Response to “States Draw Fire for Pitching Citizens on Private Long-Term Care Insurance” by Jennifer Levitz and Kelly Greene, February 26, 2008 (Wall St. Journal - Front page)
http://online.wsj.com/article/SB120398804143592269.html?mod=politics_primary_hs (subscription required)
I haven’t taken the time to write a response in this manner since the infamous Consumer Reports article in November 2003. A very similar situation has transpired.
I have spent an inordinate amount of time helping the Wall St. Journal with what I thought was an update on what is happening with the LTC Partnerships around the country. Instead, the article turned into a mouthpiece for another article on what’s wrong with the long-term care insurance industry. It really should have stuck with the original purpose because there is a LOT of new information that hasn’t been published about the Partnerships. (See Addendum A for a list.)
We had a consumer call into our office this past Monday who was concerned about his long-term care insurance after reading this article. He had borderline health so barely was able to qualify for LTCI and what a shame if he had dropped it as a result of this article! We had to assure him that he had excellent coverage and should do his best to keep it because he could probably never get another policy, plus it would cost him more to purchase at an older age. For this reason, I am providing a response that you can feel free to share with clients who may be expressing concern about LTC insurance after reading this article or others like it.
First, this article is not balanced reporting, and that is so atypical for the Wall St. Journal in all my dealings with the paper. But rather than just say that, I want to give you concrete examples as I respond to erroneous points made in this article:
Example #1: “Rising consumer complains indicate that it is increasingly tough to collect on benefits.”
The article cites three insurance companies with claims complaints. The reporter could have easily gone to the consumer complaint section entitled “Consumer Information Source” on the home page of the NAIC website (www.NAIC.org) and looked up the number of long-term care insurance complaints for companies that have sold LTCI for 20+ years like MetLife, John Hancock, Prudential, MedAmerica, Genworth and found a very small number of complaints. While companies having problems need to be cited and held accountable, how can the WSJ ignore all the fine companies that are doing a wonderful job?
Example #2: “Of all the insurance types on the market, long-term care is among the most complex – and expensive – forms of coverage. “
Says who? My husband and I are 54 years old and pay $9,000 a year for health insurance, much higher than our long-term care insurance premium.
On this point, the article goes from reporting news to an editorial opinion which isn’t substantiated, so please allow me to substantiate my point:
LIMRA reports the average annual LTCI premium to be about $2,000 which will buy $150 day benefit for a married 50 year old which will grow 5% compounded forever and pay three years of benefits. So someone could pay $60,000 in premium over 30 years and receive three years of benefits at age 80 of $690,398 – tell me another investment that will produce a tax-free benefit of this magnitude (see Addendum B for calculation). Note that the premium stops when benefits start and the daily benefit continues to grow at 5% compound each year.
This means the entire premium of $60,000 paid over 30 years comes back in only 100 days of benefits!
And the real kicker is that the $2000 annual premium is for a totally cash plan which means the money can be used any way it is needed at claim time – to pay family, friends, neighbors or to pay living expenses. The premium for a plan that reimburses actual costs for professional caregivers is only about 60% of that, or about $1300, which creates an even more dramatic example.
Then for those who say they will just invest the premium, you could average a 6% annual return on the $2000 a year investment for 30 years but you would only earn $170,000 before taxes and investment fees compared to almost $700,000 in tax-free benefits, or you could earn $110,000 before taxes and
investment fees if you substituted the $1300 annual premium for the reimbursement-type policy.
Even though most major companies have never had a rate increase yet, there could certainly be one over that time period, but even so, one has to ask how expensive is long-term care insurance when you consider what it buys you?
Finally, a recent article said that by age 65, there is a 60% chance of needing some form of long-term care - home care most likely, or perhaps assisted living or even nursing home care...much higher odds than replacing your home or car, wouldn't you say?
Example #3: “LTC policies also carry some of the highest commissions in the insurance business, with lucrative payments to the individual agents who sell the policies. Agents often pocket between 30% and 60% of the first year’s total premium payments, then receive annual commissions between 3% and 5% for a set period after that.”
