Ronald R. Hagelman

I love the blues. Complacency and inertia are not available when confronted with a driving beat, coupled to a soulful and experienced lament. Seems like everyone is tuned into the “combo blues.” The popularity of the combo blues is clearly self-evident by a recent off-the-cuff rough estimate that approximately 30 percent of all new life sales had some form of long term care or accelerated death benefit rider attached. The music of living benefits has arrived. However, I have never seen the degree of confusion and accidental misdirection as seems to be evident among those beginning to tap their feet to the new sales rhythm.

Hopefully we can begin with getting the nuances of the title distinctions within the new musical genre correct. “Combo” is simply any new financial instrument that performs more than one function or financial risk abatement. It could just as easily be disability income plus critical illness. If a product of that nature is not already out there, it is certainly on someone’s drawing board. There is still a lot of confusion out there. I suppose both hybrid or linked benefit products refer to some form of chronic illness benefit added to an annuity or life product. However, to make my own marketing and sales efforts less confusing in-house, we refer to hybrid products as those with a life/accelerated death benefit rider under IRC Section 101g, and linked refers to the addition of a true health/long term care benefit under IRC Section 7702B, and for God’s sake please check the fine print of the score so you know what music you are attempting to play before you begin.

I am always surprised how many times I need to respond to the question: “Which long term care risk solution alternative plays the least expensive melody?” Well, if you have to pay royalties on two songs instead of one, what would you guess? My favorite response has become: “Just think of stand-alone as term insurance.” This concept also helps when viewing the premium difference and answers consumers’ fears of wasting payments they may never get to use versus explaining the value of living benefits, where somebody always gets something. It’s an old song but still a goodie! I do understand the frequent lament concerning “use it or lose it.” I would simply remind folks that unused term premiums are the life blood of the life industry.

The message from the new sales music created from these products can be heard from all points on the life and annuity marketing compass. The beat is somewhat irresistible; someone always gets paid, underwriting is reduced or streamlined, product and premium outcomes are more predictable, return of premium is available, and the romance of “killing two birds with one stone” strikes a perceived chord of efficient harmony. Sales were already on the rise when the long term care provisions of the pension protection act went into effect in January 2010. Remember the core source of the new rhythm is that the internal cost of the long term care now takes place in a neutral tax environment, and the strength of the beat is reinforced by enhanced 1035 opportunities. Sales on average have increased 25 to 30 percent each year for almost 10 years.

As popular as this music has become, there are problems and concerns which should color your own decision to sing the Combo blues:

 • The lyrics of the sales song should follow a consistent line of reasoning, beginning with, “Is this a life theme or a long term care theme?” Presenting long term care in the form of life insurance or life insurance in the form of long term care is disharmonious at its origin. If there is a need for life insurance and you wish to expand the sales concept by adding a chronic illness long term care risk leveraging rider—that works. Or if there is a need for long term care and you need to fine tune the music by offering the advantages of a long term care asset based reasoning—that also works. Just remember that the blues is most cost effective when you have the shortest distance between the risk and the premium. In other words, the musical composition of the combo sale must originate with the true reason for the sale, otherwise leave well enough alone and sell stand-alone.

 • Do not forget the residual discordance that may be created by the tax deductibility of the premium. LTCI premiums can play that song, but life premiums cannot.

 • The special high notes available from partnership or state premium deductibility will also not be available for life sales.

 • There is greater personal pain if you choose the life refrains, as the client’s money will be used first. Whereas the tune may be sweeter when you select a health approach in which the client will be using the insurance company monies.

 • Do not get carried away in the heat of the sales song by promising too much. For example, I too often hear a verse that sounds like, “With asset based sales the client can always get his money back.” This is not exactly true. If an asset based policy is surrendered for cash, the client will receive a 1099 for the cumulative annual cost of the rider plus any gain. However, it could be 1035’d into another life policy with the rider cost reducing basis in the new life policy and no 1099 would be issued. In other words, as fun as these words may be to sing out loud, there is no free lunch.

Combo blues, combo blues

 All I want to hear is these combo blues

All night long, every other client or two

 Now take off those old jams

And let’s hear some combo blues, all right!

—Sung to the music of the 

Down Home Blues—Etta James

Other than that I have no opinion on the subject. 

