Ronald R. Hagelman

We are all, of course, guilty of succumbing to the temptation of embracing easy answers. However, sometimes it seems our chosen profession may have a particular affinity for simplification excess.

This is evidenced by a statement I heard recently from the committee examining the wide and growing world of combo products. “Hybrid, linked and combo products are the fastest growing segment of both life and long term care insurance.” When you add asset-based long term care sales, we have a several billion dollar industry, with stand-alone LTCI sales accounting for only about $500 million. The interesting question is: How much of the current life production is written with some form of chronic illness benefit? The current guess is approximately one-third. This number will continue to grow as more companies move aggressively to provide some form of living benefit. I suspect that worksite alternatives will also increase, adding fuel to the fire.

Our industry is often slow to react, but a clear threat to a company’s competitive position does eventually drive real change. Unfortunately these riders are being produced across a very wide spectrum of quality and intent. I am very concerned that many people may not clearly understand what was sold or automatically included in their life policies. I am even more concerned that consumers do not clearly understand what they bought. I am having dreams of a future plethora of E&O debacles.

Any leveraging of risk is preferable to ignoring the problem. It is also very helpful that we have so many more choices. As the long term care provisions of the Pension Protection Act approached, I gave many speeches about the upcoming advantages of our new three-legged milking stool with stand-alone LTCI as well as life and annuities with LTCI. As this market continues to evolve, it is starting to look more like an untrainable and ill-tempered octopus.

Here are a few of the rhetorical questions that come to mind:

 • How can you sell the perception of long term care protection and not be trained or certified to have that conversation?

 • If the sales opportunity arises as a question about long term care risk, doesn’t that automatically defeat the purpose of the combo sale? Remember, more than 80 percent of LTCI sales originated with the consumer, not the agent.

 • How do you offer a “no current cost” benefit when you can’t even tell the consumer with any confidence what it will cost them if they use it for care?

 • If you offer a benefit, do you not have a responsibility to at least offer the lowest net cost to pay for the risk?

 • Premium deductibility?

 • Did you evaluate 1035 opportunities first?

 • How do you explain the sale of life insurance where there may not be a need for additional life insurance, or the loss of annuity savings when they are needed for income?

 • Did you clearly explain that IRC Section 101(g) “life riders” requires a permanent, nonrecoverable disability threshold for benefits?

 • Where do you place the “planning”? Is this a health or estate or asset management planning process?

The perceived ability to conveniently address more than one need for protection with one sale has always been attractive. The current popularity of this approach as it relates to LTCI, however, requires an understanding that the temptation of easy answers must be resisted. There is no one right answer—each situation is unique. Begin as usual with a careful review of what is already in place. What could be exchanged, and at what cost? How best do you enhance long term care protection, and what is the net cost of those recommended options? We have not simply stumbled onto a new and miraculous panacea for the long term care risk conundrum. We have not found an easy answer or an easy way out. The truth is complicated and requires training in all the available solutions. The best answer may actually require a little of this and a little of that. Learn to mix and match with confidence and enthusiasm and give up the quest for that “easy” red button.

Other than that I have no opinion on the subject.

August 2014

The Last Word On LTCI…

We Are Not Alone

Ronald R. Hagelman, Jr.

We are indeed not alone. Our long term care support and services problem is not unique to our culture and political climate. Being unaware, uncommitted and unprepared is not unique to America. A population aging rapidly but steadily living longer as the result of advances in medical technology is a global problem.

Japan has the greatest proportion of age 65-plus—in 2010, 23 percent. The projected rate among six countries—France, Germany, Japan, the Netherlands, United States and United Kingdom—showed a range from 13 percent to 23 percent, projected to be 21 percent to 40 percent by 2050. The 85-plus age group in these six countries, as high as 8 percent of the population in 2010, projects to 12 percent in 2050. The problem is of course compounded by a steady decline in the younger age group of 15- to 64-year-olds, meaning fewer to provide care physically or financially.

Demographically, help and support is simply not on the way. The number of those dependent or potentially dependent on others is increasing, and those available to help is decreasing. The “dependency ratio,” defined as the ratio between those 65-plus compared to those 15 to 65, has been increasing steadily for all six countries beginning in 1960.

Adding to the demographic maelstrom are additional social considerations. For example: Marriage rates continue to decline and divorce rates are increasing. Funding for health care and long term care also takes place along a fairly wide perspective, with France and the Netherlands publicly funded; Japan at 86 percent, Germany at 71 percent, and the United States at 59 percent publicly funded; and the United Kingdom with funding slightly more private than public. The percentage of long term care expenditures compared to overall health cost also varies widely with a low of 7 percent in the United States to 28 percent in the Netherlands.

