Friday, March 29, 2024
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Ronald R. Hagelman

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Ronald R. Hagelman, CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products. A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing “friend” of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman and his partner Barry J. Fisher are principles of Ice Floe Consulting, providing consulting services for Chronic Illness/LTC product development and brokerage distribution strategies. Hagelman can be reached at Ice Floe Consulting, 156 N. Solms Rd., New Braunfels, TX 78132 Telephone: 830-620-4066. Email: ron@icefloeconsulting.com.

Sincere Speculation

I have again been offered the privilege of appearing on an industry conference panel. They needed an old guy who had been around a long time and some level of recall was still available. The question for examination from a panel of veterans is the one that too often remains suppressed and therefore unspoken. The one we perhaps fear to hold up to the light. It is the conundrum which haunts all those who recognize the necessity to reform our actions and sales trajectory concerning the still looming financial miasma. What we know continues to stand before us is a staggering volume of unfunded care.

“What could we do to repeat our past successes?”

They may have been transitory and limited but we did get some things right. Let’s begin first with an acceptance of where we are now. Less than a handful of companies offer stand-alone LTCI with premium mostly beyond the reach of those who will require the greatest future support. Less than 10 percent of what we enrolled 15 years ago are able to now acquire membership in what has become an exclusive self-preservation club. Three fourths of the protection that does take place is achieved by including no current premium ADBRs. The True Group market is virtually non-existent below 500 lives where 90 percent of American worksite insurance should thrive. The great and vast majority of LTCI premium exists in a closed book of business teetering on a rate spiral black hole event horizon. Entrenched negative underwriting continues to effectively blockade premium growth. We continue to create a self-fulfilling philosophy of a third to a half of individual applications declined. In truth, in my humble opinion, distribution has also not significantly evolved. Even with the growth of financial service professionals who tend to restrict themselves to life insurance with affluent asset-based strategies, or some flavor of long term care/chronic illness ADBR, there appears to be little change in the source of most sales. The majority of our premium is still received from occasional producers where the client’s desires may have had more responsibility for the success of the sale than the agent who signed the application. The primary sources of current sales remain basically unchanged. God Bless the hard-headed evangelistic long term care “specialist” still out there successfully working qualified leads and referrals. The middle class is still predisposed to buy their insurance at the worksite even in a market wasteland of product options severely tainted by onerous underwriting restrictions. Premium tolerance at the worksite continues to fall into familiar territory of approximately $100 per month. Combo life with an available potpourri of various quality riders dominates current sales success.

Now let’s stare intently into our rear view mirrors and see what lessons or sales strategies may bear examination or repetition. We have proven historic success with:

  • Leads generated among those consumers most at risk. Those who are not apparent recipients of government safety nets or those who could easily finance their own problems.
  • Large group worksite purchase success as a result of abbreviated underwriting strategies. Guarantee issue may have incurred some black marks but modified guarantee issue fueled by virtual underwriting technologies can and does work.
  • Combo life and annuity sales have a proven track record and most early benefit limitations among the crowded IRC 101g riders has been liberalized. Who can’t sell “no current premium.” We just need to keep a bar of soap handy for those who suggest it’s free.
  • In the late 90s to the early 2000s we successfully launched a massive educational campaign advocating the clear advantages of corporate premium deductions. We proselytized 10 pay and single pay. We taught to the sale and it worked.
  • In 2004 we launched another massive educational campaign to extoll the virtues of list bill multi-life small group with minimal abbreviated underwriting strategies and within 24 month a dozen companies had successfully increased sales activities.
  • It can easily be argued that asset-based combo sales promising the abolition of “use it or lose it” and safety of premium principal has also created a summer pond algae bloom of sales among the affluent.
  • And to put an exclamation point on it, our ability to create a premium stampede (read fire sale) could not be any clearer than the recent example of one third of an entire state’s workforce running over each other to block a pending employee tax. We have not nationally sold a half million individual long term care policies for more than 15 years, yet over 450,000 were issued in a six month period in Washington State last year.

What part did we not understand?

  • Consumer designed benefits work.
  • Workplace purchase convenience works.
  • Streamlined benefit and therefore premium reductions work.
  • Surely we have not exhausted our creative and innovative skills at benefit configurations.
  • Abbreviated underwriting works.
  • Tax incentives both positive and negative work.
  • Intensive consumer education and public LTCI proselytization works.
  • Caregiving issues resonate in almost all American homes. Focusing the sale on personal caregiving experience works.

Perhaps we still do not understand all we know about this subject but we do not need Google Maps to find our way home.

Other than that I have no opinion on the subject.

History

As a former history major there is no quotation more famous or has filled up more college exam blue books than the quote from the Harvard historian George Santayana: “Those who cannot remember the past are condemned to repeat it.” At the very least it is fair to say that insurance strategy attempts to reduce the financial and emotional price associated with long term custodial risk are now at a point of reflection. I would never suggest we completely failed, only that we never achieved the centrifugal force necessary to adequately establish insurance alternatives to current defaults of personal or governmental funding as we all would have anticipated.

Please understand I am not opposed to collective fairness helping to maintain equity of access, affordability, and quality of outcomes. I do have some difficulty visualizing prior success stories where we have defaulted to mandatory bureaucratic solutions.

  • The Social Security Trust Fund by 2035 will only be able to pay 75 percent of scheduled benefits.
  • Medicare Part A reserves are predicted to be depleted by 2026. Covid accounting may move this up as early as next year.
  • ACA/ObamaCare–The interdependence, some might suggest incestuous relationship, of these Trust dollars with Medicare make solvency predictions difficult. History would suggest you should have suspicions as to the solidity of the financial and political ground upon which this newest social insurance rests.

