Michael Cannon and Christopher Preble have an interesting suggestion in the New York Times-pre fund Veterans benefits via private insurance
We propose a system of veterans’ benefits that would be funded by Congress in advance. It would allow veterans to purchase life, disability and health insurance from private insurers. Those policies would cover losses related to their term of service, and would pay benefits when they left active duty through the remainder of their lives.
To cover the cost, military personnel would receive additional pay sufficient to purchase a statutorily defined package of benefits at actuarially fair rates. The precise amount would be determined with reference to premiums quoted by competing insurers, and would vary with the risks posed by particular military jobs.
This is an interesting idea, and I am not conceptually opposed to the use of private insurance to meet health care commitments to veterans. I suspect this idea is ultimately found to be unworkable, and the best place to get a sense of why are a quick look at the problems in the private long term care insurance market (general post on insuring LTC). The following problems are likely to be particularly tricky with Cannon & Preble’s proposal:
- when you set up an insurance contract with a potentially long lag time between initiation and collection of benefits, there is a very real question of whether the company will be around when needed. Private insurers are exiting the long term care insurance market in droves currently. With major medical insurance, for example, the contract is only for the coming year. For an 18 year old enlistee, their point of need may be 5 or 6 decades away.
- The longer the lead time, the harder it is to get the premium straight and/or the benefits appropriate. Both the insurer and the covered person are at risk here. LTC insurance is denominated in dollars per day (instead of care), and if you have say a 5% rider, and the true cost rises 5.1% for 30 years, that turns out to be a big miss.
- The reason private insurers are leaving the LTC market are because of the difficulty of underwriting LTC risks. It might be simpler with the military in the sense of you don’t have (presumably) 19 year olds with pre-existing reasons to make them more likely to have disability/complicated long term health claims, while private LTC insurance is rife with selection (bad risks want to buy). The exposure to military service is what is causing the need. I am unsure of how well one could underwrite need based on military job?
- One problem with private LTC insurance policies is that while premiums cannot be raised on individuals, they can be raised for an entire class of policies if losses overshoot what underwriters expected. Regulators are left with the un-enviable choice of the insurer saying they will go bankrupt or premiums are raised on everyone. This often leads persons to drop premiums, leaving them uncovered when they have LTC needs. You can say that folks in the military/vets shouldn’t make bad decisions, but the plain reality is that politically we won’t let such actions harm people. So, the insurance will not ever really be private. This is probably the biggest problem with the proposal.
- I am open to the use of private insurance to meet the needs of vets, especially for the non-specialized services that many need. However, it seems much more likely to be a pay-as-you-go as compared to a pre-fund set up, though I give credit to Michael C for proposing a solution (I often hector him about him only being against stuff).
This discussion would be useful to have while we are talking about starting a war, as it would help to make the true costs more evident.It is quite possible that is both the main point, and the most useful aspect of this proposal.
cross posted at freeforall
Warren_Terra says
Is this suggestion the dumbest idea I'll hear all week? all month? all year?
What kind of idiot is going to offer an annuity that will cover the medical expenses of an individual (possibly a badly injured individual) for an up-front cost, for an average of four decades? Just how monumentally ignorant would they have to be of changes in medical technology, medical expenses, and medical regulation over the last four-to-six decades? And what kind of born sucker would trust these companies to stick around and honor their guarantees for the next half a century? This is a suggestion that can only conceivably work if the government backstops these companies, pledges to cover their customers when they inevitably turn into vapor. So: we're taking all the risk here, we're not really offloading it onto anyone.
If on the other hand the companies guess right, get lucky, or just manage to charge a fortune at the outset, we're the schmucks who overspent and lined their pockets to no useful purpose, when it could be us (and by "us" I mean the government that embodies our collective will and collects our taxes) that realized those profits, as savings. And then, beyond all the actuarial uncertainties, there's the question of why the hell we'd want to effectively pay private-sector profit-making interest rates, when if these calculations could be made accurately the US would do better without them, and paying only the incredibly low rates our government pays to borrow money.
I'm not an economist, but I can look at this proposal and recognize it as the lets-encourage-a-bunch-of-sharks-in-suits-to-mug-the-country act of 2014 that it is. Forget the laugh test; how did this abomination pass the vomit test?
Davis X. Machina says
"Why the hell we'd want to effectively pay private-sector profit-making interest rates…."
Because they're private-sector, and profit-making…
All that is, can be bought and sold, and that which cannot be bought and sold is not.
That which can be bought and sold, must be bought and sold, and at the highest price.
This is now the whole of the law and the prophets, the rest is commentary.
NCGatSmFcts says
In theory though, if this sort of thing encouraged Congress to at least think about the human costs ahead of time (ie, avoiding any other Iraq-type adventures…) maybe at least having some sort of estimate of costs would be a good thing.
For me though, and this may be massively naive, but I don't see why we should have separate health systems. I feel the same way about Worker's Comp here in Cali. We should just put everyone in Medicare, and people can still have support groups and what-not, but wouldn't it cut down on red tape? A health problem is a health problem is a health problem. Why should there be all these separate forms and benefits? (Obviously if this meant reducing soldiers' benefits, I'd re-think, but I am not clear on what they are now, really. And except for a slight hassle factor, the people I know on Medicare seem to like it. I am in the bleachers on this though.)
Warren_Terra says
I've absolutely no problem with trying to account ahead of time for the later costs your decisions generate. I thought the interviews for Stiglitz's book The Three Trillion Dollar War were hugely important, with its point that the Iraq occupation would mean decades of health and disability costs and that almost all the equipment sent there would have to be written off and replaced. Setting up a trust fund would be a great idea. They could sell post-war bonds as well as war bands!
But: that's not the point here. Here, the point is the invitation for private companies to participate, to take the money that would go in that trust fund in return for their guarantee they'll provide pre-paid health care until the beneficiaries die (or perhaps until they get MediCare at 65). That proposal is insane, it's evil, it's just not conceivable that we can accurately predict what those future costs will be for a half-century; we know this, because we know what's happened with medical technologies and costs over the last fifty years. If the companies get their prediction wrong by lowballing their estimate of future costs, it's inevitable that the government will step in to protect and provide for our veterans; we, the taxpayers, bear all the risk in this enterprise. On the other hand, if they annuity companies get their prediction too high, or if they manage to extract too high a price, they get to keep the profits. It's heads they win, tails we lose. It's a toss we'd be nuts to take.
And if by some miracle the companies get their prediction just right, we still have seen no benefit compared to simply putting the money in a trust fund.
On a cynically political note, it's interesting that the people who took us to war and kept us there for a decade won't have had to come up with a lump sum to cover future costs, leaving this budgetary (and hence political) hammer blow to fall on their successors.
bckirkup says
The Cannon and Preble suggestion would require minute detail of soldier training and deployment, with adverse selection, moral hazard… and national security implications.
JamesWimberley says
An alternative plan, given that the VA health system is the most efficient one in the USA, would be to expand it to non-military public employees, both federal and state. That would give it a more normal demography by age, gender and region, and reduce the “hotspot” problem as in Phoenix. But efficient delivery of health care is not what this argument is about.