Thursday, March 28, 2024

Raynaud’s Phenomenon

Raynaud’s phenomenon (RP) is a disease when sudden ischemia of the digits appears, generally as a response to small arterial blood vessels going into spasm. Most commonly the underlying cause is cold or emotional stress. The term Raynaud’s is used to describe both a disease and a phenomenon. Raynaud’s disease is symmetrical, most often appears in the fingers, and does not progress to anything serious. Raynaud’s phenomenon (or Raynaud’s syndrome) can be part of a much more serious group of impairments which can affect the esophagus, skin and fingers, and progress to gangrene in its more severe form.

The disease in Raynaud’s is more of an annoyance than a problem. Those affected can complain of sensitivity to the cold, and a pain and stinging feeling in their digits that gradually subsides with no long-lasting effects. It is the more common of the two. Raynaud’s phenomenon is often associated with rheumatic disease (especially systemic sclerosis) and can be quite severe.

RP generally starts slowly with several fingertips involved, but as it progresses, it starts to involve the entire palm. Intense throbbing, numbness and tingling, pain, and swelling then ensue. Numbness and an aching pain can last longer. It is a disease that primarily affects younger women.

RP can evolve and become secondary to many serious rheumatologic diseases. These include collagen vascular disease such as systemic sclerosis, systemic lupus, and
rheumatoid arthritis. Arterial diseases, arteriosclerosis and arterial occlusion can be primary causes. Neurologic disease, blood disorders, certain medications (like ergots given for migraine), and frostbite may also precede or be associated with RP. In other words, the associated conditions are quite concerning.

RP in its benign form is generally easily diagnosed from the short acting symptoms with no sequelae. Men suffer from a similar set of symptoms (particularly male smokers) called Buerger’s disease, but in Buerger’s lower pulses are absent. Frostbite is more easily distinguished by the characteristic exposure to severe cold.

Primary Raymand’s disease generally has no findings in between attacks, and physical findings are absent. When associated with a more ominous disease such as progressive systemic sclerosis, the underlying disease generally becomes apparent in the 24 months after diagnosis. The most common cause of PSS involves a syndrome known as CREST: calcinosis, Raynaud’s, problems with swallowing (esophagus), sclerodactyly (thickening of the skin), and telangiectasia. It may actually eat away bone when the disease is active.

When the diagnosis of the more serious Raynaud’s phenomenon is entertained, a series of specialized blood tests looks to determine the underlying cause. An X-ray of the thoracic outlet, sedimentation rate, CBC, antinuclear cytoplasmic antibody, antinuclear factor (ANF), cryoglobulins, and cold agglutinins blood testing is drawn. An angiogram may have to be performed to look for obstructing lesions. Gangrene and progressive internal organ damage are late and very damaging signs of the disease.

In assessing Raynaud’s phenomenon, underwriters look first and foremost for an underlying condition that may significantly affect mortality. The severity must be assessed, as well as any underlying complications, and prompt and effective treatment. Most simple cases of Raynaud’s disease do not result in any rating and preferred status is available. Raynaud’s phenomenon however is underwritten according to the severity and prognosis of the underlying disease, which may result in rating or decline.

The “Shadow Caregiving System”

The US is experiencing “demographic aging.” In less than two decades, the graying of America will be inescapable: Older adults are projected to outnumber children for the first time in U.S. history.1 What I refer to as the “Shadow Caregiving System” is complex and comprised of multifaceted relationships, including:

  • Heterosexual and Same Sex Couples
  • Committed but Not Legally Married
  • Long-term Marriages
  • Short-term or Multiple Marriages
  • International Marriages
  • Single Income and Dual Income
  • Children, No Children, and Step-children
  • Solo-agers

In an aging society, the “Shadow Caregiving System” is quickly growing into a “Shadow Caregiving Economy” with long lasting individual and national economic implications.

Who participates in the “Shadow Caregiving System,” or more precisely asked, who doesn’t? A Merrill, Bank of America Company study conducted in partnership with Age Wave, The journey of caregiving: Honor, responsibility and financial complexity, refers to family caregiving as America’s other social security, noting that family members provide more than 95 percent of non-professional care for older adults who do not live in nursing homes.2 No matter how you define family, the “Shadow Caregiving System” is rapidly becoming an all-inclusive club.

The life of a caregiver is a juggling act. It is a unique journey with ups and downs that are both unpredictable and personal. There is a steep and destabilizing learning curve. Caregivers act as information coordinators who must devote time and energy in order to understand the confusing maze of medical and financial complications that develop or change. More than 75 percent of caregivers report substantial out-of-pocket costs associated with caregiving. Paying for care recipients’ household expenses (rent/mortgage, food, home modifications) accounts for about half of these costs; providing support for medical costs (such as medications) accounts for an additional one-fifth.3 Caregivers may also be quietly spending their own money in caring or providing care for someone. According to the AgewaveCaregivingWhitepaper,4 52 percent of caregivers have no idea about the total amount that they have spent to date on caregiving related expenses, including home care, transportation, paying bills, everyday household expenses and even costly medical treatments.

