Studies Explain Why Americans Won’t Plan for Their Long-Term Care

My prior blog describes two recently published studies, commissioned from the Center for Long-Term Care Reform. For those of us who study long-term care financing, the studies are quite frightening. They quantify how economically vulnerable states are for long-term care (LTC) expenses. The studies were for GA and VA, and a forthcoming study will examine NJ. More information on these studies may be found at the Center for Long-Term Care Reform.

An op-ed piece for the Columbia County News-Times, by Steve Moses, president of the Center for Long-Term Care Reform, was published on December 11, 2013. In his piece, Steve describes how easy it is for a citizen with business savvy and means to get the government, through Medicaid, to pay for their long-term care. Even though publicly funded long-term care is of inferior quality, it is “free”, or rather, it is free only at the expense of taxpayers, while the citizen often preserves much of their wealth though clever legal strategies.

The fact that it is fairly easy to get the government to pay for long-term care anesthetizes the public and prevents it from responsibly planning for long-term care in advance, with long-term care insurance (LTCi). But the gimmicks for free LTC will certainly backfire as more states confront the dilemma of greater demand for Medicaid funds than they can possibly meet, and when the seniors who manage to get into Medicaid nursing homes become aware of the miserable environment in which they will spend the rest of their lives. In stark contrast, someone who needs LTC and owns LTCi will have many more options and access higher caliber care. Studies show LTCi owners also access care sooner, and with less panic and emergency than Medicaid (Welfare) recipients.

Here’s a link to the study done for Georgia: http://www.georgiapolicy.org/ftp_files/IndexofLong-TermCareVulnerability.pdf.

Take responsibility, folks!

Thank you again, Dear Abby, for providing fodder for this blog.

When I read this recent column, written by a daughter whose mother is evidently in a Medicaid-paid nursing home and receiving less than respectful care,  I said to myself, “grow up; face the truth and don’t pawn off the blame onto others.” The daughter’s sugary sweet letter smacks of the misguided denial I often see. It is cloaked in the daughter’s dysfunctional view of reality. The daughter aims her complaints at her mother’s caregivers, who are simply the most visible, yet non-responsible, cause.

As usual, Abby  does not address the actual problem, which is the public’s widespread avoidance of conversation and responsible planning for long-term care, well in advance. However, she did give a correct answer to the letter writer, which is, “don’t blame the messenger”! Abby also correctly noted that the caregiver is the lowest ranked, lowest-paid, least respected, and in the most understaffed area at the nursing home. These caregivers do their best. They often work two or more jobs, and really must have heart and soul to want to do this type of work. Don’t blame the caregiver for the low quality care you are nearly certain to receive in Medicaid-funded nursing homes.

Understanding Rate Hikes

As far as I can tell, every reputable long-term care insurance (LTCi) carrier that’s sold LTCi for more than five years  has given its policyholders at least one rate hike. I will attempt to explain what causes LTCi rate hikes and what to do about them.

What causes rate hikes?

  1. LTC insurance policies have extraordinarily high persistency, which means that about 95% of all LTCi, industry-wide, remains on the books after it is sold. When LTCi is properly placed, hardly anyone ever drops their policy.  LTCi persistency is higher than actuaries anticipated
  2. LTCi policies also have incredibly long “tails”, meaning that an LTCi policy sold to a 55-year old might stay on the books 30 or more years before it is collected from
  3. Protracted, low, interest rates
  4. Claims that last longer than expected

These characteristics combine to cause a perfect actuarial storm for LTCi carriers and policyholders.

LTCi’s high persistency rate and long tail are unique. Because of both of these traits, when an LTCi policy is issued, the carrier must post very large amounts of reserve funds. The carrier invests the reserves in conservative, long-term assets. The majority of LTCi’s profitability is derived from interest earned on these posted reserve funds. When interest rates plummeted unexpectedly in recent years and stayed down for so long, when policies experienced higher than predicted persistency rates, longer “tails” and claim durations, prior actuarial assumptions became incorrect. Rate hikes are a means to adjust for these inaccurate assumptions and to ensure that all policies are paid in full when clients collect on them.

