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.

What Helps

• 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 specialists
• New Medicare prospective payment rules for home health care that provide an incentive to do fewer visits and teach family members to provide care
• 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 for Medicaid

What Hurts

• State insurance departments impose an unreasonable burden with compliance demands. Two insurance companies can submit materials to the same state on the same day and get two completely different lists of demands because different people did a review. A central clearinghouse has been developed for continuing education for over 20 states - Why can't a similar effort be established for LTCI materials?

The next hurts are from Congress:

1. 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.)
2. 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 side.

There are also hurts from insurance companies who aren't fully behind LTCI:

1. 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.
2. Not putting equal advertising dollars behind long-term care insurance as other products - We need a "Got LTCI?" campaign.
3. 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.
4. Positioning LTCI primarily for seniors, which means ignoring the huge marketing opportunity of executive carve-out and voluntary plans
5. 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?
6. 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.)
7. 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
8. Developing products with a variable base and no minimum guarantees, which means there could be no money when a long-term care need arises
9. 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!
10. Providers lobby for more money from Medicare and Medicaid rather than raise consumer awareness about LTCI.
11. 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 all.

Click more information about Phyllis Shelton's new book, or call 800-844-4893.

Reprinted from U.S. Marketplace, June 2001, by permission from LIMRA International.

© 2001 Shelton Marketing Services, Inc.