As the life story of each worker unfolds, workers at 22 years of age do not know who will be healthy, who will become rich, or who will live to retirement. By pooling their investments as an age group, they would mutually insure their age group before these things are known by having each worker pay a set percentage of their wages throughout their working lives to guarantee access to retirement health care. Because the percentage is the same for all workers of the same age, workers of a particular age would subsidize nonworkers of the same age and high wage earners would subsidize low wage earners. The annual cumulative funds collected from each age group would be divided equally and deposited in each individual's account to grow until retirement. All investment account providers would be subject to reasonable requirements on the safety and soundness of their portfolios and would be required to take all applicants.
Mandatory participation solves the adverse selection problem.
If a person dies prior to retirement, his or her contributions would be redistributed to other members of the respective age group. Estimating Required Contribution Rates Investment-based financing makes each age group responsible for its retirement medical care. By making reasonable assumptions about real retirement medical expense growth, the real return on investment, and future life expectancies, we can estimate the contribution rate required to finance an age group's retirement health insurance. As an age group moves through its life-cycle, the contribution rate would be adjusted to take into account changes in experience, just as other casualty insurance rates are now adjusted. Table 1 presents estimated contribution rates that a new worker could expect to face over his or her lifetime to pay for retirement medical care under an investment-funded system.