Perhaps a brief overview of the different approaches could help put our own circumstances in better perspective. The French model is a combination of government sponsored reserving strategies and reliance on family support. Sharing costs with families is an important component of the French long term care system. There has been rapid growth of private insurance. In 2007, only 1 percent owned a private policy, but that has increased rapidly to more than 15 percent today. Indemnity plans are the most common, with built-in inflation protection. In Germany there is a combination of compulsory social insurance using a health insurance structure. However, there is an active private market for higher wage earners. Private compulsory insurance may be chosen instead of the mandated ­employer-collected option. Social insurance costs are slightly more than 2 percent of income earnings. The private option is supported by a 50 percent contribution from employers.

Japan has very high life expectancies and low birth dates—the “perfect storm.” The dependency ratio has increased from 9 percent in 1960 to 35 percent in 2010. Family support for informal care is also reducing. Japan’s social insurance program began in 2000 and is compulsory for those over age 40. The system in the Netherlands is also very interesting. Over half of those receiving care did so in their own homes. A compulsory social insurance program is in place, costing 12.5 percent of earnings. Even at these high funding levels, coinsurance costs are so high that care is restricted for higher wage earners. A fully mandated social insurance program is not working, and the government is moving to shift costs back to the private sector. The market in the United Kingdom has been slow to develop, as there remains a perception that the government will provide. Much of the insurance market is addressed with prefunded immediate needs annuities. Current recommendations sound very familiar—“a new partnership between the individual and the state—one where individuals need to take reasonable and appropriate responsibility, but the state provides protection for those with greatest needs.”

The statistics provided above come from a report by the Institute and Faculty of Actuaries “Long-Term Care—A Review of Global Funding Models” March 10, 2014. The conclusions of that report require your careful consideration:

 • Shifting from a means tested model to more universal approaches is growing in popularity.

 • Long term care costs in nations with reforms in place have caused reduction in benefits.

 • Growing incidence of disability, evaporating family ties, and more two-worker households requires “progressive change to the roles of public and private resources and fosters more innovative approaches.”

 • Publicly funded programs need to consider more public/private partnerships and at the same time increase incentives for informal care.

 • Financial sustainability is the most important ingredient to success.

Indeed, we are not alone. However, it is specifically the creative and innovative nature of our culture which will sustain and protect us. Working together, public and private, each doing what they do best has always been our only path forward.

Other than that I have no opinion on the subject.

Traditional stand-alone LTCI sales are down although, interestingly, average premiums have remained level for several years. I suspect we have stumbled onto another LTCI “truth.” Perhaps it’s average consumer tolerance of expense that has leveled out at $2,300 annually. Every new survey confirms the obvious—the greatest obstacle to sales is cost. However, in today’s world of proliferating chronic illness riders, it’s not just a matter of cost but perhaps more importantly, “relative cost.”

Frankly, I have mixed emotions about the industry’s current rush to complete their rider portfolios. As was predicted many years ago in this column, ultimately all life companies have to include some form of accelerated death benefit rider/LTCI rider. It is just too easy to sell against a company without one. America’s actuarial firms are currently very busy completing riders for the carrier stragglers that have not yet put their risk abatement houses in order. The cry for “living benefits” is heard throughout the land. Everyone who is anyone will be able to proudly proclaim: “I’ve got one too!” In my mind there is really only one clear positive from the current furor. The recently aroused fiduciary dragon rising like “Smaug” from its slumber beneath a mountain of hoarded gold does now guarantee that ignoring the dragon will only take place at your own personal professional peril. The proverbial sleeping dragon has been permanently and irrevocably awakened and can never again be ignored or denigrated.

Now that we have disturbed and exposed the dragon to the light of day, the problem becomes how and by whom can the dragon be slain without breathing fire on an unsuspecting and unaware consumer. If insurance professionals are going to eliminate an ancient and potentially very dangerous foe, are they in any way prepared for combat? Frankly, I have never seen a more confused and woefully unprepared collection of dragon slayers. Most remain confused as to what weapons would be most effective to the task at hand. There is amazing disarray and inappropriate response to the concept of vanquishing dragons.

The ability to correctly identify your weapon of choice might be a good place to start. A “combo” product is any product that desires to vanquish two risks at the same time. Any two risks combining any stand-alone product attached to any additional risk rider would qualify. “Linked” products are those that specifically link life insurance to long term care insurance in the form of an IRC Section 7702(b) extension of benefits rider. “Hybrid” products refers to life or annuity products with a long term care benefit feature, either present valuing the death benefit or enhancing the annuity payments. When you cannot even properly identify your weapons it may be somewhat difficult to be successful in combat.

Let’s now assume you understand which sword to take to the engagement. What is it that most defines the purpose of the quest in the first place? If the dragon has two heads, life/annuity and long term care, which head should be vanquished first? If you do not even understand why you have polished your armor and sharpened your sword in the first place, failure is a distinct possibility. What has brought you to the darkened opening to the dragon’s lair? What is your purpose?

