Monday, March 28, 2011


A Health Savings Account (HSA) plus high deductible insurance is still an insurance product and is subject to all of the problems inherent in insurance.

The Medical Savings and Loan combines a Health Savings Account with a combination of loans and grants to create a completely different product.

The MS&L uses a completely different mathematical model from pooled insurance. Pooled insurance looks at health care expenses for a group in year increments.

The MS&L compares life time earnings with life time medical expenses on an individual basis.

The MS&L uses a completely different mathematical model than the HSA.

Using a different mathematical model creates a system where all but a few people are able to fully self-fund their care.

The HSA has several glaring flaws. The primary flaw is that people will make their health decisions based on the deductible, and not their needs. For example, people with an HSA are likely to skip preventative care because they have to pay for it out of pocket. Even worse, when a person has paid the deductible for the year, the patient might get unneeded care simply because it is free.

Care providers are keenly aware of the source of payment. A care provider in the HSA model might undercharge when the person is paying in cash, then overcharge when the patient is paying on insurance.

The HSA program is often used by low wage employers seeking to cut health care expenses. This program creates serious problems for low paid workers who simply do not have the money to pay the insurance deductible. Such people end up paying for care, but are completely cut out of the health care system.

The MS&L model uses a full life cyle analysis that compares life time medical expenses with life time income.

A system that looks at health expenses of an individual as whole gives people an incentive to invest in preventative care. Preventative care, by definition, decreases life time expenses and is a good investment.

The system removes the perverse incentives to over-consume health care when the insurance company is picking up the bill. Such waste increases life time expenses without benefit.

The MS&L program does include subsidies. However, the MS&L structure does so by comparing life time income to life time medical expenses.

This creates profound effects in the implementation of care. A person who is obscenely rich (like Bill Gates or Warren Buffet) would never see a subsidy for care (as happens with insurance).

One of the perversities of insurance is that the uber-rich (who expect premium care) end up subsidizing their premium care with the insurance dollars of the working class. The Medical Savings and Loan makes Warren Buffet pay every penny of his care.

Conversely, since the system compares life time earnings to life time medical expenses, people with abnormally low income would start getting subsidies at an earlier stage than people with similar conditions earning an average life time wage.

Imagine two people who have a $50,000 catastrophe. The first recovers and goes on to earn a healthy wage for the rest of his career. The second does not. The Medical Savings and Loan would pay for both patients with a loan. The person who recovers would pay back more of the loan than the person who did not recover. So the subsidy effectively factors in both the effects on earnings and cost of the procedure.

Imagine one person having a catastrophe that costs $20,000. Another has a catastrophe that costs an initial $5,000 and creates a chronic condition that costs $2,000 for the next ten years.

The HSA with a $5,000 deductible would supplement the first patient with a $15,000 check. The second person would have to pay the full $5,000 for the catastrophe, the $2,000 a year for the next ten years ($25,000). To add insult to injury the insurance company is likely to raise insurance premiums because the policy holder has a pre-existing condition.

The HSA makes life worse for the person with the more expensive medical condition.

The Medical Savings and Loan looks at the life time earning of the policyholder. When it comes time to dishing out supplements, it would see that the person with a catastrophic condition followed by a chronic condition had higher medical expenses than the person who just had a catastrophic condition and recovered.

The Medical Savings and Loan uses a different mathematical model than pooled insurance.

Using a mathematical model that considers each person as a complete whole, the Medical Savings and Loan creates a paradigm where the majority of people self fund their health care and the supplements are given only to those with abnormally high medical costs or abnormally low income.

This is a completely different approach to funding health care that deserves exploration.

The HSA + high deductible insurance is still insurance. It is still ruled by the flawed thought process behind insurance. The Medical Savings and Loan is a complete break from insurance. It creates a viable structure in which people can fully self fund their care.

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