LTCi…Who Cares?

Ron HagelmanI’ve re-published below my friend and colleague Ron Hagelman’s October 2014 Broker World Magazine column. Ron writes eloquently and from his heart. Plus, he is fun to read. He explains why buying long-term care insurance (LTCi) will always be less about wealth preservation and more about love. The primary reasons my clients buy LTCi are to show kindness, consideration and love to themselves and their families.

Ron has a knack for describing the frustration and concern I experience on a daily basis. Most people refuse to think about what might happen to them in the last years of their lives, so far in the future.

I love you, Ron!

Here is Ron’s column, titled, “LTCi…Who Cares?”:

The frustration inherent in the title is not the point. Surveys continue to point out the obvious: As far as the future of the LTCI industry is concerned, familiarity with the pain and stress of caregiving in America remains the most reliable motivation to buy. The most recent U.S. census information confirms the inexorable progression of an aging population with 13 percent of our population currently over 65, rising to 20 percent by the year 2030. Institutional care has never been the answer. Nursing home populations have decreased by 20 percent since the year 2000. Although the growth of assisted living alternatives has been noticeable, seniors would of course rather receive care at home if at all possible. A report just released by the U.S. Census Bureau, “65+ in the U.S. 2010,” confirms what we already suspected: “90 percent of people older than 50 express the preference to be cared for in their own home.” The problem of course is who will provide that care. In another recent poll, 75 percent of seniors reported they could only identify two people who might help them when the time came that they needed care.

Finding care may be the single largest problem we all will face when the need for care arises. The fact is that roughly 70 percent of all informal care comes from relatives. This is, however, a vanishing resource. According to the new AARP study, “The Aging of the Baby Boom and the Growing Care Gap,” the ratio of potential family caregivers to high risk people in their eighties is falling rapidly. Although seven to one in 2010, it is expected to drop to four to one by 2023, and three to one in 2050. There is no alternative but to shift to more paid caregivers, which will dramatically increase the cost of future long term care. I think we can all agree that perhaps the hardest part of the sales conversation is explaining the real risk and convincing your prospect that, “Yes, this can happen to you!” Improper, misguided and inadequate planning remains our curse. (Amen, Ron!)

Although most buyers claim that protecting assets is their primary motivation for acquiring coverage, the purchase of LTCI is never just about the money. Just as a long term care event is never just about the person needing care—it is about all those family members willing to respond to the problem, which can severely impact their own finances and their careers (including their own health issues aggravated by the stress of caregiving). The bottom line is that attempting to plan for long term care is not simply a financial decision. There are more important questions concerning who will provide your care, in what setting will it take place, to what extent do you plan to involve family members, and from exactly where will the money arrive? Please recognize that it is immediate family, those for whom the insured cares the most, who will bear the burden of care. Eighty percent of the time, informal caregivers are the most immediate family, including spouses, daughters, daughters-in-law, and sons-in-law. Caregiving, especially from spouses, may represent a substantial threat to the caregiver’s health, accelerating their own need for long term care. Usually there is a progression of care from part time assistance to full time maintenance, and as we know, as the need for care increases, the importance of freedom of choice and the quality of that care also increases.

A strong recommendation is to include your anticipated plan for care and available funding dedicated to that purpose in a separate “Care Agreement.” Too often families find themselves thrust into a care event for which no one was prepared. It is estimated that one-quarter of all Americans are currently receiving care. For 10 years this column has attempted to explore why what may represent America’s largest underinsured, under-planned and under-prepared risk remains at the end of the planning conversation instead of at its heart. Too many on both sides of the sale continue to ignore the obvious at their own peril. By not making the risk a required universal recognition and featuring its resolution as a centerpiece of everyone’s planning practice, we unnecessarily jeopardize consumer confidence, agent ethics and company relevance.

Other than that I have no opinion on the subject.

Author’s Bio
Ronald R. Hagelman Jr., CLTC, CSA, LTCP
CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products. A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing “friend” of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman is president of Broadtower Insurance Solutions, a national IMO helping BGAs enhance LTCI production. Hagelman can be reached at Broadtower Insurance Solutions, Inc., 156 N. Solms Rd., New Braunfels, TX 78132. Telephone: 830-620-4066. Email: rhagelman@broadtowerinsurancesolutions.com. Website: www.BroadtowerInsurance.com.