Let me make this absolutely crystal clear: There is no reason for you to be there at all—ever—unless you are there to slay a long term care dragon! This is not about life insurance or annuities. It should only be about cutting off the head of the long term care risk. And somewhere along the journey to the mouth of that cave you must ask yourself, “What will this cost?” Yes, combo intent can potentially solve two problems. However, if used for its purpose, the other element is simply no longer available. In other words, if you kill the correct dragon, other distractions are wasteful and, frankly, superfluous. What must always remain the focus of your sacred quest is to vanquish the dragon with the least waste of effort or expense. What is the most cost-effective method of slaying dragons? As with any insurance risk the shortest distance between two points is always best. I want to drive my sword directly into the heart of the beast.

Other than that I have no opinion on the subject.

Complaining about the obvious is rarely helpful. However, no matter how you hold last year’s production up to the light it is not a pretty picture. The concern, of course, is the residue of attempting to secure coverage, the aftermath of the collision with home office processing, and determining what constitutes the new normal for submitting and hopefully issuing business going forward.

An inventory of the new realities of policy submission and issue may be the best place to start. Applications already the most extensive in our industry seem to have gotten longer, with new, additional forms attached and more signatures required. Cognitive screening is now required at younger ages. Parameds and lab work are required on the majority of all new individual cases. Regular periodic attendance at your physician is almost a new prerequisite to buy. Simplified issue, when available, is really only a marginally shortened part 2. Fewer carriers and cyclical fire sales have strained service issues with all the companies. I would venture a guess that the number of days between submission and issue is the highest we have ever experienced. The truth about insurance companies is that the only structure where they have complete control is service. Poor service, even when created by events beyond corporate control, dramatically exacerbates sales problems everywhere else.

I am absolutely positive that placement ratios are at an all-time low industry wide. The connection between lagging service standards and consumer buying are painfully obvious. I recently heard an LTCI general agency explain to a prominent LTCI company that the most frequent conversation they have with agents begins with, “If they can’t issue policies, how can I expect them to pay claims when the time comes?”

Historically one out of three applications does not make it all the way to “in-force.” Traditionally about 15 percent are declined, and the balance split between withdrawn and not taken. It should not be unusual to suggest that very restrictive new underwriting with issue times at an all-time high have played hell with these numbers. There are, of course, issue and placement concerns that have always been a unique component of LTCI. This is a tough sale, and convincing a client to buy may have exhausted all available goodwill. In other words, many agents do not want to go back for additional underwriting information or forgotten signatures. Field underwriting takes on special meaning as well. After pressing to make the sale there is reluctance to press for information on all impairments as well as detailing all current medications. LTCI is also extremely price-sensitive. Taking an offer back other than applied for is difficult. Perhaps the biggest problem remains where a couple applies and one of them is declined. Regardless of how sincere your conversation is to explain cutting off your emotional nose to spite your financial face, it is often very difficult to keep the remaining policy on the books.

It is simply time to go back to the very beginning of this sale and start over. We must reset expectations or the new underwriting and pricing wear-and-tear will put us all in padded cells. Why not begin by emphasizing the obvious! This is a very important sale! It is critical that we as an industry work very hard together to make every effort to protect the proposed insureds and their families. These are not easy policies to obtain, and premiums are not cheap. There is a reason—the risk is real and substantial and potentially devastating. We must work to gain admission for our clients to an exclusive club—those who have achieved the privilege of transferring their risk burden to the insurance company.

This product is heavily underwritten. We must tell the whole truth and nothing but the truth about medical history and current medications. The company will not miss anything. If we don’t start out with the truth we will have no chance at all. The client may have to have a physical exam. He may have to give blood and urine. He may have to take a cognitive screening test, and he needs to be ready and prepared for that test. This is not easy, and if the company has to obtain medical records it may take some time—30 to 60 days is not unusual.

It is very important that we give this our best shot. If one of the joint proposed insureds is not accepted, the client needs to understand the increased importance of accepting the offered policy. If we cannot secure this coverage there are some other options we can explore. These are the longest and most extensive applications in insurance, and as we go through the underwriting and issue process, we may have to return with additional paperwork. Like many of the most important things in life, this is not easy, but it is so very, very important. This is exactly why it is necessary to begin immediately and be with the client every step of the way.

As LTCI sales specialists, we have all created our own private mantras. “The risk is real, the solution is obvious, premiums will continue to rise and underwriting will become even more restrictive.” And now we must add: Our customers should not enter into this process unaware that “the journey from application to policy may be arduous but necessary.”

Other than that I have no opinion on the subject.