How can we be in such deep water and not know we are drowning? The tide keeps rising and our own unwillingness to face the reality of the inexorable pull of caregiver gravity continues to defy reason. Recent numbers now identify 65.7 million Americans as family caregivers. This represents 29 percent of the population. The annual economic value of that caregiving is estimated at $450 billion, and the lifetime loss of income and assets for an average American caregiver is a whopping $303,800. In addition, since 7 in 10 caregivers are still working, this represents a loss to employers of $25 billion annually.

A recent consumer survey conducted by the Office of the Assistant Secretary for Planning and Evaluation/U.S. Department of Health and Human Services, “2014 Survey of Long-Term Care Awareness and Planning,” was evaluated at the recent ILTCI Conference. Past buyer surveys have indicated that the number one driving force for buyers is personal experience. The survey asked those in the 40-70 year age group if they or someone they knew had ever:

 • Required long term care—52.8 percent said yes.

 • Paid for in-home care for ADLs—31.3 percent had.

 • Been a resident in a nursing home or assisted living facility—44.2 percent said yes.

After all our hard work, how many even understood or were willing to acknowledge the real cost of the problem? Only 20 percent knew what a month of nursing home care costs. Only 15 percent knew the cost of an hour of home health care. Only 25 percent knew that Medicaid was the primary payer. Doesn’t it seem a little contradictory that those who reject the wisdom of insurance have no clue what that actually means to them financially? Interestingly, two-thirds knew that waiting to buy a policy increases the cost with age, and 41 percent knew that good health is required. Doesn’t it again seem strange that the very urgency created by potential changes in health and the certainty of higher costs does not seem to influence buying behavior? Perhaps even more disconcerting is the fact that consumers do seem to understand the true nature of the problem.

 • 78.9 percent are concerned about becoming poor and relying on Medicaid.

 • 90.6 percent are worried about losing their independence.

 • 82 percent are concerned about being able to afford quality care.

 • 83.3 percent are worried they will lose control/choice over long term care services and support (LTSS).

Consumers do not want to be a burden, yet they apparently want the potential problem to remain a secret. Only 16.8 percent have even discussed the role of family members in long term care with their spouse or family. I’m not sure we are talking about a pleasant surprise. The inconsistencies in thinking become progressively bizarre when you ask what actions they would be willing to take if they needed care.

Seventy-five percent said they would be perfectly happy to rely on spouse/family/friends for needed care, with 69.7 percent even willing to have family or friend move in with them. However, 48.5 percent were not willing to move in with their family, only 42.4 percent would use their home equity for care and, of course, only 28.6 percent would be willing to go to a nursing home. Doesn’t this strike you as perhaps a little inconsistent with such a strong desire to “not be a burden”?

The deeper you dive into consumer thinking the more disoriented you may become. The survey questioned what the prevailing attitudes are toward who is responsible for long term care, and 71.2 percent of consumers immediately responded that, “It is important to plan now for services in the future.” And 58.7 percent said it was the responsibility of individuals to finance their long term care. The corollary of this is also important, as only 37.1 percent believe it is the government’s responsibility to pay for long term care. However, as we would expect, only 11.5 percent of those surveyed own private insurance. The survey then asked about the subject of “trust.” As we try to find common cause and common ground with the public sector, these findings should at least give us some food for thought: 62.7 percent indicated the government should not tell us what to do about LTCI; 51.1 percent said they did not trust the government; and 32.3 percent said they did not trust private insurers.

In conclusion, the survey determined that consumers are concerned about becoming disabled and subsequently becoming dependent on others. Their understanding of LTSS is marginal at best, and yet they don’t seem to mind using free family care when available. They believe individuals should pay and not the government—as long as they are not the individuals in question. There was little support for public LTCI, yet they, of course, were not buying their own policies. The survey also went on to examine which factors involving benefits and costs were the most important. Benefit levels were important as long as they were cheap. And even though private insurance is best, they would accept a mandatory public plan if it came with big benefits and very low premiums.

Is it any wonder we remain frustrated? Consistent rational thought is simply not available for viewing. Maybe it just makes more sense to go ahead and leave us aging Americans outside the cave to freeze. That simple, yet perfectly effective, approach can’t be any more irrational than the clarity of direction and purpose reflected in this survey.

Other than that I have no opinion on the subject. 

