Life Insurance, Liberty and the Pursuit of Happiness
It is time to address the possibility of a government takeover of the life insurance industry.
Our country is observing Veterans Day next week. This occasion is an opportunity to reflect on the meaning of being an American, and to savor our patriotic spirit. (1)
Patriotism is a vital force when the country is threatened by enemies from afar; it is no less essential when our core institutions are endangered from within. Political Commentator Charles Krauthammer sees such a danger in the current administration’s attempt to nationalize healthcare. He describes it this way:
“By essentially abolishing medical underwriting (actuarially based risk assessment) and replacing it with government fiat, Obamacare turns the health insurance companies into utilities, their every significant move dictated by government regulators…Obamacare is government health care by proxy, single-payer through a facade of nominally ‘private’ insurers.” (2)
If the government is allowed to take over healthcare and replace underwriting with social mandates, then it basically will turn medical insurance into an entitlement. And has been stated by so many critics today, the future of existing entitlements is in jeopardy, so it makes no sense to add on obligations.
Which industry will be next?
Unfortunately, ideologically-driven social change is not beholden to practicalities, and therein lies the peril. The determination to “fundamentally transform America” apparently calls for change at any cost, even if that change means a lower standard of living, an inferior product, and an unsustainable cost. Not only that: as long as “Big Corporations” and “The 1%” are targeted for wealth redistribution, the viability of every American industry and institution is jeopardized. Those of us committed to the growth of the life insurance business – both producers and consumers alike – should take warning.
The life insurance industry pays out $1.5 billion every day through payments from life insurance, as well as other products including annuities and other retirement products, long-term care insurance and disability income insurance. (3). If you are a politician with a wealth redistribution agenda, this money would attract you. You would want to direct every benefit paid to a spouse, child, employer and charity according to your ideology.
In my worst “takeover nightmares”, I could not imagine federal and state agencies matching the gigantic output that is produced by the private enterprise of the life insurance industry. However, once I understood the priorities of European-style social “democracy”, I realized that the government would not attempt to match our production. It would simply want to control it, and keep itself in control – even if more of the people it is supposed to serve have to make do with less.
It is not unrealistic to think that, in this scenario, the social mandate to “take all comers” that is poised to corrupt medical insurance underwriting (and has done so already in a number of states) (4), would undermine life insurance underwriting as well. “Guaranteed Issue” and “Community Rating” rules could require carriers to insure people with cirrhosis of the liver, advanced cancer, kidney failure, HIV, and other conditions which now typically make them ineligible for coverage. Everybody deserves life insurance, right?
The mandate of “essential benefits” could force people to buy policies that are not appropriate for them, to avoid adverse selection. Just as younger people are being pushed to enroll in the current national health insurance plan and buy policies with unnecessary benefits and exorbitant costs, they could be pushed to enroll in the “national life insurance plan” and buy more insurance than they need at a price they cannot afford, to keep the risk pool healthy. (5). Everybody must do their fair share, right?
The “Fairness Doctrine” embedded in class warfare could restrict how much life insurance families and businesses could obtain. Who will get to purchase a cash-value policy for wealth accumulation? That would depend on the amount of cash to which the bureaucracy has determined you are ideologically entitled. Who will get to purchase a policy to transfer wealth to the next generation? That would depend on the prominence to which the bureaucracy has determined your family is ideologically entitled. Who will get to purchase a business policy to indemnify a bank loan, or to fund an ownership transfer? That would depend on the resources to which the bureaucracy has determined your business is ideologically entitled. The government knows best, right?
Ill will replacing good will
If this notion seems far-fetched, then ponder this: the current administration has already labeled the property of the “millionaires and billionaires” among us as fair game for wealth redistribution. Here is the news: once you own a life insurance policy with a $1,000,000 face amount, you become one of those targets; likewise if you have a $500,000 policy, $250,000 of home equity, and $250,000 in your IRA. Progressive taxation into the life insurance marketplace would expose a huge portion of middle class people to property confiscation, not to mention the vast majority of people with substantial holdings. (6)
The cultural climate for such intimidation already exists. When an American government encourages people to look for a racial, gender or class bias behind every grievance, the ethic of “get thy neighbor” could easily replace the traditional “love thy neighbor” that has long been a source of good will. Why wouldn’t the local bureaucrat, charged daily with finding new ways to alleviate the burgeoning federal debt burden, find a new infraction under every rock? “Your business has not promoted enough people of ______ (race/class/citizenship status/sexual preference/political belief). You must now pay this fine, and advance only those people we tell you. Key-person policies can cover only them.”
Such would be the ruin of the life insurance business, as well as of the financial services industry as a whole, should the government succeed in the same type of takeover it is now attempting with the medical insurance business. And the people who would benefit from this grave American tragedy would be….. who?
The line drawn in the sand by our Founding Fathers
I have witnessed first-hand the dismantling of the health insurance marketplace here in New Jersey, since the state government takeover some twenty years ago. At this point, consumers are struggling to pay ever-increasing premiums; producers are struggling to make a decent living from ever-decreasing commissions; and the few carriers left taking business are struggling to make a profit under ever-burdensome regulations. The only people not struggling are the bureaucrats who have the authority to tax and penalize us, and thereby secure their own paychecks. Let us also not forget the legislators and lobbyists who brought them to power in the first place and let them retain it.
The life insurance purchase is a collaboration between the insured, owner, applicant, professional advisor, broker, general agent, and underwriter. This system has worked to the satisfaction of all involved literally millions upon millions of times. I grew up in my father’s general agency, and have spent over half of my forty years in business selling life insurance. I can identify numerous changes that could make this system work better. But no one in their right mind would advocate reforms that would benefit no one but the people appointed to enforce them.
War veterans are not our only patriots. All the people who are stepping up to prevent the growth of destructive government are patriots. Their battlefields are the courts, the media, the halls of Congress, grass roots activism, and the voting booth. (7)
Our Founding Fathers would be proud.(8)
(1)Here is a brief history of Veteran’s Day that shows how it intends to honor the patriotism of those who have served our country:
http://www.va.gov/opa/vetsday/vetdayhistory.asp
(2)”One Year Out: The Fall.” Townhall.com. N.p., n.d. Web. 06 Nov. 2013. <http://townhall.com/columnists/charleskrauthammer/2010/01/15/one_year_out_the_fall/page/full>.
(3) http://www.securefamily.org/?s=%241.5+BILLION
(4) Here is a study of the adverse impact of these mandates on state marketplaces:
http://reason.com/blog/2013/10/24/this-is-what-a-health-insurance-death-sp
(5) See this Obamacare publicity website for more insights:
http://obamacarefacts.com/obamacare-facts.php
(6) Economic and political historian Jim Powell has a brief but very informative history of class warfare and progressive taxation in Forbes:
http://www.forbes.com/sites/jimpowell/2012/10/17/class-warfare-the-mortal-enemy-of-economic-growth-and-jobs/
(7) Ways of defunding Obamacare: http://www.forbes.com/sites/michaelcannon/2013/10/18/save-the-knives-for-obamacare-four-ways-to-actually-defund-the-aca/
In particular, a number of lawsuits hold substantial promise:
http://finance.townhall.com/columnists/michaelfcannon/2013/11/03/lawsuits-that-could-make-the-decrepit-healthcaregov-look-like-a-hiccup-n1735276
(8) Here is the beginning of the Declaration of Independence:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness
http://www.ushistory.org/declaration/document/
And here is an explanation of how the IRS rule to expand tax credits under the PPACA is taxation without representation:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2106789