My grandmother was from rural east Texas, with substantial Indian blood in her background. She taught me many things: tolerance and kindness to strangers, pride in my family, to look for the strength and intrinsic quality of character in others, as well as a passion for cooking and caring for others. Her speech of course reflected her humble and labor-intensive beginnings. I always knew exactly what was meant and what was implied.

One of her favorite constructs involved determining if by adding or subtracting components the new whatever-it-was would work. Did the parts actually fit, or for that matter even belong together? So, frequently the word “gozenta” would present itself in multiple contexts in her conversations. I knew she meant “goes into,” and I relished her choice of invented vocabulary. She also read signs and predicted the future in tea leaves.

We have before us another cautionary tale, one that deserves careful scrutiny. It involves what goes with what and to what extent. The question is large, increasingly complicated, very strategically important, and in many ways defines our future in long term care insurance sales.

There are few who would argue against the idea that we need to be price-sensitive and to customize benefits to fit the customer’s economic circumstance. For the last several years we have been selling less and less benefit, focusing on co-insurance strategies, trying to find benefit structures that reduce costs: shared care benefit reductions, alternate and sometimes innovative inflation benefits, longer elimination periods, and the beginnings of plans that actually pass risk onto the consumer. It’s actually all these new product choices as well as the old standby stand-alone solutions that are creating a serious benefit integration problem.

As we try to save money and more accurately evaluate benefit and risk, we run squarely into the question of what fits with what. How much should be base plan and how much buy-up? Can we layer or stack policies? Can I have some of this and some of that? Since we are insuring this risk at younger and younger ages, can I buy a starter policy now and add to my protection later as my assets and family grow? Is it “one and done,” or do these customers remain in your ticker file? Are they ever scheduled for subsequent risk evaluations?

I realize that most of you carefully read all specimen policy forms before you would represent a particular product. However, I would simply like to advise you to read very carefully two sections of the policy forms, assuming they are both present. First, determine if there is a “coordination of benefit” section, then read the “exclusions and limitations” section. The questions on your mind should be:

 • Can I sell more than one policy with this company? Will both policies pay?

 • Will this policy pay benefits if another company also pays benefits?

 • Does this policy coordinate with other coverages other than long term care? Accelerated death benefit riders? Combo life and annuities?

 • Are the only exclusions government entities—Medicare, Medicaid or disability SSI?

 • Do they coordinate on reimbursement and indemnity?

As the moving parts of our industry proliferate and creative solutions are found to cost-effectively leverage this risk, you must be cautious that you don’t set traps for yourself. The ability to stack, layer and build customized product and benefit solutions both within and between product lines is critical to our long term success. If you do not know exactly how it “gozenta,” you are lost before you begin.

Other than that I have no opinion on the subject.

The jury has returned a verdict on production results for 2013. For those of us defending one’s right to protect himself and his family against the devastation of an extended caregiving event, the final decision is a little disheartening. We will just have to meet the news head-on and guess as to its etiology. “2013 marks the largest fall in annual premium since LIMRA began tracking individual LTCI sales in 1989.”

A 30 percent decline now brings our five-year compound growth rate to a negative 8 percent. Production is still bunched up at the top, with more than three-fourths of sales coming from the top five writers. Close to five million policies remain in force, with no change in very low lapse rates. Maybe this is a good place to start our speculation. We know that what is sold is really sold and will remain in place unless, of course, the government steps in and picks up the tab, which is as likely as pigs flying in pink tutus. We know that every sale, regardless of size, duration, open or closed block, or carrier commitment is a good and solid sale. We know that regardless of carrier intransigence causing rate increases, benefit abandonments, restricted distribution, reduced commissions and extreme underwriting rigidity, every sale is a wonderful and worthwhile sale.

Interestingly, worksite sales only experienced a small decline although average premiums did decline. This is particularly interesting in light of the fact that we have very few product choices left and meaningful underwriting concessions are vanishing before our eyes. Just for the record I would like once again to explain that much of the solution for insuring the “mass middle” market is at the worksite. Either we will succeed with product and employer-sponsored enrollments of our own design, or the government will simply increase payroll taxes and do the job for us. Although there may have been some problems with true group guarantee issue business, I have seen no evidence that multi-life was not a successful approach. It was difficult and administratively stressful. The majority of LTCI sales still originate from life companies, and the strains of additions and deletions with ever-changing list bills is problematic for those truly unaccustomed to walking and chewing bubble gum at the same time. The  multi-life approach must return, and I would strongly recommend that unless you are owned by a health company, you should seek outside TPA assistance.

Commenting on a persistently bad economy is too easy of a target. However, extremely low interest rates, high unemployment and a black hole of discretionary income might have something to do with a reluctance to step up and leverage excess risk. As long as the lie persists that buying a policy is optional for consumers and selling a policy is optional for agents, I do not expect sales to improve dramatically. It is also a little too obvious to suggest that the Affordable Care Act may have become something of a distraction for consumers and producers alike. While we are on the subject of economic philosophy, I don’t believe anyone would suggest that scarcity of product reduces the cost of that commodity. Price does matter. A parade of seemingly endless rate increases and new product introductions, regardless of how justified, is frightening all concerned.

