Hostname: page-component-cd9895bd7-jkksz Total loading time: 0 Render date: 2024-12-25T07:49:39.089Z Has data issue: false hasContentIssue false
  • English
  • Français

Life, Health, and Disability Insurance: Understanding the Relationships

Published online by Cambridge University Press:  01 January 2021

Robert H. Jerry II
Get access Rights & Permissions [Opens in a new window]

Extract

This project focuses on the extent to which disability insurers should be allowed to use genetic information in underwriting and rate-setting, but this subject cannot be completely isolated from the related questions of whether life and health insurers should also have this discretion. Federal and state laws place significant restrictions on insurers’ use of genetic information in health insurance, but regulation of such use in life and disability insurance is considerably more modest. This essay examines the reasons for this disparity and discusses the implications for future proposals to regulate disability insurers’ use of genetic information in underwriting and rate-setting. The thesis is relatively simple: Communitarian values are stronger in health insurance than in life and disability insurance. Accordingly, the public is likely to acquiesce to insurers’ insistence that they be allowed to make distinctions among insureds in disability insurance (and life insurance) that would not be tolerated in health insurance.

Type
Special Supplement
Information
Journal of Law, Medicine & Ethics , Volume 35 , Issue S2 , Summer 2007 , pp. 80 - 89
Copyright
Copyright © American Society of Law, Medicine and Ethics 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

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 Jerry, R. H., Understanding Insurance Law 3rd ed. (Newark, NJ: Lexis Nexis, 2002).Google Scholar
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).Google Scholar
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.Google Scholar
For more discussion, see Jerry, , supra note 1, at 25–32.Google Scholar
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.Google Scholar
Id.Google Scholar
Id., at Table 137.Google Scholar
Id., at Table 142.Google Scholar
See Families U.S.A., Going Without Health Insurance: Nearly One in Three Non-Elderly Americans, report prepared for and released by Robert Wood Johnson Foundation, March, 2003 (reporting that 74.7 million persons under the age of 65, or 30.1 percent of the nation's population, were uninsured during a part of 2001 and 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.Google Scholar
See Statistical Abstract, supra note 5, at Table 118.Google Scholar
Id., at Table 650.Google Scholar
Id., at Table 119.Google Scholar
Medicare Part A is financed by payroll taxes, and Medicare Part B is financed mostly by general federal revenues. For more discussion, see McClellan, M. and Skinner, J., “Medicare Reform: Who Pays and Who Benefits,” Health Affairs 18 (1999): 48–62.CrossRefGoogle Scholar
See Statistical Abstract, supra note 5, at Table 119.Google Scholar
Pub. L. No. 99-272, 99th Cong., 2d Sess., 100 Stat. 82 (1986).Google Scholar
Pub. L. No. 104-191, 110 Stat. 1936 (1996) (codified in scattered sections of 29 & 42 U.S.C.)Google Scholar
92 Stat. 2076, 42 U.S.C. § 2000e(k) (1994).Google Scholar
29 U.S.C. § 1185, 42 U.S.C. §§ 300gg-4, −51 (Supp. II 1996).Google Scholar
29 U.S.C. § 1185a, 42 U.S.C. §§ 300gg-5 (Supp. III 1996).Google Scholar
29 U.S.C.A. § 1185b, 42 U.S.C.A. §§ 300gg-6, −52 (West 1999).Google Scholar
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.Google Scholar
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).Google Scholar
Id.Google Scholar
Id., at 64 (Table 7.1).Google Scholar
American Council of Life Insurers, Life Insurers Fact Book 2001, at 104.Google Scholar
American Council of Life Insurers, Life Insurers Fact Book 2006, at 67 (Table 7.5).Google Scholar
Id., at 69 (Table 7.8).Google Scholar
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.Google Scholar
Social Security Administration, Number of Credits Needed for Survivors Benefits, available at <http://www.ssa.gov/retire2/credits4.htm> (last visited March 19, 2007).+(last+visited+March+19,+2007).>Google Scholar
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).+(last+visited+March+19,+2007).>Google Scholar
U.S. Census Bureau, Poverty Thresholds 2004, available at <http://www.census.gov/hhes/poverty/threshold/thresh04.html> (last visited December 21, 2006).+(last+visited+December+21,+2006).>Google Scholar
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 Willis, Steven J. To review the calculator, see Willis, S. J., Financial Calculations for Lawyers, available at <http://cle.law.ufl.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.+(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.>Google Scholar
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 Womack, Maya, a representative with AnswerFinancial (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.+[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.>Google Scholar
Again, the relationship is not perfect for the same reasons articulated in the prior note.Google Scholar
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. (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.' href=https://scholar.google.com/scholar?q=This+calculation+used+the+SSA's+2003+default+earnings+history+for+a+hypothetical+60-year-old.+For+the+current+SSA+calculator,+see+(+(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.>Google Scholar
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.Google Scholar
See other articles in this issue for further discussion of this point.Google Scholar
U.S. Department of Labor, Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in Private Industry in the United States 2000 (August, 2006).Google Scholar
U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in Medium and Large Private Establishments 1997, Table 1.Google Scholar
U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in Small Private Establishments 1996, at Table 1.Google Scholar
See Soule, C. E., Disability Income Insurance: The Unique Risk 4th ed. (Bryn Mawr, PA: American College, 1998): at 11–12; Abraham, K.S. and Liebman, L., “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”).Google Scholar
Dodge, J. H., 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.Google Scholar
Rief, F. J., “Disability Insurance: Its Uses and Tax Implications,” in ALI-ABA, Uses of Insurance in Estate and Tax Planning, SE14 (1999): at 667, 669.Google Scholar
See Abraham, and Liebman, , supra note 41, at 102–103.Google Scholar
Id., at 103.Google Scholar
Id., at 103–104.Google Scholar
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.Google Scholar
Social Security Administration, How Much Work Do You Need? available at <http://www.ssa.gov/dibplan/dqualify2.htm> (last visited March 19, 2007).+(last+visited+March+19,+2007).>Google Scholar
Social Security Administration, Supplemental Security Income Home Page, available at <http://www.ssa.gov/notices/supplemental-security-income/> (last visited March 19, 2007).+(last+visited+March+19,+2007).>Google Scholar
See discussion of Workers' Compensation programs in the project report.Google Scholar
Pub. L. No. 104-191, 110 Stat. 1936 (1996) (codified in scattered sections of 29 & 42 U.S.C.)Google Scholar
For detailed discussion of HIPAA's regulatory framework with respect to genetic information, see Jerry, R. H., “Health Insurers' Use of Genetic Information: A Missouri Perspective on a Changing Regulatory Landscape,” Missouri Law Review 64 (1999): 759–788, at 773–779.Google Scholar
See 29 U.S.C. § 1191b(c)(1)(A).Google Scholar
See Hellman, D., “What Makes Genetic Discrimination Exceptional,” American Journal of Law & Medicine 29 (2003): 77–116, at 83–92.CrossRefGoogle Scholar