Thoughts on the privatization of retirement programs, medical plans

By William H. Stewart
Special to the Saipan Tribune

First of a two-part series

There’s quite a bit of discussion these days about privatization of Social Security as well as the CNMI’s own medical and health insurance program. I’m not aware that any specific details of either program have been provided to those who will be potentially affected so I’m not certain if the privatization effort is good for retirees or not—but it’s a safe bet that privatization would be good for the insurance companies and that should tell you something.

I believe it was a result of the stock market crash that President Roosevelt devised the Social Security System to provide a measure of financial security for the elderly at a time when the private sector failed to do so. At that time, millions lost confidence in the market partly as a result of the conniving shenanigans of some in the private sector. It took a dozen years or so and the advent of World War II for the United States to work its way out of the Great Depression. Today some die-hard capitalist will tell you that a stock market crash could never happen again because of government controls now in place. Maybe so, but unscrupulous executives can find other creative ways to wreck a company.

Three quarters of a century after the crash, private sector abuses still occasionally occur in some industries in one form or the other. Witness the disgraceful actions and distressing revelations that have occurred concerning all manner of corporate abuses and fraud among such heretofore respected—but now discredited—firms such as Enron, WorldCom, Arthur Andersen and many others too numerous to mention. The fraudulent actions and irregularities of a few have unfortunately made all suspect. Even some “God fearing” evangelists interpreting the “Good Book” have not been beyond such transgressions.

Can you possibly imagine what would happen if you had your investment in a medical program tied up in one of the above firms? As my dear ol’ granny might say, “Billy, privatization may be a good idea, but who is going to watch the fox while he’s in the hen house?” Meaning who is going to watch the price structure of health service when the system is “locked in” to only a few private firms. I would like to suggest that before any decision is made to move to a privatized program in the CNMI that a through assessment be made of the risks involved for the retirees, along with the added cost to them and their families. It seems only prudent to inform the retirees and those members not yet retired who, after all, will be the people paying for their individually financed program. It’s the other side of the coin since we know the private firms will tell their stockholders how great their program is (for themselves).

I can’t help but find it a bit incongruous when people who themselves may not be retired—or don’t otherwise have a financial interest in the NMI’s existing health and medical program—take it upon themselves to suggest changes that have no immediate effect on their livelihood or well-being but which could have significant impact upon those already retired and their families and those planning to do so in the future. As noted in the February bulletin of the American Association of Retired Persons, one subscriber put it this way, “Our health plan was not an entitlement. It was an earned benefit! It was pay! These benefits should be sacrosanct!”

I believe many feel that way about the CNMI’s medical plan. In any event I would like to suggest that any privatization plan that might be proposed also be evaluated by a consultant recommended by AARP before it is finally implemented. And that the competence and credentials of the evaluator also be evaluated before acting on their advice.

Whether one is concerned with pension plans or related health and medical programs, space will not permit a comprehensive review of failed private programs but a single recent and well publicized example will make the point. Some of the pension funds that lost money from investing in Enron stock are listed at http://en.wikipedia.org/wiki/Pension_fund_losses_with_Enron.

In addition, the U.S. Senate Governmental Affairs Committee hearings of Feb. 5, 2002 on “Retirement Insecurity” addressed some of the lessons learned from the largest bankruptcy in American history. Chairman Joe Lieberman stated: “Though many of us are still coming to grips with the depth of the damage caused by Enron’s collapse, for Enron employees and retirees themselves, the consequences were crystal clear from the day the company crumbled. To put it plainly, they lost their savings. They watched their nest eggs evaporate.

“They lost trust in both the personal and fiscal senses of the word in the system. And millions of other workers around the country who have been following the sad stories of Enron’s employees have grown anxious about their own retirement security.”

For more information on the Enron hearings and the results of the firm’s privatization program go to http://govt-aff.senate.gov/020502lieberman.htm.

To be continued

(William Stewart is an economist, historian, and military cartographer.)