Life, health, and disability insurance: Understanding the relationships

Journal of Law, Medicine and Ethics

Volumn 35, Issue SUPPL. 2, 2007, Pages 80-89

  Jerry II, Robert H ^a  

^a UNIVERSITY OF FLORIDA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; ECONOMICS; GENETIC PRIVACY; HEALTH INSURANCE; HUMAN; INSURANCE; LEGAL ASPECT; SOCIAL SECURITY; STANDARD; STATISTICS; UNITED STATES;

GENETIC PRIVACY; HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT; HUMANS; INSURANCE, DISABILITY; INSURANCE, HEALTH; INSURANCE, LIFE; SOCIAL SECURITY; UNITED STATES;

EID: 34249096766     PISSN: 10731105     EISSN: 1748720X     Source Type: Journal    
DOI: 10.1111/j.1748-720X.2007.00157.x     Document Type: Article

References (50)

1. This is typically accomplished by an insured purchasing insurance on his own life, naming a charity as the beneficiary, and then assigning the ownership interests in the policy to the charity. For further discussion of assignment in life insurance, see R. H. Jerry, Understanding Insurance Law 3rd ed Newark, NJ : LexisNexis, 2002).
2. See, e.g., Jordon v. Group Health Assn., 107 F.2d 239 (D.C. Cir. 1939 California Physician's Service v. Garrison, 172 P.2d 4 (Cal. 1946).
3. The price is flexible to the extent the member of the plan has deductibles or co-payments that phase out after certain expenditure thresholds are reached, which is typically the case.
4. For more discussion, see Jerry, supra note 1, at 25-32.
5. U.S. Census Bureau, Statistical Abstract of the United States: 2006, 125th ed Washington, D.C., 2005 Table 144, available at http://www.census.gov/ prod/2006pubs/07statab/health.pdf 2002 two-thirds were uninsured for six months or more). This suggests that the U.S. Census Bureau figures for uninsureds, which require a person be uninsured for the entire year, understate the scope of the problem.
6. Statistical Abstract, supra note 5, at Table 118.
7. Id., at Table 650.
8. Id., at Table 119.
9. Medicare Part A is financed by payroll taxes, and Medicare Part B is financed mostly by general federal revenues. For more discussion, see M. McClellan and J. Skinner Medicare Reform: Who Pays and Who Benefits Health Affairs 18 (1999 48 62.
10. Statistical Abstract, supra note 5, at Table 119.
11. Pub. L. No. 99-272, 99th Cong., 2d Sess., 100 Stat. 82 (1986).
12. Pub. L. No. 104-191, 110 Stat. 1936 (1996) (codifed in scattered sections of 29 & 42 U.S.C.).
13. 92 Stat. 2076, 42 U.S.C. § 2000e(k) (1994).
14. 29 U.S.C. § 1185, 42 U.S.C. §§ 300gg-4, -51 (Supp. II 1996).
15. 29 U.S.C. § 1185a, 42 U.S.C. §§ 300gg-5 (Supp. III 1996).
16. 29 U.S.C.A. § 1185b, 42 U.S.C.A. §§ 300gg-6, -52 (West 1999).
17. The post-2000 crisis in state budgets, which afflicts most states and is typically described as the most severe since World War II, and the sudden reappearance of federal budget deficits are likely to result in some retrenchment. The ultimate impact of these budget pressures cannot be known with certainty, but they will probably produce a short-term detour in the march, rather than a long-run change in the destination.
18. See American Council of Life Insurers, Life Insurers Fact Book 2002, at 89 (reporting that in 1998, 69 percent of all families had some form of life insurance).
19. Id.
20. Id., at 64 (Table 7.1).
21. American Council of Life Insurers, Life Insurers Fact Book 2001, at 104.
22. American Council of Life Insurers, Life Insurers Fact Book 2006, at 67 (Table 7.5).
23. Id., at 69 (Table 7.8).
24. Social Security is not unique in this respect. The survivor's benefit in private pension plans function as a form of life insurance as well. In fact, one could describe an individual whole life insurance policy as the functional equivalent of a private pension, except that in the whole life policy the pension benefit is reduced in exchange for a larger payment of proceeds in the event of the insured's premature death.
25. http://www.ssa.gov/retire2/credits4.htm last visited March 19, 2007).
26. The SSA default calculator which generates these numbers assumes an earnings history with annual percentage increases (i.e., a "relative growth factor") of two percent faster than the national average prior to the year of death. See http://www.ssa.gov/OACT/quickcalc/faqs.html (last visited March 19, 2007).
27. U.S. Census Bureau, Poverty Thresholds 2004, available at http://www.census.gov/hhes/poverty/threshold/thresh04.html (last visited December 21, 2006).
28. This assumes that the first annuity payment is made on one's 60th birthday and remaining payments are received at the beginning of the month one month late. The amount declines to $128,268 if the payments are made on the last day of the month. This is based on a calculator written by Steven J. Willis. To review the calculator, see S. J. Willis, Financial Calculations for Lawyers, available at http://cle.law.uf.edu last visited March 19, 2007). What constitutes an appropriate discount rate when interest rates are at historic lows is difficult to know. A four percent rate would produce a present value (assuming payments on the first of the month) of $134,989, a six percent rate would produce a present value of $113,159, and a seven percent rate would produce a present value of $104,175. This provides some sense of the range of possible present values.