How Long-Term Care Insurance Can Transform Lives

Edna MartinEdna Martin, Long-Term Care Insurance Specialist

What follows is the true story my colleague, Edna Martin, of Seattle, was kind enough to share. In so doing, we hope we will help others understand the transformative difference long-term care insurance ownership can make in peoples lives.

“My parents were beginning to have trouble living independently, primarily because my mother was in the beginning stages of dementia.   She had a second aneurism when she was 70. From that point forward, although she recovered she was never quite the same.  Slowly over time, she became more and more dependent on my father.  She had trouble remembering things and her ability to walk was becoming affected.

As time went on, my father was becoming overwhelmed with caring for my mom, and my husband and I often had to run over to their house to help them.   At that time, my parents were in their early 80’s.  We decided it would be easier for everyone if we combined households and had them live with us so we could be instantly available to help.  My husband remodeled our house into two separate living units – each had its own kitchen, living room and bedroom.  Plus, we installed a chairlift so that my mother, if she became completely wheelchair bound, would have a way to get out of their unit.  A couple of years later, we were grateful for the lift since she completely lost her ability to walk.

Having them move in with us meant I was going to have to change how I earned a living. I knew I would have to take time off to assist my folks. I chose an insurance career because it provided me with the flexibility to control my schedule. At first I sold life, disability and long-term care insurance (LTCi). I didn’t know anything about LTCi; it was just something that was part of my portfolio. However, it didn’t take me long to realize that LTCi could be a life changer for families like ours. The more I read about it, and the more emergencies that befell our household, the more I realized the importance of owning it.

Early one beautiful Sunday morning, my dad was lifting my mom out of the car into her wheelchair.  He got her right up to the front door of their church only to drop dead from a heart attack. Suddenly, I became my mom’s primary caregiver. I couldn’t work at all because I had to assume all of my mother’s care. It was the toughest job I’ve ever had. We were scrambling every week to make ends meet while caring for someone who couldn’t perform 5 out of 6 Activities of Daily Living (ADL’s) and had dementia. We were forced to make decisions during a time of crisis.

To replace my father we hired help 8 hours a day, 7 days a week and were spending close to $5,000 a month this way. That left us 16 hours a day with no help! My mother didn’t have enough funds to cover that cost herself so we supplemented it with our own funds which completely halted (and reversed) our retirement savings. Plus, I had to stay home to help with her care, further compounding the cost in lost income. I never knew if a caregiver was going to show up or not—and if they didn’t, it was up to me. If I’d known about LTCi when my parents were younger I would have insisted they purchase it.

Having a policy would have provided the funds to get care in much sooner, thus alleviating the strain off my dad.  As a caregiver, I realized how much my dad had taken on.  I experienced a tremendous amount of physical strain lifting my mom, dressing her, cleaning and feeding her.  We couldn’t go anywhere and were virtually housebound, which meant we could never get a break.   I was lucky that my husband was so supportive and that I adored my mother who was sweet and loving throughout that time.  The year that followed caring for my mother was one of the most profoundly moving years of my life.  However, physically I was hurting and eventually was forced to relinquish her care to a nearby facility where they had the manpower to care for her 24 hours a day.  We visited her nearly every day of the 3 ½ years she was there until her eventual death at 91.

My husband and I consider LTCi ownership to be an essential part of our well-being.  It is also a gift to our daughter so she never has to be faced with what we went through.”

The Distilled LTCi Facts

DistilledBig thanks to Margie Barrie, long-time colleague and friend, for the following insights that “sum it up” for long-term care insurance (LTCi). The information below came from an article Margie recently wrote for LifeHealthPRO.

1. 73 percent of claimants are receiving benefits outside of a nursing home:

  • 49 percent: Home health care.
  • 24 percent: Assisted living.
  • 27 percent: Nursing home.

2. 21 percent of claims are expected to last five years or longer.

3. What are the odds of needing long term care?

  • 58 percent of men ages 65 and over will need care, for an average of 2.2 years.
  • 79 percent of women ages 65 and over will need care, for an average of 3.7 years.