I choose to believe that our shrinking universe of committed carriers has stabilized, that those courageous companies that remain will be able to price adequately, and that increasingly restrictive underwriting practices will return confidence and longevity to the market. I would be remiss, however, if I did not point out the obvious. In addition to the unavoidable perception of pricing instability, last year’s onslaught of sex-distinct rates and full underwriting requirements, coupled with dramatically expanded cognitive screenings, may have seriously contributed to a precipitous decline in new sales in 2013.

Self-inflicted wounds should be the most illustrative. If we are going to learn anything from our mistakes, it might be the notion that imposing a structured reduction in new business often takes on a life of its own. In other words, be careful what you wish for—this time we all took a hit!

Other than that I have no opinion on the subject.

Once upon a time I taught school. My classrooms were dominated by the presence of massive blackboards. Each day they were filled to capacity with my attempt to bring order from chaos. Each evening they were completely erased and supplied with adequate chalk to make sure my next morning’s attempt to organize, clarify, illuminate, elucidate and provide structure could begin all over again. God, I love a “fresh start.” I miss that blackboard and the hope of new beginnings.

Maybe that is why I have been so proud and enthusiastic concerning my participation in the Society of Actuaries (SOA) Long Term Care Section Council-sponsored “Future of Long Term Care” think tank. I have had the privilege of working with this group of dedicated experts since its inception, and recently served as co-chair. This is an eclectic and committed group of actuaries, regulators, reinsurers, and company executives, with a smattering of marketing types. We have been working together as common stakeholders in the quest to determine achievable solutions to the ongoing LTCI conundrum. I was able to contribute and help encourage participation in the recently completed Delphi Research Study: “Land This Plane.” The year-long project was sponsored by the LTC and Forecasting and Futurism sections of the SOA. The Delphi method research project required three extensive rounds of consensus-building, open-ended questioning. The survey was completed and initially reported at the SOA National Convention in October, 2013. It has now been completed for publication with the expert help of John O’Leary.

Our goal was to establish comprehensive parameters for a global solution to a problem that to date has defied all attempts, both public and private, at amelioration. The readers of this column clearly understand the potential fiscal catastrophe looming in our immediate future. There is no mystery for us that the failure to plan and save ahead for retirement and the intrinsic cost of custodial care represents one of the greatest challenges to our country’s financial and emotional well-being. The lack of a Gestalt approach (Google/Wikipedia homework assignment) to what may be America’s largest “unfunded liability” cries out for a new beginning and a fresh approach!

The survey was not designed to again identify rote answers old or new. It was meant to help create a workable lesson plan, with an emphasis on delineating all the moving parts of a new, creative, energized and potentially achievable direction forward.

The survey begins with an emphatic declaration. There was overwhelming support for the need to completely overhaul the long term care financing system (86 percent). Perhaps even more significant was the fact that although only 20 percent of the experts surveyed were company or marketing types, 100 percent of all assembled experts agreed that private insurance was a necessary component of a successful future system. The obvious bottom line is that the current hodgepodge of jurisdictions and care resources is ineffective, inefficient and grossly insufficient. A newly reformed, revitalized care protection and delivery system should prioritize the use of available resources at all levels—individual, family and public.

The time has also come for the insurance industry and our caring friends in the public sector to declare a new day of cooperation and mutual purpose. We must all recognize that only together, each working at what we are best equipped to accomplish, can we hope to succeed. There will always be a private market for wealthier consumers who wish to leverage their risk with insurance, and at the opposite end of the spectrum our commitment to provide for those truly in need must remain a cultural imperative of American economic justice. Where we have failed and must direct our most urgent attention, both public and private, is the vast and shockingly unprepared Middle America.

The survey overwhelmingly supported the painfully obvious: The government and the insurance industry must take a much more active role! Consumer education in the form of a national consumer awareness campaign must be sponsored and funded on a national priority basis. Tax incentives, as unpopular as they may be in difficult economic times, must be promoted and established—from cafeteria plan inclusion to direct tax credits. Partnership plans must be more flexible and inviting. We need to create incentives to embrace a personalized “roadmap” for all Americans, to help guide them in planning ahead.

