Ronald R. Hagelman

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. 

We Don’t Care What People Say, Rock ’n Roll Is Here to Stay

—Danny and the Juniors

It does appear that the urgency of the long term care situation has created a new commitment to find workable solutions for abrogating America’s largest unprotected risk. A serious effort is being made to step back and look at where we have been, the true size of the problem, and what basic ingredients are needed to achieve much greater success.

The Class Act, which proved to be actuarially unsound, was surgically removed from The Affordable Care Act and a new Commission on Long Term Care was created when the American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013. The commission was composed of 15 appointees from the President and both parties in the Senate and House of Representatives.

The commission’s final report was published on September 18, 2013 with a nine-to-six bi-partisan vote. Their findings do provide a basic outline of how we might harmonize all the required moving parts into one unified and systemic approach. There is substantial insight into where we need to provide emphasis and guidance. There is recognition of the clear and present danger of inaction. The report was delivered to the President with this final note: “We request your highest attention to this report and urge you to take action to maintain momentum toward creating a long term services and supports system that will meet the needs of all Americans with functional or cognitive needs now and in coming generations.”

In January 2013 a new research project was commissioned by the Long Term Care and Forecasting and Futurism Sections of the Society of Actuaries. This project is entitled “Land This Plane,” is managed by SOA’s Future of LTC Think Tank (of which I have been a member for six years and was named co-chairman in March 2012), and will use the Delphi method for its research. The LTC think tank has more than 70 members, including regulators, actuaries, market/sales leaders and insurance company executives. We have worked constantly to try to find consensus and discern ways to move private insurance solutions forward.

A smaller group was needed for the Delphi approach of subjective opinion consensus-building research; therefore a cohort of 40 experts was created, composed of select members from each discipline category. The project began in February with an initial round of questions that generated six major principles for the second round of questions, completed in June. The final round of questions was completed in October and answered by both the select committee and all members of the LTC think tank.

Roger Loomis, my think tank co-chair, and I reported the final survey results with the help of the Delphi project’s steering committee members—John O’Leary, Steve Schoonveld, Jay Bushey, Ben Wolzenski, Amy Pahl, Brian Grossmiller, Clark Ramsey and John Cutler at the SOA National Convention in San Diego.

You Can’t Always Get What You Want, But If You Try Some Time, You Just Might Find You Get What You Need—The Rolling Stones

These simultaneous efforts to identify a comprehensive structure to solve the massive LTC conundrum clearly complement each other. A preliminary report of SOA’s Delphi project results was given to the Commission on LTC and some of the Delphi conclusions did appear in the commission’s report. Public and private stakeholders are in basic agreement on a vast number of issues.

There Must Be Some Way Out of Here—Bob Dylan

The commission’s mission statement outlines our need to build: “a more responsive, integrated, person-centered, and fiscally sustainable long term services and support delivery system that ensures people can access quality services in settings they choose.”

The commission’s report clearly delineates a role for both public and private initiatives. The statute which created the commission required them to “develop a plan for the establishment, implementation and financing of a comprehensive, coordinated and high quality system that ensures the availability of long term services and support for individuals.”

The report points out that there are currently more than 12 million Americans with functional impairments who rely on long term services and support in their home, community or institution. Federal and state governments finance more than half of this expense. Recognition was given to the fact that aging baby boomers, fewer family caregivers, limited savings, inadequate private insurance, and rapidly increasing pressure on Medicaid are building to a monumental financing crisis. “The need is great. The time to act is now.”

Sometimes the Lights Are Shining On Me, Lately It’s Occurred to Me What a Strange Trip It’s Been—Grateful Dead

To understand the insurance recommendations, we have to begin by facing the same facts as the commission: Private LTCI has been sold for more than 30 years, yet only 10 percent of the available market has been enrolled. Policy issue continues to decline, and 90 percent of the companies in the market 10 years ago are gone. Rate increases are accelerating. And more of the same appears inevitable without a new and more effective strategy.

