THE READY RESERVE MOBILIZATION INCOME INSURANCE PROGRAM

CRS Report for Congress
The Ready Reserve Mobilization Income
Insurance Program
August 3, 1998
Lawrence Kapp
Analyst in National Defense
Foreign Affairs and National Defense Division

Congressional Research Service ˜ The Library of Congress

A^B^S^T^RACT
This report describes the creation and failure of the Ready Reserve Mobilization Income
Insurance Program, a program designed to help military reservists protect themselves from
financial loss during an involuntary order to federal active duty. This report also discusses
and analyzes several alternative policy options for addressing the issue of income loss
among reservists due to mobilization. This report will not be updated in the future.

The Ready Reserve Mobilization Income Insurance Program
Summary
The Ready Reserve Mobilization Income Insurance Program (RRMIIP) was a
Department of Defense (DoD) program designed to help military reservists protect
themselves from financial loss during an involuntary order to federal active duty.
Though intended to be a self-financing program, the RRMIIP became insolvent soon
after its debut in 1996 due to low enrollment and severe adverse selection. The
program was terminated by Congress only a year later and Congress eventually
appropriated a total of $119 million to pay off insurance claims associated with the
RRMIIP. The failure of the RRMIIP diminished interest in mobilization insurance
both in Congress and DoD, but there has been continuing pressure by some reservists
and various reservist interest groups to implement a new program. This report
examines the creation and failure of the RRMIIP and analyzes some possible options
for addressing the issue of income loss due to mobilization, including a restructured
mobilization insurance program, individual savings and investment, government
reimbursement of loss, and private insurance.

Contents
Background ......................................................1
Current Issues.....................................................5
Is there a real need for mobilization insurance?......................5
Can the problems experienced by the RRMIIP be avoided in a new program?8
A. Add a waiting period or exclude an ongoing event.............8
B. Make mobilization insurance mandatory.....................8
C. Make the insurance program loss based, rather than value based..9
Are there other ways to help reservists protect themselves against income loss
besides a new mobilization insurance program?.................10
A. Individual saving and investment..........................10
B. Government reimbursement of loss........................11
C. Private insurance......................................12
Inquiries about this report should be directed to Robert Goldich or David Burrelli,
Specialists in National Defense at the Congressional Research Service.

The Ready Reserve Mobilization Income
Insurance Program
Background
The Ready Reserve Mobilization Income Insurance Program (RRMIIP) was
instituted in response to growing concerns about the reported financial losses
incurred by some reservists¹ who were activated for the Persian Gulf War (Operation
Desert Storm/Shield, 1990-1991). Although the Soldier’s and Sailor’s Civil Relief
Act (SSCRA)² has long given reservists some protection against financial loss due
to mobilization, one survey sponsored by the Department of Defense (DoD) indicated
that as many as two-thirds of the reservists activated during Operation Desert³
Shield/Storm suffered economic loss as a result of their deployment. These losses
occurred due to differences between the reservists’ military and civilian pay,
expenses incurred by reservists because of mobilization, and the decline in business
experienced by self-employed reservists during and after release from active duty.
Another DoD-sponsored survey indicated that the potential for income loss during
an activation was a major concern for both officers and enlisted personnel in the⁴
reserves. Given DoD’s increasing reliance on the reserve components, DoD was
especially concerned that this potential for financial loss would have a negative
impact on recruiting and retention in the reserves, thereby undermining the readiness
of the reserve component and its ability to carry out future missions.
In 1996, Congress directed DoD to establish an optional income insurance
program for reservists who were involuntarily ordered to active duty for more than

¹Throughout this paper, the terms “reserves” and “reserve components” refer to the Ready
Reserve, which is comprised of the Army National Guard, Army Reserve, Air National
Guard, Air Force Reserve, Navy Reserve, Marine Corps Reserve, and Coast Guard Reserve.
The term “reservist” refers to individual members of these organizations.
²Soldiers’ and Sailors’ Civil Relief Act of 1940. ( October 17, 1940, Ch. 888, 54 Stat.
1178). Some of the financial protections offered by the SSCRA are: protection against
foreclosures on homes and property, reduction of interest rates on loans, penalty free
cancellation of leases, as well as postponement of various legal processes. For more
information on this topic see CRS Report 91-342 A, The Soldiers’ and Sailors Civil Relief
Act of 1940, as Amended to Date: A Summary, by Robert B. Burdette. July 21, 1998.
³Department of Defense. Office of the Assistant Secretary of Defense for Public Affairs.
Memorandum Number No. 056-M. Memorandum for Correspondents: Information
Provided on Mobilization Insurance for Reservists. April 11, 1996: 1.
⁴U.S. Congress. House of Representatives. Committee on National Security. Subcommittee
on Military Personnel. Prepared statement of Assistant Secretary of Defense (Reserve
Affairs) Deborah R. Lee. Status Report on the Ready Reserve Mobilization Income
Insurance Program. May 8, 1997: 1.