I  have a titanium knee. I’m not complaining. It is certainly a dramatic improvement over my old knee, which was simply worn out and, frankly, aggravatingly dysfunctional. I remember the orthopedic surgeon telling me that I needed to trade up and join a new bionic future because my current motion reality was “bone on bone”—meaning the protective meniscus which I was born with was no longer available. Our industry suffers from the same affliction. There is no longer any margin of error or anticipated pricing lubrication. No more investment margin, no more margin of error for anticipated claims, no more slack in underwriting practices, no more obvious manipulation of benefit availability.

Is there anyone who wishes to argue with me about the reality of limited carrier options, the certainty of much higher premiums, a world of substantial benefit reductions, and underwriting practices tantamount to induction into the fraternity of Navy Seals? Our world has changed. We don’t exist in a vacuum. There was a crash in 2007-2008 and we got it on us. Bond rates are down, consumer confidence is down, and somehow Dow Jones is up. Recovery has been slow, interest rates have flat-lined with no resuscitation anywhere on the horizon. And it may be politically incorrect to recognize the obvious, but the ACA has sucked the oxygen out of far too many insurance protection rooms.

At the recent Intercompany Long Term Care Insurance Conference in Colorado Springs, those in attendance were treated to an analysis of recent history, an evaluation of the current state of the industry, and a predictive analysis of current rate stability. It is no secret that A.M. Best is not a fan of LTCI. We are all aware of a decreased market, with ongoing underwriting concerns, pricing confidence issues and benefit reductions. A.M. Best anticipates continuing rate increases on older blocks of premium. However, for companies with diversified lines of business, the outlook is “stable.” There is greater concern for monoline companies. There is some cautious optimism for new product offers.

It is, however, the initial data and not yet final research coming from the SOA that has attracted the most attention, currently titled “How stable are premiums on new blocks?”

Begin again with acknowledgment of the obvious:

 • Higher prices have contributed to more stable rates.

 • We have learned from our experience.

 • We do now have a lot of rate, sales and claims data.

 • New products are being built that are less risky by definition.

 • We have begun to develop an acquired skill in managing this risk.

 • Actuaries have better and more sophisticated modeling tools.

 • We have intentionally over-priced those benefits which we consider the most harmful, such as 5 percent compound and lifetime benefits.

 • We are doing a much better job of anticipating problems allowing for greater margins of adverse risk.

 • Gross premiums have risen dramatically.

We now live in a world of expanding product diversity, increasing premium stability, underwriting requirements that may have actually gone too far, rate increases primarily on older blocks, and a valiant core of dedicated LTCI carriers. For all the reasons that are painfully obvious to us all, now is the absolute best time to accept the reliability and sustainability of that metal knee. According to this preliminary research, in the year 2000 there was a 40 percent chance of a rate increase. However, in 2014 there was only a 12 percent chance of a possible rate increase.

According to the report:

“New business with stronger margins, better understanding of morbidity and rock-bottom lapse assumptions indicate a relatively low probability of a rate increase.”

And “If companies can achieve relatively moderate portfolio yields (e.g., 4.9 percent), there is a good chance companies will make satisfactory profits.”

All right, at this point we should all be very happy with what is obviously really good news. I’ll be honest—I liked my original knee better, but I have to admit the new one does work without all the pain. It’s better, I suppose, although somewhat different; but absolutely necessary after all.

Other than that I have no opinions on the subject. 

Many of us would probably admit that the inexorable advance of technology is sometimes simply overwhelming. It’s like that recurring dream where you are running but not distancing from what is inevitably gaining on you. Escaping the lack of future long term care planning strikes me as very similar. However, the truth is that the probability of at least a marginally adequate solution to America’s lack of long term care protection is excellent. This is true for no other reason than it is a problem of immense proportions that cannot solve itself. It sometimes seems we live in a time when many of the primary stakeholders traditionally assembled to deal with risk at this level have chosen to turn their backs on the problem. There is no current plan in motion to supplement or enhance current government funding levels. The burden of health care expense is falling more severely on all our citizens. More important, the suspicion that health care inflation knows no bounds is sucking much of the oxygen out of many other insurance conversations. Individual LTCI sales are still weak, and basic structural reform or innovation on any level seems to be experiencing a major drought. The industry appears to have folded itself into its own form of lethargic cocoon.