Singing the same old stale songs is no longer acceptable. It has been recognized that we must find “a balance of public and private financing.” Public resources must be reserved for those in the greatest need, and more private resources must be accumulated to finance long term services and support. Everyone understands that private insurance stands as a firewall to already overburdened Medicaid expenditures. We should be in absolute agreement with the commission’s conclusion: “Financing of long term services and support must reflect a comprehensive and balanced approach to public and private responsibility. It must encourage and enable individuals to prepare adequately to finance their own needs while providing a strong safety net for those who simply cannot do so.”

The commission recognized that creating an insurance strategy for catastrophic coverage would help, that regulatory restrictions were preventing policy flexibility and lower cost options, and that combination policies were a valuable part of the plan. Ultimately the commission failed to suggest any specific financing options. It therefore provided two alternative approaches.

Different Strokes for Different Folks and So On and So On and Scooby Dooby Dooby—Sly and the Family Stone

Approach A placed a greater emphasis on private market solutions to include:

 • Provide new market incentives including tax preferences and access to tax-qualified dollars in 401(k)s, IRAs and Section 125 accounts.

 • Create new combo policies, including “living care annuities,” which would result in lower costs and relaxed underwriting.

 • Reform Medicaid, including the ability to use the present value Medicaid benefits and preserve Medicaid for the poor.

 • Provide a public/private catastrophic reinsurance financing mechanism.

 • Remove regulatory burdens and barriers (e.g., NAIC reforms that would allow smaller and more flexible policies are needed).

 • Support partnership programs, reverse mortgages and asset recovery.

Approach B discussed the public sector:

 • Create a new public financed social insurance program.

 • Develop a mandatory participation model by enhancing Medicare Part A or creating a new stand-alone program to cover a  portion of the risk.

 • Continue the role of private insurance, but it might look a lot like what many refer to as “Obamacare.”

You Would Think with All the Genius and Brilliance of These Times, We Might Find a Higher Purpose and Use of Mind—Jackson Browne

Although the SOA-sponsored Delphi project took place independently of the commission’s considerations, many of the conclusions were similar. Those of us involved in SOA do believe that we were able to contribute to the commission’s findings. We also believe the commission was short on sound financing alternatives, falling back on the old standards of Medicare Part A payroll taxes and theoretical Medicaid savings. The commission was also lacking in any new or creative insurance approaches to the problem.

The creative energy and singular focus of the SOA project may finally transcend the existing stalemate. The final survey results generated six principles that may provide a lighted runway to finally land this plane.

And So Castles Made of Sand, Slip Into the Sea Eventually—Jimi Hendrix

Here are some excerpted results from “Land This Plane, a Delphi Study about Long Term Care in the U.S. (They will be discussed in greater detail next month.)

 Principle 1: A Robust and Efficient LTC System. Need for a robust and efficient LTC system—88 percent agreed. Private insurance should be a part of solution—100 percent agreed. The survey identified and evaluated several potential product innovations including high-deductible strategies, short term care, Medicare supplement, term LTC with an investment side fund, and a mutual LTC approach.

 Principle 2: Social Insurance. Social insurance is a necessary part of the solution—88 percent agreed.

 Principle 3: Changes in Medicaid. Medicaid reform is needed via tightened eligibility requirements—79 percent agreed.

 Principle 4: Changes to Regulations and Legislation. The NAIC Model Act needs to be modified and an outline was provided.

 Principle 5: An Active Government Role. Need government-sponsored public awareness—92 percent agreed.

 Principle 6: Improved Marketing and Sales. Improve LTCI training—83 percent agreed.

Common cause, common purpose and common ground. Public and private. Regulators, companies, reinsurers, sales distribution, actuaries, politicians and all those who are concerned about quality of care are playing the same songs. Finally by recognizing the financial as well as emotional impact of individual and cumulative denial, we will be able to create music that allows all the band members to perform in the same historic national concert tour.

Just Slip Out the Back Jack, Make a New Plan Stan, You Don’t Have to Be Coy Roy, Just Get Yourself Free—Paul Simon

Other than that I have no opinion on the subject. 