Now the traditional reservations of intentionally avoiding personally held convictions concerning politics or religion must come into play. Unfortunately, the politics of this market cannot be avoided. Long term care financial risk may be the one issue that transcends yet focuses the usual liberal/conservative polarities. What cannot be avoided entirely is the political, social and cultural context of a nation truly divided. Prospective state by state solutions to the long term care conundrum do follow a suspiciously red vs blue state pattern. Currently California, New York, Alaska, Colorado, Hawaii, Oregon, Illinois, Michigan, Minnesota, North Carolina and Utah are actively considering establishing a new long term care social insurance program paid for by a combination of employee or employer payroll taxes similar to the Washington State Cares Act pending implementation July 1, 2023. As an example, the California Department of Insurance has been charged by the legislature to present a plan for consideration by January 1, 2024. This pot is on the boil primarily in blue states. Mandatory government control required by these plans would of course not find succor among more fiscally conservative approaches evidenced in clearly red states.

I do not wish to drift too far off here into the politically charged health insurance world. I would however remind us that we have all been operating under marching orders created by HIPAA’s proclamation that long term care insurance is health insurance. You must allow yourself to continue to internalize the reality that this “truth” lies at the radioactive nucleus of any and all attempts to ameliorate the long term care risk.

Under the previous administration there was a serious attempt to create an alternative to the ACA. The former president commissioned the Department of Labor to create new expanded and dramatically flexible revisions to the creation and constitution of AHPs (association health plans) under existing ERISA provisions. This would have allowed employers to more easily band together and provide viable alternatives to the coercive nature of Obama Care. These liberalizations of current law would have allowed states to organize alternatives to federal mandates. In the fading days of the previous administration this attempt at greater freedom was stopped in a Washington DC federal court. That decision has been appealed by a laundry list of red states. We are all still waiting for the Court to rule or political winds to change direction .

This war of political thought and competing perceptions of human behavior lies at the heart of any solution to our united and universal desire to soften the blow of long term care.

History will not repeat itself, we will never go back to what was. We will stagger forward. We can and will do better. However I would humbly submit it will not be based on a compromise of these two divergent proposed futures. It will be one or the other.

Other than that I have no opinion on the subject.

The Plot Thickens

Is it the beginning of the end or the end of the beginning? Our sales engagement troops are decimated. Too many of the valiant long term care specialists have long ago gone home to tell war stories of the once glorious quest to solve the LTCI conundrum. The intense marketing days of a million sales per year have begun to fade from memory. The past has become a ghost that continues to haunt the memories of the scarred veterans who remain at or near the sales battlefield. In truth the only visible historical evidence of past success is the myriad closed books of business being managed by a very small handful of premium and claims administrators. We can waste as much time as you wish debating what happened to bring us to this point. There seems, however, to be a general acceptance of the current reality of where we find ourselves. What will not leave my fevered and aging mind alone is where are the voices asking where do we go from here? We need to begin with the sure and certain knowledge that we cannot go back. Over a hundred companies will in my humble opinion never again sell/market a stand-alone accident and health individual comprehensive long term care policy. I do however hold out hope that some form of creative benefit and or innovative premium configuration may yet resurrect sales in the group market. Competitive employee benefits, particularly in a tight labor market, coupled again loudly with corporate premium deductibility may return sufficient gravitational pull to keep that market alive. I also believe that the combo life story will continue to have sales traction. However, we are equally aware that these options have built in structural limitations. Hopefully it comes as no surprise that selling life insurance does not include an “Easy” button. Doubling down on that difficulty remains problematic. Compound benefits require compound premium. This is true even if you are giving away that benefit with no current cost. There of course remains a cost; it has simply been postponed to the end of the exercise. Even the most casual analysis of LIMRA production numbers paints a clear picture that the great and vast majority of long term care look-alike chronic illness benefits are given away not sold. We should also take note that the growing evils of inflation may have a very positive corollary influence on interest sensitive products, particularly annuities, which still potentially represent the most cost effective method to pay for the additional benefit of custodial care.

Will we even raise an alarm that a catastrophic birth is still gestating in Washington State? Rosemary’s baby now has a due date of July 1,2023. It is more than a unique mandatory aberration of a publicly promoted very “progressive” state government. It is at its core a public recognition that our cumulative efforts to shift this enormous financial burden from public to private coffers has as yet proven inadequate.

As background The WA Cares Act was signed into law April 2021, a “first of its kind mandatory, state run, long term care insurance program.” It was supposed to go into effect January 1, 2022, but there were several “flaws” in its design that needed to be addressed in the legislative session that ended March 30, 2022. Implementation has been delayed until July 1,2023. Two new laws were passed and signed by the Governor to enhance the program:

  • Those who were allowed to “opt-out” of the program were increased to include disabled veterans, spouses of active duty military, and nonimmigrant status temporary workers. Employees with a permanent/primary residence outside the state as long as they never came back across state lines.
  • The program has a 10 year vesting requirement. Those retirees with less than 10 years may now receive a prorated benefit.

