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In The News

Whether You Go With Aetna,

Allstate, AIG Or Another, Avoid

The Four Big Insurance Traps

Don’t get trapped by overindulgence, bells and whistles, too many organizations taking their slice of the pie or those prone to fly-by-night. When it comes to insurance, stick with the basics. My father and my 1st year college economics professor had the same view on insurance: it’s important to insure against what you cannot afford to have happen and a waste of money, time and effort to insure against anything more. The best insurance organizations help you do that and make a fair profit on the value they create. The worst make money at their customers’ expense. My economics professor used an example of 10 farmers who live on the food they produce. Each year one of the farms fails. Without insurance, the family on the failed farm starves to death. The alternate approach is for each farm to put aside 10% of their food each year to help the farm that fails. This way, each farm consumes 90% of its food (or 10% of nine other farms’ food) each year and everyone survives. Since the farmers in this example are collectively self-insured, there’s no friction in the system and all the “insurance premiums” go directly to helping those that need it. Today, there are several different types of insurance organizations: Compliments of Forbes.com

Big student loans? Consider life

insurance

If you’re co-signing big student loans for your child, you may want to buy a life insurance policy while you’re at it. While no one wants to imagine the death of their child, taking out insurance on your son or daughter — or asking them to purchase their own plan — will protect you from being hit with mountains of debt should tragedy strike. And the policies are pretty cheap. A basic plan with up to $250,000 in coverage can cost as little as $15 a month for a young, healthy college student or recent graduate. That’s a whole lot less than the loan payments you could be stuck with — which average more than $200 a month. Such a move would have been life altering to Steve and Darnelle Mason, who lost their daughter Lisa five years ago. Trying to pay back the $100,000 in private student loans they co-signed for their daughter has been a financial nightmare. “I absolutely wish we had [a life insurance] policy,” said Steve Mason. “We would not have struggled financially for the past four years with these private student loans, and our credit would not have been ruined.” Federal student loans are forgiven by the lender when a borrower dies, but private lenders aren’t required to provide any such relief. That’s one reason it’s important to get as much federal aid as possible before turning to private lenders. And for parents, it means not co-signing on a loan unless you have the means to repay it. Another reason for caution: student loans can rarely be discharged in bankruptcy. Compliments of KDVR.com

Unemployment insurance

prevented 1.4 million

foreclosures

There were really two housing crashes. The first one happened in 2007, because people bought places they couldn't afford. Well, not unless prices kept rising. See, they had teaser loans they could pay at first, but not later. So when that later eventually came, they needed to refinance into new ones they could still pay. The problem, though, was they couldn't do that once prices fell enough that their homes were worth less than their mortgages, which didn't take much since they were putting almost nothing down. That's because you need positive equity to refinance. So people were stuck. They had no choice but to default. The second one, though, happened in 2009, because people who used to be able to afford their homes couldn't once they lost their jobs. In other words, the housing crisis begat an unemployment crisis that begat an even worse housing crisis. Only the government could stop this vicious circle. It had to help the unemployed so they could stay in their homes. And it had to stabilize housing — along with the rest of the economy — so more people wouldn't lose their jobs. That's what the government stimulus did. Indeed, a new paper by Joanne Hsu, David Matsa and Brian Melzer, finds that unemployment insurance (UI) alone prevented about 1.4 million foreclosures between 2008 and 2012. They were able to calculate this because different states had different benefit levels. So, controlling for each state's economy, they could observe how much increased UI reduced mortgage delinquencies. And, as you can see below, the answer is quite a bit: States with more generous benefits tended to have lower default rates. Compliments of The Washington Post

How Employer-Based Health

Insurance Actually Is Cheaper

Than Government-Sponsored

Insurance

Princeton health economist Uwe Reinhardt this week posted a very informative and entertaining (no surprise there) response to Sally Pipes’ claim that Employer Health Insurance: A Bargain Compared to Government- Sponsored Coverage (read: Medicare and Medicaid). It’s hard to disagree with most of what Prof. Reinhardt has offered in his rebuttal.  But at the risk of having my own post become a “platform for a homework assignment in undergraduate health-economics courses,” let me suggest that Sally Pipes may actually be right for reasons she never even addressed. Comparing the cost of employer- sponsored insurance to the cost of either Medicare or Medicaid is a completely stacked comparison even if we fully adjust for every iota of age and health status differences between these three populations and use an apples-to- apples comparison of plans having the identical benefits and actuarial value.  The premium cost for employer coverage essentially embeds the fully loaded cost to society of providing such coverage, inclusive of profits, insurance company tax payments and administrative costs. In contrast, the Medicare and Medicaid cost figures used by Prof. Reinhardt include only a portion of the administrative costs incurred by both programs and none of the hidden costs of taxation known as excess burden or deadweight losses. Once these hidden costs are taken into account, even Medicaid (whose provider payment rates are so abysmal that one third of primary care physicians refuse to see Medicaid patients) costs more than employer-sponsored coverage. Compliments of Forbes.com
In The News