More than 16 million Americans provide care to a person with Alzheimer’s disease or other dementias. Caring for a person with Alzheimer’s disease is not only physically taxing but also emotionally draining. These caregivers provide more hours of care per week and, in many cases, support their care recipient for a longer period of time. They are also more likely to perform medical tasks in addition to running errands, managing finances and, most importantly, keeping their loved one safe and secure. Because of the progressive nature of the disease, Alzheimer’s patients are likely to move through many different levels of care over several years. The caregiver is often challenged with many difficult decisions.5

There are now four generations at the workplace who participate in the “Shadow Caregiving System.” According to the US Bureau of Labor Statistics,6 by 2031 the majority of the workforce will be comprised of the Millennial (1981-1996) and Gen Z (1997-2013) generations. According to a recent Kiplinger article, millennials are just as worried about their parents’ financial security and about 68 percent of them worry that their parents may not have enough money to live comfortably during retirement. On top of that, 61 percent of millennials polled for this study actually went beyond that to worry that their parents would have to become financially dependent on them instead. Along with GenXers, they are increasingly becoming the caregivers of today and tomorrow.

Looking out to the future, the “Shadow Caregiving System” will rely heavily on fewer family caregivers which could also add to caregivers increased emotional and physical strain, competing demands of work and caregiving, as well as financial hardships. There was a decrease in the number of children Boomers had compared to previous generations. Long-distance caregiving and childlessness among the older population puts Boomers at risk of becoming “elder orphans.”7 For those who have the financial means to hire qualified caregivers, there still remains the chore of finding and monitoring qualified caregivers and handling a care recipient’s complex finances. Without a well thought out plan in place, even once the care recipient is deceased, caregiving can morph into settling their affairs which can be stressful, complicated, and time consuming.

The realities associated with the “Shadow Caregiving System” foretells of a burdensome economic crisis, one has to ask why aren’t more individuals and families planning for extended or long term care needs?

While the reasons are complex due to individual experience, circumstances, and generational attitudes, some general explanations seem to surface:

  • America’s youth oriented society contributes to the difficulty of discussing aging.
  • Industry challenges and bad press has left many with a narrow view of available options resulting in unfamiliarity with the wider array of current planning options.
  • The conversation can be a difficult one unless individuals and professionals know how to introduce the topic in a positive, organized way.
  • Professionals may not feel comfortable or capable of incorporating extended and long term care planning or referrals to specialists into their practice.
  • There is a lack of general public education about the need to plan for extended and long term care.
  • The public lacks valuable information about available research, products, and programs to help individuals, families, and professionals who are, or will be themselves, caregivers or care recipients.
  • The misconception that Medicare covers long term care or qualifying for Medicaid is the answer to planning for long term care.
  • The public is uneducated about the true cost of extended and long term care.

Funding the “Shadow Caregiving Economy”
Significantly states, in the absence of a federal program, are looking at the impact of current and increasing cost-of-care affecting both their residents and state Medicaid budgets. Currently various states, such as Washington, California, New York, Minnesota, etc., by way of legislation, studies, task forces, committees, and programs, are increasingly dealing with burgeoning long term care issues. Washington is the first state to enact a publicly funded long term care program. The Long-Term Services and Supports Trust Act was enacted in 2019 and created the WA Cares Fund, a long term care insurance benefit to help Washington employees cover the cost of long term services and support both during their careers and after they retire. The Trust Act also created the Long-Term Services and Supports Trust Commission, which works on behalf of Washingtonian employees and Long-Term Services & Supports stakeholders to improve, monitor, and implement the program. Workers began contributing to WA Cares Fund on July 1, 2023. All full-time, part-time, and temporary workers in Washington contribute .58 percent of all W-2 income to the WA Cares Fund unless they have an approved exemption or are in a class of employment that requires them to opt-in or excludes them from the program. After meeting both the care need and contribution requirements, residents can access a benefit of up to $36,500 (adjusted for inflation) to pay for care starting July 2026.

Hospital, nursing home, and care facility challenges, as well as staffing shortages, highlighted in news coverages during the COVID-19 pandemic seem to have only temporarily brought some of the realities and demands of providing for long term care to the attention of the public.

In a 2022 survey, Long-Term Care (LTC) Consumer Planning Study,7 OneAmerica collaborated with Hanover Research to engage with consumers to better understand consumer behavior and thoughts regarding long term care planning. Respondents were at least 40 years old, currently planning for the “retirement era” of their lives. Neither they nor any immediate family member works in the insurance industry.

According to the survey, consumers place the highest importance on finances when planning for their own and/or their family’s future. More specifically, they rate having enough to retire (86 percent), eliminating debt (74 percent), and creating liquid emergency funds (68 percent) as most important. Long term care planning (48 percent) is considered a relatively lesser priority.

On the other hand, consumers reported viewing long term care planning as serving multiple purposes, led by avoiding heavy burdens on family members. They cite avoiding devastation of one’s own finances (46 percent) and gaining peace of mind (45 percent) to nearly the same degree as avoiding undue burden on one’s family.

Wait, what? There seems to be a disconnect! While consumers place having enough to retire as their highest financial importance on planning for the future (86 percent), they also acknowledge that future long term care planning is important in order not to devastate those very same finances (46 percent).