30 days.⁵ DoD implemented the program on October 1, 1996 under the name “Ready
Reserve Mobilization Income Insurance Program.” After being notified of the
program,⁶ current reservists were given a 60-day window in which to enroll in the
program if they so desired. Upon joining the reserves, new reservists were
automatically enrolled for $1,000 worth of income insurance, but were given the
option to alter or eliminate the coverage within 60 days. Program participants were
required to pay $12.20 per month for each $1,000 of coverage, up to a maximum of
$61.00 per month for $5,000 of coverage. After 30 days of “covered service,”⁷ the
insured reservists were entitled to receive a monthly benefit payment equivalent to
the amount of coverage purchased, for up to twelve months out of any eighteen
month period. The program was meant to be self-financing, with benefits to be
completely financed by the premiums paid into the system by enrolled reservists.
The RRMIIP ran into difficulties almost from the moment it started. First,
reservists signed up for the program at a much lower rate than anticipated. On the
basis of survey research, DoD anticipated that about 40 percent of reservists,⁸ or
approximately 360,000 individuals, would enroll in the program. In actuality, only
about 3 percent of reservists, roughly 26,000 individuals, chose to enroll. This
dramatically reduced the amount of money which was paid into the system. Second,
the RRMIIP suffered from severe “adverse selection.” Adverse selection occurs when
those most likely to suffer loss are covered in greater proportion than others. This
can create a situation where the actual losses incurred by the insurer are much greater
than the losses originally anticipated. As insurance premiums are based on
anticipated losses, the accumulated premiums in the insurance fund prove insufficient
to pay for losses.

⁵P. L. 104-106, section 512, February 10, 1996, National Defense Authorization Act for
Fiscal Year 1996; 110 Stat. 299-305.
⁶The notification and enrollment process was decentralized, occurring at the unit level.
Thus, the actual date on which individual reservists received notification, starting the 60-day
“clock,” varied from unit to unit.
⁷“The term ‘covered service’ means active duty performed by a member of a reserve
component under an order to active duty for more than 30 days which specifies that the
member’s service — (A) is in support of an operation mission for which members of the
reserve components have been ordered to active duty without their consent; or (B) is in
support of forces activated during a period of war declared by Congress or a period of
national emergency declared by the President or Congress.” 10 U.S.C. 12521 (2).
⁸These statistics refer only to members of the Selected Reserve, a sub-element of the Ready
Reserve which contains those units and individuals most essential to wartime missions.
Selected Reservists generally perform one weekend of training each month, for which they
receive a monthly paycheck, and two weeks of training each year, for which they receive a
separate paycheck. Another sub-element of the Ready Reserve is the Individual Ready
Reserve, which contains a manpower pool of pre-trained individuals who have already
served in the Active component or the Selected Reserve, but who are not required to train
regularly like the Selected Reserve. Members of the Selected Reserve (about 900,000
individuals) were the primary “target” of the RRMIIP, although members of the Individual
Ready Reserve (about 500,000 individuals) were also eligible to enroll.