In The News

Whether You Go

With Aetna, Allstate,

AIG Or Another,

Avoid The Four Big

Insurance Traps

Don’t get trapped by overindulgence, bells and whistles, too many organizations taking their slice of the pie or those prone to fly-by- night. When it comes to insurance, stick with the basics. My father and my 1st year college economics professor had the same view on insurance: it’s important to insure against what you cannot afford to have happen and a waste of money, time and effort to insure against anything more. The best insurance organizations help you do that and make a fair profit on the value they create. The worst make money at their customers’ expense. My economics professor used an example of 10 farmers who live on the food they produce. Each year one of the farms fails. Without insurance, the family on the failed farm starves to death. The alternate approach is for each farm to put aside 10% of their food each year to help the farm that fails. This way, each farm consumes 90% of its food (or 10% of nine other farms’ food) each year and everyone survives. Since the farmers in this example are collectively self-insured, there’s no friction in the system and all the “insurance premiums” go directly to helping those that need it. Today, there are several different types of insurance organizations: Compliments of Forbes.com

Big student loans? Consider life

insurance

If you’re co-signing big student loans for your child, you may want to buy a life insurance policy while you’re at it. While no one wants to imagine the death of their child, taking out insurance on your son or daughter — or asking them to purchase their own plan — will protect you from being hit with mountains of debt should tragedy strike. And the policies are pretty cheap. A basic plan with up to $250,000 in coverage can cost as little as $15 a month for a young, healthy college student or recent graduate. That’s a whole lot less than the loan payments you could be stuck with — which average more than $200 a month. Such a move would have been life altering to Steve and Darnelle Mason, who lost their daughter Lisa five years ago. Trying to pay back the $100,000 in private student loans they co- signed for their daughter has been a financial nightmare. “I absolutely wish we had [a life insurance] policy,” said Steve Mason. “We would not have struggled financially for the past four years with these private student loans, and our credit would not have been ruined.” Federal student loans are forgiven by the lender when a borrower dies, but private lenders aren’t required to provide any such relief. That’s one reason it’s important to get as much federal aid as possible before turning to private lenders. And for parents, it means not co-signing on a loan unless you have the means to repay it. Another reason for caution: student loans can rarely be discharged in bankruptcy. Compliments of KDVR.com
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Unemployment insurance prevented

1.4 million foreclosures

There were really two housing crashes. The first one happened in 2007, because people bought places they couldn't afford. Well, not unless prices kept rising. See, they had teaser loans they could pay at first, but not later. So when that later eventually came, they needed to refinance into new ones they could still pay. The problem, though, was they couldn't do that once prices fell enough that their homes were worth less than their mortgages, which didn't take much since they were putting almost nothing down. That's because you need positive equity to refinance. So people were stuck. They had no choice but to default. The second one, though, happened in 2009, because people who used to be able to afford their homes couldn't once they lost their jobs. In other words, the housing crisis begat an unemployment crisis that begat an even worse housing crisis. Only the government could stop this vicious circle. It had to help the unemployed so they could stay in their homes. And it had to stabilize housing — along with the rest of the economy — so more people wouldn't lose their jobs. That's what the government stimulus did. Indeed, a new paper by Joanne Hsu, David Matsa and Brian Melzer, finds that unemployment insurance (UI) alone prevented about 1.4 million foreclosures between 2008 and 2012. They were able to calculate this because different states had different benefit levels. So, controlling for each state's economy, they could observe how much increased UI reduced mortgage delinquencies. And, as you can see below, the answer is quite a bit: States with more generous benefits tended to have lower default rates. Compliments of The Washington Post

How Employer-Based Health

Insurance Actually Is Cheaper Than

Government-Sponsored Insurance

Princeton health economist Uwe Reinhardt this week posted a very informative and entertaining (no surprise there) response to Sally Pipes’ claim that Employer Health Insurance: A Bargain Compared to Government-Sponsored Coverage (read: Medicare and Medicaid). It’s hard to disagree with most of what Prof. Reinhardt has offered in his rebuttal.  But at the risk of having my own post become a “platform for a homework assignment in undergraduate health-economics courses,” let me suggest that Sally Pipes may actually be right for reasons she never even addressed. Comparing the cost of employer-sponsored insurance to the cost of either Medicare or Medicaid is a completely stacked comparison even if we fully adjust for every iota of age and health status differences between these three populations and use an apples-to-apples comparison of plans having the identical benefits and actuarial value.  The premium cost for employer coverage essentially embeds the fully loaded cost to society of providing such coverage, inclusive of profits, insurance company tax payments and administrative costs. In contrast, the Medicare and Medicaid cost figures used by Prof. Reinhardt include only a portion of the administrative costs incurred by both programs and none of the hidden costs of taxation known as excess burden or deadweight losses. Once these hidden costs are taken into account, even Medicaid (whose provider payment rates are so abysmal that one third of primary care physicians refuse to see Medicaid patients) costs more than employer-sponsored coverage. Compliments of Forbes.com