As your resident eternal optimist I must remind all concerned that even after a particularly brutal and bleak winter a new and exciting spring stands before us. Metamorphosis is defined as “a striking alteration in appearance, character or circumstance.” We have been seeing the signs for some time. Traditional LTCI sales have been down, but they did not disappear—they may have simply partially relocated. Combo sales coming from all directions in the planning process have provided one of the only signs of new life available for viewing in life and annuity sales. These options are expanding rapidly, both in form and substance. Innovative product response is emerging. Pricing concerns are being addressed. New co-insurance strategies are being made available.

None of this activity is random. It is a recalculated and recalibrated response. It is because we now have a serious body of evidence that helps us to better understand the real nature of the claim. Its cost, duration and location. We have accumulated substantial buyer and consumer analysis to better understand why, why not and what if.

We have not only come to understand and better appreciate the limitations of government and private industry. We may even have begun to understand where each can be most helpful. We both clearly recognize that private insurance remains the only meaningful defense against the depletion of federally mandated and state operated Medicaid. We have come to appreciate that there is not one grand solution but many approaches that can help to isolate and take down the problem—not only by a massive frontal attack on the risk but also by incremental and planned attrition. We have reviewed our own structural limitations and looked for creative ways to work around them.

One new product alternative deserves special mention. It’s a product concept that has been discussed for some time and was a key recommendation of the SOA”Land This Plane” survey released last year. Perhaps the two most significant restrictions present in traditional stand-alone LTCI pricing are  the inability to share either the unpredictable investment environment or the constantly evolving morbidity landscape with the policyholder. The underlying principal of flexible premium life insurance (universal life) is the ability to manage all the moving parts and adjust to fluctuations in circumstance while providing substantial consumer product transparency in the process. A new and potentially spectacular new specimen has recently emerged from a market seemingly in stasis. “Universal long term care” is a radical departure from business as usual. It is an exceptional opportunity to spotlight the inherent beauty of an old and yet very familiar sales alternative. I’m excited that a new and colorful product “butterfly” is loose upon the wind.

Other than that I have no opinion on the subject.

What keeps haunting all of us is our persistent inability to adequately ameliorate this risk. I’m not sure our industry has ever faced such a clear and present threat to all we hold most sacred—not only an institutional desire to preserve assets and income at retirement but a strong moral commitment to do all we can to improve the quality of care our customers will receive. Long term care risk so obviously cries out for an insurance solution yet continues to frustrate our sincerest efforts to be helpful. The LIMRA numbers for 2014 are of course disheartening for all of us who try so hard to convince agents, consumers and companies to be prepared for the inevitable.

My first plan after absorbing the reality of the production numbers is the same one I have every time I am staring at bad LTCI news. I always have a vision of “Boxer,” the horse in Animal Farm. His defiant voice rings in my ears: “I do not believe it. I would not have believed that such things could happen on our farm. It must be due to some fault in ourselves. The solution, as I see it, is to work harder. From now onwards I shall get up a full hour earlier in the mornings.” This time is different. Instead of once again examining my work ethic, I have had a blazing epiphany. I think we are all beating a dead horse. I believe that with a legendary single-minded focus, many of us have repeatedly re-enlisted to fight a battle that is already over. Is there really anyone who does not accept the sound planning strategy of utilizing insurance to leverage a known and potentially catastrophic risk? Our only job is to identify and then measure any financial threats to our clients and their families. We then isolate and insulate that weakness in their defenses and hopefully apply a liberal dose of insurance to seal the breach.

We just keep trying to fight the same battle with persistent diminishing results. Frankly this sale, and this somewhat stale rationalization process, has in some ways just worn out its welcome. It’s a permanent and entrenched part of our repertoire. We rapidly look at the cost of care, estimate the “average” duration of a potential claim, and then throw in as much inflation protection as possible—and abracadabra, our responsibilities are fulfilled and our fiduciary chores are successfully accomplished. This has been our single target and our chosen response, at least since HIPAA. Same target, same response…lackluster results. What did I miss?

We keep trying to improve our delivery accuracy with marginal success. We continue to rededicate ourselves to taking better aim at the same bullseye and then we live in fear of the next LIMRA report. Survey after survey confirms the obvious: if you have money you would, could and should buy a policy to cover the financial exposure. We all also live with ambivalent mixed emotions, every time we help put protection in place. We know that protecting assets and income at retirement is our primary mission, but we also know that what convinces people to buy is their own personal experience with the realities of an extended claim. This sale may be about replacing financial risk with insurance, but it is accomplished by an understanding (known or communicated) of the emotional burdens of dependence and caregiving.