Sadly, only a very few consumers seem to make the connection. The consumer study indicates that just under a third (29 percent) have researched long term care planning options, and even fewer (16 percent) have implemented a long term care plan. Despite more and more people in more and more generations becoming a caregiver, or having someone close to them become a caregiver, consumers indicate that the lack of certainty around the need for long term care (34 percent) still shows up as the third-most common barrier to planning for long term care.

This lack of planning is costing consumers plenty aside from the physical and psychological stress which impacts relationships and career advancement. According to AARP’s Valuing the Invaluable 2023 Update: Strengthening Supports for Family Caregivers, in 2021, the estimated economic value of family caregivers’ unpaid contributions was approximately $600 billion—up from the $470 billion estimated in 2017. This conservative estimate does not consider the financial cost of care (out-of-pocket and lost wages) or account for the complexity of care provided (i.e., medical/nursing tasks).

It would seem that now is the time to recognize an opportunity for anyone in the financial services industry to reach out to current and potential clients and offer guidance. However, a follow-up study released in June 2023, Long-Term Care (LTC) Financial Professional Planning Study,8 by OneAmerica in collaboration with Hanover Research, found that 46 percent of financial professionals don’t recommend or offer long term care to their clients, an additional 25 percent have recommended it in the past but are no longer doing so, and 21 percent said they never offered it.

If the top two reasons financial professionals sell LTCI are the same reasons clients purchase it—to ameliorate the impact of long term care costs of care on client’s finances and family—then why aren’t more LTCI or other funding options being put in place?

For consumers, according to the 2022 consumer study, barriers include the cost of LTCI itself (53 percent), the cost of medical and long term care-associated support (44 percent), and the slightly less-prominent competing financial priorities (25 percent). Not surprisingly, respondents found stable premiums (94 percent), tax-free benefits (92 percent), and unchanging benefits (90 percent) to be highly appealing. The ability to pass unused amounts to heirs (84 percent) also has widespread appeal. These features likely mitigate concerns about the likelihood of never requiring long term care and/or the desire to avoid undue burden on one’s family.

For financial professionals, the 2022 study found that two-thirds would be more likely to recommend LTCI with lower costs. When financial professionals look to insurance provider websites to stay up to date on LTCI products, they most often seek out information on price (75 percent), as well as the level (66 percent) and length (62 percent) of coverage.

According to the OneAmerica 2023 financial professionals study, tax-free benefits and non-increasing premiums are the most appealing features of asset-based long term care protection. In a recent column posted in LIMRA’s Industry Trends, Investors Becoming More Conservative Amid Concerns of Continued Equity Market Volatility, LIMRA’s research shows investors’ interest in annuities, regardless of the type, has increased over the past five years.

“Financial professionals who are familiar with asset-based long term care showed they understand how it can benefit their clients,” said Jeff Levin, vice president of distribution, Care Solutions, OneAmerica. “It’s part of a well-rounded approach to financial planning.”

The OneAmerica study of financial professionals also offers insights into an ideal long term care protection candidate. Experience with long term care remains a top motivator. Clients with incomes between $100K and $500K who are approaching the traditional retirement age between 55 and 64, those who experience a significant life event (silver divorce, self-selected solo agers, child’s college graduation, inheritance, etc.), or those without family who are able or available to provide care are top candidates.

Consumers are searching general web sites (38 percent), health care websites (29 percent), and insurance provider websites (26 percent). These results provide insight into the most ideal places to reach consumers as they attempt to educate themselves and plan for the future. Are you among the 54 percent of financial professionals who recommend/offer LTCI to clients? If not, now is the time to start!

For those who do not qualify/need additional insurance or annuities, or who have budget concerns, there are less rigorous underwriting and non-insurance funding options that may help consumers to plan. The world of options for extended and long term care planning is expanding with product innovation and updated versions of home equity loans, repositioning of life insurances, specialty products, expanding government and local support and services.

Start the conversation, start the planning. Consumers trust family members most when it comes to discussing long term care options. Financial professionals and consumers alike will benefit by approaching long term care planning as a generational issue with appropriate options for different ages, different budgets, and different needs.

Reference:

  1. https://www.census.gov/library/stories/2018/03/graying-america.html, The U.S. Joins Other Countries With Large Aging Populations, Jonathan Vespa, March 13, 2018, revised SEPT. 6, 2018 AND OCT. 8, 2019* accessed July21, 2023.
  2. https://images.em.bankofamerica.com/HOST-03-19-0704/AgeWaveCaregivingWhitepaper.pdf p.2 accessed July 21, 2023 Italics added.
  3. https://business.bofa.com/content/dam/flagship/workplacebenefits/id20_0905/documents/Financial-wellness-of-caregivers.pdf p.12 accessed July 22, 2023.
  4. https://images.em.bankofamerica.com/HOST-03-19-0704/AgeWaveCaregivingWhitepaper.pdf p. 22 accessed July 21,2023.
  5. https://fa.ml.com/illinois/northbrook/karraspoplin%20schroeder/mediahandler/media/39465 4/caregiving%20article.pdf Caregiving in the age of longevity: A diversity and inclusion perspective, Cynthia L. Hutchins, February 2021, p.7, accessed July 21, 2023.
  6. https://www.census.gov/library/stories/2018/03/graying-america.html.
  7. https://www.kiplinger.com/retirement/millennials-worry-about-their-parents-finances Brittany Leitner, June 21,2023, p.
  8. https://www.oneamerica.com/newsroom/news-releases/oneamerica-long-term-care-survey-shares-consumers-perspectives.
  9. https://oasf.my.salesforce.com/sfc/p/#50000000bbUu/a/Ht000001Lv2U/XssVc8tYoKniuDuW7gd5vDx0VnWmZHYmcLHYXjMHluA.

