again.

2. Let me tell you a personal story of a trip to an invitation-only investment seminar, limited to private foundations. On the opening day, the moderator said, "Let's get acquainted. Would everyone who represents less than $30 million dollars, please raise your hand." Of the roughly two hundred attendees, I was one of four who raised his hand. The Dean of the Harvard Business School was on my left, and the representative of the Bill Gates Foundation was on my right. I would estimate that ten times the amount of the Rockefeller Foundation was represented, and that four times the assets of that room would be found in the foundations of the rest of the country who were not attending the conference. By no means all of them are involved in medical research, but many of them fund universities and other research centers. The amount of money available for medical research in the next century is astounding, and it's America's collective bet on success.

3. A relative of mine took a PhD course in mathematics at MIT. He was the only American citizen among the 73 enrollees. The amount of medical research we can anticipate coming from abroad, is very considerable and may in time exceed our domestic production. There is no shortage of available resources, or talent, world-wide. Nor research opportunities, although few foreign countries have caught the American fever for "thinking big". We have gone from the discovery of the DNA helix to complete identification of the human genome, during my lifetime. Only 2% of disease has been connected to the genome, so attention is shifting to the "silent" protein of the cell. Disease can run, but it can't hide. There are lots of diseases, but fifty percent of medical cost is associated with only ten diseases. So, find 'em and get rid of 'em, before we start to become impatient.

4. Nor do we foresee a labor shortage. Self-driving cars should be on the streets in a decade, following which people will summon fleets of them by cell phone, followed by a decline in accidents and accident insurance. Since his entire holding company is balanced on the float from auto insurance, it will be interesting to see how Warren Buffett addresses the issue. The leader of a very large investment company also predicts self-correcting computer code will soon cause wide-spread unemployment. This is all creative destruction. A third of the country will be retired without sufficient income to live on, but an ample pool of employees for terminal care of the others will surface.

But enough. A real early-adopter doesn' t need four reasons to adopt early, and a timid soul won't be persuaded by forty arguments. Only America has the bit in its teeth at the moment, and that seems to be part of our culture. Only America would gamble ridiculous amounts of money on research, assuming that timid gestures like Otto von Bismarck's health insurance plan would only worsen the problem, creating many more problems of its own. What sane person wants to rule the whole world, anyway?

It's Time for a Grand Summary

This book will appear in print around the time of the November 2016 presidential election, and therefore have little effect on its outcome. I expect the election to polarize both political parties still further on the Affordable Care Act, sucking all the oxygen out of the room, as the expression goes. It is likely to create a sort of lame-duck situation during November and December, no matter who wins. Therefore, I decided to present a book which superficially seems to have little to say about the Affordable Care Act, in order to grasp the microphone first, about health issues which got ignored by the Affordable Care uproar. Even when discussion seems to focus on the A.C.A., trade-offs are blithely apt to ignore "germane-ness". And thus get to issues which have been debated very little, and pass very quickly. This book primarily attempts to do two things to re-focus attention:

1. To draw attention to the Health Savings Account legislation as a fall-back from almost any deadlock. HSA is already enacted, tested, and distributed. If Congress reaches a deadlock, the HSA is existing law, and anybody in a jam can simply go down the street and buy one. It's simple and cheap to get started, is approximately as inexpensive as any other health insurance, and you can discard it whenever you like. (Naturally, I hope people will keep it.)

It does have a few flaws, which I hope Congress might correct. It unnecessarily limits buyers to people who are employed. That seems purposeless to me, while it prevents minor children from being enrolled, limits the deposit of funds to a fixed amount of their own money, and forces people out of the HSA at age 65. Forcing people to drop it as they acquire Medicare, impairs one of its most important virtues, the incentive to apply unspent money to retirement living, just at the time they are likely to retire. Some people will have other retirement sources and time-tables, and wish to defer use of some or all of them. Getting back to children, permitting deposits at birth would add at least twenty years to the compound interest period available preceding retirement, allowing the retirement fund to grow four times as large. Dropping the age and employment limits would not require more than a few sentences of an amendment, and provide maximum flexibility.

2. We also portray universal Health Savings (and Retirement) funds as potentially "a string holding together a necklace of pearls". To do that requires major legislation, going far beyond emergency stop-gaps for deadlocks. It's potentially a program for health, phased in over a century, and including the possibility of even including ACA. Since one Congress cannot bind a successor, it provides a road map through ten or more changes of political control in Washington, adding or subtracting individual programs which sometimes have little relation with each other. As a matter of fact, if an attachment is voluntary, you can have other parallel programs without attaching them, if you prefer.