A certain amount of adverse selection was inevitable due to commonly known
information about the recent patterns of reserve mobilization. Reservists in certain
military specialties which have been in high demand in post-Cold War U.S. military
operations (such as military police or civil affairs) or in units with high “readiness”
ratings, could reasonably conclude, based on recent mobilization patterns, that their
risk of mobilization was relatively high and, therefore, opt to purchase mobilization
insurance. Reservists in military specialties or units less likely to be activated based
on recent experience (such as infantry or armor), or in units with low “readiness”
ratings, could similarly conclude that their risk of mobilization was minimal and opt
not to purchase mobilization insurance. DoD recognized this risk of adverse
selection and attempted to adjust the mobilization insurance premium accordingly.⁹
However, a different and more severe form of adverse selection occurred due
to the unfortunate timing of the program’s debut. The RRMIIP was initiated at the
same time the Clinton Administration decided to extend the U.S. presence in Bosnia
beyond December of 1996. As a result, the enrollment period for the RRMIIP
occurred at the same time many reservists were being mobilized for the third
rotation¹⁰ of Operation Joint Endeavor, the Bosnian peace-keeping mission. Thus,
many of those who signed up for the RRMIIP were people who suspected, or knew,
that they were about to be deployed. In striking contrast to the 3 percent of the
general reserve population who signed up for mobilization insurance, some 85
percent of those activated for the third Bosnia rotation enrolled in the program. In
most instances these reservists opted for the maximum benefit coverage of $5,000
per month.¹¹ As a result, the insurance program had to respond to large benefit
claims almost immediately. However, due to the low enrollment rate and the short
time it had been in operation, the program had not received sufficient premium
payments to cover those claims.
This problem was not unforeseen. The DoD Education Benefits Board of
Actuaries specifically warned then-Secretary of Defense William Perry of this
potentiality almost two months before the program was to begin. In discussing the
difficulty of setting an appropriate premium for the insurance fund, the Board of

⁹Seventeen percent of the RRMIIP premium cost was related to DoD’s assumption about the
extent of adverse selection in the program. Source: Department of Defense. Office of the
Secretary of Defense for Reserve Affairs. Questions and Answers for HNSC (Manpower &
Personnel S/C) Hearing on 8 May 1997 Concerning the Ready Reserve Mobilization Income
Insurance Program (RRMIIP). May 8, 1997: 2.
¹⁰Reservists were activated for Operation Joint Endeavor under a provision of law which
authorized reservists to serve on active duty for no more than 270 days. Therefore, shortly
before reaching this statutory limit, activated reservists were replaced by another “rotation”
of newly mobilized reservists. Most members of the third rotation of reservists for
Operation Joint Endeavor received official notification of their impending mobilization
between October, 1996 and January, 1997. Unofficial notification may have occurred
slightly earlier. Actual mobilization for most members of the third rotation occurred
between November, 1996 and February, 1997.
¹¹Department of Defense. Office of the Secretary of Defense for Reserve Affairs. Questions
and Answers for HNSC (Manpower & Personnel S/C) Hearing on 8 May 1997 Concerning
the Ready Reserve Mobilization Income Insurance Program (RRMIIP). May 8, 1997: 1-2.

Actuaries stated “[t]he Bosnia call-up appears likely to extend beyond October 1,
1996, when the insurance program takes effect. Although reservists then on active
duty are ineligible, others who replace them can purchase insurance and trigger
substantial benefits in fiscal year 1997. Such outlays may endanger the Fund right
away.”¹² DoD considered this warning, but believed that “a callup during the start-up
period for the mobilization insurance program, while a risk, was considered
manageable in view of the premium income projected from overall enrollment.”¹³
The premium income which DoD projected, however, failed to materialize due to
the low level of overall enrollment in the program.
By December of 1996, $1,568,033 was needed to cover insurance claims from
about 500 mobilized reservists, but only $634,361 had been paid into the fund in
premiums, creating a deficit of $933,673.¹⁴ Faced with the insolvency of the
RRMIIP, DoD officials announced in December of 1996 that they would only be
able to pay eligible reservists 4 percent of their monthly benefit payment, although
they promised that full payment would eventually be made. The fund’s deficit passed
$40 million in May, 1997, and continued to grow rapidly.¹⁵ In June, 1997, Congress
approved an emergency supplemental appropriation of $72 million to cover the
program’s liability in the 1997 Emergency Supplemental Appropriations Act.¹⁶ Soon
thereafter, in the FY 1998 National Defense Authorization Act, Congress terminated
the program.¹⁷
In terminating the program, Congress agreed to provide benefits to any enrolled
reservist who, on November 18, 1997, “(1) is serving on an order to covered service,
(2) has been issued an order directing performance of covered service, or (3) has
served on covered service before that date for which benefits under the program have
not been paid to the member.”¹⁸ However, the enrollments of all other reservists in
the insurance program were terminated as of that date. Thus, reservists who received
orders calling them to active duty after November 18, 1997, were not eligible for any
benefits. Additionally, no provision was made to refund the premiums of those