The largest flaw was not addressed, and this is the seminal event in time and space that you must understand will alter all our futures in the long term care market space. The existing opt out provision for all other employees was left standing intact. Almost a half million tried to get out from April to November 1, 2021, representing almost a third of the current workforce. Please understand that this door is now permanently and forever closed. You can still turn your paper work in, but only if your insurance was in place by last November 1. The program simply is content with cutting its losses to those few who actually got out during the brief opt out stampede. No one will ever again escape. I would have bet the ranch that additional provisions would have been enacted to regulate and affirm continued private insurance ownership. Staying out of the new payroll tax you might logically surmise would be a time sensitive concern. Certainly, there would be some circumstances where you could enter or leave the program. The program does not care that a few escaped past the concertina wire at the border, remaining prisoners will never escape. Portability and private policy ownership at the state border was also ignored traveling in either direction. Bottom line, you will be in the program now and forever.

Pandora’s Box will now be opened July 1,2023. Like Greek mythology, the security of the box had actually been left in our care. Curiosity now focused on panacea solutions of Medicaid relief and public trust fund largess will again be releasing physical and emotional curses on all mankind.

Other than that I have no opinions on the subject.

Yin And Yang

Insurance professionals have historically been relegated to the category of arm-chair philosophers. We are frequently casual yet persistent students of human nature. Our mantra has never changed.

“Be prepared for life’s adversities.” And therefore quite simply: “Plan and care ahead!”

We take it as an article of faith that human circumstance can be altered, amended, managed or tempered. We awake each day with heartfelt certainty that we can help build a better future. However experience has forced this jaded columnist to admit that there are human conditions for which there is no known cure—stupidity and greed top that list. In graduate school my studies were focused on the pedagogical art of communicating the truth at the core of history and politics. In my humble opinion there are really only two varieties of human personalities—those with a democratic or those with an authoritarian behavior predisposition.

Our world has many very serious problems from increasing apparent global warming to a reawakening of the real possibility of a global nuclear conflagration. Ignoring these catastrophic concerns is not an option. The future approach to the amelioration of the inevitable cost of custodial care has in many ways at least made it to the top ten concerns most in need of societal justice. Apparently the conversation has bifurcated projecting solutions into an all too familiar dichotomy. Those approaches which emphasize freedom of choice, flexible customized benefits and personal responsibility are under attack. These “individual prerogative” options are increasingly facing a potential strong head wind powered by government controlled barren budget offsets requiring mandatory public behavior acquiesce.

At a time when the world seems to be standing by with its hands in its pockets, I simply do not want the ongoing quest for long term care protection to suffer from its own form of impotence. Let’s throw some more logs on the fire that should be growing in your mind:

  • The location of the physical reality of the problem has shifted. Both facility and home care outcomes have been forever altered by the pandemic. According to the American Heath Care Association and the National Center for Assisted Living the entire facility care industry is operating at a 4.8 percent negative margin, meaning that up to 40 percent of those residents are living in a facility that is at risk.
  • The SOA Research Institute recently concluded an updated company survey “COVID-19 Impact on Long Term Care Insurance Report.” Higher mortality was reported for both active (6.4 percent) and disabled lives (10 percent). A significant (11.3 percent) reduction in claims incidence was observed with a dramatic shift in the status of claims moving to the home. Little change in lapse rates was reported.
  • The AARP surveyed its membership in Washington State on their perceptions of the WA Cares Fund. fifty-one percent said they supported the program. Remember 400,000 tried to buy a policy to get out before it was too late. Forgive me for suggesting that the survey questions were not surprisingly self-serving. Eighty percent liked there was no pre-x, 76 percent liked that they could pay family members, 73 percent liked the fact that the cost arrived on a unisex basis, 70 percent said they liked that they only had to pay while working, and 70 percent liked the fact that it was cheaper than long term care insurance.

Look, I get it. The siren’s song of relief to a state budget item that remains an open wound is mesmerizing. A new state run trust fund where claims are initially delayed must appear as a marvelous fiscal magic trick. Easy answers to complex anxiety. Hard to resist. Other states will follow.

Just please keep your powder dry.

Other than that I have no opinion on the subject.

Random Expectations

As a profession we can hold our own when it comes to the ability to ask, “What if?” Perhaps the word malaise works best to describe our chosen market. There seems to be some speculation that we are on a great new venture. That indeed things have changed forever. However a consensus as to the trajectory of this alteration in goals or approach seems much more illusory. Let’s try on a few of the open conundrums out for consideration:

  • Looking back at the death to birth ratio as far back as the U.S. Census has records, COVID has provided us with a new and possibly permanent reversal of our fate and fortune. For the first time, deaths outnumber births. It is not only the dramatic increase in mortality but a commensurate decrease in birth rates during the Pandemic. Isn’t it, after all, the capricious nature of our mortality and the responsibilities that accrue with new life that creates and sustains our fiduciary marching orders?
  • In a recent informal conversation with a Senior Actuarial State Regulator, a conversation about the level of activity concerning new long term care or chronic illness filings, the question of product or benefit relief rose to the surface. It appears that, with the exception of chronic illness ADBRs on life policies, the cupboard is bare. Nothing new or pending portends and defines an acquiescence in our market condition that should not be conducive to a good night’s sleep.
  • I recently got my own annual long term care policy review. As frequently reported in this column, at the dawn of TQ Comprehensive Options I was sufficiently brilliant to buy a 10 pay, lifetime benefit, five percent compound COLA with indemnity payments. It will currently pay $417.89 per day or $152,524.85 annually. Does this strike anyone as, at the very least, the faint whisper of an incentive to claim?
  • “Careful what you wish for” could never be more significant than with the simmering pot of idealistic reform brewing in Washington State. As expected, Governor Inslee has signed two new bills into law amending the existing establishment of a new social insurance program. House Bill 1732 and House Bill 1733. Under Bill 1732, the implementation of the new mandatory payroll tax will now go into effect July 1, 2023. The adjustments meaning benefits will not be available until July 1, 2026. Vesting however can now be graded for those born before 1968. Under Bill 1732 those disabled Veterans, those with non-immigrant visas, and those with a permanent out of state residence may be exempted. My prayers are that there may yet be additional revisions before the legislative session comes to an end in March.
  • Establishing a mandatory revenue funding mechanism constructed with required employee or employer payroll taxes, founded on no pre-x, with an initial premium rich social insurance trust fund placed into the hands of even hopefully well-meaning politicians struggling with Medicaid costs in any state is precarious at best.
  • Be alarmed, actually be very alarmed. There is a large white flag waving in the Pacific breeze. Acknowledged defeat in the face of overwhelming odds is acceptable even to my hard head. However, holding in my right hand my paid up potentially multi-million dollar policy demonstrates that our capitulation may be premature.