29. The present value of a $1121/month annual income for 22.0 years, which is the life expectancy of a 60-year-old, is $179,287 (with payments made at the end of the month), using a discount rate of five percent. In A conversation with Maya Womack, a representative with Answer Financial (available at http://www.answerfinancial.com [last visited March 19, 2007]), on June 5, 2003, the author was quoted a price of $164,344.51 for an annuity for a 60-year-old male, with monthly payments of $1086 beginning at age 61, payable for life with a ten-year guarantee. The relationship is not a perfect one because amounts receivable under a privately purchased life insurance policy are not equivalent to amounts payable under a survivor's benefit annuity provided under the auspices of the federal government through the Social Security system. This is due to the risk of nonpayment of the private annuity associated with the possible insolvency of the private annuity provider. The annuity from the federal government, on the other hand, would be considered riskless (or nearly so). To illustrate, consider a survivor who receives a lump sum payment in the amount of $128,802. That survivor might have the option of investing in a "risk-free" annuity at five percent or an annuity written by a private firm with a modest level of insolvency yielding six percent. The survivor's choice would between a risk-free annuity of $805 per month for 22.0 years (with payments at the end of the month) or $880 per month for 22.0 years from the more risky insurer.
30. Again, the relationship is not perfect for the same reasons articulated in the prior note.
31. This calculation used the SSA's 2003 default earnings history for a hypothetical 60-year-old. For the current SSA calculator, see http://www.ssa.gov/retire2/AnypiaApplet.html (last visited April 27, 2007). The formula was applied to the sum of the employee's and employer's contributions for each year of earnings; the sum of this result for each year produces the $158, 424 future value figure. In other words, "future value" here means the hypothetical value, available at age 60, had the employee invested on his own the Social Security contributions made previously by him or his employer. Institutional investors should be able to earn higher returns, so a higher rate of return may be appropriate. Using six percent, the future value would be $182,826, and using seven percent, the future value would be $212,659, well above the present value of the income stream.
32. For example, Social Security also protects the worker from the consequences of disability, so a portion of contributions needs to be allocated to the security purchased against this risk. Survivors and retirement Benefits are paid out of the same trust fund; although a premise of the program is that a pension is paid to the worker or, if he or she does not survive the spouse, the worker who lives to retire collects more than his or her survivor.
33. See other articles in this issue for further discussion of this point.
34. U.S. Department of Labor, Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in Private Industry in the United States 2000 (August, 2006).
35. U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in Medium and Large Private Establishments 1997, Table 1.
36. U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in Small Private Establishments 1996, at Table 1.
37. M. A. Rothstein and C. A. C. E. Soule, Disability Income Insurance: The Unique Risk 4th ed Bryn Mawr, PA : American College, 1998 at 11-12; K. S. Abraham and L. Liebman, "Private Insurance, Social Insurance, and Tort Reform: Toward a New Vision of Compensation for Illness and Injury," Columbia Law Review 93 (1993): 75-118, at 101 ("the extension of SSD to virtually all Social Security participants after 1956, the growth of some state disability protection programs, and the indexing of SSD Benefits in 1972 essentially have made the lower-income market an unlikely source of private disability insurance policyholders").
38. J. H. Dodge, discussions in the Working Group on Genetic Testing and Disability Insurance. Abraham and Liebman made the same point in their excellent analysis of private and social insurance. See id. (Abraham and Liebman), at 101 102.
39. F. J. Rief Disability Insurance: Its Uses and Tax Implications in ALI-ABA, Uses of Insurance in Estate and Tax Planning, SE14 (1999 at 667, 669.
40. M. A. Rothstein and C. A. Abraham and Liebman, supra note 41, at 102-103.
41. Id., at 103.
42. Id., at 103-104.
43. Social Security Administration, 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Income Trust Fund, at Table VI.G1.
44. http://www.ssa.gov/dibplan/dqualify2.htm (last visited March 19, 2007).
45. 593 5 http://www.ssa.gov/notices/supplemental-security-income/ last visited March 19, 2007).
46. See discussion of Workers' Compensation programs in the project report.
47. Pub. L. No. 104-191, 110 Stat. 1936 (1996) (codified in scattered sections of 29 & 42 U.S.C.).
48. For detailed discussion of HIPAA's regulatory framework with respect to genetic information, see R. H. Jerry Health Insurers' Use of Genetic Information: A Missouri Perspective on a Changing Regulatory Landscape Missouri Law Review 64 (1999 759 788, at 773-779.
49. See 29 U.S.C. § 1191b(c)(1)(A).
50. M. A. Rothstein and C. A. D. Hellman What Makes Genetic Discrimination Exceptional American Journal of Law & Medicine 29 (2003 77 116, at 83-92.