Once in awhile I come across comments that are so astute, so concise and on the mark that I have to publish them in their entirety.
My colleagues Steve Moses and Claude Thau wrote the following comments in response to this Wall Street Journal article titled “Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice”.
I will add that in the nearly 30 years I’ve been a long-term care insurance (LTCi) specialist, faulty coverage like this still “gets to me”! LTCi has always been disparaged by the press, probably because it is a complex product that journalists don’t have time to properly research before deadlines. I also understand that inflammatory coverage attracts more readership.
This has led to widespread misinformation. My many long-term care insurance claimants will tell you LTCi is an extremely valuable, transformative, product. Articles like this one do the public a disservice by dissuading people and giving them one more excuse to avoid responsible and reasonable long-term care planning in advance.
By the way, it is almost never necessary to drop a LTCi policy due to a rate hike. We normally downgrade the policy instead, which lowers premiums yet conserves high LTCi policy function.
Here are Steve Moses’s comments:
1/17/2018, “Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice,” by Leslie Scism, Wall Street Journal
Quote: “Long-term-care insurance was supposed to help pay for nursing homes, assisted living and personal aides for tens of millions of Americans when they became unable to take care of themselves. Now, though, the industry is in financial turmoil, causing misery for many of the 7.3 million people who own a long-term-care policy, equal to about a fifth of the U.S. population at least 65 years old. Steep rate increases that many policyholders never saw coming are confronting them with an awful choice: Come up with the money to pay more—or walk away from their coverage.”
LTC Comment: Following is the letter I sent to the author of this front-page Wall Street Journal article:
Dear Ms. Scism,
There is a critical aspect of the LTC insurance issue that your otherwise fair and well-researched article missed entirely.
When LTC insurance carriers recognized their reserves were inadequate to pay future claims, they did the honorable thing. They raised premiums to ensure future claimants would receive full benefits.
Compare that with the federal government’s failure to fund Social Security and Medicare adequately, leaving those programs with upwards of $100 trillion dollars in unfunded liability. What’s more, government policy actually impaired private LTC insurance.
Beyond the reasons you cited for LTC insurance problems (actuaries’ errors regarding lapse rates and utilization, plus the Federal Reserve’s forcing interest rates to near zero, for which actuaries should not be blamed) there is another cause. Medicaid is the dominant payor of long-term care. Easy access to Medicaid for middle class and affluent people after they already needed care crowded out up to 90% of the potential market for LTC insurance, according to authors of peer-reviewed research published in the American Economic Review.
In other words, government policy impaired demand for and profitability of private long-term care insurance, while itself, leaving most aging Americans vulnerable to social insurance and public assistance programs that are hopelessly unprepared financially for the coming age wave.
It is a tragedy to blame private insurers and the dedicated people who’ve tried to make the LTC insurance product work for problems caused by poor public policy. Blame the culprits, not the victims.
For a full explanation, evidence and documentation of these facts and this analysis, please see my monograph “How to Fix Long-Term Care Financing,” published by the Foundation for Government Accountability (also the source of yesterday’s WSJ op-ed about millionaires on food stamps, a very similar problem.)
If you would like to follow up on these aspects of this complicated problem, please contact me.
Stephen A. Moses, President
Center for Long-Term Care Reform
2212 Queen Anne Avenue North, #110
Seattle, WA 98109
Web site: www.centerltc.com
Here are Claude Thau’s comments:
For the most part, Leslie Scism’s Wall Street Journal article is accurate. From my perspective, it is clear that:
1) Insurers are losing a lot of money on their old LTCi policies. Although it was clear that LTCi was a risky business, the “perfect storm” problems that the insurers are experiencing was unforeseeable.
2) Price increases are a big problem for people who bought LTCi policies long ago and don’t have the cash flow to pay the premium increases. While the insurers documented that the premiums were not guaranteed, they did not sufficiently convey the risk of a price increase to financial advisors or applicants.
3) People who can afford the price increases are getting a good deal in retrospect, although they expected a much better deal. Although I think it is appropriate that the burden of the adverse experience is being split between the insurers and the policyholders, choosing the right balance is subjective. I empathize with both sides, but more so with the policyholders.