That empty flag is not the birth of answers, it is a graveyard of solutions.

Other than that I have no opinion on the subject

A Recommendation

This column has tried for 18 years to simply comment from the grandstands about the pomp and circumstance of the passing parade. It was always an attempt to admire the vivid color and theme execution of the individual parade float offerings and not to pass judgement on the motivations behind the need to be in or out of the parade. This was to be the home of a contemplative analysis of normative values of truth, fairness, equity of access, economic justice and freedom of choice. In other words, go to your favorite flavor news wire service and drink your fill of current events. Here we would at least try to simply explore what it all means and where it might drag or push us.

Recent columns have unfortunately been forced to drift into a growing concern that a particularly flamboyant, politically extreme and disruptive market alternative is on final approach. This unique aberration is now developing with certainty and significant disregard of how its revolutionary presence may alter forever the long term care risk mitigation universe as we know it.

The implementation of the Washington State Cares Act has been postponed. A memo from the Washington State Democrats dated December 17,2021, confirms the temporary delay until the next legislative session is complete before April 2022 with premium collection in limbo potentially for calendar year 2022. Please allow the stated goals time to sink in: “Pausing the program so that it can better serve disabled veterans, military spouses, non-residents, and near retirees will improve the program.” And, “A pause will give the Long Term Care Commission the ability to study and make recommendations about residents who move out of Washington to retire and assure that those who opt out of the program maintain their private insurance solutions.”

The quote “It’s a poor general that does not have an adequate plan of retreat” has been so often used it’s source is uncertain. Its sentiments are not. Suffice it to say we cannot go back. There is no plan to retreat and frankly no possibility to fall back to a market that is comfortable and familiar. Going forward will necessitate what have been historically irreversible structural choices. What we here choose to accept or resist will dominate our market/product destiny for a generation. Will we live in a world abundant with recommended choices and free market decisions or one of mandated political control only allowing humble supplemental options from the sidelines?

  • There is no possibility of the resurrection of past success as we knew it. Robust, comprehensive stand-alone individual accident and health policies have no foundation to build upon. To my knowledge there is no company or reinsurance appetite for a mass influx of this premium.
  • The temporary gold rush of policies in Washington State which will now soon protect against intentional lapse immediately turned off the product spigot. Any possibility of this aberration igniting additional production windfalls will collapse that market overnight.
  • COVID has altered the future permanently. According to a recent report from The Society of Actuaries, deaths have increased in particular among the disabled with 47 percent showing an increase in “active life and disabled experience.” Incidence rate for claims showed an early decrease but is returning to pre-COVID levels. The American Academy of Actuaries was quick to add they are concerned about future health and disabilities that may show up as caused by COVID. It is also worth noting that COVID deaths are predominantly occurring among those least likely to be insured.
  • Institutional warehouse care, both nursing homes and assisted living, are experiencing a serious retraction. Close quarters, inadequate training and being structurally unable to quarantine or socially distance has for now moved the care market home.

Events on the West Coast require our attention. In addition, recent Supreme Court decisions on mask mandates could not have better illuminated the precipice of choice on which we are now perched. Government controlled and funded entities must comply with mandatory behavior fiat decisions. Free and independent business does not.

Do we now wish to live in a world of behavior recommendations (strongly incentivized) or inflexible government decree? Personally, it is very difficult to understand those who might prefer OHSA to be their permanent, omnipotent, omniscient parade Marshall.

Other than that I have no opinion on the subject.

2019 Washington State Long-Term Services And Supports Trust Act

The last several months this column has danced around a number of potential State and Federal initiatives which potentially could reorder the nature and content of our industry’s custodial care enhancement responses to what remains America’s most exposed personal emotional/financial risk.

In an effort to not step too forcefully on any political toes, left or right foot, this column’s thoughts shall try valiantly to remain insurance oriented. What is happening on the West Coast must however be viewed in some degree of political context. This is a rich royal blue state near other populous states of similar minded political views. The predominant party in Washington State has made it publicly crystal clear that this is a new Social Insurance Program. Meaning it will arrive with a well-recognized laundry list of required components:

  • As evident in the name a “new” state run hopefully sacred Trust Fund will be established for that purpose. Medicaid expense offset will occur, and a substantial reserve should build up before substantial claims will appear.
  • As much mandatory no-opt-out participation as possible will define the battle lines.
  • All monies sourced perpetually by additional payroll taxes forever subject to political review and alteration (read increase).
  • Benefits vested over time with limitations now and in the future remaining part of a political process.
  • Exclusive control of all components of benefit eligibility and limitations, hereinafter referred to as “managed care.”

