All this talk about death panels brings up a story recently covered by the New York Times. It’s about the potential profit to be made from old people by betting on when they’re going to die…
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.
Alternet has a scathing commentary on the potential for abuse…
Now if you’re going to have every Wall Street bank hungry for “life settlements” to package and securitize, you’re going to need a lot of brokers to trawl the nursing homes, hospice centers and hospitals for “products” — dying Americans. Much more than we have now (just as the number of mortgage brokers exploded when Wall Street needed mortgages for their securitized products). These brokers try to get to the dying American before his life insurance company does, or someone else — and offers them a better cash settlement for the policy than the insurance company might offer. Everyone sees that dying policy-holder as a source of profit — but only if that person dies as soon as possible after you snatch up the policy.
This has a precedent in the ‘viatical’ trade that sprang up in the wake of the AIDS epidemic. It is a source of deep satisfaction to me that many speculators lost money when their targets failed to die on schedule. In the late 1990’s antiretrovirals pulled thousands of people back from the brink and restored them to health, tanking the profit margin on their life insurance policies.
I hope it was not typical for the disappointed investors to try to get even, but this is from the Philadelphia Enquirer…
When M. Smith was diagnosed with cancer and AIDS in the early 1990s, she was given two years to live. That she is still very much alive today is good news to everyone but the people who bet big on her dying.
Had Smith perished on schedule, Life Partners Inc. (LPI) would have made $60,000 on a $90,000 wager – a 66 percent return on the investment. Instead, the company that expected to make a profit on Smith’s life insurance policy wound up spending $100,000 keeping her alive.
Now, Life Partners’ attempt to wriggle out of the relationship has led to one of the most morbid contract disputes ever filed in New Jersey Superior Court.
Smith, like many patients who received death sentences, sold her $150,000 life insurance policy to a viatical firm for $90,000. It was a perfectly legal, if macabre, means to a comfortable end.
But the deal was complicated by the fact that her life and health insurance were conjoined in a group policy marketed to the self-employed. LPI knew the terms, knew it would have to continue paying her health premiums, but signed the deal, expecting to make a killing on her death.
Instead, more than a decade later, Smith is still kicking.
And thanks to a pair of tenacious pro bono attorneys, LPI finally gave in and paid up.
The article has more about LPI’s hardball tactics.
It’s not realistic to expect Wall Street investment bankers to get a job, as long as they can play the numbers.
There will always be problems with government, but that doesn’t lead me to trust in corporations. Insurance corporations have a great deal of power, and profit will win unless they are regulated by the government. The government should take a good look at this new viatical scheme before we have fast-talking salesmen trying to hustle our parents. And won’t it be cool if we get some real health care reform, and the old folks refuse to die on schedule.
Here’s a link to Margaret and Helen, who weren’t born yesterday and have earned the right to speak their minds.