¹²Department of Defense. Education Benefits Board of Actuaries. Letter to Honorable
William J. Perry. August 9, 1996: 2.
¹³Department of Defense. Office of the Secretary of Defense for Reserve Affairs. Questions
and Answers for HNSC (Manpower & Personnel S/C) Hearing on 8 May 1997 Concerning
the Ready Reserve Mobilization Income Insurance Program (RRMIIP). May 8, 1997: 3.
¹⁴Department of Defense. Office of the Actuary. Monthly Tracking of Reserves Activated
and Cost to Fund. Report generated July 7, 1998.
¹⁵Department of Defense. Office of the Actuary. Monthly Tracking of Reserves Activated
and Cost to Fund. Report generated July 7, 1998.
¹⁶P.L. 105-18, Title I, Chapter 1, June 12, 1997, 1997, Emergency Supplemental
Appropriations Act for Recovery from Natural Disasters, and for Overseas Peacekeeping
Efforts, Including Those in Bosnia.
¹⁷P.L. 105-85, Div. A, Title V, sec. 512(a), November 18, 1997, FY 1998 National Defense
Authorization Act; 111 Stat. 1729.
¹⁸Ib i d .

reservists who signed up for the program, paid premiums, but were never deployed.¹⁹
A final appropriation of $47 million was provided in the 1998 Supplemental
Appropriations and Recissions Act²⁰ in order to pay everyone still owed benefits and
to “close the books” on the program.
Current Issues
In terminating the RRMIIP, Congress left the door open for DoD to study and
propose options for a new mobilization insurance program. However, informal
contacts with DoD personnel and congressional committee staffers indicate that there
is little inclination within DoD or Congress to push for a new mobilization insurance
program at the current time. The failure of the RRMIIP, and the intense criticism
which accompanied that failure, is still fresh in the minds of many key policymakers.
Nonetheless, there is continuing pressure by some reservists, and interest groups
which represent some reservists, to implement a new mobilization insurance
program. Still, the experience of the RRMIIP raises some serious questions about
the mobilization insurance concept which are discussed below.
Is there a real need for mobilization insurance?
An issue when considering any new proposal for mobilization insurance is the
level of demand for such a program among reservists. The willingness of reservists
to participate in such a program is vital to its success. However, as the RRMIIP
demonstrated, accurately assessing the demand for mobilization insurance may not
be an easy task.
According to former Assistant Secretary of Defense for Reserve Affairs
Deborah Lee, years of study showed that “the potential income loss resulting from
involuntary activation was the number one concern for reserve personnel.”²¹
Moreover, an analysis conducted by the RAND Corporation under contract to DoD
indicated that most reservists were willing to purchase mobilization insurance in
order to protect themselves from income loss. According to Lee, RAND reported
that “[o]ver 67 percent of enlisted personnel and 55 percent of officers said they

¹⁹There was some disagreement about whether or not to refund premiums. DoD reportedly
favored a policy of refunding premiums due to the quick collapse of the fund. The Senate
agreed and, in its version of the Defense Authorization Act for Fiscal Year 1998 (S. 924),
required the Secretary of Defense to refund premiums paid by reservists who had not
received benefits under the program. The House version contained no such provision,
reflecting the view that mobilization insurance was similar to fire or auto insurance —
premiums are not refunded simply because the insured never files a claim. The House view
prevailed in conference. See Maze, Rick. “No Refunds for Those Who Didn’t File
Mobilization Claims.” Army Times, October 6, 1997: 26.
²⁰P.L. 105-174, Title I, ch. 1, sec. 3, May 1, 1998. 1998 Supplemental Appropriations and
Recissions Act.
²¹Lee, Deborah. “We Will Do Right By Our Troops.” Army Times, May 26, 1997: 30.