Helping Clients Ease The Pain Of High-Cost Specialty Drugs

There is no denying the pain high-cost specialty drugs are inflicting on employers and employees alike. The 24th Annual Willis Towers Watson Best Practices in Health Care Employer Survey found that “increasing health care affordability for employees, while controlling costs for the organization” was cited by 93 percent of employers surveyed. When cast against the projection that employers’ savings and pharmacy benefit managers’ (PBMs) profits are declining, the need to effectively address the high costs of specialty drugs becomes even more evident. This is particularly true since these costs have continued to increase.

In its analysis of IQVIA National Sales Perspective Data, the Assistant Secretary for Planning and Evaluation (ASPE, the principal advisor to the Secretary of the U.S. Department) found that the percent of spending for retail specialty drugs had increased by 22 percent and the percent of spending for non-retail specialty drugs had increased by 20 percent over the period from 2016-2021. While helpful in leveraging their purchasing power gained through extensive pharmacy networks, PBMs have not been able to drive a solution to this problem. There are, however, some strategies and technologies that are making a difference. A look at these solutions in the context of today’s specialty drug landscape is a sound step toward achieving lower costs. For insurance brokers and agents, learning about these strategies and solutions and sharing them with clients is another way to demonstrate your value as a trusted advisor.

Today’s Specialty Drug Landscape
To gain perspective on just how high specialty drug costs are, consider the following:

  • The ASPE reported that the cost of specialty drugs has increased by 43 percent from 2016 to 2021 climbing to $301 billion in 2021.
  • The ASPE’s analysis of IQVIA National Sales Perspective Data also found that by 2021, specialty drugs represented over 40 percent of all retail drug spending and almost 70 percent of non-retail drug spending.
  • According to GoodRx research, the top three most expensive specialty drugs, Zokinvy, Myalept, and Mavenclad, all cost over $60,000 for the typical monthly supply. AARP’s Public Policy Institute’s Rx Price Watch noted that the most expensive specialty drugs have annual costs as high as $750,000 annually.
  • Cited by the AARP Public Policy Institute, which has been reporting on prescription drug price changes since 2004, in its latest Rx Price Watch was that between 2019-2020, the average annual increase on specialty drugs was 4.8 percent or over three-and-a-half times higher than that period’s general inflation rate which was 1.3 percent.

The lack of competition among specialty drug manufacturers is one reason they have been able to continuously raise their prices. This has caused employer groups, the AARP, and other public groups to lobby Congress to develop new legislation. Those efforts have been productive in part and have prompted the inclusion of new requirements on manufacturers imposed by the Inflation Reduction act of 2022 and signed into law by President Biden August 16, 2022. This legislation includes provisions that:

  • Lower prescription drug costs for people covered by Medicare that would cap out-of-pocket costs incurred by older adults, enable Medicare to negotiate the prices of brand name and biologic drugs without generic counterparts, as well as biosimilar equivalents covered under Medicare Part D,which are among the highest-spending Medicare covered drugs and are nine or more years for small molecule drugs, or 13 or more years for biologicals from receiving FDA approval.
  • Require drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation for drugs used by Medicare beneficiaries.
  • Cap Medicare beneficiaries’ out-of-pocket spending under the Medicare D benefit by eliminating coinsurance above the catastrophic threshold in 2024 and then by adding a $2,000 cap on spending in 2025.

Employers Take Additional Measures
To address the high costs, employers/plan sponsors and their covered employees/members are pressuring PBMs to be more transparent by providing reports detailing their pharmacy expenses and employees/members utilization. They are more readily contracting with medical case management firms for their utilization management services. The utilization management services encompass the review of individual employees/members’ treatment plans to determine the medical appropriateness of those plans by applying evidence-based data reflecting URAC standards pertaining to different protocols. Where specialty drugs are deemed unnecessary or not appropriately utilized, the case manager will flag that transaction enabling their costs to be eliminated or reduced.

