How much for lifetime health insurance?

By Felix Salmon
June 13, 2011
Caroline Graham's interview with Bill Gates has lots of interesting nuggets, but this bit in particular, about the amount of money his children will inherit, got me thinking:

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Caroline Graham’s interview with Bill Gates has lots of interesting nuggets, but this bit in particular, about the amount of money his children will inherit, got me thinking:

He won’t specify what they will get, but the reports that they’ll receive ‘only’ $10 million each can’t be far off, because he concedes, ‘It will be a minuscule portion of my wealth. It will mean they have to find their own way.

‘They will be given an unbelievable education and that will all be paid for. And certainly anything related to health issues we will take care of. But in terms of their income, they will have to pick a job they like and go to work. They are normal kids now. They do chores, they get pocket money.’

He is determined that his family life should be as unaffected as possible by his fortune.

It probably goes without saying that if you want your family to be unaffected by your fortune, you probably shouldn’t bring up your family in a $100 million house and invite your friend Bono to stay the night when he’s playing a local gig. And that if you have $10 million in the bank as you’re just entering the workforce, your investment income is almost certainly going to vastly exceed anything you can earn from picking up a job and going to work. So if Gates wants to force his children to “find their own way,” he’ll either have to give them much less than $10 million, or else encrust that money with so many restrictions on how it can be spent that the absolute amount doesn’t really matter anyway.

Still, the bit which stuck with me was where Gates said that “anything related to health issues we will take care of.” I have no idea where to even begin answering this question — so maybe one of my readers can help. Here goes:

How much would it cost for Bill Gates to buy a lifetime’s worth of gold-plated health insurance for one of his daughters, covering any conceivable medical expense, in full, not only for her life but also for any future spouse and all future children she may have? Assume this is a single-premium deal, where he simply writes a check today and his daughter and her hypothetical future family are covered for the rest of their lives.

While there’s a certain amount of moral hazard here — his daughter could turn out to be some kind of sanatorium addict — let’s assume for the sake of argument that the kid is perfectly healthy and well-adjusted today. If you were a big health insurer, how much would you need to charge before taking on that kind of liability?

It seems to me that this is a product which would be of interest not only to Bill Gates but also to many other high net worth individuals looking to ensure that their kids are medically looked after for as long as they live. Is the problem that it would be too expensive for even a billionaire to buy? Or is it just that no insurance company would ever dare write it?

Comments
13 comments so far

A testamentary trust fund with sufficient capital could obtain health insurance for the beneficiary, as well as pay out costs exceeding what’s covered.

Posted by RobSterling | Report as abusive

How much would it cost to help his daughters become Swedish citizens? That would take care of all future health care costs for them and their children.

Posted by sammartin | Report as abusive

Present value of $5K inflating at 2% over a lifetime, divided by .85. Other than pre-existing conditions – I assume none – there’s no real adverse selection here, since few people want to maximize their health costs, since that involves getting chemotherapy and long, boring hospital stays.

Posted by RZ0 | Report as abusive

Even if you stuck that $10M into a savings account that earned 3% (higher than what I get from my bank, but I’m betting you can do about that well if you have $10M to plunk down) you’d make $300K a year. I’d feel more than comfortable living on that indefinitely.

Of course, you’ve got to take inflation into account … if you start in 2011 w/$10M and an “allowance” of $250K a year (more than enough to have a comfortable middle-class lifestyle, including health insurance), earn 3% interest on your money and then increase your allowance 5 percent a year, you’d run out of cash by 2040. But of course someone w/$10M to invest is going to do better than 3% a year. Bump it up to 6 percent and you make it to 2060. I’m sure there’s a strategy that can run the clock out on your life on ths money (and 5 percent inflation is probably kind of high.)

Posted by jfruh | Report as abusive

You’re facing some pretty long-term credit risk against this insurance company, and I wonder, as was to some extent the case with the parties that ended up buying AAA CDO tranches, whether you especially don’t want to trust the company that is willing to sell you this.

Posted by dWj | Report as abusive

I would lay odds on some sort of trust as Rob Sterling suggests. It would not necessarily need to even purchase health insurance, but simply be available for excessive healthcare costs. The assumption could be that the (grown) kids would access health insurance through employment or purchase individual plans on their own income, but have a large pool of money to fall back on in the face of excess medical expenses. I wonder if it could even be established as a charitable remainders trust?

Posted by Ragweed | Report as abusive

How long does Gates expect to live? It will be interesting if the estate gets sued by the children – I would bet at least one, and in all likihood, all of the little darlings will file a suit to get the bulk of the estate.
The best opportunity that these children will ever have to make a forture is hiring a good estate attorney

Posted by fresnodan | Report as abusive

Depends on how he plans to deal with grand^(n)-children.

Setting up a trust to provide more spending money than the person would ever need is easy. Setting up a trust that pays all uncovered-elsewhere health care expenses (e.g., school health care during university days) is A LOT more difficult.

To take the easiest question: what happens to the balance on death? Does the trust function the same for the deceased descendants? Or do the funds get bundled into one.org or the Gates Foundation or the Michelle Rhee Reputation Rehabilitation Fund? (Oh, wait, I repeat myself.)

What if the insured’s child (Bill and Melinda’s grandkid) is severely injured before the parent’s death? Will they be covered then? Or after the parent’s death? Or do both parents have to die? Etc.

The “Medicare Trust” structure isn’t good for the specific. I’m certain they can set up the Gates Foundation or some similar entity s.t. direct descendants of Melinda have out-of-pocket health care expenses covered in perpetuity–but that doesn’t sound like it’s the goal, which will make the contingencies a mess.

Posted by klhoughton | Report as abusive

Forget the inheritance — he makes his children use a Zune instead of an iPod! No amount of money or healthcare can make up for that.

Posted by right | Report as abusive

It’s quite easy to become a British citizen if you’re rich. Buy suitable lodgings in London, move some money into a bank here, wait a couple of years and don’t get caught doing anything illegal. Then apply.

Posted by yorksranter | Report as abusive

That the question is being asked brings up the virtue of universal, single payer healthcare.

The wealthy simply self insure above the universally provided health care.

Posted by Beezer | Report as abusive

the only 100% sure way to insure your health until the end is sure, wilful death. excepting that, there are uncertainties.

Posted by q_is_too_short | Report as abusive

Good question. A single premium health insurance policy for, say a child who turns 21. The real reason for such a policy would be to protect the fortune the child inherited. There is no need for low co-pay cover, so all that is required is catastrophic health care with a high annual deductible, say $50,000 minimum. It could be more.

We could probably price an annual catastrophic health policy today (it’s not my field) and consider the single premium policy to be little more than an annuity to make the premium payments. It’s not quite that simple since inflation, life expectancy and other factors that come into play over the expected life span need to also be factored in.

It’s a nifty idea but the market is probably not of sufficient size to be attractive to any insurer and the upfront premium is so large, given today’s interest rates, that financially savvy buyers would just as soon bear the risk themselves.

Posted by OregonJon | Report as abusive
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