Viatical Settlements, Money, and AIDS
But surveys like these always have one big question hanging over them: do they mean anything? People surely do not think as seriously about a poll question as they would if they had something tangible at stake. So economists looking for insights into human behavior have never liked surveys. They prefer money.
And money is exactly what it at stake in an obscure part of the insurance business known as viatical settlements, which sprung up in the 1980’s, when AIDS was a deadlier disease than it is today. These settlements, Dr. Bhattacharya and two colleagues realized, offer a natural experiment in which people make mortality guesses that really mean something.
Viatical settlements started as a way to help AIDS patients afford their treatment when they had to pay for it themselves. A group of investors would buy a patient’s life insurance policy at a discount, becoming its beneficiary, and the patient would use the money from the sale to buy AIDS drugs that, at the time, often cost more than $15,000 a year.
A typical patient might have had a policy that would pay a benefit of $100,000 upon death, said Dana P. Goldman, the director of health economics at the RAND Corporation in Santa Monica, Calif., and one of Dr. Bhattacharya’s collaborators. (The other was Neeraj Sood, also of RAND.) The longer that the investors thought the patient would live, the less money they would offer for the policy, because they would have to wait longer to claim the benefit.
For a patient who seemed likely to live for a few more years, they might pay $50,000 for the policy and also take over the monthly premiums of, say, $150. The patient could then afford the drugs, while the investors turned a profit, making them willing to strike similar deals with others.
“This type of transaction might seem kind of unseemly,” Dr. Goldman said. “But it can be valuable to everyone.”
Whatever you think of the settlements, they clearly work best when everybody has good information about how long patients are likely to live. If the investors are the only ones who understand the odds, they can take the advantage of the patients.
In fact, patients in a more advanced stage of AIDS often accepted less money than they should have, suggesting that they expected to live longer than the investors thought they would. They thought they still had years and years to live, so they figured they had to accept a deep discount on their insurance benefit. People with a recent diagnosis, on the other hand, tended to reject many offers. They were less hopeful about their chances than the investors were and thus thought they should receive nearly full value for their policies.
It is hard to get too upset about the irrational optimists in this story. Hope in the face of long odds can be an inspiring thing, and many doctors believe that it raises a person’s chance of recovery. Somebody vowing to beat back a disease probably has more use for emotional support than an actuarial table.
But if the pessimists - people with a recent diagnosis, as well as those who have simply entered their 70’s and begun to think more about mortality - knew what the future really held, they might act differently.
They might not sell their house quite yet, and they might wait to splurge on that once-in-a-lifetime vacation. (Then again, why wait?) They might even consider a viatical settlement, because that market has spread well beyond AIDS patients in recent years, or an annuity, which makes a yearly payment that can last the rest of a person’s life.
Best of all, these newly optimistic realists might be a little happier about all that still lies ahead of them.
Source: Finfacts.com