What many employers/plan sponsors may not be as familiar with are newer ways that can help them contain and reduce their specialty drug costs. Among these are:

  • Alternative funding, which 14 percent of employers and seven percent of health plans currently use, according to PSG Consulting, but which many regard as not being sustainable.
  • Value-based contracting, a performance-based reimbursement agreement which, to date, has not been validated by enough evidence, and is associated with various obstacles including difficulty agreeing on and tracking outcomes, lack of resources, and low buy-in.
  • Specialty rebates which PSG Consulting reported that 66 percent of health plans currently receive for specialty drugs, but only 27 percent of employers receive.
  • Patient assistance programs which enable patients to receive their drugs even if alternative funding is not available by tapping into drug manufacturers assistance dollars for patients in need on a case-by-case basis. Providers of these services leverage their negotiating strength, as well as clinical expertise, to provide a patient-centered service.
  • Advanced pharmacy benefit administrative (PBA) services which enables plan sponsors to better manage their specialty drug costs by giving patients access to a national network of at a minimum 68,000 retail pharmacies with mail order capabilities. Additionally, these PBA services leverage online technologies featuring easy-to-use and navigate online platforms with intuitive functionality. Through a user-friendly dashboard, PBA service portals provide 24/7, real-time access to drug and other health care information including educational videos on various drugs, along with patient alerts regarding prescription refill reminders. PBA services, used in concert with utilization management, specialty drug rebates and reimbursement cost management programs, can achieve drug costs savings of up to 40 percent and also lower medical stop loss insurance costs.

Taking the Right Steps Now
Helping clients tackle the high costs of specialty drugs demands a strategic and integrated approach which utilizes all viable measures. Critical to this approach is a completely transparent contract with a PBM with comprehensive reporting which highlights those specialty drugs being used by covered individuals and their associated costs. Employers/plan sponsors should also be confident that their PBM is applying any and all manufacturer rebates, reimbursements, and drug discounts. Also important are utilization management services to ensure that specialty drugs are being used in accordance with clinical evidence and proper protocols. PBA services too should be given serious consideration for use along with these and other measures suitable to the employer/plan sponsor, based on the extent to which they are insuring individuals with chronic and/or catastrophic illnesses requiring specialty drugs.

The Peterson KFF Health System Tracker found in 2019 that almost 50 percent of all health spending was attributed to just five percent of the U.S. population. This five percent group averaged $61,000 in annual expenses with the top one percent averaging over $130,000 annually. The double-digit growth trend in specialty drug utilization is a function of both the increased incidence of complex, chronic conditions like cancer, rheumatoid arthritis, multiple sclerosis, cystic fibrosis, Chron’s and hepatitis C virus, coupled with new, expensive therapies for prevalent conditions such as migraines and asthma. Formulary Watch reported that inflammatory disorders rank first in health plan costs at 35 percent of the 2021 specialty drug expense followed by oncology at 26 percent and multiple sclerosis at seven percent. Biosimilar drug use accounted for 22.5 percent of the 2021 specialty drug spend and is expected to have a significant impact on lowering costs in the years ahead as more of them are introduced. In 2023 alone, an estimated 12 biosimilars could become available. Staying informed on the latest developments in specialty drugs, biosimilars and related trends is also important for employers and plan sponsors striving to control their costs particularly those related to specialty drugs.

Closing Remarks
High-cost specialty drugs are an integral element in today’s healthcare landscape, and there has been some progress toward controlling their rising costs. By raising clients’ awareness of new strategies and technologies available to them and helping them access and screen qualified providers of related services and technologies, insurance brokers are themselves becoming part of a much needed multi-prong approach to gaining control over specialty drug costs and their effect on both employers/plan sponsors and their employees/members.

Photo by Julie Viken

The Myths Of Self-Insurance

In the spirit of education and awareness, it’s vital to understand the various sundry myths put forth by clients, and unfortunately sometimes by their advisors, on the concept of self-insuring themselves against the risks of long term care.

With millions of years of policy data from insurance carriers and an even greater array of statistics compiled by various government agencies and private entities, we know the risk of requiring long term care services at the end of one’s life is over 70 percent. For couples, this number soars to more than 90 percent, and single females (never married, divorced, widowed) are more than 79 percent. Rather than referring to the “chance” of requiring long term care, it’s more appropriate to use the word “probability.” After all, the numbers associated with this risk have simply become too overwhelming to ignore.

Many clients and, sadly, some of their financial advisors and/or estate planning attorneys think that insuring for long term care is something primarily for the middle class with only limited funds that require protection, and that more affluent clients can afford to self-insure against this risk.

As it turns out, many self-made affluent individuals who could certainly afford to insure against this risk often choose not to self-insure because they do not want to place their hard-earned fortunes at risk. Take, for example, a client from 1999, who was a retired orthopedic surgeon with three luxurious homes in Chicago, Scottsdale, and Palm Springs. According to his calculations, his annual expenses related to the upkeep of these homes, country club memberships, cars, and other ordinary life expenses exceeded $300,000 ($546,271 in 2023 dollars). Plus, this client could lay his hands on ten million dollars cash in just 24 hours’ time. The premium would be next to nothing for him. Some advisors or attorneys might have asked themselves, “Why am I even here? Why bother?”

However, this client understood the importance of having a plan in place. He knew that if his wife suddenly fell ill, he could care for her as a doctor. But as her husband, he would be a complete basket case. That’s why he was so earnest in his questions regarding the scope of the proposed policy. He knew it would take just a phone call to have a team of professionals put together a plan of care, find the caregivers, and even raise the commodes, lower the vanities, and put grab bars in the shower. And that’s exactly what he wanted.