What may be controversial to some of my more conservative friends is the surprising support for a “social” insurance component. Now pay close attention, class: “Social insurance is not socialism.” Social insurance simply guarantees sufficient participation and therefore prevents excessive adverse selection which, not surprisingly, allows insurance to actually work. Participation must be enhanced and encouraged by incentives and/or penalties. Some basic protection must be seriously delineated. For almost 20 years now I have taken my clients gently by the hand and led them to the edge of the precipice and had them look down into the swirling mists of risk below. Far too many stepped back unimpressed or unconvinced to take action. That is no longer acceptable behavior and will no longer work with the potential LTC risk standing before us. The most logical approach would be a Medicare-like benefit, established through payroll deduction, with a corollary private supplement insurance market. Corollary product suggestions were also made that could contribute to greater participation, including a high-deductible plan and the creation of a separate tax-qualified savings account specifically for LTC, similar to a stand-alone HSA or IRA.

There was virtually universal agreement  that the qualification loopholes and inadequate emphasis on home and community-based services by Medicaid requires enforcement of appropriate standards of equity and expanded support for non-institutional settings. This is in fact a mandatory requirement of any real attempt at reform (86 percent). It was pointed out that there are still large impediments to product development that require revision and remain present in the NAIC LTC Model Regulation and Act (79 percent). Smaller, simplified, and much more ­benefit-flexible products are needed. Furthermore, it was recognized that existing individual tax-qualified savings in the form of 401(k)s, 403(b)s and IRAs must be made available for use on LTC expenses. Americans have more than $10 trillion ready and available in these accounts.

In addition, there were also a number of creative new market product designs and risk structure enhancements identified by the research. It was suggested that there is a need for a national reinsurance program with both public and private participation that could help limit exposure and manage excessive risk. A stand-alone universal LTC policy with a tax-preferred savings account resurfaced as a suggestion. A “mutual LTC” policy was also suggested, in which benefits and risks could be shared between consumer and company and, in the process, help guarantee support for many more Americans.

And finally, in concurrence with my own personal perspective, it was agreed (67 percent) that the long term care “problem” should be a mainstream financial planning requirement. I have often suggested that limited sales results may be directly related to a limited number of agents trying to help solve the risk problem. I have actually heard it recently suggested that the LTC risk should stand before the life risk. I agree. Participation in the solution should not be optional for consumers or insurance professionals.

This exhaustive collection of converging opinions was, again, only a beginning—a concerted and sincere effort to “land the plane.” There is much work to be done. More quantitative research, more evaluation of the economic impact of the suggestions present in the research and a re-dedication on all our parts to learn anew and try again. It is time to beat the old chalk out of those erasers and meet these new assignments with a familiar rhyme: “Good morning to you, good morning to you, We’re all in our places with bright shiny faces.”

Other than that I have no opinion on the subject. 

Risk or adversity that is just out of my line of sight is something I have always had trouble with. We all fear the unseen policeman who, at any moment, can provide the joy of an unanticipated speeding ticket, or the snake in tall grass that might catch us unprepared.

On the other hand, it just seems to me that the emotional and financial hardships brought on as the result of a long term care event should be immediately visible and at least part of our permanent presence of mind.

Oh well, pardon the momentary lapse—I know better than that. Maybe it’s not the fact that the risk is barely visible with the distance of age, maybe it’s just something that is genetically imprinted. Maybe we are hard-wired to ignore our own future potential frailty. Maybe its simply the incredibly frightening prospect of being dependent on others and the uncertainty of that possible eventuality that interrupts our reasoning ability and prevents us from taking direct action to protect ourselves and our families.

Let’s begin with the biggest iceberg of Titanic proportions! In 2011 we spent $210.9 billion on paid care—but it is estimated that the real cost to us was an additional $450 billion for unpaid care. Pardon me, but I must suggest that even unreported care could be grossly underestimated.

Admitting dependence may be another of those regressive historical genetic afflictions. Darwinism at its most virulent: Only the behaviorally independent survive. Whatever the underlying cause, not admitting you need help and then systematically ignoring any attempt at planning could at least indicate the level of irrationality at the source of the affliction.

Genworth has recently completed some consumer research that sheds some light on the dis-connect with a new study, “Beyond Dollars 2013.” A number of the findings were enlightening. Long term care claims in an institutional setting may be of a fairly short duration; however, the same cannot be said for caregivers from the survey who reported that “43 percent of their loved one’s need for care lasted three to four years.”

The total impact on a caregiver’s life has never been adequately defined. Every caregiving situation is different, with different levels of physical, mental or medical needs. The hidden cost to careers is grossly underestimated. According to the Genworth survey, the average weekly time requirement to provide care is 21 hours. Over half the respondents reported loss of income as a result of caregiving responsibilities. Two-thirds had missed time at work, and there were a substantial number of lost vacations/sick leave and missed career opportunities.

The impact on personal time by care provided was also great. The majority reported that caregiving impacted personal relationships and general well-being. More than a third of caregivers reported that their responsibilities had impacted negatively with their spouse, created a negative impact on their family in general, affected their personal health, and created depression. More than half of care recipients themselves also reported additional stress. The point is that caregiving does not take place in a vacuum.