Yes, I have asked an inordinately large number of rhetorical questions in this column. Yet, like many of my peers who have focused their professional careers on abrogating long term care risk, I may have subconsciously chosen to avoid the most crucial question of all.

Many of those who read this column base their understanding of the long term care risk problem on several irrefutable conclusions:

 • America is simply unprepared to absorb the cost of caring for the boomer generation.

 • Premiums for LTC insurance have been trying to catch up with the cost of long term care from day one.

 • Long term care risk cannot be spread with such meager participation.

 • Consumers and agents have persisted in believing that their participation in a solution is somehow voluntary or optional.

Frankly, we do know who buys LTC insurance because policies are still flying off the shelves for those with accumulated assets (money), intelligence (measured by education), concern for family (evident by the desire to map out a strategy to leverage risk with insurance) and/or direct personal caregiving experience (have already stepped into the emotional quagmire and experienced financial disaster on their boots).

Otherwise, the greatest unfulfilled market of our time in this business remains basically unsolved. It is continuing down the same road, in the same car, with the same fuel; and no destination on this trip will improve the LTC conundrum.

So how can this unspoken question be anything but: What if the problem is just too big?

At this point, some of you have begun to suspect that I may have finally wandered off the reservation, because for more than 30 years I have believed and espoused that the truth was self-evident. Insurance, specifically competitive brokerage insurance, is the universal answer to all risk problems. I have remained blissfully secure in the knowledge that there was no financial risk too large and no potential future fiscal adversity that could remain unchallenged by the professional and systematic application of private insurance. Our corollary core belief has been equally important. The motto of Guardsman Life (a brokerage life company that my father founded in 1962) was: “A man must protect his own.”

The strength of brokerage’s moral imperative has always been based on taking responsibility for our obligations. Therefore, we have frequently chosen to perceive government-sponsored social insurance as a direct and perhaps inept competitor, placing ourselves on higher ground as the alternative to relying on institutional structure and guarantees. In other words, we have all knowingly spent a substantial amount of time selling against the inadequacies of Social Security, Medicare and Medicaid.

In reality, social insurance does nothing more than create the participation necessary to sustain adequate spreading of risk. Although some would say current programs are imperfect in execution, most would agree these programs are correct in terms of intent.

The long term care conundrum is simply too large for government or private industry to address alone. We must now work hard to build a bridge that will allow us to truly come together to solve this issue.

First, we must understand that social insurance is a prerequisite to adequate participation. I have come to believe that a viable mandatory permanent solution targeted at the middle class may be the only answer. However, a public program must be built in conjunction with a robust and creative private insurance market.

The choice to replace the long term care risk with insurance must remain, and supplemental options would also need to be created. Tax incentives must be increased and tax-deferred savings options must be flexible enough to accommodate long term care expense.

Bottom line: If you are not part of the solution, you are the problem—and the problem is simply too large for either the public or the private sector to solve alone. If it is not solved, the consequences of our failure to suppress a potentially massive financial risk are catastrophic.

We must now embrace our friends on the regulatory and political front lines and publicly profess our willingness to be helpful.

Our critical ADLs (activities of democratic living) are covered by the first amendment. It is the less formal IADLs (incidental activities of democratic living) that will continue to define our national character. Just as no child in America should go to bed hungry or be denied the opportunity for an education, no adult American should be forced to live without dignity and care at the end of their life’s journey! Basic, affordable health care available on a non-rationed basis must remain a goal of all.

Other than that I have no opinion on the subject. 

Combo policies have arrived as repeatedly predicted in this column. Living benefits are stationed on every marketing street corner, and almost everyone who’s anyone has one. Selling against those without these products in their portfolios is just too easy!

However, the problem this plethora of new chronic illness opportunities has created is that rarely are they similar in structure, design or intent. In other words they were not born equal—they can be very different and everyone needs to stop and carefully examine what is being sold.