It’s a good thing LTCi carriers do this. They act in a responsible way. I would rather have LTCi carriers give rate hikes to be able to honor their obligations to policyholders, than behave like the federal government and make financial commitments that it cannot meet in the future.

If clients cannot increase their payments to cover the rate hikes, the majority of LTCi carriers allow policyholders to pare back their LTCi at time to get their premiums back down. Even if an LTCi policy needs to get pared back to keep its premiums affordable,  the policyholder will normally still have a high-performance policy.

What causes public alarm and outcry over LTCi rate hikes?

When I get client calls in response to news of their LTCi rate hike, reactions typically consist of fear, anger or a mixture of both.

I blame the media and the insurance industry for much of  these reactions.

The media is historically under-educated on the subject of LTCi. Today, with fewer journalists  and less freedom than ever to adequately research before tight deadlines, the media often gets the story of LTCi rate hikes all wrong. There are exceptions. Terry Savage is one. She’s one of a dying breed of true journalists with the luxury of being able to meticulously research her stories before they’re published. More often than not, media runs “if it bleeds, it leads” stories about LTCi. Such incorrect stories describing “intolerable” LTCi rate hikes, without providing adequate explanation, are the norm in mainstream media, not the exception.

The insurance industry must also accept some blame because of its high employee turnover. It is highly unusual for the selling agent to be still active, accountable and present when clients receive rate hikes.  And when policy holders inquiring about the increased premiums do not receive the proper explanations and information, their logical reaction is a combination of anger and fear. When this  results, lacking a competent agent’s insight, help and advice, policyholders too often make the wrong decision about their LTCi policies.

The truth is, even with rate hikes factored in, the original LTCi policy is normally still a steal of a deal. It is easy to prove this. All we need to do is take the rate hiked LTCi policy’s current monthly or daily benefit (if it has built-in automatic growth every year, its current values are usually significantly higher than what the policy started at). We then compare rates for a replacement LTCi policy at the policyholder’s current age, not their original buying age. When we compare the prices of equivalent new coverage with the present policy’s benefits, and at the client’s present age, the results are normally quite shocking. Even with the rate hike taken into account, the original LTCi policy is still very inexpensive, compared to what a new, comparable policy would cost.

In my experience, policyholders calm down when they understand the impact of insurers’ claims experience and low interest rates. When the circumstances causing LTCi rates hikes are explained to them in a businesslike, rational, professional manner, the majority of my clients choose to keep their LTCi policies and tolerate the rate hike.

I lament that so many LTCi policyholders have no one they can trust and turn to for advice when their rate hike letter arrives. This can cause unintended, bad headlines and publicity for LTCi. This in turn gives people and families additional excuses to put off having conversations about responsible and reasonable long-term care planning.

I have seen in excess of 300 of my clients’ LTCi policies pay out lavishly and with ease, exactly as planned. This has given my clients increased dignity and options. It has prevented much stress and strife, both emotional and financial, for my clients families. I have never had a single claim denied in the 23 years I’ve been in practice.

A single top income could buy housing for every homeless person in the US

Jim and I just saw a disturbing /engrossing/very important film called Inequity for All”. I encourage everyone to see this film! It had a huge effect on me. It takes complex, abstract economic concepts, adds humor and the human element, and makes these concepts very approachable and easy to understand.

From the film’s site:

  • In 1983 the poorest 47% of America had $15,000 per family, 2.5 percent of the nation’s wealth.
  • In 2009 the poorest 47% of America owned ZERO PERCENT of the nation’s wealth (their debt exceeded their assets).
  • At the other extreme, the 400 wealthiest Americans own as much wealth as 80 million families – 62% of America. The reason, once again, is the stock market. Since 1980 the American GDP has approximately doubled. Inflation-adjusted wages have gone down. But the stock market has increased by over ten times, and the richest quintile of Americans owns 93% of it.

How does income inequity pertain to responsible long-term care (LTC) planning?

When I began my long-term care insurance career in 1989, sales of long-term care insurance (LTCi) nationwide were slow. The biggest battle I fought was people’s ignorance, not fear. In those days, people insisted the government would pay for their long-term care, their kids would take care of them, or they would never need long-term care. The media, too, were very ill-informed. Most media coverage disparaged LTCi at every opportunity, and called it a non-essential rip-off. Even the insurance industry considered LTCi to be its illegitimate step-child in those days.

