Daily Archives: November 13, 2010

When a Safety Net Is Yanked Away [Long-Term Care Insurance] – (Lieber)

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In the 13 November 2010 NY Times, Ron Lieber writes When a Safety Net Is Yanked Away.

Citing well-known challenges to the long-term care insurance industry (but without really saying what they were), MetLife said that it would stop underwriting new long-term care policies for individuals after Dec. 30. The company will also cease new enrollments to group and other plans, say, through an employer.

The company added that it would continue paying claims on existing policies as long as customers continued paying premiums. Many of them may not, however, since MetLife recently asked state insurance regulators for permission to raise premiums on many policies by as much as 44 percent.

It wasn’t the only company not charging enough for its policies. The two leading players in the industry are trying to raise prices, too. Genworth Financial is seeking an 18 percent increase on older policies held by about 25 percent of its customers. And John Hancock has filed for permission to raise premiums for about 80 percent of its customers by an average of 40 percent. It has also temporarily stopped offering new long-term care insurance plans through employers while it tries to figure out what to charge.

State regulators may not bless these requests. But it suggests how far off the companies were in pricing their products.

In Lieber’s 5 November 2010 NY Times article, Ignore Long-Term Care Planning at Your Peril, he quotes a MetLife spokeswoman, Karen Eldred,

“Assumptions used to initially price many long-term care insurance products have changed. Evolving assumptions and their impact on pricing is a challenge the industry is facing over all. The primary assumptions that have changed since the initial pricing of these products include: interest rates, persistency, morbidity and mortality experience, which have not materialized as expected.”

Lieber goes on to translate what Eldred said, and you can read that in his articles.

But, at its core, the insurers made “guesstimates” which turned out to be off the mark, and now they want the various state insurance commissioners to retroactively shift the risk back onto past policyholders, who bought their insurance policies in good faith.

Let’s hope the state governors and insurance commissioners don’t knuckle under. If you agree, write to your governor.

You might also be interested in Lieber’s 12 November 2010 blog post, The Trouble with Long-Term care Insurance. See, especially, the comments to his post.

By the way, Lieber makes reference to two academics, Amy Finklestein (MIT) and Jeffrey Brown (U of Illinois at Urbana-Champaign) who have written on the long-term care insurance market. If any of you wish to delve deeper, here is one place to start: The Private Market for Long-Term Care Insurance-Review of the Evidence (2008).

I consider all of this one more argument for national health insurance.

-RichardH

Despite advance warnings of financial crisis, Bush backed off proposed crackdowns on risky mortgages

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I found the Associated Press article Despite advance warnings of financial crisis, Bush backed off proposed crackdowns on risky mortgages, in the New York Daily News.

Monday, December 1st 2008, 8:36 AM

WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

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“Expect fallout, expect foreclosures, expect horror stories,” California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

How come no mention of Frank and Dodd?  Could it be that Bush alone could have prevented this crash?  I don’t know how many people are aware that the regulators mentioned in this article are part of the executive branch.  Even so, the Republicans were in control of Congress up until 2006.

Counterproductive Behavior in Early Months of Iraq Occupation

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At the beginning of the Iraq occupation by the U.S., many Iraqis were thrown out of work.  In their stead, the U.S. spent billions of dollars on no-bid contracts with well connected U.S. firms.  These firms did not hire unemployed Iraqis. Instead, they flew in mercenaries from the U.S. to do work at $100,000 salaries, that the Iraqis would have been pleased to do for much less.  Gainfully employed Iraqis rebuilding their country are much less likely to join the insurrection than those who are unemployed while non-citizens are paid exorbitant amounts to do the same work they are willing and able to do.

I wondered how obtuse Paul Bremer would have to be to not see the damage his policies were causing. Now that I have formulated Greenberg’s Law of Counterproductive Behavior, it came as no surprise when I read the explanation  in the book The Shock Doctrine: The Rise of Disaster Capitalism.

In describing a conference held by the U.S. State Department in Baghdad in the early months of the occupation, author Naomi Klein focused on one of the main speakers [page 432].

One of the main speakers was Marek Belka, Poland’s former right-wing finance minister who worked under Bremer in Iraq for several months. According to an official State Department report on the gathering, Belka pounded the Iraqis with the message that they had to seize the moment of chaos to be “forceful” in pushing through policies that “would throw many people out of work.” The first lesson from Poland, Belka said, was that “unproductive state-owned enterprises should be sold off immediately without efforts to salvage then with public funds,”  (He failed to mention that popular pressure had forced Solidarity to abandon plans for rapid privatization, saving Poland from a Russian-style meltdown.)  His second lesson was even bolder.  It was five months after the fall of Baghdad, and Iraq was in the midst of a humanitarian emergency.  Unemployment was at 67 percent, malnutrition was rampant and the only thing holding off mass starvation was the fact that Iraqi households still received government-subsidized food and other essentials, just as they had under the UN-administered oil-for-food program during the sanctions period. Belka told the Iraqis that these market-distorting giveaways had to be scrapped immediately. “Develop the private sector, starting with the elimination of subsidies.” He stressed that these measures were “much more important and divisive than privatization.”3

3. Jane Mayer, “Contract Sport,” The New Yorker, February 16, 2004

According to Greenberg’s Law, what I thought was counterproductive behavior, was really not.  I just had misunderstood what the players in this sport were trying to accomplish.

One of the failings of true believers in absolute free-markets is their failure to account for the passage of time.  Even if you could argue that the people would be better off in the long run, they fail to account for the fact that people could starve to death while waiting.  Unlike docile Americans, starving Iraqis didn’t just sit idle and slowly starve to death.  They started fighting back.

The presentation by Belka explains why the Coalition Provisional Authority could believe that it was a good thing to throw so many people out of work and not subsidize them while unemployed.  That does not explain why they hired U.S. Contractors and allowed them to hire foreigners instead of Iraqis.  We’ll have to look for other ulterior motives.  Perhaps it was plain old greed that motivated them.  Greed is supposed to be good according to absolutist free market enthusiasts.

To think that George W. Bush wondered why they hated us.