Ronald R. Hagelman

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. 

Perhaps the most vivid image of Newtonian physics is the predictable nature of the common water balloon. Squeezing the balloon displaces the water; yet the obvious fact is that the water has been only temporarily relocated. However, squeezing too hard will put the integrity of the entire balloon in jeopardy.

In this column you will never find doom and gloom; however, you can find caution. LTCI as a stand-alone health insurance alternative may be more fragile than we care to admit. More than 90 percent of companies offering LTCI 10 years ago are gone! Have you thanked your LTCI carrier of choice today?

I have been in brokerage for 33 years and, before me, my father was in the business for more than 40 years. Thus, I do understand the intrinsic benefit of open competition, market differentiation, creative product design, focused service and sales support. I also understand that the current LTCI market is strained and vulnerable (like that water balloon mentioned earlier).

While production has mushroomed during the last 18 months, applications are falling on fewer and fewer committed and very courageous companies. With only a handful of dedicated companies remaining, we must be very careful how we squeeze the balloon.

We have so much work yet to accomplish. Keep your head down and keep selling, but please understand clearly the privilege afforded you and your customer each time you successfully complete an application.

It is not my religion that is important in my life, it is my faith. The strength of that faith is my stability. It must be exactly the same with long term care risk abatement. Each time you stop to “explain” long term care and the potential impact of a serious claim, the sure and certain truth of the need is what ultimately prevails. The risk is real, the cost can be enormous, and the solution is simple. Proclaiming the truth is not difficult, since the truth is so painfully obvious:

 • If you can afford to pay, you must pay. The government cannot and will not help. No one is coming to your rescue.

 • Premiums will rise, and underwriting will become more restrictive.

 • Every policy sold, regardless of size, is a blessing. Sell the need and then get whatever premium commitment you can. The only mandatory concept you must explain is exactly what it means to not buy a policy.

 • Remember, the risk is huge, and that is exactly why the premium is huge. The truth is the size of the premium is irrelevant; premium will always be cheaper than an average claim.

 Kindly and firmly explaining the reality of today’s LTCI market in the sales process is important:

 • Long term care is a big problem that packs a substantial risk. Protection is imperative, yet there are just a limited number of companies willing to provide this vital product.

 • Health can be an issue when acquiring an LTCI policy. Thus, the younger and sooner a policy is purchased, the better. If health has already turned some corners, there most likely will be difficulty in getting coverage. (Everyone needs to know what happens when they procrastinate in buying LTCI!)

 • The application process can be lengthy, and extended medical underwriting may appear intrusive. This coverage is not easy to obtain, so be prepared to cooperate and even embrace the process. Good field underwriting is crucial. Your clients must understand that nothing will slip through the underwriting process. The absolute medical truth is their only hope.

 • Regardless of how hard your client has worked to put a retirement plan in place, an LTCI firewall is critical to its survival—no matter how hard we may have to work at getting this protection in place. Never forget to explain the truth about guaranteed renewable. If we can even get coverage in place, premiums may rise in the future. This is health insurance, after all.

Communicating the nature of the risk, the value of the protection, and the reality of the acquisition phase is the only true path to selling LTCI and “water balloon” integrity.

Other than that I have no opinion on the subject. 

Even I can’t believe I am going to write this column. But there is nothing I can do but wade right into what has become my evolving view—which is a dramatic departure from my most firmly held structural principals.

The basic premise upon which we have been making sales for the last 15 years has been flawed—at best. I have come to understand that again my perceptions may have been prejudiced, jaded and seriously self-serving. Yet the fact is that my most fervent beliefs about what we have been doing and why were simply incorrect.

The notion that consumers can choose to protect themselves and their families or that agents can decide whether or not to promote LTC risk leveraging is just dead wrong! This mistaken concept strikes at the heart of who we are and what we do for a living.

The risk is real and ultimately deserves “universal” recognition. Participation in helping to solve an American problem is not now nor has it ever been an optional decision. Consumers and agents have both suffered from a myopic distortion of cosmic proportions with perhaps financially deadly consequences.