4) The industry is not meeting its potential in helping to solve the country’s LTC financing problems. There are many reasons why the industry is not developing adequate market share. Steve Moses has cited some of them, but it is not entirely the government’s fault nor entirely the industry’s fault. Human nature and other factors contribute.
5) The price increases are taking a heavy toll on the industry, partly because media attention is focused on these older blocks, which causes people to be wary of current opportunities to protect against LTC risk.
6) There are good ways that many people can adopt to reduce their LTC risk.
7) The problems of existing policyholders, while severe, are significantly less common than the article suggests.
8) A key issue is how do we encourage insurers to develop coverage for new risks (cyber, climate change, etc.), particularly when they are insuring long-term risks as opposed to short-term risks.
The industry is losing money because the insurers ARE paying claims. Certainly insurers sometimes erroneously fail to pay a claim, but failure to pay a claim appropriately is not necessarily bad faith. I have generally succeeded in getting errors fixed or in explaining to the policyholder or family why the claim decision was right. The Independent Review process protects against some wrongly-denied claims. It is rarely-used, which suggests that claims are resolved fairly. To the degree that the Milliman LTCi Survey (which I write and is published in Broker World Magazine each July) has been able to identify such appeals, independent reviewers supported insurers’ declines in nearly 90% of the cases, which also suggests fair resolution of claims. Studies (including federal-government-supported studies) have found that 90% or more of claimants tend to be satisfied. Even perfect claims payment would not result in 100% satisfaction because claimants would be disappointed that they had not purchased more coverage. Indeed, a federally-funded study concluded that the insurers overall overpaid LTCi claims by 3.3%. (Note that study did not include the most-criticized insurer.)
Our society spawns a significant number of fraudulent insurance claims in every line of insurance, including LTCi. Insurers have a responsibility not to raise premiums in order to pay fraudulent claims. Their efforts to avoid fraudulent claims can contribute to (but not fully explain) frustrating claims processes.
Ms. Scism wrote “some policyholders complain that it [the industry] has nothing to lose by denying legitimate long-term-care claims”. She failed to address that complaint appropriately. One of the key risks of denying a LTCi claim is the huge risk of a (possibly class action) law suit. In my view, insurers too often pay claims because the cost of defending a lawsuit would be expensive, even if successful.
Ms. Scism wrote “Now, though, the industry is in financial turmoil, causing misery for many of the 7.3 million people who own a long-term-care policy, equal to about a fifth of the U.S. population at least 65 years old.” This sentence is inaccurate and misleading in several respects:
- There were 47.8 million above age 65 as of July 2015, obviously quite a few more today. Assuming that the “7.3 million” is correct, dividing by 47.8 million produces less than 15%, not ~20% as she wrote.
- She is including people below age 65 in the numerator but not in the denominator. If she did a fair apples-to-apples comparison, the ratio would be lower.
- She is also including policyholders who no longer pay premiums (generally because they are on claim) and those who have purchased more recently-priced policies.
- Moreover, she wrote “Credit Suisse analysts tallied more than 4,500 rate-increase requests nationwide from 2009 to early 2017 by 16 once-big sellers of long-term-care insurance. The proposed increases affected hundreds of thousands of policyholders.” The lead quote above states that the industry is “causing misery for many of the 7.3 million”, but the Credit Suisse quote references only “hundreds of thousands”. Did she make any effort to reconcile her conflicting information?
The situation of policyholders getting huge price increases is worthy of attention and discussion, but relating the plight of policyholders who bought long ago causes people infer that LTCi is not a good alternative for them today. The past problems have caused today’s products to be much more stably priced. Furthermore, Ms. Scism mentions combo products, but does not mention that many of those combo products are entirely guaranteed, which protects against the “misery” she cites. Articles about price increases on old policies should make strong efforts to explain that the situation is different today.
Director of Long Term Care Insurance Funding Solutions, Target Insurance Services
Phone direct: 913-403-5824; WATS line: 800-999-3026, x2241