This one of a kind (for now) historic legislation was passed in 2019 and is at the time of this writing still scheduled for payroll implementation on January 1, 2022. The legislature meets again in January and we must all pray that common sense may yet prevail and a better crafted social experiment may be attempted. Today, in mid-December, there is substantial interest in revising the original structure. The Seattle Times may be your best source of current information. From what I can discern from current press, implementation of this program is expected to at least be delayed a year. There are a substantial number of impediments to a launch next month. The Governor is in favor of a pause in implementation but apparently cannot take unilateral action. A formal delay is now in the hands of the new legislative Trust Committee.

On their plate:

  • In 2020 something less than 50,000 individuals bought a stand alone long term care health insurance policy across America. The dust is still settling from the avalanche of applications tempered by eligibility and underwriting to qualify for an exemption to otherwise permanent, mandatory participation. Regardless of the final head count, somewhere between 250,000 and 400,000 may have successfully rushed to hopefully own a private insurance alternative. Fear of either coerced cost or coerced public managed care triggered a fire sale that took insurance distribution’s breath away and caused the full retreat of product alternatives by the few remaining carriers.
  • Permanent exemptions are possible if policies were bought prior to November 1, 2021, and approved by year end. The State has promised that all exemptions submitted by December 1, 2021, will be processed by month’s end. The problem: Apparently if you miss these deadlines and an employer begins withholding taxes, you are stuck forever.
  • That forever tax will begin as .058 per $100 of income creating a potential benefit of $100 per day for 365 days—both will be subject to ongoing COLA adjustments. Benefits vest after 10 years with no more than a five year interruption or three of the last six years before they apply for benefits.
  • Suggested reforms are clustered around three issues: 1) no portability, with benefits restricted to Washington residents; 2) No mechanism for new workers to participate or withdraw; and, 3) Older workers would pay with insufficient time to vest and receive any benefits.
  • There is a citizen’s initiative to make participation optional (I-1436).
  • There is a Class Action lawsuit declaring the law to be unconstitutional, discriminates based on age, and violates ERISA and multiple State laws.

Let’s speculate:

  • Suspicions are that this social insurance experiment is under consideration particularly in many traditional blue states.
  • The still pending federal proposed “Build Back Better Act” Medicare HHC recommendations have apparently been scaled back from $400 billion to $150 billion. Home care reform will continue to abhor a vacuum.
  • You absolutely must ask yourself what does the precipitous carrier retreat from Washington State mean?
  • The fear that those who did buy fire sale coverage in defense will simply lapse coverage as soon as the law goes into effect. Are the structural integrity of both companies and the new Washington State Trust Fund in jeopardy?
  • Our long term care/chronic illness market is fragile at best. The companies are unprepared, unable, and unwilling at this point to respond to additional fire sales.
  • We must ask ourselves what was the shape and dimensions of the thrown rock that shattered the glass of denial? A sustained future production windfall is highly unlikely. When our opportunity to protect the many is finally at hand, will we retreat from the battlefield?

Please tell me: Which social insurance institution, once established, was ever walked back? Fiscal temptation in any market is dangerous. Medicaid budgets will remain a hot spot in any budget discussion. Trust funds without immediate expense are extremely hard to ignore. Pointing fingers as to why this is happening is moot. The repercussions of this process will alter the future permanently. The British are coming—one if by land, two if by sea. Please keep your powder dry.

Other than that I have no opinion on the subject.

Socialism

Be very careful what you wish for. The talking heads of your favorite news flavor are buzzing and the key words in the dialogue are disturbing. The political extremes vacillate between fear-baiting concerning a devious plot to stage an irreversible socialist coup and a vehement defense of the social equity necessity of accepting additional levels of centralized mandated enlightened management. What should of course consistently strike a discordant note is the mandatory participation component inherent in this entire spectrum of thought.

Simply as a placeholder, let’s begin with a popular source of memorable and profound quotations: “The problem with socialism is that you eventually run out of other people’s money.”—Margaret Thatcher

Social reform is always about mandatory participation, centralized management control and the commensurate reallocation of funding sources necessary to accomplish laudable egalitarian objectives. There is simply a huge and inevitable fiscal price to pay. Understanding the specific source of the need, the newly formed boundaries of the current and future incursion into our personal freedom inherent in that price is the intellectual exercise absolutely necessary of every caring member of our profession. We must all stop now and think very carefully.

I may be repeating this story but it lies at the heart of every column I have ever written. My grandfather died in 1976. My father was president of Guardsman Life and I was a learning disabilities teacher growing organic vegetables in rural Iowa. We both flew to Houston to help sort things out. My grandmother had arrived from England in the womb in 1898 and somehow had maintained very British mannerisms. She had a reserved and proper no-nonsense demeanor. She however was suffering from COPD. At breakfast with just the three of us, my father had on his best selling shoes and was strongly promoting a nearby condo that had a nurse on staff. Rudy Hagelman was a legendary closer. I was quietly eating my raisin bran and enjoying the show. When dad had exhausted his argument my grandmother set up even straighter and burned into my mind and my future in this profession the following: “Son, the garbage picks up on Tuesdays and Fridays. When the time comes, you may set me out. I will not be leaving this house!”

I will not engage in the national inoculation debate. I do believe science ultimately holds most of those cards. What we should all find disturbing is the consistent drum beat of “mandated social insurance compliance.” Insurance is about personal free will, personal choice and personal responsibility.