would buy mobilization insurance if the monthly cost were $1.00 per $100 of
coverage.”²²
Yet the actual experience of the RRMIIP contradicted the survey research. The
enrollment rate of 3 percent came nowhere near the 67 and 55 percent mentioned by
Assistant Secretary Lee, nor did it come anywhere near the more conservative 40
percent enrollment rate anticipated by DoD.²³ One explanation of this huge
discrepancy is that the survey research drastically overstated the demand for
mobilization insurance among reservists. Those questioned about mobilization
insurance may have supported it in principle, but when actually required to pay for
the insurance, many reservists may have concluded that their risk of mobilization was
minimal and, therefore, declined to participate. Such a decision may have been quite
rational in light of recent mobilization patterns. Alternatively, the survey data, which
was collected in 1991-1992, may have been obsolete by the time the program was
implemented in 1996. The passage of time may have diminished the recollection of
financial loss among those reservists who served during the Gulf War and the natural
turnover of personnel between 1991 and 1996 brought a substantial number of new
reservists into the reserve components who had no experience whatsoever with
mobilization and the financial troubles it could cause.
Another possible explanation is that the program was poorly marketed. RAND
telephone surveys conducted after the start up of the program found that 27 percent
of reservists stated they were never informed of the program. Another 16 percent
stated that they were informed, but did not have sufficient information or time to
make a decision about enrolling.²⁴ However, these survey responses also confirm
that demand for mobilization insurance was much lower than anticipated, for among
the 57 percent of reservists who apparently were aware of the program, and had
sufficient information and time to make a decision, only a small percentage chose to
enroll.
Recruiting and retention rates in the reserve components also seem to indicate
that the problem of income loss is not as great a concern as previously anticipated.
Presumably, if the risk of income loss associated with mobilization was a serious
problem for reservists, recruiting and retention rates would suffer. Yet, according to
DoD, recruiting and retention rates for the reserve components have remained stable

²²U.S. Congress. House of Representatives. Committee on National Security.
Subcommittee on Military Personnel. Prepared statement of Assistant Secretary of Defense
(Reserve Affairs) Deborah R. Lee. Status Report on the Ready Reserve Mobilization
Income Insurance Program. May 8, 1997: 1.
²³The disparity between RAND’s estimate and DoD’s estimate is perplexing, considering
that both estimates were apparently derived from the same information.
²⁴U.S. Congress. House of Representatives. Committee on National Security.
Subcommittee on Military Personnel. Statement of Mark E. Gebicke, Director, Military
Operations and Capabilities Issues, National Security and International Affairs Division,
General Accounting Office. Observations on the Ready Reserve Mobilization Income
Insurance Program. May 8, 1997: 6.

since the Persian Gulf War.²⁵ Assistant Secretary of Defense Lee conceded that “the
widespread recruiting and retention problems which were widely predicted from
increased use of the Guard and Reserve have simply not occurred.”²⁶
In light of this experience, an argument can be made that there is not sufficient
demand among reservists for mobilization insurance to warrant the creation of a new
program. Thus, one policy option is to do nothing. This option would be a logical
response to low interest among reservists for mobilization insurance and would
eliminate the possibility of taxpayer dollars being used for another insurance fund
bailout.
On the other hand, maintaining current policy means that a number of reservists
will experience financial problems during any future reserve mobilization, for even
if there is little demand for mobilization insurance among reservists in general, there
may be a great demand for it by specific individuals and among specific categories
of reservists. For example, those reservists who hold exceptionally high paying jobs
in their civilian life -- doctors, lawyers, pilots, business owners -- would likely
experience a dramatic reduction in income during a mobilization. Although
constituting a small percentage of the total number of reservists, their financial losses
would nonetheless be real and, owing to the critical skills these reservists often
possess, of concern to military and civilian leaders.
If demand for mobilization insurance is primarily concentrated among certain
types of reservists, then a smaller, more focused program might be considered rather
than a broad, all inclusive program. Such a narrowly tailored program could,
however, be criticized for protecting wealthier reservists while doing little to help
middle and low income reservists. Wealthier reservists, critics might point out, may
suffer substantial losses during a mobilization, but they often have greater financial
resources with which to cushion their losses. Lower income reservists may suffer
smaller losses than their wealthier counterparts, but they often have lower levels of
saving or other resources with which to protect themselves.
Another factor when assessing the need for mobilization insurance is the future
utilization of the reserve components. With the drawdown of active duty forces, the
military is increasingly relying on the reserves to augment the active force, not only
for major combat operations like Desert Storm, but for smaller peacekeeping and
nation-building operations, like Bosnia and Haiti. Thus, the past experience with the
RRMIIP may not be a good guide to the current and future needs of reserve
personnel. To the extent that reservists come to view mobilizations as a routine
occurrence rather than a rarity, their interest in mobilization insurance might increase.