Once again, how many other types of policies did the WSJ investigate? Many life insurance policies pay 100% first year commission -- or even more – and pay renewals too! Annuities range anywhere from 6% to 10% of the total deposit, so on a $100,000 deposit, this could be $10,000. Annuities are so much easier to sell because with no underwriting, the annuity can be issued and commission can be paid within a couple of weeks. Long-term care insurance can require several appointments then a 30-60 day underwriting process, depending on how much medical information is requested. Sometimes the agent has to get involved if a doctor’s office is slow to send information. If underwriting takes an inordinate amount of time, sometimes the agent has to almost “re-sell” the policy and explain everything again. Depending on how analytical the prospect is, appointments can last two-three hours and there can certainly be more than one before a decision is reached.
It can require 10-14 long-term care insurance policies to equal the $10,000 annuity commission, as the placement rate can easily be only 80% because it’s extremely rare that 100% of sold policies get issued. Sometimes there are medical issues that a prospect doesn’t divulge to the agent or sometimes there are medical problems that the prospect just doesn’t know about.
A few states have levelized commissions which means commissions are the same for each year, but the reason the higher amount is normally paid in the
first year is because there is a tremendous amount of work during the sales process with having to make the sale, advise on the benefit selection, then manage the entire underwriting process. With good underwriting, there shouldn’t be claims for a number of years and it’s not common for a policyholder to have multiple claims. However service issues other than claims demand the agent’s time in ongoing years such as policy enhancements or changes in laws, tax incentives, etc. Also don’t forget that most agents are self-employed and the renewals which remunerate the agent for extended years of service are very important as that is typically how an agent builds a retirement fund.
I can’t speak for everyone in our industry, but having seen 55,000 agents go through my organization’s training to sell long-term insurance, I can tell you that it is not the easiest nor most lucrative type of insurance to sell, and most agents who stick with it do so because they really believe in how much it helps the families they serve. We need to thank the brave men and women who do this job justice and not make consumers think they are pocketing inordinate amounts of money!!
Example #4: I can understand why the activity with the California Partnership allowing insurance agents to say they are calling from the CA Partnership would raise some questions. But is there any reason why you couldn’t cite what some of the Partnerships are doing well?
A great example of this is South Dakota. South Dakota is doing a series of consumer education meetings around the Partnership which will raise awareness and cause people to think seriously about planning for long-term care. (Click here to see the 3/3/08 press release or go to www.ltcpartnership.sd.gov.) A number of other states are doing mailings and newspaper articles and other publicity around the Partnership. But this article calls all of this hard work a pitch to sell insurance rather than commending states for a laborious and expensive process to get insurance departments and Medicaid divisions to work closely together toward a common goal of preserving Medicaid for the truly needy.
What else are states doing right in Partnership implementation? The Deficit Reduction Act of 2005 that made the Partnership expansion possible requires agent training but there is no specification for an amount of time. Most of the states, however, are following the NAIC’s recommendation for at least 8
hours initially and at least 4 hours every 24 months. Colorado is requiring 16 hours initially and 8 hours every 24 months.
Example #5: GAO studies that say few transfer assets - Steve Moses at the Center for LTC Reform already responded to this on May 2, 2007 (click here for his full response):
“GAO examined a judgmental sample of Medicaid nursing home cases in three states. Never mind that their findings are not generalizable in any significant way. The big problem is that GAO did no independent verification of the states' Medicaid eligibility determinations. Here's proof: ‘Since the selected counties used the information in these application files to determine eligibility for Medicaid coverage for nursing home services, we did not independently verify the accuracy of the information contained In the files.’ (p. 48) I learned as a Federal AFDC Quality Control Re-Reviewer in the 1970s that state welfare eligibility determinations are routinely wrong in half or more of the cases. That's because state welfare programs are overworked and understaffed. Without independent verification, e.g. checking with banks for resources, assessors' offices for home ownership, and recorders' offices for real estate transfers, GAO's findings and conclusions are worse than meaningless--they're grossly misleading.”
Also, I subscribe to The Elder Law Report, one of the most respected publications for elder law attorneys, and the cover story in the February 2008 issue is on how to do Medicaid planning with asset transfers post-DRA. You can see by the website how much this topic is dealt with: http://www.aspenpublishers.com/Product.asp?catalog_name=Aspen&product_id=SS10477055
We’ve been so taught to think the GAO is infallible. On February 28th there was a press release about mistakes the GAO has made in a Medicare Advantage report:
A new GAO report (February 2008) concludes that Medicare Advantage enrollees often pay higher cost-sharing for certain health care services than they would pay in the Medicare FFS program. This report was based on hypothetical examples of the cost-sharing beneficiaries pay for individual services – without considering the entire episode of care. In a press release responding to the GAO report, AHIP commented: "By focusing on cost-sharing for individual services – without considering the entire episode of care – the report underestimates the value that Medicare Advantage plans are providing. These comparisons do not account for the entire costs that a beneficiary is likely to incur during a spell of illness."
