Wednesday, March 11, 2009

Tontine Barbie

This was definitely one of those times when you had to see the print edition rather than the online version of a publication to fully appreciate the editors’ stupidity. On Monday, the NYT devoted pretty much half of its Op/Ed page to a column about the Barbie doll. What really ticked me off was that the editors didn’t make the huge illustration that accompanied the piece suitable for coloring and eventual display on a refrigerator door.

That and the fact that some of the precious remaining Op/Ed space was used for a column promoting healthcare tontines for those pesky 19 to 29 year olds who consider themselves invincible and refuse to pay for health insurance.

The authors, two lawyers, dismiss universal healthcare out of hand, saying that it’s just too costly. So there. Besides, what America really needs is yet another hybrid financial/insurance product that’s extremely complicated (how complicated? just read the column) and with the potential to accumulate tons of cash just waiting to be prudently reinvested in rock-solid, AAA-grade, collateralized debt obligations and other never-fail securitized instruments.

Why aren’t tontines available today? Because they’re illegal. Why are they illegal? Well....
Sadly, this kind of insurance isn’t on the table, due to the failure of tontine life insurance in the late 19th century (“tontine,” by the way, derives from the name of the Italian banker who invented the system). Tontine life insurance paid a deferred dividend to policy holders who survived and faithfully paid their insurance premiums for a defined period, usually 20 years.

Things went sour when tontine life insurance companies became economic titans, buying and selling stocks on a scale that would make Warren Buffett blush. Unfortunately their leaders did not show Mr. Buffett’s personal restraint. Their extravagance and influence-peddling prompted a political backlash that led to laws in 1906 reorganizing the insurance business and regulating its management of surplus funds.
Nonetheless, the authors remain enthusiastic. Such things could never happen today.
The life insurance tontine experience seem to make health insurers leery of trying such an experiment again. But they shouldn’t be. Health insurance tontines would not produce the same level of corrupting fortunes.
Maybe the Times should have skipped the column on healthcare tontines and expanded the Barbie illustration to include Ken and Skipper too.

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