Let’s back up first and review. I am often asked which approach is best: stand-alone LTCI, combo life or combo annuity? Or, a step further, which combo life plan is best? These are simply the wrong questions, and if you are off base at the beginning, the sales decisions will also be flawed. Remember why all this is happening. HIPAA gave us two ways to offer tax-free LTCI benefits: tax-qualified stand-alone LTCI “health” benefits under IRC 7702B and an expansion of terminal illness definitions which included “life” chronic illness accelerated death benefit riders under IRC Section 101g.

Where you need to begin your due diligence is by understanding whether what you are selling is a health or life rider. Health riders pay LTCI benefits, and life riders pay terminal illness benefits, not LTCI benefits.

Begin by examining the language of the marketing materials and the specimen rider. If the words long term care are not used, guess what—it is not covered. In other words, you would have to be “terminal” to collect any benefits.

To complicate this grand canyon of difference, I need to add that there are chronic illness accelerated death benefit riders that use “health” definitions. I know it’s a mess. More on this later.

Let’s return to asking the wrong questions. Combo policies are not just a separate and distinct alternative to stand-alone LTCI. It is not a matter of either/or—it should not be something you sell instead of LTCI. Applying premium directly to the risk is always the best approach.

Unfortunately, there are consumer objections to traditional LTCI, but the infamous “use it or lose it” consumer paranoia must be met head on. Transferring a large and fairly certain claim to the insurance company is expensive. Why would anyone expect anything else? If this concern cannot be overcome by explaining how insurance works, then alternatives must be provided.

Life combo products provide absolute certainty. Someone will get the money—the policyowner, in the event of a critical illness claim, or the beneficiary, upon death of the policyowner. The problem, of course, is that if the death benefit is used for long term care expenses, it will not be there for life insurance needs. This means that the life insurance sale was superfluous.

What about the fact that you may be selling unneeded life insurance to an older client at a time in his life when his insurance needs are likely receding. Or, in order to get sufficient payout from life insurance, you may have to exaggerate the face amount needed, which compounds the problem. This same reverse reasoning is true of combo annuities to some extent. If the deferred annuity was sold for retirement income purposes and it is used for LTCI expenses, you may have just shot someone in the foot.

Now on to an even more obtuse question: Which combo life policy is best? The answer of course is which one best fits your client’s needs. There are three basic designs:

 •  There are life products which simply come with a life chronic illness accelerated death benefit rider at no current charge—if your client does not use it, there is no cost. Of course, the problem is that the insurance is not free. If you do need care for a terminal illness, the cost will be deducted from the payout of benefits. Based on age, such costs can be 25 to 50 percent of the benefit.

 •  There is also level premium universal life that charges for the care benefit as a scheduled rider deduction from the account benefit. Since regular deductions from the account value for the cost of the rider have already taken place, the full death benefit is available. Only a small corridor of the death benefit is reserved to prevent an inadvertent lapse. These riders need to be evaluated carefully because some use a life definition requiring a “terminal” event and some use a health definition which does not. Proceed with caution or at least make sure your clients understand exactly what they bought.

 •  The largest and most successful sale is the asset-based life combo. With this product there are three separate and distinct buckets of money: the client’s single premium, the net amount at risk from the life insurance, and an “extension of benefits” for long term care. With claims dollars coming from all three in that order, there are long term care benefit definitions throughout. These products come with return of premium riders and guarantee all principal dollars. This is a pretty cool sale for customers with discretionary assets to relocate. Dollars that were probably already set aside for future expense adversity can be leveraged up four to six times, plus principal is safe and net cost is dramatically reduced.

You can tell by my description that I like combo annuities even more. Dollars are leveraged, LTCI risk is abrogated, principal is secure, heirs are protected, payments are always health benefits, and the net cost for LTCI protection is even lower.

I encourage you to read carefully any contract that purports to pay for caregiving in any form. These new arrivals to our growing arsenal of options are very diverse in structure. Some pay only nursing home benefits, some will not pay on cognitive claims, some do not pay for assisted living, some will not pay if a policyholder could recover, and many are limited in the actual dollars available at the time of claim.