In the beginning, we actually thought we were selling just another Medicare supplement policy. Then we realized that custodial care is a separate and distinct need and, by the way, it must remain a separate discipline—a line of demarcation needs to remain between acute/sub-acute care and custodial care. All health insurance is not born the same (fodder for a future column). The point is that we missed one whole side of the barn.

At least since HIPAA we have been selling expensive coinsurance policies to those with substantial assets and income. Again we made an incorrect leap in judgment regarding our methods to accomplish those goals. We saw our mission in typical absolutes: Replace financial risk with insurance. However, big risks require big premiums and, as a result, too many remain underserved. Thus some of the responsibility for not protecting the majority of Americans falls squarely on our shoulders.

Along with that responsibility comes too many unanswered questions:

 • How much is enough?

 • Is the sale about asset protection or more subjective concerns such as personal freedom, choice, quality control at the time of claim and death with dignity?

 • Is it about avoiding financial dependence or avoiding government dependence?

Yet a question that is not even being asked is perhaps the most important: What is the real purpose of the exercise? Are we a standalone LTC financing alternative or merely a firewall against government expense? Have you asked yourself who you are really serving at the point of sale?

Every time you sell a policy you are protecting your customers on several different levels. Even the smallest policy can help maintain control at the time of claim, because beginning as a private-pay patient can make all the difference in the world!

You are giving family members the means to guarantee quality of care. You are protecting the legacy of your clients’ lives, providing security for inheritance and preserving the meaning of a lifetime of hard work and sacrifice. I would also humbly suggest you are serving a greater good. Every dollar of insurance may represent a dollar or more of potential government expense. Government support for LTC drains limited state coffers—monies that could be better spent on infrastructure, jobs and education. In many ways we are merely a firewall for Medicaid.

Clarifying our mission is the only way to guarantee our place at the table. Let me try again to at least position a response to this most basic of questions. Because there are actually several answers—one for each of the two extremes and one for the giant vacuum in the middle. I have simply changed my mind about the no-man’s-land between current obvious and absolute solutions.

For those who cannot afford care, Medi­caid must be supported and strengthened. However, as Stephen Moses has so eloquently argued, “but only for the truly needy.”

The current homeowner equity exemption of $800,000 or more must be completely removed. Everyone’s posterior must be exposed. On the other end of the spectrum, affluent Americans must be allowed to self-fund or buy insurance to replace as much or as little of a possible catastrophic risk as they wish.

It is for the middle market that I have changed my thinking. I no longer believe private insurance will work entirely on its own. Like two children after a school yard fight, we must now shake hands (with a public solution) as well. Some form of public “social insurance” must be dramatically expanded and yes, if necessary, mandated.

It is the height of false pride to continue to believe in a fantasy world of voluntary participation. I no longer believe that the majority of Americans will bravely stand up and take personal responsibility for their care; and the consequence of ignoring the obvious is that our industry will become irrelevant and expendable. Overburdened government support systems will implode and social taxes (both federal and state) will mushroom.

This problem is just too large and too complex for a 100 percent public or a 100 percent private solution. Reasonable minds must prevail. We must lead the charge. We must actively campaign to find ways to work together, each doing what we do best. The cost of failure is too great.

Other than that I have no opinions on the subject. 

I believe in manufactured quality, abundant benefit options, iron-clad guarantees, overflowing reserves and bold innovation. I also believe in competitive pricing, market acquisition, honest loss leaders and perception versus reality premiums. Yet even with this common juxtaposition in my belief system, I am absolutely, positively certain that price matters.

Regardless of your current favorite LTCI flavor of the month, relative cost remains the overwhelming and most predictive variable in the sale of LTCI. Current individual policies have an average premium north of $2,300 and asset-based sales north of $130,000. Price matters.