²⁵Department of Defense. Office of the Secretary of Defense for Reserve Affairs. Questions
and Answers for HNSC (Manpower & Personnel S/C) Hearing on 8 May 1997 Concerning
the Ready Reserve Mobilization Income Insurance Program (RRMIIP). May 8, 1997: 14.
²⁶U.S. Congress. House of Representatives. Committee on National Security.
Subcommittee on Military Personnel. Oral statement of Assistant Secretary of Defense
(Reserve Affairs) Deborah R. Lee. Status Report on the Ready Reserve Mobilization
Income Insurance Program. May 8, 1997: 3.

Can the problems experienced by the RRMIIP be avoided in a new
program?
The principal problems experienced by the RRMIIP were low enrollment and
adverse selection. Perhaps most importantly, the problem of adverse selection was
severely exacerbated by the coincidence of some Bosnia mobilization orders with the
beginning of the mobilization insurance program. These problems could certainly
be hedged against, or even eliminated, by various policy options. Several of these
policy options are discussed below.
A. Add a waiting period or exclude an ongoing event. An insurance
program similar to the RRMIIP could be set up, with a provision that coverage would
not become effective for a period of time, say six or nine months, after enrollment;
or with a provision that precludes coverage for any military operation in progress at
the time of enrollment. This would eliminate the severe adverse selection which
occurred under the RRMIIP when reservists with knowledge of their imminent
mobilization were offered mobilization insurance. However, this would not solve
the more general problem of adverse selection. Reservists have some valuable
knowledge of their relative risk of being deployed, and would certainly use this
knowledge in deciding whether to purchase income insurance or not. Nonetheless,
this type of adverse selection would be less severe than that encountered by the
original RRMIIP and might be compensated for by somewhat higher insurance
premiums. Adding a waiting period or excluding an ongoing event would do nothing
to reduce the problem of low enrollment experienced by the RRMIIP. Restricting
eligibility for benefits in these ways could even decrease interest in the program.
B. Make mobilization insurance mandatory. Perhaps the most direct way
to address the issues of adverse selection and low enrollment -- in administrative
terms -- would be to make the mobilization insurance mandatory. By enrolling all
reservists automatically, the two problems that plagued the RRMIIP would be greatly
mitigated. Additionally, mandatory enrollment would substantially lower the cost of
coverage. Currently, a similar policy is in place with respect to life insurance for
reservists (known as Servicemember’s Group Life Insurance or SGLI). All reservists
are automatically enrolled in SGLI for $200,000 worth of coverage. They can opt for
less coverage, or no coverage at all, but the default coverage if the service member
does nothing is $200,000.
Mandatory enrollment would also strengthen the insurance fund’s ability to
respond to the problem encountered by the RRMIIP, where the RRMIIP’s liabilities
were greater than its accumulated assets, producing insolvency. By providing the
fund with a guaranteed income stream, mandatory enrollment would facilitate
borrowing from the Treasury to maintain solvency. Any such loan could then be paid
back over time out of the stream of income flowing into the fund.
The biggest stumbling block to this approach would likely be the reaction of
reservists to mandatory enrollment in a program that would cost them money each
month. Many reservists would probably judge their possibility of being mobilized
to be so remote as to make this coverage a waste of their money. Of course, an opt-
out provision similar to that available for SGLI coverage could mitigate such a