4. Assisted living facility, average length of stay: 21 months. 

5. The average premium for a stand-alone LTCI policy is $2,400. That’s 3 percent higher than it was a year ago.

6. 92.3 percent of buyers are buying policies with elimination period of 90 to 100 days. 

For clients who want to dive deeper

6. Medicaid: $117,240 is the maximum amount of assets that the federal government will let a healthy spouse keep before the other spouse can be eligible for Medicaid long-term care benefits. (Many states set the cap at a lower level.)

7. Lapse rate for LTCI policies:

  • 1 percent is the estimated lapse rate for stand-alone LTCI policies.
  • 0.5 percent is the estimated lapse rate now being used by Genworth in its projections.

8. 4.5 years is the average length of time someone lives after being diagnosed with dementia.

9. Claims length:

  • 42 percent of claims last less than one year.
  • Claims lasting less than year are usually for home health care and caused by falls.
  • The average length of claim that lasts more than a year is four years.

10. Claims: How much?

  • $7.5 billion of LTCI claims were paid in 2013.
  • Over $5.2 million was paid each business day.
  • 273,000 people received benefits.

11. Claims: Who’s getting the benefits?

  • 71 percent of the benefits dollars are paid to female claimants
  • 51 percent of the benefits are paid to claimants with mental disorders, including dementia.

12. Claim records (from Genworth):

  • 27 is the age of the youngest person to go on claim.
  • 103 is the age of the oldest person to go on claim.
  • About 20 years is the length of the longest claim.
  • $1.3 million is the amount of benefits paid in connection with the biggest single claim.

13. Age of buyers:

  • 24.7 percent are between the ages of 45 and 54.
  • 54 percent are between the ages of 55 and 64.
  • 57 is the average age of applicants.

14. In 2011 and 2012, 67 percent of nursing home residents were female.

15. The number of people using long-term care services:

  • 15 million: The number of people in the United States using nursing homes, alternative residential care or home-care services for LTC needs in 2000.
  • 27 million: The number of people in the United States who are projected to be using nursing homes, alternative residential care or home-care services for LTC needs by 2050.

16. Demographics:

  • 40.2 million: The number of Americans ages 65 or older in 2010.
  • 88.5 million: The projected number of Americans ages 65 or older in 2050.

17. Burden on unpaid caregivers:

  • 80 percent of long-term care is provided by unpaid caregivers at home.
  • 67 percent is the approximate percentage of unpaid caregivers who are female.
  • 67 percent of the people who plan to have a loved one provide care, haven’t asked the loved one.

PBS NewsHour misrepresents LTCi

LTCi ClaimHere’s a link to a PBS NewsHour story from January 9, 2015. The story is about a wildly successful long-term care insurance claim. But this is not what was emphasized.

The PBS story portrays long-term care insurance (LTCi) as a mysterious, super-complicated product. It describes the elimination period and Activity of Daily Living triggers as onerous. This is false. If the LTCi credentialed insurance agent who sold the described policy had the barest trace of competence, I am nearly certain the couple was probably well-educated about how their LTCi policies worked when they purchased them.  LTCi is not as complicated as portrayed in this story. The couple chose and understood the elimination period. The Activity of Daily Living (ADL) and Cognitive Impairment triggers are straightforward and very easy to satisfy.

Here are comments about this story I posted online:

Why does Ms. Santhanam wish to place emphasis on the LTC carrier not offering assistance in the selection of care? The best care is found on local recommendation. This is  a trivial complaint. The job of insurance is to pay claims. The reporter does not think it is satisfactory enough that this couple paid $1700/yr x 2 x 4 years = $13600 total in premium and collected $700K? Why was this fact not emphasized instead? This is the true story. Legal intervention to get the policy to pay was most likely unnecessary. If I can re-submit valid claims as a completely non-legal person and always get them paid, this is great business for lawyers. Besides, what is more fun than trashing the big bad insurance company? Just talking with the carrier and finding out what they want has been sufficient in my extensive experience. But at claim time, people are often pressed and panicked, and sometimes the agent is not present, unfortunately. Out of 300+ LTCi claims I’ve seen, not a single valid claim has been denied. We have had to re-submit quite a few. According the AALTCi and other sources, aprox 98% of all LTCi claims get paid. The 2% that don’t are just not valid claims. Insurance companies do not impede claims. On the contrary, most are extremely helpful, but they have rules and it is up to the claimant to find out what they want, then provide it. Please do more responsible reporting. Proper research would cause media to stop casting a bad shadow over LTC insurance. This would help the public greatly. As it stands, a huge number of Baby Boomers use articles like this to deny the genuine, urgent need to plan for LTC, NOW! Instead they spend what should have been their LTC premiums on immediate gratification items. When they need LTC they may be in very tragic circumstances. This is reality. It’s about time mainstream media starts putting the correct slant on this powerful, transformative insurance.”