Two Markets and Two Purposes to a Sale. The middle-affluent buyer is replacing financial risk with classic insurance dollars, and the middle-mass buyer is protecting limited assets and, hopefully, at least positioning themselves to prevent government control of their lives at the point of claim. Yet, every sale has a price pressure point. A fiscal sales cliff of no return—with absolute success or failure in the balance. Survey after survey has identified price as the greatest obstacle to the sale.

Across the wide spectrum of LTCI experts, a clear understanding of what is required to move forward has developed. We must have smaller, more flexible product alternatives, and we must find a way to access qualified dollars. There is no such thing as a policy born too small. Any extra dollars added to savings, home equity, pension and Social Security can help buy freedom from the whims of capricious government bureaucracy.

Historically we have always moved immediately to lower benefit periods and greater elimination periods to drive cost down. Today all product manufacturers have responded with more creative and innovative pricing strategies such as:

 • Non-qualified short term supplemental policies of dramatically smaller benefit periods and dollar amounts.

 • Simple “money purchase” premium strategies, where the choice of premium determines the size of the benefit pool.

 • Innovative guaranteed future purchase options.

 • Combo life/chronic illness accelerated death benefit riders with no current cost to policyholders, where the cost is recovered at the time of claim from payouts.

 • Partnership plans designed to protect smaller assets accumulations.

 • Combo policies that, by definition, reduce net amount at risk.

 • Policy structures that begin to transfer some of the interest risk to the consumer by sharing the success of the invested reserves with the policyholder. (Even when you add a guaranteed purchase option to this base plan it can reduce cost 30 to 40 percent.)

 • An absolute plethora of creative inflation protection options all designed to reduce cost.

 • And, of course, the old strategy of removing inflation protection costs and increasing benefits begins to make more sense in a stale interest environment.

It is time to re-examine our focus, re-evaluate our purpose, and enthusiastically embrace a simple cosmic truth: price matters!

Maybe it’s time to turn the LTCI sale on its head. Why not simply ask, “What does $50 or $100 a month buy?” You will be amazed at the number of purchase options available. Why not immediately drill down to premium tolerance and just get this done? Who says LTCI is too expensive?

Other than that I have no opinions on the subject. 

How big? How small? How much? How little? In my mind these remain the greatest unanswered questions in LTCI. We have danced around short and fat versus long and thin benefit conversations since the beginning, yet these two philosophical approaches to the risk have very little to do with the real problem. What is most important is to back up and take a much harder look at what you are trying to accomplish.

We know that in essence there are two markets: the middle affluent and the middle mass, both with very different income and asset thresholds. The sales history of LTCI has been dominated by larger individual sales to those clients with more to protect.

Yet what many have missed is that the middle affluent has always had a much clearer choice. Theirs is an absolute and finite option to resolve the risk—a direct decision to replace the potential financial risk with insurance. Their co-insurance decision has always been flexible in terms of elimination periods, benefit size and duration—an absolute decision-making process in a definable universe.

As we have all said many times, you pay or insurance pays. We always knew these middle affluents would in all likelihood never be a part of any government-based solution. We knew that if faced with a sure and certain catastrophic risk potential, intelligent and caring consumers would choose to leverage with insurance.

This “either or” risk evaluation will remain the sales engine for the middle affluent market. The sale is about benefit size and duration—it is only a matter of degree governed by personal financial planning choices. We have actually been fairly successful with this sale; when age, income and education is isolated, double digit market penetration emerges. This band will continue to play harmoniously and march forward because it is about money—there is never any significant threat of government dependence.

Now we come to the hard part: the middle mass market. All of these good people may become vulnerable not just to financial difficulties but, more important, to the threat of losing control of their claims. The ability to make decisions about their own care can be lost by becoming indigent supplicants to governmental largesse.

Prior claims evaluation has given us some insight. Approximately half of all claims files are closed in a year, 70 percent in two years, and 90 percent or higher in five years. To put it all in perspective, if someone had set aside $100,000 in today’s dollars, that would have paid for about 70 percent of all claims that have ever existed.