Of course I am delighted that we have so many choices, although the saying “careful what you wish for” keeps ringing in my ears.

Other than that I have no opinion on the subject.

The current status of the group/multi-life/association market may be best summed up by one of the most famous nursery rhymes, first published in 1805.

 Old Mother Hubbard

 Went to the cupboard

 To fetch her poor dog a bone;

 When she came there,

 The cupboard was bare,

 And so the poor dog had none.

We are down to one mirage of a true group option: Four companies offer multi-life and there are five product options. One company has both a pool of money and a reimbursement alternative.

I’m not really certain what happened. My personal opinion is that timidity, fear and carrier attrition may be involved. What I do know is that we will ultimately have no choice but to deliver this necessary risk abatement at the worksite just as the Affordable Care Act requires employer participation. We deliver acute and sub-acute health care and retirement benefits at the worksite. There is no other way to deliver voluntary supplemental or government-mandated retirement security to the middle class. This is simply not optional. Regardless of your politics or where you draw the lines of private versus public (social) insurance, this will ultimately happen in a payroll deduction or payroll tax environment.

True group alternatives have been around from the beginning. Large group guarantee issue fueled our industry for many years. Frankly it also made many benefit specialists lazy, untrained, unsophisticated and uncaring LTCI order takers.

In addition, large guaranteed issue core benefits issued at very young ages suffered from higher lapses. Much of this protection was also sold with little or no inflation protection, leaving the market open to criticism about “phantom benefits.” Plus, adverse selection is always present when sales are purely voluntary in nature without any prospective underwriting. There is clear evidence publicly expressed by once leading market players that these groups were plagued by serious claims issues. For many years I have made it clear that I was never a fan of that approach. It was flawed at inception and has now tainted the hearts and minds of company decision-makers.

The concept of spreading risk within a reasonably homogeneous affinity group composed of individuals actively at work is still sound! Large company-paid carve-outs have never been the problem. But, in my humble opinion, voluntary guarantee issue was simply born dead.

When you stand up in a boardroom or shop floor and ask, “Who wants to buy LTCI and, oh by the way, there is no underwriting,” I can absolutely promise that every sick and impaired person in the room will line up first. And if you were then to add that the company is paying for this core benefit with optional guaranteed issue buy-ups, you have chiseled your eventual failure in marble as well as committed health care suicide. However, talking about the defunct true group market really is beating a dead horse.

Please also understand that the true group/association/multi-life market was also highly successful from a sales standpoint. Beginning in 2009 the majority of sales had an affinity discount attached. An argument can be made that the inability to raise rates in a timely manner was also a contributing factor in the demise of the large group market. This remains a serious problem for our industry. This is health insurance after all, and when you cannot take action to protect the integrity of a block of premium, it can be extremely frustrating. Economic conditions are also a contributing factor. Since the crash of 2008 and the threat of impending health care mandates, employers have become very reluctant to buy and support “new” benefits.

Multi-life is really all that is left, and very few choices are available—yet the promise of a better deal is constant. There is not a richer benefit with a bigger bang for the buck. It remains the cheapest raise an employer can give: Deductible premiums provide above-the-line deductions, no FICA, no FUTA and no W-2s—how does it get any better than that? Most importantly, there are two promises you can always keep. Premiums will have affinity discounts, those discounts can be offered to family members, only those classes of employees the employer selects will have access to the benefit, and underwriting will be reduced for full-time employees. While it is true that underwriting has tightened up, modified guaranteed issue is still available, but participation thresholds have been increased and employer contribution is becoming a prerequisite. Simplified issue is backed up with prescription screens and Medical Inspection Bureau checks, reserving the right to underwrite. Actively at work spouses can get simplified issue with sufficient participation.

Multi-life works; it spreads risk and enhances participation. I am unaware of any information that suggests that this approach has not been a success.