Long-Term Care: How Big a Risk?

Stephen D FormanHuge thanks to my friend and colleague, Stephen D. Forman of Long-Term Care Associates, for permitting me to re-publish his blog, below.

In a nutshell: a Boston College study was released in November, 2014. Its findings are that the need for long-term care insurance is and has been exaggerated. It finds that if you are in the minority who do need long-term care for an extended length of time, no worries, Medicare and Medicaid will be there as your safety net.

If people stop long enough to think about some of the claims the study makes, they are counterintuitive, and fly in the face of too many actual life experiences. Steve explains why this is so in his post, below.

Please flip through my past blog posts to find links to an abundance of credible sources that refute the new study’s findings.

Why do media seem to enjoy hashing and re-hashing stories derogatory to long-term care insurance (LTCi) while often neglecting the abundance of coverage favorable to LTCi purchase?

Major media reported on this study without making much effort to present balanced opinions on it.

Coverage of the faulty study continues (Steve explains why it is faulty). More than a month after its publication, The Wall Street Journal reported on the study. No apparent effort was made to practice fair journalism and present balanced views. I see the date of the WSJ article was December 23, 2014. Perhaps most WSJ reporters were away for the holidays? Maybe the WSJ was really grasping to find any sort of copy. It looks to me like this article can be used as a classroom example of embarrassing, shoddy, unprofessional reporting.

I actually invested valuable time trying to blog about why this new study is so wrong but chose not publish it because I was unwilling to make the effort to go into the detail necessary to create a blog I’d be proud of. Fortunately, Stephen Forman succeeded where I failed.

Steve’s piece, below, will take about three minutes to read and is well worth it. Thanks for allowing me to share this, Steve!

***************************************************************************

Model
Not this kind of model.

No single model received more attention in 2014 than one produced by the Center for Retirement Research (CRR) at Boston College titled “Long-Term Care: How Big a Risk?” (November 2014, Number 14 – 18, Leora Friedberg, et. al.) At the same time, no other model has been more widely misinterpreted, wrongly extrapolated, or gleefully co-opted by LTCI detractors. Since the New Year is considered a time for looking forward, let’s begin by clearing this foggy hangover from 2014, then speak no more of it.

Medicaid 1, LTCI 0

This is the way the CRR model’s conclusions are most often presented: by using monthly instead of yearly data, it was found that average nursing home stays are 30% shorter than previously believed. (On average a man stays less than 12 months, a woman 17.) In fact, 45% of patient stays do not exceed 3 months. Even worse, LTC insurance is duplicative since Medicare will cover these short stays– the study assumes the first three months of “all episodes of care are covered by Medicare.” [emphasis in the original]

Finally, CRR corrects a previous model which understated the probability of ever needing care by 32 – 63%. The conclusion? Since long term care is a relatively high-probability event– but less catastrophic than previously understood— it makes less economic sense to insure against.

The media jumped all over it:

  • “Maybe You Don’t Need Long-Term Care Insurance After All” (Bloomberg)
  • “Here’s a New Reason to Think Twice Before Buying Long-Term Care Insurance” (Time/Money)
  • “‘Spending Down’ for Medicaid is the Most Practical LTC Financing Plan for Most Americans, Researchers Assert” (McKnight’s)
  • “Is Long-Term Care Insurance for You?” (Wall Street Journal)
  • “Boston College Finds Rip-Off in Long Term Care Insurance Costs When Compared to Other Options, Opines UltraTrust.com” (Estate Street Partners)

Readers who dove into these articles seeking sound advice were met with takeaways such as this: “Forgoing long-term care insurance and relying on Medicaid is the smartest financial planning decision for the majority of unmarried Americans.” Lacking were any qualifications concerning Medicaid’s notoriously low reimbursement rates, institutional bias, record of poor quality, or inability to access care.