Last fall I had the privilege of working with Amy Pahl of Milliman on a presentation (“The Future of LTCI”) to the Society of Actuaries Annual Conference. Amy examined the crucial claims utilization questions that are required to build adequate product options going forward. Data from 76,676 claims was analyzed. The question of “how much is enough” began with an examination of the industry’s success to date in matching benefit to risk (what was sold and how much was actually used).

Obviously the smaller the duration purchased, the greater the utilization. However, when you average benefit period utilization, only 40.1 percent of available claimant benefits and less than 25 percent of all purchased benefits was used by the majority of claimants. Only 14.1 percent of claimants maxed out their benefits. I know we are in the business of protecting against catastrophic risk; however, considering this information, a case can be made that we may have oversold benefits.

For a majority of Americans, the most important question must be: How much supplemental benefit do I need to maintain freedom of choice and control of my own claims destiny?

Since the vast majority of our citizens will have to put all their dollars on the table when the monster of extended custodial care rears its ugly head, the question needs to be: How much do I need to add to what I already have to remain solvent from a cost of care perspective?

Until we answer the question of size and purpose we cannot possibly accomplish our mission.

Yes, it is bigger than a bread box and smaller than an elephant. And yes, it’s about money and human dignity.

And yes…other than that I have no opinion on the subject! 

There has always been an abundance of optimism in this column. More importantly, there is a small army of dedicated LTC insurance enthusiasts who share the faith expressed.

We are right past, present and future to believe in our ultimate success.

 • Sales in 2012 have been solid.

 • Sales are steady across all established markets: affluent individuals, worksite multi-life and asset-based combo.

 • Chronic illness accelerated death benefit riders are proliferating on every carrier street corner.

 • Company defection and retreats appear to have abated.

 • Even rates have begun to stabilize.

 • Best of all, the prevailing winds from our nation’s capital are blowing in our direction for a change. The recent fiscal cliff legislation provided for the final and decisive death of the CLASS Act. A new 15-member committee was created to determine an alternate course forward. I can absolutely guarantee you that our collective views as to what is needed to move forward will at least be heard. Unfortunately, there continues to be concern in our ranks about the security of future sales activity. I am willing to make an iron clad promise that the insurance industry will never walk away from an expanding multi-billion dollar new premium resource when sales are clearly growing, pricing has stabilized and Washington, DC, has left the playing field for now.

We have all come to understand that LTC risk abatement does not take place in a vacuum. All insurance decisions are intimately related. This is particularly true of LTC insurance, which, in my humble opinion, shares DNA with all life and health markets.

The truth is that regardless of your politics, ultimately it is all only a matter of seating at the stadium. We all agree where to place the goal posts on either end of the field: There are those who have the ability and responsibility to pay for their care, and there are those who will need government help to subsidize their care. All that remains to be determined is where and under what circumstances do we draw the line for personal responsibility versus government dependence—hopefully somewhere near midfield.

There are many informed and opinionated voices in the wide world of LTC risk abrogation. We cannot now be drowned out by our own prejudices. Now is the time to close ranks around those most sacred principals from which our experience has indicated consensus. I have a vision of Martin Luther nailing his most fervent and sacred principals to the Health and Human Services’ front door! Here is my initial attempt at that list:

 • There will always be a place for supplemental private insurance. We can help.

 • All life and health agents must be committed to help.

 • Every American must clearly understand what it means to “go bare”!

 • Help those in need with quality of care rather than warehoused care.

 • There must be smaller, more flexible policies.

 • Regulation obstacles need to be removed.

 • Qualified dollars must be able to be accessed.

 • There must be greater cooperation and strategic planning with state and federal efforts. Recognize us for who we are: We are a complement and firewall to Medicaid.

 • A more flexible and economical Partnership Plan must be promoted.

The hard work and hardheadedness of so many passionate LTC insurance soldiers is paying off—at last. This is the corner we have been looking to turn. This is the first year in many we can say, “Full speed ahead! Business as usual! Pass the applications!”

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