For this client, it wasn’t about the money. He could afford to pay for the necessary services and even considered buying a barebones policy just to have access to all the services that the policy will offer. However, when looking at it from a dollars and cents point of view, why would he use his own money to pay for some services when he can use an insurance policy to pay for all of these services? This way, he is leveraging his money and protecting the estate he and his wife want to leave to their children and grandchildren as well as to charity.

This man knew exactly why he was purchasing this protection. In addition to affording himself, his wife, and their family the advantages of insuring their portfolio, he was also presenting a gift to all of them by eliminating the need for his children to become uncompensated informal caregivers and allowing them to be care managers who oversee the activities of professional caregivers. Unfortunately, not all clients have proven to be this insightful.

Why else should people of affluence purchase long term care insurance? People of affluence tend to avail themselves of better medical care, often have healthier lifestyles, and as a result tend to live longer lives. Studies show that the longer you live the more likely you will need long term care. As a result, the good health these clients enjoy may bring a greater chance of needing long term care in the future.

When affluent clients do require these care services, they will likely pay more for them than their middle-class contemporaries. Why? The reasons for this assumption are somewhat obvious when placed in context. The affluent tend to want better quality long term care, which translates into higher daily costs. Like most clients, the affluent are more likely to want to stay at home regardless of the associated cost to do so. They often live in conditions that some can only dream about, and do not want to sacrifice the quality of life to which they have become accustomed.

If deteriorating health conditions dictate that they leave their home, these very same affluent people are only going to enter the choicest of long term care facilities in the more upscale area of the municipality in which they reside. It is also reasonable to assume that they will insist upon a more costly private room if not a suite of rooms.

A review of associated demographics indicates affluent people may be less likely to receive care from their children because the education and upbringing these children have enjoyed may have thrust them into higher profile and/or demanding jobs. With fewer children being born and more women in the workforce, we have grown beyond the society portrayed by the Waltons. Multi-generational homes are largely a thing of the past, and the questions of dignity and self-determination loom even larger with this caste group.

Unfortunately, because these people of affluence are often healthier than other cohorts, they are also more prone to deny long term care will be part of their future. When dealing with clients like these, it’s important to become a denial-buster. Rather than bombarding them with the numbers associated with the risk of needing these long term care services, pivot and instead address the consequences of making the wrong decision to not purchase a LTCI policy.

Once we enter this realm, quietly begin asking them to consider the consequences and potential impact on their spouse, their children, their financial portfolio, and the very quality of life that they may have to give up when they can no longer cover escalating costs with their own money. The unfortunate reality is many families have to sacrifice assets to pay for professional long term care services that they can no longer provide to ailing loved ones.

Ask clients which of their assets they will liquidate to pay for these services, forcing them to consider selling off the boat, the vacation home, or some of their other prized collectibles.

A review of their portfolio and positioning long term care as an invasion of principal that will not recover with the passage of time (as it did after the market crashes of 1987 and 2008) will often provide the sobering reminder that pre-crisis planning is a far more economical way to protect their life and lifestyle than self-insurance.

While there are fewer carriers with traditional long term care products than 25 years ago, there is a more varied array of products offered by a smaller pool of carriers. For clients who do not want to risk paying for something that they may not avail themselves, it’s crucial to pivot and offer them additional life insurance coverage with a long term care or chronic illness rider. For some clients, a linked benefit, asset-based, hybrid, or combination product might make sense. The key is that these products all offer a stop-loss feature against the ravages of long term care and allow the policyholder to again avoid the potential pain of complete self-insurance.

There are three ways to pay for the long term care that the majority of us will likely require before we leave this earth: Be very rich (where self-insurance is possible, if not practical), be very poor (where the government steps in with Medicaid assistance), or be insured.

So, if you have a spare million dollars and no desire to leave a legacy, then self-insurance might be for you! As for the rest of us, we will continue to pay our long term care insurance premiums, even with the accompanying in-force rate actions, because the alternative of self-insurance is just so unappealing and ever increasingly expensive.

Free Stock photos by Vecteezy

Everything Everywhere All At Once—In The Life Brokerage Business!

Similar to our great brokerage business, my last 45 years in the life insurance business seems like there are many similarities to the winner of this year’s best film, a wild, crazy and ever-changing ride.

As you may know, I retired from ASG, an Amerilife Company, in November to spend some time with my family and think about my next chapter.

It has been a wild ride and I can tell you; I have seen changes in the business and have some thoughts on the future.

I started in the business in 1977 out of college as a career agent for Equitable Life and moved to the marketing department at what was Beneficial National Life in 1979. Those days were the days of individual major medical, large clumpy rate books, standard and rated underwriting classes and doing minimum deposit illustrations by hand. My, has the world of illustrations changed!

These were the initial days of life brokerage and I was fortunate enough to have met the great leaders of our industry including Tony Pascotti, Jim Ash, Marty Greenberg, Sam Kaufman and many many more of those who started to really grow what we now know as the BGA.