Family and friends should be involved early in the planning process. From where will the money needed and the time required appear? Talking about the who, what, where and when of caregiving may be unpleasant or uncomfortable—Do it anyway!

Other real costs may also be hidden from view. It’s not just the direct provider cost or the discounted and presumed family assistance, it’s the “incidentals.” Both caregivers and care recipients reported a severe economic impact on the small quality-of-life spending in which we all engage: Discretionary spending had been curtailed by 58 percent of caregivers and 77 percent of care recipients. Genworth’s research indicated that care providers spent on average at least $8,000 out of their own pockets to help with care.

Here we are again, back to the beginning of our most popular persistent circular argument. Begin by helping your clients recognize that there is an iceberg—and it is a really big iceberg—floating in their path, specifically to cause great harm. But what you see is not what you often get—there are hidden dangers lurking just below the surface. Have they had their lifeboat drill instructions, and is their lifeboat ready for turbulent waters? And somewhere along the conversation of life boat planning you might want to mention insurance.

Other than that I have no opinion on the subject. 

On a recent conference call discussing a possible future topic with a “panel of experts,” I heard a serious and knowledgeable voice suggest that we need to discuss “what is wrong with long term care insurance.” This was again one of those times I had to hit the mute button and compose myself before responding. I kindly but firmly suggested I would be happy to help with a presentation about “what is right” with long term care insurance.

Each year through our national distribution I am extremely proud that I can contribute to helping thousands of Americans insulate themselves from the ravages of being unaware, unprepared and uninsured. I see nothing wrong with having dedicated the most recent 17 years of my life to convincing others to accept the wisdom of not ignoring the risk of dying without dignity by exposing themselves to the distinct possibility of losing complete control of their own care and impoverishing their own families and their estates in the process.

I see nothing wrong with an industry that has constantly had to respond to a moving target of needs, benefits and care delivery, yet continues to deliver new and creative product alternatives. America is aging, and individuals as well as their representative government remain unprepared and stubbornly uncommitted to dealing with the social and cultural changes created by our mushrooming age 65-plus population.

Long term care insurance has evolved at a steady and responsive speed. Our industry has adapted to changing circumstances and continues to adjust its marketing strategy. Agents and companies have continued to try to find ways to help mitigate an enormous risk. The only problem I see is the sheer magnitude of the problem. When faced with an overwhelming enemy force, history has taught us not to confront them head-on but to whittle away at their defenses with a relentless and well-planned guerrilla attack.

There are not one but many LTC insurance markets, and those markets are also evolving and responding to changing circumstances. Each marketing approach is attacking the enemy from a different direction.

There is nothing wrong with an individual LTC insurance market that adds protection for more than half a million or more Americans each year with substantial comprehensive policies averaging more than $2,200 of premium. There is nothing wrong with an industry that paid out $6.6 billion in claims in 2012—all of which was aimed at maintaining the freedom to choose the nature, substance and circumstance of the insureds’ own personal care. I see nothing wrong with the most consumer-persistent health product ever designed. I have never seen a product more responsive to consumer demand for enhanced benefits.

I see nothing wrong with a multi-life market responding to too much success. The industry has not given up on worksite sales—if anything, I view it as a strategic retreat designed to fall back and regroup. We still have options, we are just not going to turn too many underwriting corners on our way to more and greater payroll deduction opportunities.

I see nothing wrong with a thriving and rapidly expanding combo life and annuity market. Almost all front-line life companies now have some form of chronic illness rider. Single premium LTC insurance combos are approaching several billion of new premium each year. The majority of permanent life policies have some form of accelerated death benefit rider.

I see nothing wrong with an industry that is building an arsenal of products that can provide some level of protection to approximately 40 percent of those who want LTC insurance coverage but cannot meet underwriting thresholds. We have life products offering chronic illness benefits utilizing only mortality considerations. We have combo life products offering a blended mortality/morbidity underwriting process. We have annuities enhancing payouts for nursing homes—even on a guaranteed issue basis. We have companies now offering smaller specified defined benefits policies with very limited durations, all with seriously abbreviated underwriting. And we still have stand-alone LTC insurance companies that specialize in taking clients with mild impairments.

I see absolutely nothing wrong with an industry that fights the good fight with the weapons and ammunition at hand. I see nothing wrong with an industry whose field force, by definition, cannot be just order takers because clients must be professionally counseled and advised about benefits options. I see nothing wrong with an industry that requires training and expertise.

What I do see is much that is right!

To all my fellow freedom fighters: May the new year be your best ever. May your customers flock to you and immediately accept the wisdom of being prepared. May we all continue to respond to the need and the risk of care injustice. And may we each remember that regardless of how we approach the problem—all our efforts do matter!

Other than that I have no opinion on the subject. 

