The State of the Long-Term Care Insurance Industry

Thanks to my friend and colleague, Stephen Moses, president of the Center for Long-Term Care Reform, for allowing me to republish this address on the future of long-term care financing and long-term care insurance in the United States. The following is an edited transcript of a speech he delivered on January 12, 2013.

Don’t miss the irony in Steve’s speech.  The good news for LTC insurance is actually very bad news for the U.S. economy.  The only way to reconcile this seeming conflict is to resolve the LTC financing crisis in the right way.

The Good News and Bad News About Long-Term Care

by Stephen A. Moses

I have good news and bad news.

I’ll spend one minute on the bad news and the rest of my time on the good news.

The bad news is that all the reasons consumers have been in denial about the risk and cost of long-term care still apply and they are getting worse.

• Government programs still pay for most expensive long-term care in the USA.
• Government LTC benefits are much easier to get than most people realize.
• And the Federal Reserve still forces interest rates to near zero which compels carriers to raise premiums to compensate, making LTCI harder to sell.

OK.  So much for the bad news.

Here’s why LTC insurance carriers, distributors and producers are in the catbird seat primed to do well doing good for your clients and for your country.

First of all, everything that makes LTC insurance necessary remains true and is becoming more so.  For example:

• 8,000 Americans turn 65 every day and that will continue for the next 18 years.
• 70 % of people 65+ will need some LTC and 20% will need 5 years or more
• LTC is very expensive:  As of 2012, over $80,000 per year for a nursing home; over $42,000 for assisted living; and over $60,000 for a home health aide on a daily 8-hour shift

But we’ve known all that since the inception of LTC insurance in the 1970s.  Nothing new there.

So what is new?  Why will the LTC insurance market explode within your career horizons and probably during the current four-year presidential term?

In a nutshell, all the obstacles to a strong LTC insurance market are about to come crashing down.

Let me walk you through them one by one.

• The demographic bombshell of aging boomers is only now beginning to explode with the first of the 77-million-strong generation becoming fully eligible for Social Security last year and for Medicare the year before.
• Government programs funding LTC are like Wylie Coyote in the Road Runner cartoon.  They’ve gone over the fiscal cliff still wearing a silly grin, but they’re about to fall like an anvil.  Why?
• Basic federal government debt is $16.5 trillion, over $52,000 for every man, woman and child in the country.  Our debt to Gross Domestic Product ratio is 100 percent.  We borrow 42 cents of every dollar the federal government spends.  Can you believe that?  We go $1 trillion deeper in debt every year.  That can’t continue for long.
• Medicaid, which crowds out 2/3 to 90% of the LTC insurance market according to Brown and Finkelstein, has a terrible reputation for poor care and is bankrupting the states.  Easy access to Medicaid and its big loopholes will end.
• Social Security pays for about 13% of LTC through Medicaid spend-through, but Social Security has a $21 trillion unfunded liability.  It can’t continue funding LTC.
• Medicare pays generously for nursing home and home care which enables LTC providers to survive with most of their patients funded at less than cost by Medicaid.  But Medicare has a $39 trillion unfunded liability, so it can’t continue either.
• All three – Medicaid, Social Security and Medicare – will be means-tested.  That means they’ll be welfare programs, not social insurance, and most middle class and affluent Americans will get less, if anything, from them.
• Home equity will become a major source of funding for income security, health care and long-term care in retirement.  That’s good for the reverse mortgage business in the short run and for LTC insurance in the long run as more people realize they need coverage to protect their home equity.
• 65 million Americans are unpaid caregivers, 7 of 10 of whom care for someone over 50 years of age.  Those numbers will skyrocket as boomers age.

So what does this mean for you?

We’re about to enter a brave new world of long-term care.  Keep doing what you’re doing and before long prospects will be knocking on your door instead of vice versa.

The public’s been asleep about LTC risk and cost because a government safety net has softened the financial consequences of going without LTC insurance since 1965.

As I’ve explained, that’s ending.

Already you see key changes indicating the public is finally getting the message.  The age of purchase for LTC insurance has fallen by a decade from late ‘60s to late ‘50s.

You see and hear many more media stories about the risk and cost of long-term care.

Businesses worry more and more about absenteeism and “presenteeism” due to employees caring for elderly parents or worrying about them instead of working.  That means you’ll sell many more group and multi-life policies.

Attorneys, financial planners and accountants are getting more questions from their clients about LTC.  Just last week an estate planner called me to find out who could help him protect his clients.  I referred him to a major distributor.

People are getting scared.  They hear the news about the federal debt and deficit and unfunded entitlements.  They’re caring for elderly loved ones in huge and rapidly growing numbers.  The public programs they’ve relied on no longer instill confidence.

These trends develop slowly over time.  They grow and grow like blowing up a balloon.  Then they pop and all of a sudden everything is different.  That’s what’s going to happen.

You are in the enviable position of being in the right place at the right time.  Some of you have been pioneers in long-term care insurance.  We know you by the arrows in your backs.

But your time has come now.

Watch for this scenario to play out.

• Assuming current government policies stay the same, the American economy will continue to lag.
• Domestic and international financial pressures will force interest rates up in spite of the Federal Reserve.
• Federal debt service will skyrocket putting more financial pressure than ever on government programs that fund LTC such as Medicaid, Social Security and Medicare.
• Policy makers will have no choice but to cut back on benefits, eligibility, and provider reimbursements.
• The quality of publicly financed LTC will continue to decline.
• It is true already and will be more true in the future that access to quality long-term care at the most appropriate level is assured only to those who can pay privately.

You are the heroes who will show the next generation how to avoid the pitfalls of publicly financed long-term care.

One of the things I love most about speaking with my many friends who have been selling long-term care insurance for two decades or more, is to hear their stories about clients who have gone on claim.

Those clients are so appreciative that they elevate the producers who sold them their policies to the status of demigods.  How enormously proud that must make them . . . you . . .  feel.

And that’s what the future holds for you if you stay on course.  You are the last line of defense between the people you meet and the dismal future that awaits them if you allow their denial about LTC risk to prevail.

So my advice to you is “Go forth with confidence and pride.  Know that long-term care insurance is good and people need it.  Everyone you protect is one less person to drag down the social safety net for the truly needy.”

Thank you.

Stephen A. Moses is president of the Center for Long-Term Care Reform (www.centerltc.com).  Contact him at 206-283-7036 or smoses@centerltc.com.