This was our first sign of trouble: CRR assumes all “rational, far-sighted, well-informed” individuals make decisions entirely on the basis of money. We do not. As economists, they’d have been better served with a model in which rational individuals make decisions which maximize our utility. Had they done so, their buyers would’ve valued higher quality care and the ability to remain at home with family, tilting the scales in favor of LTCI.

Meanwhile, the Bloomberg piece acknowledges that the biggest threat to a retiree’s nest egg “isn’t a stock market crash. It’s a long illness requiring round-the-clock care.” Unfortunately, thanks to the new CRR model, not only should most people “just skip [LTC insurance],” but the majority of Americans (all but the richest 20 – 30% of singles) should “[spend] down their assets and then [let] Medicaid pick up the tab.”

Lest we dismiss this study for its preoccupation with singles, we are warned that “forthcoming research will show long-term care insurance makes even less sense for married couples.”

Deer
Not this kind of deer.

And why did the researchers focus on singles anyway, when 82% of all LTCI policies are purchased by members of couples? They argue that since 75%+ of nursing home residents are over age 65 and single, their limitation to singles is “not significant”. Once again our economists have set out on the wrong foot: they are not modeling nursing home residents, they are modeling buyers. Oh, dear.

The Average Family Has 2.5 Children

I’ve been careful in my choice of words: what the Center for Retirement Research produced was an economic model. Framing it otherwise (a study or research report) suggests a methodology or outcome which we shouldn’t reinforce. Models exist in the abstract, not reality. This one invented hypothetical buyers in a controlled environment.

One particularly unfortunate problem with CRR– overlooked in all the hubbub– is that it sought to answer a question of its own making, and not one that anybody had been asking. Namely, why do only a certain percentage of single individuals (an assumption of their own creation which disagrees with other contemporary sources*) buy LTC insurance, differing from the percentage predicted by the Brown & Finkelstein Model (ie, the famous “Medicaid Crowd Out Effect”)? This model was an attempt to reconcile the two numbers.

Now, models can serve a purpose, but they are inherently limited. In the case of CRR, even its “new” data remain archaic (10-years old) and don’t square with reality: after all, insurance is built primarily around the remote but catastrophic risk – not the occasional shopping cart dinging your car door. This is why buyers and sellers have played a tug-of-war between unlimited benefit periods and short-term care. One is hard to offer profitably, while the other is hard to make desirable.

Worst of all, the model presumes that buyers care only about nursing facilities, when the exact opposite is true. Most of our clients are motivated to purchase LTCI for its ability to do the one thing Medicaid is worst-equipped to do— keep them out of the nursing home.

Then, in a final Hail Mary, they assume Medicare pays for most short stays– which one nursing home worker laughs off, “[I] can count on 2 hands out of the thousands of patients I’ve served, how many have actually received 100 days of Medicare coverage.”

Ultimately, the economists got the results they hoped for (had they not, would this study have seen the light of day?), and were able to achieve agreement between the Brown & Finklestein model and their own:

Singles aged 65+ who “make optimal saving and insurance decisions” (how many real people do you know like that?) are substantially less willing to buy an option to purchase LTC insurance at market premiums, based on a more-accurate transition matrix updated to 2004 based on monthly probabilities instead of annual transition events.

Now go back and read that sentence again.

Not much of a headline-grabber, huh? We should be asking ourselves what all the hoopla was about– particularly since a landmark study was released almost simultaneously as CRR which contained some of the most newsworthy, compelling and positive research about LTC insurance in over a decade. Do you remember the financial media covering this report with the same enthusiasm as the Boston College model? Do you recall seeing any of the above publications covering it at all?

Don’t worry, we’ll be reviewing it in our next LTCA Sales Idea. Until then, Good Selling!

* CRR uses a penetration rate that is between 23 – 54% less than other estimates. Had they used the higher rates, the results of their study would not have been as dramatic.