negative reaction; but if a substantial number of reservists chose to opt-out, the
problems of adverse selection and low enrollment might reappear.
Another point to consider would be the size of the liability which could be
incurred under a mandatory enrollment policy. If every member of the Selected
Reserve were enrolled in the mobilization insurance program, and the United States
became involved in a major conflict necessitating the mobilization of several hundred
thousand reservists, the monthly cost of providing insurance benefits would be very
substantial. For example, assume that every Selected Reservist (about 900,000
individuals) was enrolled for $1,000 worth of mobilization insurance coverage and
paid $10.00 per month²⁷ in premiums. This would generate $9 million in income for
the fund every month. In five years, the fund would accumulate a little more than
$702 million.²⁸ Yet a mobilization of 250,000 reservists would create a liability of
$250 million per month. Thus, if the fund had been in existence for five years at the
time of the mobilization, it would be insolvent by the fourth month of the
mobilization.²⁹
Of course, if the fund were in existence for a longer period of time before a
major mobilization occurred it might have sufficient assets to pay off the claims.
Even if it did not have sufficient assets, the fixed stream of income provided by
mandatory enrollment might make it easier for the fund to borrow money from the
Treasury to cover these losses. Alternatively, Congress might be willing to
appropriate money to cover the shortage as part of the “cost” of the war. However,
it is important to note the potential for extraordinary demand on the fund under this
policy option. Mandatory mobilization insurance, coupled with a major reserve
mobilization, could produce an unfunded liability much larger than that encountered
by the RRMIIP.
C. Make the insurance program loss based, rather than value based. The
RRMIIP was a value based policy, as participants purchased insurance with a set
value — say $1,000 per month. Whether they actually experienced income loss or
not, they received benefits equal to that amount each month. Under a loss based
policy, also known as an “indemnity” policy, reservists would only be eligible for
benefits to the extent that they could demonstrate financial loss caused by their
mobilization. Such a policy would eliminate the incentive to purchase mobilization
insurance when no financial loss was anticipated as a result of mobilization. While
this policy would not eliminate adverse selection, it could help reduce it to a more
manageable level, as many of those who anticipate being mobilized might
nonetheless decline coverage.

²⁷$10.00 per month for $1,000 of coverage is slightly lower than the $12.20 per month
charged by the RRMIIP. Mandatory coverage would produce lower premiums because
every reservist would have to pay premiums, even those with almost no chance of
mobilization.
²⁸Assumes the fund invests in private markets, and those investments earn a ten percent
compound interest rate.
²⁹Assumes that, as with the RRMIIP, no benefits are paid for the first month of service.

A significant downside of this policy option is that it would entail burdensome
administrative requirements for verifying the amount of loss, especially among those
who are self-employed. This could have the effect of delaying payments to mobilized
reservists at a time when they need benefits most. Additionally, this policy option
would do little to address the issue of low enrollment, and could produce even lower
enrollment than that experienced under the RRMIIP. Finally, the people most likely
to enroll in a loss-based program would be those with the largest differential between
civilian and military incomes -- doctors, lawyers, and pilots, for example. An
insurance program whose benefits flow primarily to these groups would probably be
subject to criticism as a “perk” for the rich.
Are there other ways to help reservists protect themselves against
income loss besides a new mobilization insurance program?
There are other ways to address the income loss problems associated with
mobilization, but they tend to be expensive -- either for the government or for the
individual. One of the great virtues of insurance is that it is a relatively inexpensive
way for the individual to protect himself or herself against the risk of a future loss.
Nonetheless, there are other options, some of which are outlined below.
A. Individual saving and investment. One set of policy options clusters
around the notion that the individual reservist is primarily responsible for managing
his own financial affairs in light of his status as a reservist. From this perspective,
mobilization is an obvious risk associated with reserve service. Those who join the
reserve components receive compensation such as cash, educational benefits, and
other privileges in return for accepting this risk. Therefore, it is in large part the
reservist’s responsibility to ensure that he/she has sufficient savings or investments
to carry himself or herself through a mobilization, although the government can
certainly implement policies which assist the individual in doing so.
For example, the government could allow reservists to set aside a certain
amount of money each year in a special savings account, similar to an Individual
Retirement Account (IRA). Contributions and accumulated interest could be tax-
free, allowing the reservist to build up a fund that could be accessed during a
mobilization. Upon discharge or retirement from the reserve components, the funds
could be rolled over into an IRA or made available for any use. Alternatively, the
account could be structured more like the Thrift Savings Plan (TSP) for federal
civilian employees, whereby the reservists contributions are matched, in whole or in
part, by the federal government.
While these ideas may have merit, there are some drawbacks to them as well.
First of all, as mentioned previously, they are relatively expensive, costing
substantially more than a mobilization insurance policy would. For example, a
reservist who anticipated an income loss of $1,000 per month during a deployment,
would have to put aside $9,000 to cover his anticipated loss for a standard 270 day
mobilization. Even if the reservist made regular contributions over a five year
period, with interest accruing tax free, the reservist would still have to contribute