Unfortunately, knowing this has not prevented us from attempting to improve the efficiency and trajectory of our aim. The industry was asked to simplify the product, and much good has been accomplished—both in terms of product structure and benefits to accomplish that goal. However, I am hard-pressed to find any direct evidence of substantial premium growth resulting from our efforts. In addition, innovations in benefit design, from “shared care” to step-rated inflation protection, appear to have met with similar success. We understand price matters, and recent consumer research confirms that even a small reduction in cost can dramatically open up the availability of potential sales. I’m just not sure that offering a stripped down, benefit discounted version changes the objective of the sale or will substantially alter results.

There also seems to be a myopic fairy tale working its way through the popular marketing culture that the benefits of the Pension Protection Act have somehow already solved all our problems. We’ll just magically paste the perception, and sometimes reality, of long term care benefits onto any financial instrument that moves. If the primary issue is pricing, forgive me for observing the obvious: Combo policies providing combo benefits generate combo pricing. And any newcomers to our target practice may have joined us only to be helping us shoot at the wrong target. There is absolutely nothing wrong with evaluating the financial risk and determining who wants to pay in the event of adverse circumstances. It’s just that we continue to have only one target focus to replace the risk as much as possible with insurance.

There is another target. One that in many ways is even more important. What if what we need to care about most is granting as many Americans as possible a safe, dignified, non-regimented and government-free “care receiving” experience. Our more affluent clients can and will continue to buy as much coverage as possible and transfer the risk. Co-insurance is for everyone! It’s just that it needs to be aimed at two targets: 1) a risk paying strategy between the insured and the insurance company, or 2) supplementing the cost of the risk by strengthening reserves to maintain personal control of the claim. The cost of defending freedom of choice and maintaining quality of care is clearly much less when your goal is to supplement, not prevent, the cost of the claim. Leaving this world at the mercy of a sterile government bureaucracy or in fear of inferior caregiving alternatives must never be an acceptable goal. The question that has not been properly targeted is not how much insurance is needed at a discount, but how little is needed to guarantee that the wrong “others” will not be making decisions for your customers.

Other than that I have no opinion on the subject. 

The research used as a baseline for this month’s column was derived from a series of papers presented at last fall’s SOA Conference on long term care and retirement concerns—this month the excellent work of Vickie Bajtelsmit and Anna Rappaport, “The Impact of Long Term Care on Retirement Wealth Needs.” The color commentary, extrapolations and sheer speculation are, as usual, the sole responsibility of this columnist.

Insurance is all about planning ahead. The long term care insurance (LTCI) risk conundrum is about the result of not planning at all. Is LTCI planning merely a tangential component of a larger and more comprehensive retirement readiness evaluation? Should it be tied to the overall and somewhat nebulous “health” planning exercise? Should it be first or last in the planning process? What are the critical issues indigenous to long term care risk planning? And what are the fiduciary responsibilities of professional insurance agents in the long term care planning process? Unfortunately, these outstanding, crucial questions are still blowing in the wind.

The truth is painfully obvious: There are currently insufficient, disjointed and random approaches to trying to understand the who, what, where and how of long term care planning needs. My layman’s understanding of a stochastic approach in insurance is that it takes into account the magnitude of the moving parts and the fact that there may be many random outcomes in the given risk equation. Trying to understand what may be the most likely outcome is the challenge. In other words, it is hard to take aim at strategic planning issues when the target is composed of multiple spinning wheels.

The ultimate success of anyone’s retirement plan is subject to the positive aspects of self-discipline and commitment to the cause. It is, of course, also vulnerable to uncontrollable adversities such as rampant inflation, the mixed blessing of unanticipated longevity, poor investment performance, and health and long term care expense. We are intimately concerned with only one question: Will you have the funds available when the time comes, if it comes at all, to pay for care, and what impact will that have on your desired lifestyle in retirement?

The reality is that those with greater assets and income at retirement may be better prepared, acknowledging that insurance may increase cost before retirement but can substantially reduce risk exposure later in life. Even the wealthy who choose not to purchase LTCI, however, will not escape unscathed from the emotional and financial firestorm created by an extended need for care. There will always be some cost, at least in terms of reduced planned estate disbursements or discounted charitable objectives. The great failure of our industry is that it has simply been unable to protect those who are most vulnerable to the problem: low and middle income households.