My grandmother got it all correct even though it drained her savings and the equity in her home.

The outlines of our brave new world are beginning to crystalize:

  • According to a recent survey from LeadingAge, a group of nonprofit providers of aging services: “85 percent of Americans agree that now is the right time to think about building a better aging services system. Eighty-six percent say the government must make a bigger investment in services and care for older Americans.”
  • Our President recently gave a speech to promote his pending “social infrastructure” legislation as he left for a global environmental summit in Scotland. The first argument from his lips was the need for expanded health care services at home. Please recognize that the proposed expansion of Medicare and Medicaid for the purpose of enhanced home care services is the majority of healthcare costs embedded in this potentially historic legislation.
  • COVID has shifted the conversation permanently from institutional care solutions to care at home.
  • The Washington Cares Act may end up being remembered as reminiscent of the emotions and conclusions of the Boston Tea Party. Governmental coercion based on new mandatory employment taxes leading to enhanced bureaucratic management control. We have seen one obvious fact that should not have escaped any of us. If exposed to the real possibility of having to pay for your own care is present, consumers will take action. Was what happened in Washington State coercion or incentive?
  • The recent application avalanche in the Pacific Northwest should have reinforced this most basic of all insurance principals. As an example, I can’t help thinking Steve Moses’ thoughts on exposing home equity to long term care costs would solve the long term care insurance conundrum overnight.

The only care I want managed is equity of access.

Other than that I have no opinion on the subject.

The Never Ending Story: Looking Past the Politics—A Natural Affinity

It’s Not Just About Good Math, It Is About Meaningful
And Progressive Insurance Math

Positive sales results involve risks.

We recognize that good money management lies at the heart of insurance. That in a classic sense insurance companies are certainly sound financial institutions. However we also understand that it is our unique ability to manage and accept some level of risk that provides the meaning and the opportunity in what we do. Known and managed levels of risk acquired by the predictability of historical mortality and morbidity knowledge is the energy source that operates the machinery. To avoid risk is to avoid sales. Insurance companies are not banks or credit unions. The only question that matters in our view is: How much is enough? It is specifically the production thresholds mandated by this question that best predict success or failure.

A Crystal Ball
Product response to the largest financial risk faced by our battered Baby Boomers has been lengthy and varied over the last 25 years with the birth of tax qualified options. As usual the hind sight inspired notion that we oversold benefit and underpriced risk is an all too familiar lament of the post-game armchair finger pointers. In the past we built and sold based on all the issues, dynamics and strategy compromises outlined in this article. This particular risk has frankly been unlike any other in the past. Resistance to accepting the reality of this potential catastrophic financial train wreck has been legendary. The misconceptions about actual cost or likely collision with the real cost of care have been eroded by our marketing efforts but remain prevalent. The product ownership “love” of those who did buy expressed by unprecedented persistency never before seen in previous health product could not have been predicted. The drama of onerous rate increases, restricted underwriting and carrier retreat from the market has decimated faith in the current market by all its stakeholders.

New Market Development and a Path Forward
The risk is very real, 20 percent of Boomers will experience a catastrophic care event. A hopefully symbiotic relationship between public and private resources will be established funding care costs in America. Consumers still prefer to have assistance from professional insurance representatives. Private insurance options both primary and supplemental will remain available and essential as a product resource. Post COVID thinking will place emphasis away from institutional prejudices to home and community-based choices. Technology will play a huge role in managing care in the future and insurance will meet and support that challenge. A new renaissance of product options will continue to require meaningful math and dynamic sales support. The perennial relationship between those who bring in the money and those who count it will remain, as it always has, at the center of an ever expanding universe.

Underwriting concerns will continue to define the nucleus that impedes or expands our sales progress. In truth they lie at the heart of any care amelioration insurance strategy going forward. The immutable laws of an adequate spread of risk demand some form of coercion. The only way to accommodate preexisting conditions is to mandate sufficient participation. The current political climate is projecting this reality in a manner that should have us all concerned and on full alert. The one lesson that our past in marketing insurance solutions has made abundantly clear is that adequate voluntary participation concerning long term care risk has been simply beyond the reach of our industry’s product offerings. The battle lines are clearly drawn between public or private management of America’s largest unprotected risk:

  • As of this writing seismic federal “social” infrastructure legislation is pending. It would facilitate a dramatic increase in Medicare home health care management and Medicaid eligibility.
  • 100 percent mandatory employee payroll tax supported State managed social insurance originating in the pacific northwest would establish a new permanent mandatory social insurance bureaucracy. Currently under consideration by 20+ other states.
  • Legislation has been introduced in Washington DC that would establish an employee and employer shared mandatory social insurance program offering means tested stop loss protection for major care risks.

The winds of change are building just off shore. The sirens song lure of mandating adequate participation and collecting new taxes establishing comprehensive government management of our care futures is achieving named hurricane status.

In our humble opinion, never before has the symbiotic relationship between marketing and actuarial been more important in building private insurance alternatives. One way or another we will be forced to go to the blackboard and begin again. Personal choice of care and at least private control of your claims destiny must not be the exclusive territory of political expediency.

Looking Past The Excel Spreadsheet—A Natural Affinity

What 30+ Years Marketing And Selling Long Term Care Insurance Has Taught Us: It is not just about good math, it is more importantly about meaningful math.

We are indeed at that proverbial fork in the road. Recent history and past performance precludes a future returning to business as usual. As our industry and our country heals and adjusts to current realities, my partner Barry Fisher and I thought now might be a good time to reflect on 35 years of product and distribution “consulting.” Our FAQ is: “What is it you guys do?” Unfortunately there is not a simple answer.