The Society of Actuaries’ Long Term Care Section and Forecasting and Futurism Section have completed a Delphi research project, with the results being reported October 22, 2013, at the group’s national conference. As we noted last month, for this extensive (and, on a personal note, as the co-chair of the Future of LTCI committee, sponsor for the project, I would add exhaustive) research method we utilized three subsequent opinion surveys, each progressively focused to arrive at as much consensus as possible.

A comprehensive “white paper” is being funded by the SOA and will be available during first quarter 2014. I am very proud of our efforts and pleasantly surprised at the consensus of agreement and direction that was generated. A group of 40 selected LTC stakeholders was created for the project and composed of actuaries, regulators, home office executives and distribution leaders—all of whom donated many hours of valuable opinions and creative alternatives.

You need to begin as we did by trying to understand exactly where we are and why we seem to continue to find ourselves circling in a dead end cul-de-sac.

 • There are 12 million Americans today who rely on personal care, and half of the cost for their care falls on federal and state governments.

 • There are 40 million unpaid caregivers (most frequently family members), and the cost to U.S. business is more than $30 billion.

 • Plus, there are 500,000 on waiting lists for state-sponsored home and community based services.

As The Heritage Foundation recently reported, “There is no magic bullet, no simple formula and no escape.” As a result, “Given the gravity of the challenge ahead, another failure in public policy will be the most expensive alternative.”

Americans are painfully unprepared. Millions are failing to plan ahead—more than 56 percent have done no planning, and about half of older adult households have less than $10,000 in non-housing assets. Even when counting home equity, 65 percent of  Americans fall short of being able to retire. We must all strive to do a much better job of telling the truth about inaction!

The visible problem is only the tip of the iceberg. In 2011, paid care from all sources was $210.9 billion, but unpaid family care was $450 billion. Already 65.7 million Americans are caregivers, representing one in three of the adult population.

Using a football analogy, we must ask: “Where is the coach?” Government financing—both federal and state—has become a maze of conflicting jurisdictions. Private insurance is losing the spirit to win. There is no coordinated plan. There is no playbook. There is no referee. There is chaos fueled by misdirected planning, ineffective good intentions, and cosmic levels  of public denial.

The immutable conundrum begins with asking questions:

Who is responsible? Individuals? Gov­ernment? Family members? Or the insurance community?

How much protection is enough? The average value of paid care is only $50,000. In today’s dollars, $100,000 would cover 70 percent of all the claims that have ever existed. However, 20 percent of those who reach age 65 will have claims lasting five years or longer.

Where is the leadership? Of the companies that sold LTCI, 90 percent are gone, and the limited number of remaining players may be creating their own form of adverse selection.

What is wrong with today’s products? Previous marketing options have failed, been dramatically reduced or gone missing. Benefit alternatives have been driven out by unanticipated claims, interest rates and popularity (non-tax qualified, multi-life, advanced pay, unlimited benefits, survivor benefits and simplified underwriting).

The truth is that we live in a world of vanishing benefits, vanishing companies and vanishing commitment. Products are still too expensive. Sales are tragically still viewed as “optional” by consumers, agents and companies. And, frankly, there is no consensus about what the sale is meant to accomplish in the first place.

Is it about replacing only risk with insurance, is it simply about protecting assets, or is it about the philosophical necessity of avoiding government dependence? The bottom line is that we have failed.

After 30 years of insurance sales we still have only a 10 percent market penetration. All previous government incentives—OBRA 1993, HIPAA 1997, DRA 2005 and PPA 2006 have yet to make any perceptible impact. Sales remain flat. The compound growth rate for the last five years has been a negative 2 percent. Sales are very precarious, with three fourths of them coming from the top five companies. Einstein’s definition of insanity prevails across the land!

The “Land This Plane” survey arrived at some very important conclusions. I will try to summarize the findings now and complete the specific results next month.

 • The approach must be comprehensive and synergistic.

 • The industry has to commit to a cooperative working relationship with existing and future government initiatives.

 • Products have to be more flexible, less restrictive and simplified.

 • A more creative product approach to enhance participation and consumer understanding must be taken.

 • Universal consumer access to “qualified dollars” is a must.

 • Additional tax incentives are a necessity.

 • A public/private commitment to a social insurance component must occur.

 • A public/private “awareness cam­paign” has to be ongoing.

 • A public/private catastrophic coverage strategy must be included, as well as Medicare/Medicaid reform and mandated agent training.

The research has done an exceptional job of identifying all the moving parts of the problem and providing a substantial blueprint for a sound and functional structure in the future. However, it requires compromise and commitment from all the parties involved, as well as cooperation and coordination with government programs—old and new. Regulators must stand down and insurance companies stand up. Needless to say all insurance agents must participate in LTC risk abatement and all consumers must at least acknowledge the potential results of bad planning, bad math and bad thinking.

Other than that I have no opinions on the subject.