In 2013, the above issues have pretty much been dismissed. Studies today prove the majority of people now admit they might need LTC, and that they are financially unprepared to pay for it.

Interestingly, LTCi sales still languish

In today’s world, the ever-present stress of job insecurity, having to stay in a job you hate, toxic co-workers, working in order to have medical insurance, longer hours, job cutbacks, stagnant wages, higher tuition, overhead, and debts, with no visible way out of such predicaments, is common. Many are understandably scared.

When people live with these types of fears, they often suffer from emotional, irrational inertia and the inability to act affirmatively. We LTCi specialists can show them $50/month premiums they can easily afford. They might have nursed their own mother for years, at considerable physical and economic loss, yet they are paralyzed with fear and do not purchase reasonably priced LTCi. They cannot act.

Inequity for All describes the vicious cycles that result from income inequity. Slow LTCi sales, despite the fact that most now understand LTCi ownership is the only rational solution to big problems many of us will face, is one more dangerous by-product of this nation’s mounting income inequity.

Truthful info on LTCi claim payments

These statistics from Genworth, a leading long-term care insurance (LTCi) carrier, provide insights into the nature and complexion of LTCi claims:

If you missed Genworth’s webinar on their claims history over the past 38 years, here are some interesting facts: 

Youngest claimant: 27 years old

Oldest claimant: 103 years old

Longest claim: 19.6 years

Most expensive claim (still ongoing): $1,300,000

71% of all claimants are females 29% of all claimants are male

51% went on claim due to dementia & cognitive issues

15% of all claims lasted more than 5 years

Average length of claims, if on claim more than 1 year: 3.9 years

71% of claims started with home care 13% of claims started with assisted living facilities 16% of claims started with nursing homes

50% of claims lasted less than 1 year (conversely, 50% lasted more than 1 year)

The reason claims closed: 61% death 28% Recovery 11% exhausted benefits Average age of claimant: 79

Who goes on claim?

38% Single women 28% Married Women 10% Single men 24% Married men

Most expensive claims: Dementia & Parkinson’s

Pseudo Journalism Schlock, Part 1

Beware of newspaper or online columns by “consumer advocates” who are not legitimate journalists.

The following column hit Internet searches set for “long-term care insurance” last week: “Clark Howard: Do your homework before buying long-term care”. What’s not to like about Mr. Howard’s down-home, sincere looking headshot? I’m sure Mr. Howard is a nice guy, but he is not qualified to write about long-term care insurance. Yet, he does.

I’ve already busted Scott Burns, another financial advisor with a newspaper column, who doesn’t need to research his columns in depth before having them published. This is because Mr. Burns, like Mr. Howard, is a financial advisor, not a journalist.

Mr. Howard does not derive much, if any, of his income from his pseudo-journalism. I clicked through to his website. His livelihood appears to come from being some sort of financial advisor. Yet his column gets published online and possibly in the hard-copy Atlanta Journal-Constitution. I’m sure many readers accept what he says without questioning because it looks and seems credible.

I’ve said it before, I’ll say it again. My colleagues and I are exhausted from having to combat the amount of misinformation about long-term care insurance (LTCi) that manages to get published. Mainstream media publishes a lot more misinformation than it does properly researched, accurate information on LTCi.

It is obvious to me and my colleauges that  Mr. Howard is speaking out of his a** on the subject of LTCi.  A lot of what he’s written does not make sense or is not possible. I guess Mr. Howard had a deadline to meet and was in a time crunch. Clearly, minimal research has been done.

Beware of Mr. Howard, Mr. Burns, and others like him. They are not a journalists. Lack of adequate editorial oversight enables them to give un-researched, false information and have it published, appearing as fact.

In my sequel to this blog, “Pseudo Journalism Schlock, Part II”, I will give the falsehoods in Mr. Howard’s piece and correct them.

Very Useful New Book by Phyllis Shelton

My good friend Phyllis Shelton has written a new book “Protecting your Family with Long-Term Care Insurance.”