Models designed to simulate the financial impact of an adverse event are, again, subject to the whims of a variable economy, duration of the claim, and available family support. It is also important to recognize the nature of the risk itself. Most claims will be small and manageable, but a significant number will be very large—which means it is impossible to use averages when evaluating risk. As an example, the average risk may be three to four years, but that number does little to help plan or understand the real extent of the potential financial impact.

The bottom line, however, is that the research does strongly suggest that “middle income households could benefit the most from LTCI, provided the premium costs do not adversely impact wealth accumulation.” Caregiving in America—including caregiver shortages, lost wages and erosion of retirement benefits—shall remain the primary motivation for government reform, product innovation and insurance sales. A recent phone survey estimated that as many as 50 percent of Americans are already involved in caregiving. Aggregate lifetime costs to caregivers are in excess of $3 trillion. According to recent analysis from the Kaiser Family Foundation, America’s caregivers are 58 percent female, 66 percent above age 50, with 38 percent caring for a parent and 44 percent providing care for three or more years. It is specifically the collateral damage to all those family members and friends that will continue to keep the long term care problem in the direct path of progress for the government and the insurance industry.

Currently the bottom line is that for wealthier Americans after retirement who are “lucky” enough not to experience any unexpected financial setbacks, they may be able to withstand a health or long term care shock claim. For just about everyone else, being completely unprepared is a formula for pure disaster. Related retirement research also indicated that the best approach to being better prepared may be a combination of reducing retirement expenses, downsizing housing and purchasing insurance.

The catastrophic risk may be relatively small, but its possibility is absolutely certain. There is no escape, no reprieve, no pardons and no excuses for all concerned. 

Other than that I have no opinion on the subject.

Create the understanding of the problem or locate the existing need and provide a solution. We got it. The only variable in the sales process is how much commitment you have built in to solve how much of the problem. The only meaningful demarcation is between those who understand they need to do something and those who continue to place their faith in divine intervention and or government largesse.

 The truth about long term care is painfully obvious. For the majority of Americans the claim is of a short duration and financially manageable. However, for a substantial double-digit number, it can be a financial and emotional debacle. There have always been two sales. The first and most popular approach which, by the way, we have done a fairly good job of addressing, is to measure the potential size of the entire financial exposure and then buy a policy to cover the risk. I personally loaded the boat (lifetime benefits, 5 percent compound inflation, 100 percent indemnity and 10 pay) when I bought my policy because the catastrophic risk was my primary concern. I lost my wife two years ago. She also had a paid-up policy just like mine. Forgive me for clarifying the obvious—the money for her policy is gone, but so is the risk! For those who can afford to, leveraging this risk directly by paying for as much protection as their budget will allow shall remain the absolute best solution.

 The second sale is, in many ways, even more important. It addresses an even more important principal. It’s not just that some insurance is better than no insurance, it’s that so little insurance can make such a huge difference in someone’s life. At the point of claim, all available dollars will be put on the table to solve the problem. As little as $50 a day added to Social Security and even a little savings, home equity or personal retirement benefit can guarantee the private pay status of an individual. Providing control of the quality of life issues should be at the beginning of any plan for custodial care. I saw some recent academic research suggesting that maybe it was just best and cheaper to simply streamline your admission into the Medicaid welfare system. Frankly, a sterile academic environment may be the wrong place to evaluate this problem. I can’t help wishing that those good folks could share the privilege of spending a month in a semi-private ward of one of those wonderful Medicaid warehouses that the middle class should just resign themselves to patronizing.

 Now let’s see if we can connect some dots. The group/association/multi-life LTCI market is on life support. The only place to deliver relief and control of the claim process is at the worksite. Supplemental coverage is a valid and critical choice. Short term care policies, whether sold on an individual or group basis, represent an exceptional opportunity to change the destiny of all who purchase coverage. These policies provide benefits similar to long term care, nursing home, assisted living facility and home health care, and they fly just under the regulatory radar with benefit periods just short of 365 days—the minimum benefit for a tax-qualified LTCI policy. These policies are often described as a “recovery benefit”—they can fill in the gaps created by longer elimination periods and buy time for the family to get a better and more permanent plan in place. Perhaps most important, they can represent an affordable “add on” to existing funds for care, making the difference in maintaining the freedom of private care with private choices. Although these policies may have some limitations, they may also provide freedom of choice at very reasonable rates.