There is a special and immutable relationship between marketing art and actuarial science. The cumulative moving parts of a successful insurance company have several well established and defined disciplines. Administration, IT, underwriting, accounting and legal are all critical to success. However, theirs are, by definition, supporting roles. They will not bear the direct burdens of success or failure. Marketing and actuarial are symbiotic branches and are essential to any insurance enterprise. Both have been and forever shall be co-dependents. Even though the senior executive staff will make final “go” or “no go” decisions, they are primarily acting on information given to them by allied or opposing worldviews provided by actuarial and marketing.

Together actuarial and marketing create the bipolar nucleus that moves our industry forward. It is their combined working synergy that creates product, attempts to predict success and then subsequently measures and remains responsible for business quality and production volume. They must then intimately collaborate on needed adjustments. Together they are constantly challenged to temper good math with sales viability. Ultimately it is the marriage of acceptable levels of risk fused into sufficiently attractive product design that defines our mutual purpose and our industry’s future.

In medieval and renaissance times, kings had a variety of court jesters whose job it was to keep it real for the high and mighty. In our perspective it is often too easy to view sales concerns as comic relief to the serious business requirement of projecting accurate long term pricing assumptions. Therefore, our opening admonition is this: Just because you can make something work on a pivot table doesn’t necessarily translate into a successful product offering. As marketing and distribution consultants we are automatically identified as a voice representing the capricious nature of “the field.” We are asked to help identify prospective consumer purchase preferences as well as predict the potential enthusiasm of the agents and advisors who we ask to deliver premium on a regular and significant basis that satisfies all stakeholders.

Marketing and actuarial have historically represented the most experienced stakeholders in the insurance equation. It is specifically our depth of training and experience that places us in the center of the storm. We both operate in a known past universe of actuarial assumptions and meaningful sales success patterns. Marketing helps identify what consumers and advisors want tempered by what we know good math may actually allow them to acquire. Marketing and actuarial, in our opinion, represents the most ardent believers in the promise of what insurance offers and delivers to policyholders and their families. However, we suspect both recognize that our industry may on occasion fall short in providing suitable private insurance solutions to a broad base of consumers. Our view of how we can work together more effectively to enhance the opportunity for success by expanding our communal strength of purpose is the primary message of this experiential review.

Math or Altruism?
The symbiotic relationship between actuarial science and marketing art is also a reflection of the degree of ownership of our industry’s most sacred normative values. The certain, yet for the most part unpredictable, nature of mortality and the laws of large numbers creates the magic that is insurance. We must constantly hold the required balance between our fiduciary requirements of public financial trust up to the light of our stated altruistic goals to serve the needs of consumers. Surviving and prospering as a business is a delicate balance between risk and purpose. We may begin by protecting widows and orphans yet we also remain publicly dedicated to leveraging excessive risk associated with retirement, disability and health. There is a constant institutionalized internal requirement that as an industry we serve a greater good but that can only take place if it contributes to corporate health and wellbeing.

Good math surrounded by good intentions creates the permanent relationship between those of us held responsible for bringing in premium and those responsible for defining the basis upon which it may be acquired. This mandatory symbiosis must then draw water from the same well. We must together do all in our power to identify the consumer’s predisposition to buy, tempered by what the agent/advisor believes creates motivations to buy, and then a detailed analysis of what was purchased tempered by a careful determination as to why.

Customer Research Cannot Be Overdone
Who is the customer and what do they want? What is your strategy for listening to those directly involved in sales? What is your strategy to acquire consumer research? How does your offering, current or prospective, compliment or challenge existing sales or perceived competitor strategies? How do you think your new product or changes to an existing policy form will be viewed and adopted by the people you are expecting to represent your company? What is your strategy for developing sales intelligence pro and con in real time? All new product development will require some level of education and training; what’s your plan? What is your willingness to support and sustain a flexible and malleable learning curve before you accomplish your desired sales performance?

Perhaps the greatest protection against product failure is an advance determination of what combination of existing industry consumer analysis you will rely upon to make these most critical decisions versus your own efforts at research to determine prospective purchasing behavior. Again, marketing and actuarial will be called upon to provide their combined best guess. Together they will share a common purpose and fate.

Clarity, Transparency and Balance
Too often a clear and convincing reason why a consumer would want to purchase a new and improved version of a product becomes a victim of the urgency to get sales results. This rush to marketing justice is generally the result of C-Suite pressure to justify the corporate treasure associated with its birth. What problems or purposes is the new product or revision designed to accomplish? Was a need clearly identified when you went to the drawing board for the first time? Were the end-users’ needs and desires top of mind? As an example, it is safe to say that agents and consumers would prefer certainty; e.g. guaranteed premiums, clear and understandable benefits, ease of underwriting, transparent claim processing, predictable and reliable company financial bona fides. Is there a match between what you want and what you think your customers want? Will advisors and potential policyholders understand the method to your madness? Frankly any conversation that begins with “be sure to carefully read the fine print” should be suspect.

The devils are in the details. The base plan is simply a structural armature from which truly meaningful benefits have been strung like colorful holiday lighting. Is it long term care insurance or life insurance with a chronic illness accelerated death benefit rider? What are the benefit triggers and/or gatekeepers? Inflation options, nonforfeiture benefits, premium guarantees, possible dividend contortions, claims coordination, etc. will ultimately garner the greatest credit for sales success. Bells and whistles matter.