These years were formidable and I was fortunate to be one of those who attended early NAILBA meetings and of course what was then AALU. In or around the years of 2001-2002, there were many changes already being made in brokerage, including universal life, level term products and the land was shifting in terms of distribution. If a company wrote 40-50 million of brokerage premium it was considered a great feat—today most carriers cannot compete with those types of numbers and there are now many BGAs who write those figures. This period was also a time when the IMO started to emerge. BRAMCO and LifeMark were two of the leaders in this new form of distribution and relationships with BGAs and carriers.

After I was the National Sales VP at National Benefit Life, I continued in brokerage, spent a few years at Crown Life of New York and got a great opportunity in 1992 to work with Mike Hefferon, an up and coming BGA in the New York market. Mike had great insight into brokerage and we built a very large following as well as began to pioneer the IMO marketplace through BRAMCO. This was a great experience and in the years of 1992-2007 there was fantastic growth and change in the BGA marketplace. I can remember two memorable situations: First, where we were BGAs for Traveler’s at the time and brought the company to NAILBA—that was quite a ride; and a few years later, lunch with Warren May from Principal turned into a lifelong relationship with BRAMCO, NAILBA and others.

In 2007 I looked for another BGA opportunity where I knew most of the people and really got the experience of being a principal and building ASG with Sam Kaufman and Jay Scheiner. These years were where I began to really see major changes in the industry. The foreign national market heated up, there were new products, new ways to illustrate them and new underwriting processes. There were firms growing like crazy, UL, VUL, IUL, regulation changes, AG 49 et al, demutualization, IMO mergers, BGA buyouts from PE firms, and especially electronic underwriting and processing.

You may be asking, “So what does this all mean to us in the future?” Well I wish I had a crystal ball. Change is not always good but a necessary part of life in order to move forward.
I have really seen it all, from working at carriers, to working the BGA market, chair of NAILBA membership when we needed to grow the organization, forming a NAILBA industry task force to become more inclusive with industry partners, AALU meetings on the Hill, and most especially the transformation of traditional underwriting in brokerage to digital and submission to commission electronic processing.

COVID, while it has been devastating to our entire world, taught us our business could hold its own, stay in its lane and grow with the proper resources, technology and people—not robots. While I am not a real fan of AI in our business, I believe it is something we all need to face as the next several years will be pivotal.

So, what have I learned? Here are a few of my own prognostications for the future of brokerage and the BGA world:

  • Brokerage will survive, thrive and grow in areas of distribution via RIA’s, wirehouses, some career agents and independent and P&C agents.
  • Consolidation will continue, especially with BGAs, and IMOs as well as our industry organizations—look at Finseca, Forum, NAILBA, and AALU.
  • PE firms, while the financial factors have a lot to do with this, will continue to purchase BGAs, maybe more IMOs, and the future of these ventures will be up for very close financial reviews all the time.
  • I believe there may be a few more demutualizations, and many more stock companies will merge/be purchased.
  • Brokerage underwriting will continue to evolve and we will see even the most conservative mutual carriers jump into this arena.
  • I see more regulation from all sides, including the SEC, Finra and NAIC—and some of this is needed to keep our balance in the business.
  • Most importantly, I see the need for life, annuity, DI and LTCI to continue to be sold by qualified advisors—now and in the future. While technology will of course be needed, the life insurance broker will be needed even more to provide the necessary expertise to handle the billions of dollars of wealth that will be transferred from generation to generation as well as business planning opportunities.

So this is why I see our great business similar to the title of the film, Everything Everywhere All At Once—it has been the ride of a lifetime and hope that my next chapter will be as enriching and fun as the first few.

Breaking Down LTCI Partnership Policies

For 66 percent of retirees, Social Security is their primary source of income.1 This may not have been a daunting financial undertaking for the federal government when the Social Security Act was originally signed into law in 1935. After all, life expectancy was just 63 years old at the time. Today, however, the population is living longer, much of the Baby Boomer generation is either in or nearing retirement, and current workers barely outnumber beneficiaries collecting Social Security. Therein lies a huge problem. Social Security was designed as a supplement to retirement income, not to be the primary source of income.

In the 1990s, the average retiree owned their home clear of any mortgage encumbrance, had a pension, and was receiving the supplemental Social Security benefit, as it was intended. However, the average client planning for retirement today is often in their third, fourth, or fifth job or company and still has a mortgage payment. Meanwhile, they are also attempting to save something for retirement while paying for their children’s college educations and often bearing the burden and expense of providing long term care for their parents. Unfortunately, managing these additional costs and burdens can result in a loss of income and cause physical, emotional, and financial suffering for the individual as well as their loved ones.

For many current clients, realizing these additional costs and caring for their aging parents has prompted them to consider their own future care. After all, the probability of needing long term care for individuals aged 65 and older is approximately 56 percent.2 That’s where long term care insurance comes in.

The History of Long Term Care Insurance and State Partnership in the United States
In 1935, President Franklin D. Roosevelt signed the Social Security Act (SSA) into law. Under the SSA, the Old Age Assistance program makes federal money available to the states to provide financial assistance to poor seniors. The law specifically prohibits making these payments to anyone living in public institutions, thus spawning the creation of the private nursing home industry.

In 1950, an amendment to the SSA required payments for medical care to be made directly to nursing homes rather than beneficiaries of care. Under the amendments, states were also required to license nursing homes to participate in the Old Age Assistance program.