By happenstance, reform could start with one "pearl" already in place. By the legislation's automatic transfer to an Individual Retirement Account at the onset of Medicare coverage, every subscriber in effect would immediately possess one of the essential ingredients of a lifetime health and retirement funding system. That even generates coherence, symbolizing prolonged longevity as a result of earlier health care. On the other hand, it implies the present configuration of Medicare is perpetual when it already has a number of features which should be changed. Therefore, it is essential to state at the outset that the string, the HRSA, intends to be kept as simple as possible so that amendment complexity is concentrated into the "pearls" themselves. After doing so, the HSA can remain versatile enough to suffice for newborns, mentally handicapped and billionaires, alike. It might provide healthcare for prisoners in custody as well as the marooned Medicare copayment supplements. Some things wouldn't work and can be dropped without upsetting the whole system. The expression is KISS -- which they tell me means keep it simple, stupid.

The basic structure is to divide health finance into two parts, one for everyday routine expenditures, and the other for bare-bones, cheap, insurance -- for people who are too sick in bed to be bothered with haggling over finances. If there is anything left over at age 65, it can be spent for retirement and serves as a life-long incentive to be frugal about health expenses. It's for everybody, not just some demographic group. If the government chooses to subsidize certain groups, then that becomes an independent topic, sharing a common framework, hanging separately from the necklace as it were. At the moment, it's one serious technical flaw is to imply total control over investment policy lies in the hands of any corporation which manages it, leading eventually to suboptimal investment performance for customers. Also, limiting management to visible fees rather than invisible profit-competition should allow plenty of room for shopping between managers.

Having established the basic framework and pointed out its present main -- but correctable -- flaws (management control of investment, and mandatory management participation in profits), we added two potential pearls to the necklace. One is the two parts (80/20) of Medicare with its finances unified, and the other is to provide health coverage for children up to the age of 25. These are both sensitive topics and may take the protracted debate to get the mechanics right. When these two programs have finally got their books balanced by deciding who pays for what, they are ready for voluntary acceptance into HSAs, and they remain eligible to be tossed out if unexpected problems surface, once we get over any notion of infallibility. Balancing the books may include subsidies, but the subsidies for poor or the handicapped must reasonably result in balanced books. It is intended to be an insurance design, not a subsidy originator. A design, not a budget; the government may subsidize as it pleases without changing the design. The government has a right, even a duty, to provide for those who cannot provide for themselves. But deficit financing is not wise: if you are going to subsidize, subsidize the pearls, not the string. This wouldn't eliminate politics, it merely shifts politics to a less dangerous level.

At that point, we now stop detailed planning and merely list seven more "pearls" which might be added on the same terms. They would be special programs for difficult situations, like prisoners in custody, physically or mentally handicapped to the point of not being self-sufficient, and aliens within our borders. We are told the aggregate of these three groups alone is thirty million people.

When it comes time to negotiate the Affordable Care Act, between twenty and forty million more are eligible to become self-financed "pearls" after the ACA finds a way to balance its books. It is not intended to subsidize other subsidies linked to programs. That's the government's job. Unfortunately, the government has tended to raise prices for people struggling to pay their bills by subsidizing other people who cannot. The consequence is even more people cannot afford their own care, threatening to sink the lifeboat for everybody. If we are to subsidize the health care of some part of the population, let the money come from defense, or agriculture, or infrastructure, not from the quality of healthcare of some other person.

To continue the list, additional pearls for the future are the accumulated debts of fifty years of deficits, and the tax deduction-supported gifts of health insurance from employers to employees. I'd like to see some resolution of the mess left behind by Maricopa Medical Society v. Arizona decision of the Supreme Court. As these problems get worked out to be self-sufficient, they become eligible to become "pearls" as long as it remains clear this proposal is not a cross-subsidy vehicle. At the moment, the ACA shows no signs of adding anything to the HRSAs except more deficits, making solutions more difficult to find. Just because we see no end to problems, shouldn't keep us from getting started. In particular, when the ACA is addressed, out goes the oxygen from the room, diverting attention from anything except expedients. That should not be necessary. All of these problems can be worked on simultaneously.

