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Medical Insurance Inflation: Factoring Into a Settlement Solution

by John Darer CLU ChFC MSSC RSP CLTC

The AVERAGE year over year rate of increase in health insurance premiums for New York City residents across 8 leading insurers was 11.23% based on data assembled by the New York Public Interest Research Group (NYPIRG) and published in the August 29, 2010 Daily News. According to the report "Self-Insured Feeling Pinch" there has been MORE THAN A DECADE of double digit increases.

The increasing federal deficits may make it increasingly difficult to shift tortfeasor responsibility to government based initiatives like Medicaid and Medicar.

Buying medical insurance is a solution. In some states like New York and New Jersey there is guaranteed issue community rated medical insurance. These have been around for close to 20 years, originally as a private insurance solution to the Clinton era threat of Universal Health Care. As an alternative to the restrictions found in government funded benefits private health plans in such states may offer more flexibility in physician selection

Some states offer catastrophic health insurance pools. Then of course we now have "Obamacare"

When calculating the cost of such solution one must be cognizant of the cost of medical insurance increases. Moreover, be aware that these are just increases in premiums and do not reflect the deductibles, co-pays and co-insurance that may apply. Those must be factored in as well. An additional wrinkle is that most structured annuity issuers will cap contractually based increases to 5% or 6%.  One must account for the gap and determine how it is to be funded.

Prevent Lottery Winners From Ending Up Losers: Give Them More Options

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

Do limited options for lottery winners increase the likelihood of dissipation? The choice is simply cash or annuity and many just take the cash. Some end up with nothing even though they started their post winning life with more than many are able to save in a lifetime.

The latest story about a lottery winner to end up a financial loser is Norfolk, England's Michael Carroll. Carroll , who managed to squander approximately $14 million he won February 11, 2002, at age 19, over the course of 8 years (after being down to about $900,000 in 6 years).

• Lost £1million on the dogs and horses (gambling)
• Spent £1million on the Rangers his favorite soccer team
• £400,000 fleet of luxury cars (which he sold in 2009 and spent the proceeds)
• Boasted about sleeping with four a day - a total of 2,000 at a cost of £100,000 over eight years - in order to sate his sexual appetite.
• Reportedly lost an estimated £80,000 on a property deal in Dubai after the market fell.
• In 2004, Carroll was jailed for five months after failing to comply with a drug treatment order, imposed as part of a sentence for cocaine possession

A May 30, 2010 story in Britain's Daily Mail quotes Carroll as reflecting "'The party has ended and it's back to reality. I haven't got two pennies to rub together and that's the way I like it. I find it easier to live off £42 dole than a million. He said others had benefited from the win more than he had. 'I'm just glad it's over. There were also vultures everywhere after my cash. I started to see what people were really like,' he explained.

Is it fair to the taxpayers that someone who won a sizeable sum is allowed to go on welfare and possibly qualify for Medicaid as a reward for a reckless financial downfall  in such a short period of time after their windfall?

On the one hand one could say people should have the right to screw themselves up. They make bad business decisions every day that cost them their savings. They borrow too much. They make bad investment decisions. Some get scammed by  the likes of a Bernie Madoff, Scott Rothstein, Marc Dreier or lower level alleged Ponzi hoods like "Dirty Barry" and Nicholas Cosmo Some get fleeced or taken advantage of by friends or family, or salesmen with a hot tip (never answer an investment survey!).

Today's lottery winners generally have only two choices;  a) take a lump sum or  b) take an annuity. Why don't they have more choices so they can make better decisions?

Why not give a lottery winner the ability to have a portion in an annuity? Give the individual the ability to have a stable secure income while still being able to grow into their new found wealth.  Perhaps a choice of all cash, all annuity, 1/4 annuity, 1/3 annuity and 1/2 annuity.  There should be enough options so that a person can make a reasonable choice.  Perhaps there should be some sort of guidebook to help people make an informed decision.

Using US rates for illustrative purposes, a 1/4 annuity would have meant $10.5 million in cash about $3.5 million into the annuity at say 5.41% tax deferred, the 30 year bond rate of February 11, 2002.

So our "hero" would have close to $7 million in net cash and an annuity that pays him $189,350 a year for 30 years. After assumed 35% taxes, the annuity would be about $123,077. He could blow all the cash and still have a meaningful income. Have a look at his mug in the link below. Think he'd be smiling more with more than the equivalent of $75 or so dollars a week on the dole?

Moreover, the secondary market assures that liquidity is still available.

Some might say why be paternalistic? Who gives a rat's ass if some SOB blows all his/her money?  I say why the hell not? Having now had the benefit of hindsight, if a guy like Michael Carroll finds it easier to live off 42 pounds a week compared to having a million in the kitty, perhaps somewhere in the middle would be right.

Read the Daily Mail story about Mr. Carroll.

Some of the problems experienced by Mr. Carroll could well be experienced by a personal injury victim, who through his or her own personal injury or the death of another comes into a large sum of money. Read our section on Structured Settlements for Minors and Settlement Planning For Children and Young Adults,