So why have some discontinued sales? I suppose some companies may not have achieved critical mass with this particular product. Although this lack of success may have had more to do with their product structure, I would also suggest that the concept of accepting some grey underwriting water made folks nervous. The retreat of some companies did drive more premium to the carriers left standing.

As you know, we have just gone through a period in which any risk outside a narrowly defined benefit structure has been discontinued. Advanced pay is basically gone, lifetime benefits is gone, 5 percent compound is priced beyond reach, underwriting is more restrictive and rapidly becoming gender based. I honestly think it was simply a convenient opportunity to unload premium that was problematic at its birth. The remaining carriers’ only problem is too much production. For some, I think multi-life was just too hard and too scary. The market is hanging on and obviously growing for those still accepting business.

Multi-life is the answer—it just needs revision and updating—but it will survive. Maybe the next two verses of Old  Mother Hubbard can be illuminating:

 She went to the baker’s

 To buy him some bread;

 When she came back,

 The dog was dead!

 She went to the undertaker’s

 To buy him a coffin;

 When she came back

 The dog was laughing.

Other than that I have no opinion on the subject. 

I  have made every effort to illuminate and definitively explain the basic math involved in the long term care conundrum. And yet I find myself beginning every conversation with another synopsis of the patently obvious truth.

The chances are above average that everyone will participate as a statistic in the great caregiving debate. The problem is unbelievably expensive. The potential damage to a financial plan is enormous. What part of the need to plan ahead remains beyond comprehension?

Long term care is, of course, not the only health risk and certainly not the only risk at retirement. In many ways today’s retirement prospects represent the proverbial perfect storm. Early retirement may not be voluntary. Most are destined to live a long life. Inflation in the economy may yet return with a vengeance and does seem to remain steady in terms of health care expenses. Retirement is later and further over the horizon.

A recent worker survey reported that 4 out of 10 workers would retire after age 65. We still have a massive national educational project in front of us. Too many still remain unaware of the lack of coverage provided by government programs or that employer-sponsored medical plans do not include chronic illness protection. The only real planning variable that changes at retirement is health care cost and health care risk.

There are two massive problems for which everyone must be prepared: health care cost and long term care cost. I cannot make it any simpler than two plus two equals four.

The estimated out-of-pocket health care costs over a 20-year retirement is $250,000. Medicare pays for only about 50 percent of health care expenses. Early in a planning process, establishing a basic estimate of potential health care costs is profoundly important. The critical factors are age, gender, existing health problems, lifestyle, health history and family history. Obviously adverse information in any of these areas can dramatically influence cost.

Long term care cost also averages in excess of $200,000, regardless of how you approach the statistics. Therefore, the potential anticipated expense for all health care costs—acute, sub-acute and custodial—is in excess of $400,000 for those reaching age 65.

Just show me the money! Otherwise some basic planning needs to take place. Do not forget the obvious: Women are different. They are twice as likely to file a claim. They are the majority of nursing home and assisted living patients. They will be on claim longer than men. They are twice as likely to have an extended claim.

And never forget that unpaid care is not free.

In 2009 there were 42 million family caregivers. The potential average cost was $115,000 in lost wages, $137,980 in lost SSI benefits and $50,000 in lost pension benefits. How inevitable and self-evident does the math need to be when 20 percent of the U.S. population will be 65-plus in 2030?

A number of long term care planning issues also need to be a basic component of the risk assessment process. Clients need to be asked questions:

What quality of care do they desire, as well as the geographic location of this anticipated care? What is the client’s specific need and interest to protect assets/income?

What is their level of concern to protect their partner’s health and lifestyle?

What is their strength of conviction about avoiding family dependency?

What is their commitment to maintaining a legacy for children and grandchildren?

I suppose I am doomed to remain a broken record, but explaining logical math really doesn’t take that long—even if the lesson must be presented in a remedial format!

The risk is real. The cost is enormous. The answer is clear. How can anyone of sound mind and financial substance ignore the basics?

Other than that, I have no opinion on the subject.