In US, 401k style Healthcare is the future
It is often possible to live in a decaying building for many years before it becomes obviously time to move.
This is because the problems don’t usually occur all at once, but add up slowly over time. A few shingles may fall off the roof, the door stops being able to close. The pipes clog. By the time the leaks and the draft and the unflushable toilet all become noticeable, the rot has sunk in and it would be cheaper to leave than to face the mounting problems.
The same thing happens with systems. Small problems left unattended can become massive and unstoppable.
This is arguably what is happening in the healthcare system in the United States.
As the population ages and healthcare needs skyrocket, demands on group insurance plans put an unsustainable burden on group risk pools. As these pools deplete and insurers lose money, they push the costs onto the consumers through higher premiums and higher deductibles.
Complex bureaucracies needed to manage the transfers of funds into and out of the pool put strains on the providers who give the services, and add to the cost burden born by the patients.
Warnings about the system are not new. Back in 2008, Dr. Jennifer DeVoe wrote The Unsustainable US Health Care System: A Blueprint for Change. In it she cited statistics that said “the cost of an average family’s premium will surpass their income by the year 2025.” 2
Already insurance can cost more than a mortgage. What’s more, according to Cato Insitute Fellow Michael Tanner, Medicare faces unfunded liabilities approaching $48 trillion. That’s a staggering amount of debt, many times the GDP of the US.
Seen from this angle, the whole picture might seem overwhelming. That’s why it is helpful to note that we have been here before.
Something very similar has already occured in the pension system.
Last century, employers and employees who for years had counted on ‘defined benefit’ pension plans had a nasty shock — the plans were underfunded. This began with the car manufacturer Studebaker in 1963.
In response to this shock, the government created the Employee Retirement Income Security Act (ERISA), to try and create more responsible pension plans. Some went along and followed ERISA, keeping their company pensions, but the vast majority took a different tack and opted for ‘defined contribution’ plans, the kind seen today in 401k and IRAs.
Today, unless you work for some select government entities, you are much more likely to receive a retirement contribution match from your employer than a pension.
What ERISA is to pensions, the Affordable Care Act (ACA), also known as Obamacare, has begun to be to healthcare.
The employers looking for a new way out have a model to look at, their 401k.
This is because it allows them to avoid onerous regulations, but still transfer value to their employees.
Some employers have begun to use health savings accounts (HSA), a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses.
According to the Health Benefit Research Institute, the HSA database contained 5.5 million accounts with total assets of $11.3 billion as of Dec. 31, 2016.
There are however limitations to HSA usage, such as the type of insurance plans they can be purchased with, and other restrictions which make HSAs less flexible.
An alternative solution is tokenization.
By putting assets into exchangeable tokens that can be spent with healthcare providers for their services, the healthcare token ‘asset class’ can be defined and used in a manner similar to existing HSA frameworks, minus the regulatory tie up with insurance.
Companies can purchase tokens for their employees, keeping them in a joint account that any employee can use, or dole them out to employees individually as a side benefit and/or bonus.
Employees who know they will face medical expenses can divert paychecks into these assets over time, and take them along when they change jobs.
By putting these tokens on a distributed blockchain such as Ethereum, the tokens are carefully accounted for.
Importantly, tokens are not as fungible as dollars. Employers can purchase them knowing that the money is going to healthcare needs.
Focusing on individual rather than group needs limits accountability, and risk. This is the model that employers opted for in the zone of retirement. It is a matter of time for it to be copied in healthcare.