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It is now time to identify the financial maneuvers which promise partial success. It isn't true there is only one principle involved, but there is certainly one main one. Almost all of the magic of money creation in this proposal is provided by stretching out the time for income earning. A longer earning period takes advantage of the rock-solid principle of compound interest rising at the end of its investment period. To return to our oft-repeated formula, money earning 7% will double in 10 years, so 2,4, 8, 16 reaches 512x magnification in 90 years. From age 80 to 90 the money grows 128-fold., so an original investment of $100 grows from $25,600 to $51,200 between the ages of 80 and 90 or $2,560 per year for a $100 investment. That is, it's not growing at 7%; during those last 10 years, it's growing at 256%. And it's not magic, it's just math. Furthermore, it's not new. The ancient Greek Aristotle complained about the unfairness of it because he was seeing it as a debtor. So that suggests a related strategy: wherever possible, position citizens as creditors, not as debtors.

What's new about this whole thing is the extension of longevity. In Aristotle's day, it was considered remarkable to live to be forty years old. In our era, life expectancy at birth is moving from 80 toward 90. So today it's not a pipe dream, it's a realistic strategy. But stretching it out automatically comes with problems, too. There's a greater risk, fifty years of extra opportunity for someone to chisel it from you. History is replete with examples of kings who shaved gold coins, financiers who took more profit for themselves than for their investors, central banks who give you back a penny when you invested a dollar a century earlier. If you win a war, you might emerge better off; but if you lose a war you may be more like the seventy million people who died from wars in the past century, an experience which strongly favors having no wars, but otherwise doesn't seem to change things much. This risk/reward ratio strongly suggests we have neglected the necessary precautions required. So the proposals of earlier pages to balance the Medicare budget, etc., carry the risk that something or someone will come along and divert the money to other purposes. And without planning to forestall that, you have not got a workable plan.

That's the thinking underneath the dispersion of control to individual Health Savings Accounts, just as it is the reasoning behind resistance to consolidated systems of control, such as "single payer" systems as presently described by their proponents. They all just make it easier for your trusted agent to steal bigger amounts of money at one time. William Penn, the richest private landholder in recorded Western history, spent his days in debtor's prison because his steward falsely accused him of stealing the money from him. Robert Morris, the financial savior of our nation, likewise went to debtor's prison while the Governor of his state nearly sprained his hand signing over property deeds to himself. When the Federal Reserve was created in 1913, a dollar was a dollar; now it is a penny. Nobody needs to explain what "pay to play" means. So, although we need much more ingenuity in devising safeguards for savers, we need to grit our teeth and allow some people to fail to take their opportunities. Countless teenagers who might have had a comfortable retirement will instead have the opportunity to smash up their red convertible on the way home from college. We absolutely must not deprive them of this risk, out of sympathy for its consequences. There will be plenty of Huns, Goths and Vandals watching what Rome does with its advantages.

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Suffice it to say a billion dollars will turn anyone's head; Health Savings Accounts are already many times that size in aggregate. Although ownership is dispersed widely, it is only a matter of time before some stockholders organization is formed, ostensibly to protect the interests of HSA owners. There will be an eternal need to suggest tweaks in the law to adjust to new circumstances. There will be a need to monitor the performance of managers, and even to counter the power of regulators. Sneaky little laws will get thrown in the hopper, requiring alarms in the night. Someone who lost money will sue to recover it; someone will have to decide whether to settle or resist in court, ever mindful of precedents being set. Executives will demand extraordinary life-styles; someone will have to decide if their production warrants the rewards. Someone else will have to be fired for incompetence or venality, but he will find many friends to defend him. The methods of selection of the board of directors are vital issues, now and forever in the future. As much as anything, continuous publication of results ("sunlight") is vital to oversight. The directors of the oversight body should have a deep suspicion of the directors of the "pearls" and only limited pathways for promotion between the two. Every time, every single time a dereliction is discovered, the results should be published and morals are drawn. Mr. Giuliani made a name for himself by policing broken windows, and it's still a very sound principle.

There is a financial success, and then there is product quality, which is different. Organizations will undoubtedly be formed to monitor quality, and these will produce measurable monitoring results. An effort should be made to make a meaningful match between these two report cards, with comparable groups having access to each other's data. There should be observers from each discipline on the other's board, and possibly a few voting overlaps. Disparities between rankings in the two evaluations should be explored and evaluated, and at least one annual meeting should be composed of both kinds of boards, devoted to the interaction of cost and quality. This may prove particularly fruitful at moments when scientific advances cause major changes in underlying premises. On another level, dialog should be frequent between research groups like the NIH, to see if research parallels needs..

A particularly interesting comparison might result from contrasting the regions with their 20% copayment partner's performance. They should be very similar, but may not prove to be.