 There are, of course, other concerns when taking these options to the worksite. Underwriting may remain an obstacle. Two sales are harder to explain quickly than one. Long term care certification muddies the water. There is, however, growing consumer resistance to “use it or lose it” premiums and the continuing uncertainty of potential premium increases from pure health insurance.

 The answer is right in front of us. There may be a Technicolor solution just over the rainbow. One with which we are intimately familiar, and with a long and personal relationship in which we are readily available to provide experienced guidance. Currently almost one-third of all stand-alone life insurance has some form of accelerated death benefit attached. Combo products available at the worksite addressing two needs are beginning to appear and gain traction. Life and health LTCI riders, alone or in combination, attached to UL or whole life, can create a transforming sales opportunity. Creating a worksite combo product with potentially guaranteed premiums, the certain knowledge that someone will always get paid, underwriting that is diminished or eliminated, and premiums that are dramatically reduced is in my humble opinion the best formula for success I’ve seen in some time.

 Other than that I have no opinion on the subject.

I have just returned from the National Society of Actuaries Conference in Orlando. I did not see Mickey. But I certainly feel like I learned a lot. The surprising theme was that this is the absolute best time to be in LTCI. To many who read this column, we probably couldn’t be any more in it than we are now—and furthermore we are not going anywhere. We already know the bottom line: Inevitable demographics and a sure and certain knowledge that private insurance shall remain a key ingredient of our solving the LTCI conundrum keeps us staggering forward.

Let’s begin with a reality check. The stand-alone LTCI business is flat. But one-half a billion dollars of new sales does continue to take place every year. There are five to six million individual policyholders and two to three million group policyholders. I would also be remiss if I did not comment that these folks may be among the smartest purchasers of one of the greatest insurance bargains of all time. The cost of care continues to rise, now at an average of $81,030 annually for a semiprivate room in a nursing home.

The planning process is critical. This is exactly where insurance professionals should appear and take center stage. It was also pointed out that our industry’s reputation may be a planning issue of its own. The public is not unaware of higher premiums and frequent rate increases taking place in an atmosphere of fewer benefits, products and companies. Product complexity and restrictive underwriting continue to represent serious obstacles to growth. What is most important to policyholders is the value of the purchase itself, the stability of the product being purchased, and how the purchase contributes to future financial stability.

Rate increases will continue to be a problem for all concerned. The National Association of Insurance Commissioners (NAIC) has recommended new guidelines requiring annual corporate reporting each May on the health of LTCI blocks. Loss ratios were built at 60 percent but are trending toward 80 percent. For the most part, companies may have given up on profitability and are now aiming only at sustainability. Rate increases on old in-force and new premiums have become a serious impediment to progress. It was pointed out that the real reason for rate increases is approximately two-thirds lapse assumption and one-third mortality. It is not investments, morbidity or expenses. Current and highly visible claim reserve adjustments are not based on incidence, but duration. Longevity is a problem. Insurance commissioners are keenly aware of the problems caused for consumers when faced with substantial rate increases. A new NAIC Model Bulletin now mandates “landing zones,” where consumers may take reduced benefits and maintain current premium levels. This can be primarily accomplished by accepting a reduced compound inflation option.

Reform is in the air! It is expected that at least a bipartisan attempt at reform of Medicaid is very likely. It is also, therefore, possible that allowing some access to existing individual qualified dollars is a distinct possibility. The primary argument being that freeing monies and therefore reducing government income from IRAs and 401(k)s

could be offset by savings to  Medicaid. There will not be any new CLASS Act look-alikes. However, we need to keep an eye on the Bipartisan Policy Center report on long term care and retirement savings, due out by year end, and the scheduled 2015 White House Conference on Aging.

In the meantime, product development will continue with more short term options (both individual and group), reduced streamlined benefits, catastrophic coverages, 1035 programs, and many more life/annuity hybrids.

The problem that will not go away still stands before us, somehow remaining smug in its self-certainty that we have only dented its defenses. What it does not understand is that we are now more experienced, better equipped, better prepared and better trained. We have a growing arsenal of product alternatives and risk leveraging strategies. We will not stop until we have accomplished what we know how to do best, and that is exactly why now is the absolute best time to be in the LTCI business.