There are only three ways long-term care can be paid for:
• Personal funds
• Long-term care insurance
With 78 million aging baby boomers, I believe we only have a few years to make private long-term care insurance work. There are many in our nation in very high places who believe there should be a government program to pay for long-term care and these people seize every opportunity to make long-term care insurance look inadequate and unsuccessful. However, the last time I checked, the “government” is the taxpayer and at a time when we are down to less than four workers for every person on Social Security, I don’t know how a new entitlement can be initiated. David Walker, the former Comptroller General of the United States, has predicted that ratio will be 2 to 1 by 2030, and that’s just around the corner. He also said that Medicare and Medicaid are growing FOUR TIMES as fast as Social Security. He has repeatedly asserted that our long-term fiscal problem is really a HEALTH problem and the path we are on as a nation is totally unsustainable!
So we can tear down private long-term care insurance but at a great cost to Americans – not just in financial terms, but in the great loss of dignity that we will suffer if we no longer have the choices of a private-pay patient for our care. Families will suffer the most as family caregivers won’t be able to get the help they need to care for their loved ones.
This article was really unfortunate as the Wall St. Journal has in the past been supportive of the essential role that long-term care insurance plays in alleviating the unsustainable burden on public programs for the financing of long-term care. While I truly understand the journalistic need to present opposing views, this article didn’t seem to balance the opposing views with the good points and that is what I strongly object to – plus it strayed from the original purpose of the article. I hope the WSJ will still do an update on what is happening with the LTC Partnerships, because this is the shining light right now to help Americans plan ahead for long-term care. If we fail to do that, the outcome will be horrendous for our nation, both with the tax burden to fund the baby boomers on public assistance BUT MOST IMPORTANTLY, it will hurt families who won’t have the help they need to care for their loved ones.
Phyllis Shelton, President
LTC Consultants and LTCiTraining.com
108 Rhoades Lane
Hendersonville, TN 37075-8084
March 8, 2008
Addendum A – Newsworthy Partnership Activity That Should be Reported by the WSJ:
- WSJ articles to date say Partnership benefits must be exhausted before one can apply for Medicaid. So far Minnesota is the only state to require that. This is a really big deal because if inflation goes crazy for example and the policy doesn’t pay as much as what the insured thought, he or she may need to apply for Medicaid before benefits are exhausted. (And to be objective, it’s only fair to say that some states are allowing looser inflation guidelines than the legislation intended and this can also cause policyholders to come up short and need to apply for Medicaid before their benefits are exhausted.)
- While most states freeze the amount of the asset disregard upon eligibility for Medicaid, some states are allowing the asset disregard to continue to grow after the insured has accessed Medicaid equal to the amount of benefits that continue to be paid. However if the state freezes the amount at eligibility, there is still a positive effect on estate recovery as there is less for the state to recover as Medicaid is paying a much smaller amount than if there were no LTC insurance involved.
- The insurance companies are giving people Partnership policies if they purchase a policy that meets Partnership requirements (the inflation benefit primarily) whether they ask for them or not. The policy has the same form number whether it is Partnership or not, in keeping with the DRA’s requirement for all policyholders to be treated the same. There is no downside to owning a Partnership policy so the company’s are issuing them no matter what.
Addendum B – Calculation on Premium vs. Benefit in 30 years
$150 @ 5% compound for 30 years = $600 a day which continues to grow each year. Here is what a three year claim beginning at age 81 would look like:
$600 x 365 = $219,000 at age 81
$630 x 365 = $229,950 at age 82
$661.50 x 365 = $241,448 at age 83
Total benefits paid: $690,398
Note: Premiums reflect an average of cash plans for a married 50 year old for MetLife ($1922), MedAmerica ($2061), and Prudential ($2316). Reimbursement premiums were averaged for MetLife ($1258) and Prudential ($1315).