The Real Health Care Crisis
By Phyllis Shelton
President, LTC Consultants
Long-term care (LTC) is the real health care crisis
in America, and if we can’t find a way to make private long-term care
insurance (LTCI) work in this decade, we will pay a tremendous price for
generations, in the form of unprecedented taxation if baby boomers wind
up on public assistance for long-term care.
Sweden has a government-funded long-term care plan with a corresponding
tax rate of 58 percent, according to the Swedish Embassy. We are headed
down that road as fast as we can go if we don’t make long-term care insurance
work in this country. Why? Because we are already spending 44 cents of
every federal income tax dollar on entitlements, with Medicaid paying
almost half of LTC costs while private insurance pays only about 10 percent.
If we do nothing, the Comptroller General of the U.S. says by 2030 it
will be 75 cents!
We are facing an economic crisis and for the most part, legislators,
insurance company executives, regulators, providers, and even consumer
advocates are looking the other way. Instead, we are worrying about:
Lost tax revenue from LTCI tax incentives instead of about the cost
of Medicaid if baby boomers use it
The repeal of the estate tax, which affects a very small percentage
of Americans, when long-term care affects almost all taxpayers
Picking apart phrases in sales and seminar scripts when we should
be thinking about the fastest way to implement a campaign to raise
awareness of the need to plan for LTC
LTCI taking away from sales of other products, rather than the taxation
picture for our entire economy
Here is a list of “what helps” and “what hurts,” compiled after trying
to determine why we have a market penetration of less than 10 percent
for a product most Americans need.
New rate stabilization provisions in the NAIC LTC Model Act of 2000
to get rid of companies that attempt to buy market share with below
market premium, liberal underwriting, high agent commissions, liberal
benefit triggers, and so on
Better information on how policies are performing for claimants.
(Recent surveys show that benefits fall short due to inadequate inflation
coverage, reduced home health benefits, and an inadequate daily/monthly
benefit because the benefit consultation doesn’t consider that nursing
homes cost average 20 percent above room and board for drugs and supplies.)
Attention to the LTCI market from estate planners and group benefit
New Medicare prospective payment rules for home health care that
provide an incentive to do fewer visits and teach family members to
A new credit against mortgage insurance premium when a reverse mortgage
is obtained to fund LTC insurance premium
New estate recovery legislation that says “undue hardship” probably
won’t be granted to people who have transferred their assets to qualify
The next hurts are from Congress:
Worrying about lost tax revenue from LTC insurance tax incentives,
versus paying for the baby boomers with Medicaid dollars. (HIAA shows
that for every dollar of lost tax revenue from tax incentives, savings
to Medicaid will be $1.06, but this is predicated on 100 percent of
LTC insurance being tax deductible, not the HIPAA table as represented
by current bills.)
A similar mistake is to allow only the HIPAA table to count for Section
125 and FSA dollars, which will wreak havoc on the administrative
There are also hurts from insurance companies who aren’t fully behind
Lack of comprehensive agent training — the norm is two to four hours
of product training. Companies spend months on intricate details in
marketing literature when, without a sales track and a solid education,
the words that come out of an agent’s mouth can be much more detrimental.
Not putting equal advertising dollars behind long-term care insurance
as other products — We need a “Got LTCI?” campaign.
Defining LTCI as appropriate for a narrow band of clients (i.e.,
assets from $50,000 to $1 million). The true economic impact of long-term
care has to be measured in future costs and lost investment opportunity,
and perhaps capital gains taxes. A couple in their mid-fifties will
sustain an impact on their estate of almost $2 million if just one
of them needs LTC for five years in their mid-seventies.
Positioning LTCI primarily for seniors, which means ignoring the
huge marketing opportunity of executive carve-out and voluntary plans
Not treating LTCI as a core product, thereby not treating it equally
for trips and bonuses. Why are we surprised when agents don’t give
it equal emphasis?
Providing inadequate agent training, such as not enough ammunition
to sell inflation benefits. (For example, a couple in their mid-fifties
having a five-year claim in their mid-seventies could sustain out-of-pocket
costs of $50,000 with a 5 percent compound inflation, versus $250,000
with 5 percent simple and $500,000 with no inflation. Examples like
this easily sell the additional $950 premium for compound.)
Not teaching agents how to network with LTC providers and other professionals
to raise awareness in the community of the need to plan for LTC
Developing products with a variable base and no minimum guarantees,
which means there could be no money when a long-term care need arises
Financial planners — some nationally-known — promote LTC insurance
as nursing home insurance only for middle-asset and middle-income
seniors, with advice to wait until age 50 or older to apply and only
then if there is a family history of long-term care!
Providers lobby for more money from Medicare and Medicaid rather
than raise consumer awareness about LTCI.
The legal profession continues to promote Medicaid planning as the
answer, although there are a growing number of attorneys who fight
against this terrible advice.
America is known for pulling together in times of crisis. I was thrilled
to see a phrase I’ve long used — that long-term care is “the real
health care crisis in America” — in a recent communiqué from
the Association of Health Insurance Advisors. Maybe there’s hope after
Click more information about Phyllis Shelton’s new
book and a training
schedule, or call 800-844-4893.
Reprinted from U.S. Marketplace, June 2001, by permission from LIMRA
© 2001 Shelton Marketing Services, Inc.