This blog has become my repository for correcting an error riddled, inflammatory Wall Street Journal article published last week.

Here’s a very accurate Forbes article refuting the WSJ article. It’s inately

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”.

Even a publication as credible and august as the Wall Street Journal can report things wrong.

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 is a press release about this by my colleague Matt McCann.

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.

Steve Moses

Stephen A. Moses, President
Center for Long-Term Care Reform
2212 Queen Anne Avenue North, #110
Seattle, WA  98109
Office: 206-283-7036
Fax: 206-283-6536
Email: smoses@centerltc.com
Web site: www.centerltc.com

Here are Claude Thau’s comments:

For the most part, Leslie Scism’s Wall Street Journal article  is accurate, however it leads readers to reach false conclusions.  From my perspective, it is clear that:

1. Insurers are losing a lot of money on their old LTCi policies.  Although it was clear from the start that LTCi was a risky business, the “perfect storm” problems that the insurers are experiencing was unforeseeable.
2. Both claimants and healthy policyholders cherish their policies (for good reason), hence will either stretch to pay the increased premiums or will reduce coverage to keep their policy in effect.
3. 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.
4. People who can afford the price increases are getting a good deal, although they expected a much better deal.  I think it is appropriate that the burden of the adverse experience is being split between the insurers and the policyholders, but choosing the right balance is subjective.  I empathize with both sides, but more so with the policyholders.
5. 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.  Some people blame the industry; some people blame various levels of government.  However, human nature and other factors also contribute.
6. Despite the problems, a good number of insurers have stayed in the market or entered the market, offering good ways that many people can insure their LTC risk.
7. 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 unduly wary of good opportunities to protect against LTC risk.
8. The problems of existing policyholders, while severe, are significantly less common than Ms. Scism suggests.
9. A key issue:  How do we encourage insurers to develop coverage for new risks, particularly distant future risks (long-term care is much more risky for insurers than annual property and casualty risks such as cyber risks).

The industry is losing money because the insurers ARE paying claims¹.  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, which protects against some wrongly-denied claims, is rarely used, which suggests that claims are resolved fairly.  To the degree that the July 2017 Milliman LTCi Survey was able to identify such appeals, independent reviewers supported insurers’ declines in nearly 90% of the cases², which also suggests claims are resolved fairly.  A 2016 study³ found that 98% of LTCi claimants were satisfied with their claim payments and an earlier federally-funded study⁴ found large satisfaction as well.  (Footnotes are below my signature block.)

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 (16% of claimants do not consider the claims process to be easy.⁵)

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.  Perhaps that contributed to a federally-funded study concluding that insurers overpaid LTCi claims by 3.4%⁶.

Ms. Scism’s title refers to “Millions… Face An Awful Choice” and her second paragraph starts “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:

1. There were 47.8 million above age 65 as of July 2015⁷, obviously even more today.  Dividing the “7.3 million” by 47.8 million produces less than 15% (still overstated), not “about a fifth” as she wrote.
2. She is including people below age 65 in the numerator but not in the denominator.  If she did an apples-to-apples comparison, the ratio would be significantly lower than even 15%.
3. 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.
4. 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.”  Even if all those “hundreds of thousands” are over age 65, the Credit Suisse data suggests probably less than 10% of people age 65+.  Did she make any effort to reconcile the conflict between her statements and her Credit Suisse source?

Policyholders getting huge price increases is worthy of attention and discussion, but focusing solely on the plight of policyholders who bought LTCi long ago leads readers to 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 dismisses the popular combo products (“But such products are often costlier”), without mentioning that many of those combo products are entirely guaranteed, which protects against the “misery” she cites.  By the way, of course it costs more if you add a potential death benefit to LTCi coverage.  I believe articles about price increases on old policies should make strong efforts to explain that the situation is tremendously better today.

Best wishes,

Claude Thau
Director of Long Term Care Insurance Funding Solutions, Target Insurance Services

Phone direct: 913-403-5824; WATS line: 800-999-3026, x2241
claudet@targetins.com

Click here to connect with Claude on LinkedIn

Claude’s Footnotes:

¹  NAIC Experience Exhibit Reports through 2014 show LTCi claims compounded 12% per annum from 2001-2014.  The author did not seek more recent information; growth clearly has continued albeit at a rate that the author can’t quote. See also the subsequent proof that claimants are satisfied, etc..

²  Thau, Claude; Schmitz, Allan; and Giese, Christopher, Milliman LTCi Survey, Broker World Magazine, July 2017, p. 3 of the reprint.

³  LifePlans, “Experience and Satisfaction Levels of Long-Term Care Insurance Customers: A Study of Long-Term Care Insurance Claimants”, September 2016, p. 14.  “…only six percent of claimants had a disagreement with their insurance company about policy coverage, and the majority of these disagreements (65 percent) were resolved to the satisfaction of the claimant. Put another way, for every 100 people making claims under their insurance policy, only two are likely to have had a disagreement about coverage that was not solved to their satisfaction.”  A table on page 22 shows that 70% of claimants were “very satisfied” with their policy, 27% were somewhat satisfied, 2% were somewhat dissatisfied and 1% were very dissatisfied.  The lower satisfaction rate in this table appears to reflect the claims process as well as the amount paid, whereas the 98% statistic is related solely to the amount paid.

⁴  U.S. Department of Health and Human Services, Office of Disability, Aging, and Long-Term Care Policy (2006 and 2008). “Service Use and Transitions: Decisions, Choices, and Care Management Among an Admissions Cohort of Privately Insured Disabled Elders” (2006); “Following an Admission Cohort over 28 Months to Track Claim Experience, Service Use, and Transitions” (2008); “Care Management, Claim Experience, and Transitions Among an Admissions Cohort of Privately Insured Disabled Elders over a 28-Month Period” (2008).  This study found that 14% of home care claimants, 5% of assisted living facility (ALF) claimants and 11% of nursing home claimants were dissatisfied.  It differed from the 2016 study in that this older study dealt with people earlier in the claims process.  Satisfaction apparently increases with time on claim, perhaps because the paperwork hassle is concentrated at claim initiation and because the monthly payment tends to increase and cumulative payments definitely increase.

⁵  LifePlans, “Experience and Satisfaction Levels of Long-Term Care Insurance Customers: A Study of Long-Term Care Insurance Claimants”, September 2016, chart p. 15 shows that 78% said it was easy; 15% said it was difficult and 7% did not know.  Of those who expressed an opinion, 15/93=16.2% thought it was difficult)

⁶  National Long-Term Care Insurance Claims Decision Study: An Empirical Analysis of the Appropriateness of Claims Adjudication Decisions and Payments, April 2010; Figure 5; p. 11 Total Paid/Total that should have been paid = Total Paid/((Total paid – (Amount that auditors would have denied – amount that auditors would have approved)) = $155,925,300/(155,925,300 – ($5,905,708 -$719,999)) = 3.4%

⁷  See https://www.census.gov/newsroom/facts-for-features/2017/cb17-ff08.html