Filed Under:Health Insurance, Ltci

LTCI Watch: It didn't work

Opinion

Time flies. (LHP photo)
Time flies. (LHP photo)

I went home to Kansas City this past weekend for my parents' 50th wedding anniversary and learned something amazing: Back in the 1970s, my dad's travel agency used to hire Daniel Akaka, who later became a U.S. senator from Hawaii, to play the ukulele for tour groups.

I also talked to a life agent who has been in the life insurance business since, basically, forever, and that was a sobering experience.

He said that he is still in the life business mainly to help longtime clients deal with the reality that the products he sold them -- interest-sensitive life policies -- didn't work the way the insurers told him they'd work.

The interest rates life insurers earned on the investments backing the policies proved to be much lower than expected. Crediting rates were lower than what the insurers had predicted. Premiums that were supposed to vanish failed to vanish, and, eventually, death benefits that were supposed to be guaranteed, or all but guaranteed, vanished.

It would be easy to blame the life insurers, and, of course, plenty of organizations that bill themselves as being consumer groups will do just that.

But, let's face it: The problems with the interest-sensitive insurance policies are the exact same kinds of problems plaguing defined benefit pension plans, Social Security retirement benefits, Medicare, private long-term care insurance, and really, pretty much every kind of public or private mechanism that was supposed to help the working people of the 1960s, 70s and 80s enjoy their old age.

All of the people who have reached "old old age" in the United States in recent years have been members of the "Greatest Generation" -- born from 1901 through 1924 -- or members of the "Silent Generation" -- born from 1925 through 1945.

The country built up so much wealth so rapidly while those people were working that the country has been able to allow most of them to enjoy a respectable quality of life while robbing them blind.

The baby boomers and members of later generations have looted members of the Greatest Generation and Silent Generation directly, by using their assets to start businesses and buy homes.

The country as a whole has looted members of the earlier generations indirectly, by holding interest rates artificially low, to "help young workers and home buyers" (in other words: to help big, publicly traded companies with great credit ratings borrow money they don't really need to acquire most of their competitors) at the expense of retirement savers and the insurers trying to help them insure a comfortable retirement.

To some extent, efforts to loot Grandma to pay for current consumption and current entrepreneurial efforts may have helped make the system more sustainable, by helping to support the growth of the infrastructure and commercial activity that would produce the productivity needed to support retirees in later generations. Better to put Grandma's money to work making new money than to let moths eat it.

But now we've gotten so hooked on robbing Grandma to pay for the grandkids' homes, cars and shaky franchise locations that we've gotten into the habit of stealing the same dollar two or three times over, and putting it in McMansions or in frivolous phone app development companies that do nothing to make the economic system sustainable.

So, the plans that one longtime agent made didn't work, and, if we keep up our current practices, the plans current agents make may stop working a lot more quickly -- not because the agents, the insurers or the customers did anything wrong, but because it's hard to build a sturdy plan on a foundation of economic hot air.

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