Other than that I have no opinion on the subject.

Perhaps we just don’t like to dance. Far too many have remained casual observers. A reluctance to participate has kept the vast majority of consumers and agents glued to their chairs. They know that the dance of life requires mandatory attendance. They acknowledge that the music is compelling and that none of us is completely devoid of some sense of rhythm. The majority of Americans and their insurance professionals remain all dressed up and waiting to be asked to dance. We intrinsically know there is no escape from the dance and the importance of taking part in the festivities, yet we continue to appear to lack the confidence or the perceived popularity to stand up and take our proper place on the dance floor.

There are signs that this may be changing. If you look carefully at the wallflowers assembled at the periphery, you will begin to notice some toes tapping and the subtle beginnings of animation and intent. The music is loud and compelling. We publicly spend well over $100 billion annually, with unpaid caregivers contributing another $450 billion. There is universal agreement that remaining motionless in the face of compelling evidence to take action will be catastrophic. The number needing care is expected to explode from 12 million today to 27 million by the year 2050. Complacency on the dance floor is no longer available. The Congressional Budget Office projects that total spending from all public and private sources will mushroom from 1.3 percent of GDP in 2010 to 3 percent in 2050. There is no choice but to restrain public spending and increase our dependence on private solutions. This understanding and recognition of reality is currently taking hold in several other developed nations around the globe. It is no longer a question of who will lead—public or private financing. It is much more important that we begin to work out how we can dance together and not step on each other’s toes. No one in his right mind would suggest that our current attempt at synchronized dancing is working on any level.

We remain desperately in need of reform both public and private. The potential cost in terms of lost productivity as family and friends step in to fill the void jeopardizes the future of all Americans. We are simply not ready. Only one-third of all Americans are financially prepared for retirement. We must change course now or stop and prepare for the inevitable devastation that will be caused by the emotional and financial firestorm at our doorsteps.

Inevitably your ability to dance is fueled by the clothes you wore to the prom. As income increases, so does the acquisition of private insurance. There have always been two markets. Those with substantial assets to protect, and those with sufficient assets and income to remain teetering on the edge of maintaining control of their own claim or being exposed to the possibility of becoming just another ward of the state. The truth continues to remain maddeningly unavailable for viewing. Most continue to believe that someone else will pay. However, the central truth will always remain: “If you can afford to pay, you must pay!”

As you might suspect, we will never be asked properly, except perhaps in a tangential manner, what should constitute meaningful governmental reform. Just know that at its conceptual core there will be a flight from expensive institutional settings to more care at home, and that in the process, cost will shift in the same direction. Know also that the cost of protecting the middle class will be funded at the worksite and that some form of additional social insurance is inevitable. There remains, however, a clear recognition of the continuing importance of private insurance as evidenced recently by statements reinforcing the necessity of private solutions by the Federal Commission, the SOA “Land This Plane” research, and the new retirement initiative from the BiPartisan Policy Center on “America’s Long Term Care Crisis: Challenges in Financing and Delivery.” They each confirm a need for a strong and concerted effort from private insurance to continue to help meet the growing crisis.

The important question is: What can we do to encourage increased activity and more spirited dancing? There are growing signs of reanimation. Current estimates are that 30 percent of all the life insurance policies sold have some form of accelerated benefits attached, at least contributing to meeting anticipated expenses. Anecdotal evidence also suggests that reinsurance in this area is strengthening as demand for combo products increases. The sweet music of reform is in the air. The NAIC is reviewing greater flexibility in our product offering. Product innovation is picking up the beat. New ideas to both limit and share risk are again receiving careful evaluation by companies and reinsurers. Universal LTCI certification is becoming a near term certainty, meaning the chairs occupied by wallflowers are being removed slowly but surely from the dance floor. You may be able to stand and gawk at the assembled dancers for a little longer, but you will not be able to sit comfortably and watch from the sideline. Many more combo solutions are continuing to find space on the dance charts. In order to get everyone on the dance floor we must continue to improve the risk solutions available and their delivery in both the public and private marketplace.

   There may be trouble ahead

 But while there’s moonlight and music

 And love and romance

 Let’s face the music and dance.

 Before the fiddlers have fled

 Before they ask us to pay the bill

 And while we still have a chance

 Let’s face the music and dance.

Lyrics by Nat King Cole

 And other than that I have no opinion on the subject.

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.

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.