about $115 per month³⁰ in order to accumulate $9,000. For many reservists, the
amount of money required to be put aside in such an account could prove to be
unrealistically high.
For example, in 1998 an officer in the reserves in the 0-3 paygrade³¹ with seven
years of service made $433 for a typical weekend drill. An enlisted reservist in the
E-4 paygrade³² with four years of service made $184 for a typical weekend drill.³³
Setting aside $115 per month would consume 26.5 percent and 62.5 percent of their
monthly paychecks, respectively. Rather than set aside such a large portion of their
reserve paychecks every month for years on end to cover a potential future loss, many
reservists would likely choose to ignore their risk (and thereby leave themselves in
a financially precarious situation upon mobilization) or, alternatively, to quit the
reserves. Additionally, such a “savings and investment” plan, even if generously
subsidized by the government with matching contributions, would do little to help
mobilized reservists who had only recently joined the reserves. Unlike their longer
serving comrades, they would not have had sufficient time to accumulate any
significant savings.
A final point to consider would be the cost of any incentives offered by the
government to stimulate saving and investment among reservists. The tax benefits
offered under an IRA or TSP type program would decrease revenue to the Treasury,
and the matching contributions offered under a TSP type program would require
direct government expenditure. Although the total cost to the government would
depend on how the program was structured and how popular it was among reservists,
it could be substantial.
B. Government reimbursement of loss. Another alternative to mobilization
insurance would be direct government reimbursement of income loss. Under such
a policy, a reservist who suffered a loss in income could file a claim for the loss and
be reimbursed by the government, either in full or in part. Such a policy would be
ideal from the perspective of the financially injured reservist: it would require no
advance financial planning, nor any direct cost. However, there are clear problems
with such a policy. First of all, it likely would prove to be quite expensive to the
government. In a time of tight budget constraints, such a generous government
program could be extemely difficult to justify. Secondly, there would be a problem
of equity. If the federal government directly reimbursed any income loss, some
mobilized reservists could be paid dramatically more than their active duty

³⁰Assuming a ten percent compound interest rate.
³¹The 0-3 paygrade is the paygrade of Navy and Coast Guard Lieutenants, and Army, Air
Force, and Marine Corps Captains.
³²The E-4 paygrade is the paygrade of Army Corporals and Specialists, Navy and Coast
Guard Petty Officers Third Class, Marine Corps Corporals, and Air Force Sergeants and
Senior Airmen.
³³The weekend drill pay figures reflect base pay only. They do not reflect any special pays,
nor do they incorporate deductions for taxes or life insurance premiums. The “typical” drill
weekend referred to is also known as a MUTA-4, usually two full days of training conducted
on Saturday and Sunday.

counterparts and other mobilized reservists for doing the exact same job.³⁴ Such a
divergence could possibly cause dissension and hostility within the military. Finally,
such a policy would require substantial administrative effort in order to verify the
amount of loss, especially among those who are self-employed. This could have the
effect of delaying payments to mobilized reservists at a time when they need their
benefits most, as well as adding to the overall cost of the program.
C. Private insurance. Another option would be encouraging private
companies to offer reservists an insurance product similar to mobilization insurance.
If successful, such a policy option would capitalize on the expertise of successful
insurance companies, relieve the government of most of the risks associated with
underwriting insurance policies, and reduce the risk of insurance fund insolvency.
On the other hand, it might be quite difficult to persuade a private firm to provide
such a policy to reservists. The unpredictability of the size, frequency, and duration
of reserve mobilizations, along with the strong evidence of adverse selection
encountered in the RRMIIP, might make this unattractive to business. Of course,
there are any number of incentives that the government could offer these firms to
make the business more attractive: automatic payroll deductions for premiums,
mandatory coverage for reservists, and protection against catastrophic losses, for
example. However, providing these incentives might prove to be economically
costly or politically unpopular.

³⁴Of course, this same objection can be raised against the concept of mobilization insurance.
Certain reservists with mobilization insurance policies would make dramatically more than
their active duty counterparts, or other mobilized reservists without insurance policies, for
doing the exact same job. However, in the case of mobilization insurance, there would
probably be a perception that the extra pay was the result of the individual’s prudent
financial management, while in the case of direct government reimbursement, there would
probably be a perception that the extra pay was simply extra pay.