Friday, December 17, 2004


MY OLD MERRILL PAL, who is an experienced investor and a Certified Public Accountant, made the following response to an earlier blog about the new Health Savings Accounts:

"A huge economic benefit has already been bestowed upon the American people in the form of the HSA or Health Savings Account. All Americans in high deductible health insurance plans can now contribute to their personal health plan. The basics are: it is tax deductible, easy to manage with little government oversight and can be used tax free for health expenses.

Now how bout these two kickers, one, you write the checks personally for the expenses when you wish to use the money for health costs and second, you can leave the money in to grow tax deferred and withdraw at 65 as normal income. In other words it serves as a potential second IRA.

Believe me the Doctor is right, this has the potential to relieve the pressures of nationalizing our healthcare. People have not caught on to this great news yet. It will come!"

Editors note: the nickname Doctor stuck because of my skill of putting a basketball in the hoop with a running one hander. My son-in-law and others who have seen me play ball will be the ones who have a hard time believing that someone calls me Doctor or Doctor J.

Great Comment But:

It is truly hard to state or to even exaggerate the potential of the Health Savings Accounts. They are better than they sound. They include incentives for all to sign up for relatively inexpensive catastrophic coverage, which by itself will benefit millions of Americans. Furthermore, the current system requires that insured patients dramatically over-pay to cover those who avoid buying expensive coverage. This vicious circle causes more folks to drop out and the percentage of fully covered Americans is going down.

Those on an HSA plan, can buy a bottle of aspirin at any store with tax free dollars and pay for it using their Health Savings Debit card. Like OMP says, if you don't spend the money, you get to keep it! The compounded value becomes an extra tax deferred retirement account!

The real key is that the consumer is given reasons to ask doctors for generic drugs or the lower cost treatments or to eliminate the extra defensive tests. If the consumer has a sick child, his anxiety is reduced because he knows he has the cost covered, however, if it is just a cold, the consumer may rightfully decide to avoid an unnecessary doctors visit.

It is true that tort reform goes hand in hand with HSAs to cut medical costs. If both are adopted, the savings to the US economy will be absolutely mind boggling.

There are at least three ways to make money off this deal. One can sign up for an account at ones first opportunity or one can buy the firms such as United Heath or Cigna that offer HSAs or one can buy any American company.

Yes, the benefits are so large that the US will improve its competitive global position. Most firms in the US will save a considerable sum even if they are the last to convert! The reason is that the whole mind set of the Health Care industry will change. The Health Care firms that will make money will be those who provide efficient care at low costs. It will not be the firms that run 20 test on every patient. The doctors will not need to run unnecessary test just to avoid the potential devastating law suit.

By the way, my blog about the decline in housing starts may seem off the deep-end but it is an interesting concept and perhaps a startling discovery. It ties together several pieces of information that have not been fitting together particularly well. The blog concludes that long rates are not necessarily going up anytime soon and could even go down in the face of a very strong economy.

The historical model for an economic recovery has been for the consumer to carry the water during the early years and for business spending to kick in in later years. We may be ready to stop building so many houses in America and to start building more factories. In the Winston-Salem area, there are numerous new manufacturing jobs being announced for the first time in years.

I am still a bond bear because I do not believe the probability of capital gains in bonds is nearly as high as the probability for stocks. However, the gradual slowing of housing demand could occur while avoiding the popping of the "housing bubble" and even while avoiding the traditional spike in long rates.

OMP, it was probably 18 years ago when Gillon put forth the hypothesis that future economic peaks and valleys may be smoother as a result of changes in the tax codes. He could be right! The science of managing the macroeconomy has perhaps improved.

The keys to making money in this environment are to keep your costs low by buying through discount brokers, by avoiding excessive trading, by avoiding hidden mutual fund fees, by avoiding high management fees, by avoiding locking into long-term bonds and by buying a diversified portfolio of solid American companies.


Jack's Old Merrill Pal said...

I don't know what you are referring to when you say 18 years ago.

Anyway I have found only one custodian for the HSA that will allow uninhibited investing similar to an IRA. The bank is "MSA" in SHeboygan, WI. If anyone is aware of a "local" institution where we can invest the money in securities other than low interest savings accounts, as Blue Cross offers, please let me know.