GOOD ADVICE OR BAD ADVICE?

I just finished an article in the First Quarter 2003 Agent Sales Journal, GA/TN edition, by Ben Lipson, “Walking Away is No Disgrace”. OK, so I’m a little behind on my reading.

Ben is bashing LTCI trainers in this article, and I have to take issue with several of his comments.

Comment #1: “Prospects don’t have to reminded that unforeseen long term medical care and custodial care expenses can impoverish them.”

A Roper survey released 5/23/03 just said that

• 62% of Americans have at least one serious misperception about how long-term care is financed.
• Half think their health insurance plan will pay.
• Thirty percent don’t understand that Medicaid is a means-tested program.
• Forty-four percent don’t understand the limitations of Medicare.

Please allow me to reiterate that most Americans have no idea about the difference between skilled care and custodial care, and that point is the central point to any LTCI sales presentation. If people don’t understand that difference, they don’t see the need or appreciate the value of LTC insurance. It’s so important that I include examples of each type of care to drive the point home in both the sales and seminar presentations that I provide.

Otherwise, a Dupont retiree will read that the Dupont retiree health insurance has an unlimited benefit for nursing home care and discard the idea of LTCI insurance. He won’t understand the exclusion for custodial care and he won’t understand that this unlimited benefit is almost meaningless because it’s for skilled care only. He won’t know that Medicare only pays an average of 23 days in a skilled nursing facility instead of the 100 potential days that Medicare can pay (Source: American Health Care Association, 2001), and he won’t understand the reason is because most people don’t meet Medicare’s definition of skilled care for longer than that.

I have a client who received 37 days of benefits from Medicare last year in a skilled nursing facility, and I told the family she was lucky as that was longer than the average Medicare SNF patient. She had had a massive stroke and was undergoing physical and speech therapy when Medicare stopped paying. Why did Medicare benefits stop? Because Medicare said she wasn’t showing progress fast enough. So even if the client understands the definition of skilled care, will he or she know that “progress” is also a requirement? Will the client understand that if he has emphysema and is on oxygen, he won’t qualify for respiratory therapy benefits because an emphysema patient isn’t expected to get better? Do families understand these definitions when they’re trying to get home health care for a loved one without LTC insurance?

I can tell you they do not.

Consumer awareness is somewhat better now than it was when I entered the LTCI field 15 years ago, but it is nowhere near what it needs to be. Otherwise, we wouldn’t have 8 out of every 10 Americans over age 45 with no LTCI protection, based on a new Index of Long Term Care Uninsured released by The Long Term Care Financing Strategy Group, Washington, DC.

Comment #2: Alternatives to long-term care insurance include:

1. Working longer – and the purpose here is to accomplish what? Trying to save for long-term care? You can’t save enough for something that is growing almost 6% a year, tripling in 20 years, especially if hit the averages of 4-5 years of home care and 2.4 years of nursing home care. Compare this idea to outrunning a forest fire. It doesn’t happen. And how many articles do we see every week about how most Americans don’t have nearly enough savings for retirement, much less for long-term care!
2. Buying annuities – again, a form of self-paying. And unless the benefit is growing very strong for inflation, an immediate annuity with a fixed monthly benefit can fall way short of LTC costs in just a few years. People with conditions like emphysema, Alzheimer’s, Parkinson’s disease, to name a few, can live many, many years.
3. Setting up a reverse mortgage to provide for in-home care – a reverse mortgage is a great idea to fund LTCI premiums, especially for people in the “house rich, cash poor” category. If you wait til you need LTC to do it, the money from your house can be spent very quickly since home care averages $18/hr per the 2002 MetLife Mature Market LTC Survey. Even informal caregivers usually charge $10-$13 per hour, depending on where you live. With 10-12 hours shifts, you’re well over $50,000 a year, tripling in 20 years at the projected growth rate of 5.8% (CMS, 2002). Then the house has to be sold to pay off the reverse mortgage when you wind up on Medicaid in a nursing home after the money from the reverse mortgage is exhausted, or the monthly distributions didn’t give you enough to pay for enough home care. So if you want to pass the house on to the kids, they’ll have to be able to pay off the reverse mortgage to keep it.
4. Having the family help with care – without LTC insurance, very few families will be able to help with care. There just aren’t enough people sitting around with nothing to do to provide 10-12 hours or more a day of home care. The perception of the family helping with care seems to be tucking Mom in at night, or getting her cereal in the morning. The reality of the caregiver giving up his or her lifestyle to be alert all of the time to prevent wandering, or to help with toileting or changing beds and diapers on demand, and just filling the many requests a patient has over a 24-hour period doesn’t seem to enter into most people’s consciousness. I’ve personally watched this experience with several family members and I’m watching it now with an aunt and uncle. Being able to afford to hire people to help with the load is absolutely priceless when you are the primary caregiver and can’t sleep through the night because your patient has no concept of night and day and doesn’t understand that it’s time to sleep!

Comment #3: Mr. Lipson asks the agent to communicate just the facts, ma’am:

1. Tell clients that premiums are not guaranteed for life – there are policies available today that offer a matching rate guarantee to the limited pay period. For example, you could buy a 10-pay policy with a 10-year rate guarantee and have a policy that guarantees the premiums will never increase.
2. Agents should stick to talking about insurance and stay away from tax advice, Medicaid eligibility and how to fund the LTCI policy – I think clients expect a reputable long-term care insurance agent to be able to explain the tax advantages of LTCI for individuals, self-employed and corporations. I believe that knowing the Medicaid eligibility rules for your state is a public service for people who need that information and can discourage many clients from going down the road of Medicaid planning when the process is clearly communicated. I believe that helping people find the money to pay for LTCI through annuities or reverse mortgages is a public service as many people really want the insurance if they could find a way to pay for it outside of their monthly living expenses. I do agree that investment advice should not be given if the agent is not licensed and/or knowledgeable enough to do so.

Mr. Lipson implies in this article that many agents sell to financially nonqualified prospects, and I’m sure some do. The HIAA Buyer/Non-Buyer survey saw a drop from 31% of purchasers with less than $30,000 in assets in 1995 to only 11% in 2000, so I think as an industry, we’re doing a better job with suitability. The 40,000 agents who have been through my training were trained to do just as I did as an agent: pre-qualify the prospect financially on the telephone before making a sales appointment, and tell the prospect immediately if he or she is a candidate for Medicaid. Some people still want private insurance or their children want it for them – in that case, this is America and people do have the choice of buying an insurance policy in order to preserve dignity and be treated like a private-pay patient when they need care. As long as Medicaid is communicated clearly so people understand the choice, I believe the agent has done his or her job ethically. I even recommend handing out state-customized Medicaid eligibility guidelines at seminars and in sales appointments, so there is no confusion about the role Medicaid plays in financing long-term care.

I do agree with Mr. Lipson that it is important to explore all viable options with prospects – an employer plan, the Federal plan, Medicaid eligibility – and to be frank about those options even if it means losing a sale. That earns the respect of other professionals in your community and sets you up for tons of referrals once you have established that reputation.

Phyllis Shelton is President of LTC Consultants, a Nashville-based company specializing in web-based (www.ltcuniversity.com) and live long-term care insurance training and marketing materials that has trained over 40,000 agents and delivered 2,020 employee education meetings for the FLTCIP. Author of Long-Term Care: Your Financial Planning Guide, April 2003. She can be reached through www.ltcconsultants.com.