Again the evaluation of performance will return to the nexus of creative flexibility between marketing and actuarial. Success is often judged by trade-offs. Deal making on what benefits will not become victims of the cutting room floor should be a graduate level course. Marketing and actuarial should both arrive and leave every meeting as a measure of progress toward the “drawing board” goals. Actuarial and marketing have extensive wish lists concerning what they desire, what pricing limitations are mandatory and a knowledge of potential accommodations that may substantially impact sales.

When the marketing team arrives to negotiate with actuarial, they are prepared to compromise. Success may often be defined by how many requests can be sacrificed on the altar of corporate pragmatism and still preserve the necessity of successful sales. Expediency is not top-of-mind to marketing. There are two primary categories of product adjustments. The first may be best described as purpose and intent, and the second relative cost. An example of the first would be a conversation about how best to blunt the impact of inflation. This clear consumer benefit would lead most benefit wish lists. However, options to offset the ever increasing cost of living exist across a wide spectrum of approaches. Attempts to address the issue may include guaranteed purchase option, simple interest, step-rated increases or compound interest formula.

What makes the interaction entertaining and critical to future success is that these choices can be mixed and matched together in endless creative combinations. Subsequently each different solution will then be measured by relative cost. Marketing is notorious for trying to simplify this most important negotiation. They would prefer to view possible benefits included in base rates or riders as a percentage of premium. The initial product exercise was born with a general understanding of what level of premium would not create obstacles to sales. Generally speaking, single digit percentage increases to anticipated base premium may not jeopardize sales. Double digit increases will most likely raise our blood pressure.

Again it is the delicate balance between the initial product raison d’etre, restricted or policed by the projected math and then fueled by the strength of the marketing and sales campaign that defines every product exercise.

Revolution or Evolution
It is difficult to have this conversation and ignore the largest elephant in the product development room. Insurance is conservative by nature. It is important to acknowledge that the following comments are of a general nature. There are certainly moments in time and space where breakthrough innovation does occur (ex. the birth of universal life 50 years ago), however, for the most part insurance companies are followers not leaders. Our past product trajectory history is perhaps best defined by accommodation to market trends. When proposing new product direction or strategy the first question that frequently arises is, “What other companies have adopted this specific approach to expanded sales?” We would of course wish that the source of the inquiry is to evaluate the competition. Insurance companies are not banks; their ultimate success is not built from a lack of risk. The rationalization for examining the mood of an existing market is more likely to determine what level of risk the competition is willing to accept and still market forward.

Product evolution is traditionally gradual and incremental. It is a process of demand from consumers interpreted and voiced by agents. Insurance companies do listen to the field. And this constant bombardment of requests in product revision must again be filtered by the established marketing personnel who must then turn immediately to the actuarial gatekeepers to define what is possible. None of this ongoing process exists in a vacuum. All stakeholders at the company are keenly aware of what the competition has found to be successful. This is true from IT’s wish for platform upgrades to underwriting innovations in evaluating A1c levels. There has never been any respite from the need to change and evolve. Insurance product is not static, markets do evolve and consumer and advisor preferences must be constantly monitored and evaluated. Evolution is constant and product or marketing revolution is rare but not unknown. It is important to add that this industry’s universal opportunity to adjust to a changing sales environment is also frequently subject to significant influence from both political and industry regulation and legislation. In fact market changes are often, as an example, measured by their distance from the implications of specific insurance industry regulatory mile posts such as HIPAA or the PPA. It is specifically government and regulatory revisions or expansions that ultimately define the trajectory of future product premium growth. In our view it is again the unique mutual responsibility of marketing and actuarial that creates the impetus and the voice to upgrade the regulatory environment designed to facilitate consumer interests. Changes in life, annuity or long term care Model Regulations are a real time reflection of the need for change to improve fiduciary guidance and the opportunity for increased market objectives.

In addition it remains critical that we maintain an eclectic view of potential solutions. The classic example of marketing concept cross pollination would be to monitor sale activities which occur within a broader market context such as the development of worksite product or underwriting solutions. Worksite sales success is often a result of product compromise to accommodate blended mortality and morbidity assumptions based on enhanced participation and potentially accelerated lapse scenarios. Worksite sales success therefore traditionally may also reflect a reduced or abbreviated underwriting environment. It is specifically this product flexibility that may offer guidance as to individual product development. In our opinion a more rapidly evolving group market may provide guidance and context to evolving product trends. Another developing resource is the rapidly evolving virtual underwriting environment. Underwriting of senior products or long term care planning options is frequently defined by the degree of the absence of underwriting obstacles and the acceptance of virtual underwriting technologies.

No Plan of Battle Survives First Contact With The Enemy
Regardless of how brilliant and innovative an initial product introduction may be, its ability to accomplish projected premium objectives may flourish or wither once it meets the reality of agent and consumer acceptance. All the careful planning, market analysis, internal financial implications, IT strains and projected product introduction cost implications will not hold water if distribution or consumer predisposition fails to gain any meaningful traction.

It is also critical that you begin the sales journey with a clear understanding that there are always two bad numbers: Too much sales success and too little. This is the proverbial and mandatory Goldilocks principle. As marketing consultants the most feared question we know we will be eventually asked by our corporate clients is: “Based on the product parameters we have just helped assemble, what are your production projections?” Finding that middle ground sweet spot that justifies the development cost, promises the sincere hope of quality and meaningful quantities of new premium yet does not jeopardize current production or require supplementing unexpected reserve strength, lies at the heart of the whole process.

To be continued.