Senior Market Advisor Magazine deemed Phyllis to be among the top ten professionals in the long-term care insurance industry nationally. She has been featured and quoted extensively by the mainstream media and is a nationally recognized speaker. I’ve known Phyllis for years consider her reputation beyond reproach. She uses folksy charm and down-home TN humor to convey technical information in an easy-to-understand, thorough manner.

To learn more about Phyllis, visit http://www.ltcconsultants.com/

If you aim to be a superbly well-informed LTCi buyer, or you are a financial advisor who wants your thirst for detailed insight into LTCi products quenched in an entertaining manner, you will surely enjoy Phyllis’s latest book. Here’s the review I gave this book on Amazon.com:

“Phyllis Shelton is regarded as one of the most credible, trustworthy experts in the field of long-term care insurance (LTCi) today. This book lives up to this reputation. Ms. Shelton explains technical aspects of LTCi in an easy-to-understand fashion. The reader will learn how to understand LTCi comprehensively, on a deeper level than is possible from typical LTCi sales materials or media coverage. The info she gives is accurate and timely. This book is “must” reading for any consumer who wishes to make an informed, confident, empowered decision about LTCi. The book is enjoyable. Much of Ms. Shelton’s down to earth, TN humor is evident, and she uses many relevant, first-hand examples.”

Powerful New Tool for Peers

I want to recommend a powerful new book to all readers who are financial advisors.

Margie Barrie is a nationally recognized long-term care insurance (LTCi) expert and a good friend of mine. Senior Market Magazine voted her one of the ten most influential people in the LTCi industry nationally. She is the long-time author of the “LTCi Insider” column in that magazine and a nationally recognized, sought-after speaker.

Margie has just published her second book, “Selling LTCi Today: 46 Ways to Find Clients and Close More Sales.”

Margie has asked many of the most experienced and well-known LTCi professionals in the country to contribute short chapters with their best tips and advice. This array of different perspectives makes her book a lively read.

Any financial professional who is sincere about wanting to cultivate LTCi clients should get this book right away.

You can learn more about Margie Barrie and purchase the book at http://www.margiebarrie.com/.

Honey opines on the state of the long-term care insurance industry

Here’s a link to a recently published article I wrote for the April, 2013 edition of Health Insurance Underwriter Magazine.

The article is about why I am upbeat about the state of the long-term care insurance (LTCi) industry.

Although HIU is a trade magazine, this piece is a good, and brief, read for the public.

Older is not better…It’s Brutal

 

In “In Hard Economy for All Ages, Older Isn’t Better… It’s Brutal” from the New York Times, February 3, 2013, Catherine Rampell outlines a perfect storm of financial shocks that has eroded the financial security of  Baby Boomers - those nearing retirement but not yet covered by Social Security and Medicare.

A summary of the article explaining the oncoming financial/health/lifespan catastrophe, appears below. There are two big crimes I believe Boomers are guilty of. One is avoidance of saving, replaced by living beyond their means. The second is being champions at denial.

The combination of high unemployment, depressed housing values, and low interest rates has reduced older Boomers’ household incomes by 10% since the recovery began three years ago.  Many of those who lost their jobs during the Great Recession are too old to be seriously considered for another and too young to collect Social Security or begin living off their retirement savings, which in many cases are paltry.  In addition, the unemployed lost the crucial benefit of health insurance and consequently cannot afford routine checkups and preventive maintenance.  New research suggests that they may not live as long as expected because of untreated medical problems and financial stress.

What a depressing state of affairs!!  But, as the infomercials exclaim, “there’s more!”  Nearly 70% of this age group will eventually need some form of long-term care.  And even more disturbing is that only 10% of Americans have planned for this potentially staggering additional financial burden by purchasing reasonably priced long-term care insurance (LTCi).  The remaining 90% are in denial and counting on blind luck that they will be one of the fortunate 30% who need no extra care in their final years.

My advice to these financially stressed Boomers, AND their younger counterparts who have more time to plan responsibly – explore LTCi as soon as possible!  Yes, it will cost you some of your scarce dollars, but take a close look at what you are spending your money on now.  Do you really need cable TV?  What about eating at home more often or drinking home brewed coffee?  Is that expensive vacation trip worth more than the financial assistance that LTCi can provide if you need long-term care?