Tuesday, April 26, 2011

Running the Numbers

RD claimed to have run the numbers on the formula for the Medical Savings and Loan and found it lacking.

I found his statement odd because I have never published the formula for the Medical Savings and Loan. The current formula consists of three parts: savings accounts, a loan reserve and grants. In early version of the program, I called the grants catastrophic insurance or re-insurance.

I have not published a formula for the amount of money to put in each slot because the formula would be based on real world data, and is likely to change with economic forces ... just as insurance premiums change each year.

It would be fun to sit down with a team of actuaries and examine claims and income data to calculate the formulas. The actuarial analysis needed to gather the information and publish the formula would cost a pretty penny. (Actually one could start a program simply by overfunding the grants and loan components ... any excess put into the grants and loans eventually falls into the savings accounts.)

The first step I would take if I found anyone interested in the concept of the Medical Savings and Loan would be to gather data and start doing serious simulations of different formulas.

Considering that I am a pariah (a non-Mormon living in Utah) I can't procede in the way that I would like. Because I have absolutely no resources I can do nothing more than talk about the logical difference between funding health care with a savings program opposed to funding it with a Ponzi scheme.

Insurance is a theoretically stable ponzi scheme. A ponzi scheme lavishes benefits on the initial investors ... in the long run a Ponzi scheme pays off less than a real investment would have.

As we see with insurance, the first generation policy holders was lavished with benefits that went way beyond the premiums. The second generation of policyholders ends up struggling against massive premium increases each year. The third generation of policyholders is left holding a bag with a flawed product that costs more than the benefit received ... and the only way to maintain the scheme is to mandate participation.

Switching from a savings based paradigm for health care to a pay-go paradigm dramatically reduced the savings rate in the United States. The switch from a savings paradigm for health care to pay-go played a significant role in the reduction of our savings rate and in the massive debt built up by our nation.

Switching from a pay-go mechanism for health care back to a savings based system could help reverse the trend and might help our nation ease out from under its massive debt load.

Now, it is true that I cannot give you good figures on how the Medical Savings and Loan would affect savings without access to good income and medical expense data. Logically, switching from a pay-go to a savings plan would reverse the effect that occurred when we switched from savings based health care to a pay go scheme.


RD said...

Their are only so many different ways you can calculate interest and only so many ways that money can be placed into an account.

It's not hard to figure the math of the situation out then project what the numbers will be in the future given differing sets of situations.

First and foremost we are talking about a cost growth problem that is exponential with a doubling rate of about 11.5 years **.

Second we don't need to have a actuarial analysis to understand the problem we have more then enough good well understood data on this front. Anyone with college math 1050 under their belt can understand the problem.

** http://www.youtube.com/watch?v=F-QA2rkpBSY

y-intercept said...

Calculate interest?

I don't recall saying much about interest in my posts on the MS&L.

Both you and Dr. Jarvis play the game where you read a post ... project an idea on the post then comment on the projected idea.

A few posts back your comment began with the statement "You are wrong." The rebuke of my post did not even address the thesis of the post, it just uttered a string of mathematical terms at random.

The game of diversionary comments, of course, destroys the ability to communicate.

I admit, I have lost interest in trying to communicate with people who try to win arguments by undermining the ability to communicate.

BTW: The way one "calculates interest" does matter. Personally, I try to avoid the term "interest," and like to speak about the components of interest.

For example, in the MS&L, I created a thing called a loan reserve.

Participants in the MS&L buy a share of a loan reserve each year. This reserve is used for interest free medical loans.

The lost interest is the premium participants pay to have access to interest free loans.

Of course, the real point of the loan reserves is to create a structure where the policyholders (not an insurance company) directly hold the risks of the medical lending.

I avoid the question of interest to focus directly on who holds the risk.

The question of who holds the risk is a central issue for debate. If the policyholders hold the risk, then one removes the premium insurance companies charge for holding the risk ... this structure ultimately puts more money in health care.

The question of who holds the risk is a logical question, not a mathematical one.

If the risk is held by the policy holder then you get a different result from a system where the risk is held by outside speculators.

For the most part, the mathematics will flush through and I think it is possible to talk about this type of question without a detailed actuarial analysis.