Saving the Healthcare system with Health Annuities.
Posted: Sunday, April 13, 2008
by Harvey Chichester
Durall Industrial Flooring
As one gets older healthcare expenses are almost certain. That's why health insurance cost go up as we age. Currently Medicare promises to pay 80% of hospitalization costs, and for the current $1,200 per year, you can buy Medicare B which will cover 80% of our outpatient costs. Then there is long term care, and what if the Medicare plan changes, due to the expected increase cost burdens? Many of us can self insure for a few years out of our savings if the health impact is not too catastrophic. But what about when we are 80 or 90 or 100 years old. How can we afford health insurance and what vendor can make a profit if they will almost certainly pay out on policies issued to 90 year olds within the next few years.
Healthcare annuities could be my answer but no one seems to offer them. Here is the idea. Buy a tax-deductible purchase of Healthcare that kicks in at some time in the distant future. If I am lucky enough to live a long time then the annuity would star covering my health related expenses if they materialize. I could buy a health annuity when I need some tax write off. (Say selling my company or that second home). With a purchase of deductible healthcare, I could let the government pay for some of my health costs by avoiding taxes on some of my profits.
A win, win situation for the vendor and consumer could be established with some volume and good actuarial planning. Let's say that at age 60, 100 people buy for $20,000 a comprehensive healthcare starting at age 85. Currently a non-smoking man in good health is supposed to die at about age 85. So the vendor gets $2,000,000 today and may never pay back anything. Those that buy the health annuity could write off the capital gains at 17% of $340,000 in tax savings at a tax bracket of 24% it would be $480,000 saved.
We know that there will be about 200,000 100-year-old people in the USA 25 years form now. That means that less than .7 in 10,000 will need care from 85 to 100. That's 15 years of care at say $100,000 per year, or $1,500,000. Now you can start to see that of our group of 100 people there is just a slight chance of one of them living to 100. To 90 lets say there are 10 or 10% chance of living. That means that at $100,000 per year cost 3 years for 10 people or $ 9,000,000 would be needed.
So what could the vendor keep? What does the vendor has to work with? The vendor would have the original $2,000,000 plus interest on $2,000,000 for 25 years. With the rule of 72 at 10% earnings that is another $24,000,000. As you can see the vendor could pay a lot of healthcare expenses and still make a great profit. The customer would not have to worry about healthcare insurance being just too expensive for him at age 80 or 90 etc. The customer also can then afford to spend down his wealth with out the wild card of unlimited medical expenses looming.
For this proposal to work the government would have to insure that the vendor is there 20 or 30 years in the future to take care of their obligations. This would mean a FDIC style back up to create confidence in the vendors selling these annuities. There would have to be enough buyers willing to create the pool of money to work from. And the actuaries will need sharp pencils to factor in the effects of medical technology's, on life expectance, hospitalization, medication, medical procedures, implants, government programs etc.
But this modest proposal could be a way for those of us over 60 to fund our futures in a way that will remove the uncertainties that even actuaries may have a hard time predicting. Lets find a way to carry our own weight, live within our means, and insure our own futures today.
Harvey Chichester http:\\www.concrete-floor-coatings.com
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