Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, February 22, 2023

The Perfect Retirement Investment Nobody Wants

More than 20 years ago, Mark Warhawsky, an economist and current senior fellow at American Enterprise Institute, proposed a hybrid product combining long-term care insurance with an annuity, which would incur a steady stream of payments that last as long as the customer lives. However, insurers have never implemented this type of product. 

Under the current system, people with health problems apply for long-term care insurance without disclosing their illness, driving up premiums and discouraging healthier people from applying. On the flip side, only those who think they will live a long time use for annuities, which drives up the cost, equally scaring away other applicants. The hybrid model proposed would reduce this adverse selection because customers would not have to apply for double-sided protection unless they perceived risks.

Very few people were interested in this idea when it was first proposed 20 years ago, and insurers have not bought into the idea. Some suspect this is due to the fact that it may be a tough sell as there is an ingrained bias against these types of products. 

For more information see Peter Coy “The Perfect Retirement Investment Nobody Wants” The New York Times, February 17, 2023.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.


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Remember: The cost of long term care is extremely high and an annuity may not cover the monthly cost. The reason I am saying this is because almost all annuities are penalized by the Deficit Reduction Act of 2005 known as DRA 2005.

Under DRA 2005 buying an annuity is treated (1) not only as over income but also (2) as a transfer of assets as if buying the annuity were a gift.

The DRA 2005 law is a terrible law restricting Medicaid coverage for so many invalid reasons. DRA 2005 must be repealed for the idea proposed in this article to work. Buyers of annuities should not be disqualified from Medicaid simply for planning ahead

Posted by: AAA AAA | Feb 24, 2023 9:54:41 PM

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