In 1965, President Lyndon B. Johnson signed legislation enacting Medicare and Medicaid as amendments to the SSA. Medicare’s focus is on acute care only and does not provide for long term care. Medicaid allows for coverage of long term care in institutions but not in the home, creating a bias in favor of institutional care. Under this legislation, the federal and state governments became the largest payers for long term care, while nursing home utilization increased dramatically along with government expenditures.

In 1974, SSA amendments authorized federal grants to states for social services programs, including homemaker services, protective services, transportation, adult day care, training for employment, nutrition assistance, and health support. Final regulations for skilled nursing facilities were put into effect and enforcement of compliance with standards such as staffing levels, staff qualifications, fire safety, and delivery of services became a requirement for participation in Medicare and Medicaid. Several insurance companies launched the private long term care insurance industry with the intent of allowing individuals to purchase insurance policies that will pay for these necessary services and remove them from the public welfare system. Later policies expanded from coverage only for nursing homes to include home health care, assisted living facilities, memory care, and other variants often covered under alternate plans of care.

In 1992, four states (California, Connecticut, Indiana, and New York) implemented qualified state long term care partnership programs for their citizens. The following year, Congress enacted the Omnibus Budget Reconciliation Act, which prevented the expansion of these programs to the other forty-six states.

The Omnibus Budget Reconciliation Act of 1993 (or OBRA-93) was a federal law that was enacted by Congress and signed into law by President Bill Clinton on August 10, 1993. In terms of long term care insurance, this legislation established minimum standards to improve the quality of private insurance for long term care and tax incentives to encourage its purchase.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104-191, was enacted on August 21, 1996. HIPAA created tax qualified plans, deductibility of premiums paid, based on age. Individual and group plans that provide or pay the cost of medical care are covered entities. Health plans include health, dental, vision, and prescription drug insurers, health maintenance organizations (HMOs), Medicare, Medicaid, Medicare Choice and Medicare supplement insurers, and long term care insurers (excluding nursing home fixed-indemnity policies).

In 2005, Congress enacted the 2005 Deficit Reduction Act (DRA) which eliminated $40 billion of federal funding from state administered Medicaid programs but also provided the balance of the states the option of enacting their own partnership programs. The DRA provided federal funding to states to expand community-based care; authorized the Medicaid Money Follows the Person (MFP) Rebalancing demonstration program; allowed states to add an optional Medicaid state plan benefit for HCBS; and allowed states to offer self-direction of personal care services. It also lengthened the look-back period for transfers of assets for nursing home Medicaid applications from 36 to 60 months. In addition, it allowed for qualified state long term care partnerships, which encourage individuals to purchase long term care insurance while still allowing them to qualify for Medicaid if their care needs extend beyond the period covered by their insurance policy.

The Government Takes Action
In 2023, the largest line item in most state budgets is Medicaid. Even with funding from the federal government, states struggle with this particular expense because of the ever-growing need for long term care required by its citizens. If the Baby Boomers as a cohort require the level of long term care that is anticipated and if they have not purchased private long term care insurance, this comprehensive expense will break the Medicaid bank.

Congress has made a token gesture at preventing this disaster by passing legislation that encourages the purchase of private long term care insurance, tax qualifying these plans with accompanying deductibility of premiums, as well as the advent, and eventual expansion, of the partnership programs.

Currently, the states themselves are finally taking action to prevent this tsunami from breaking their respective banks. In 2021, Washington State launched the Washington Cares Fund,3 which created a 0.58 percent tax on all W-2 employees aged 18 years and older. This prompted the public to purchase some 470,000 traditional and non-traditional long term care policies in order to opt out of this tax.4 Whereas Washington State generated only about three percent of national LTCI sales in 2020, this surge in sales ultimately accounted for 60 percent of national sales in 2021.5 To date, there are 10 other states in various stages of considering a like program for their own citizens.

Qualifying for Medicaid
Despite the WA Cares Fund and other states considering similar programs, the reality is Medicaid continues to be an essential resource for seniors who require long term care. However, in order to qualify for Medicaid assistance, an applicant must have assets and income below specific levels established by each state. Applicants in most states are limited to $2,000 in countable assets in addition to exempt assets, such as a marital home, one vehicle, and other personal effects. Applicants typically must spend down any assets that exceed these limits to meet this threshold and financially qualify for Medicaid.

Medicaid also has a standard lookback period of five years in most states. The two most notable exceptions to the five-year lookback period are California, which limits it to 30 months, and New York, which is in the process of fielding a similar provision. During this period, the applicant may be penalized based on any divestments made by them or their spouse. If Medicaid determines the lookback period has been violated, the applicant will be penalized based on the dollar amount they have transferred to others. This penalty is calculated using a state-specific penalty divisor, which is determined based on the average monthly cost of a nursing home in a specific state.

Example: Calculating the Medicaid Penalty Period
John applies for long term care Medicaid on January 2, 2023. Within the lookback period of 60 months, Jim sold his cottage to his son for $20,000, much lower than the fair market value of $120,000, and gifted his granddaughter $15,000 for college. John has disqualifying transfers in the amount of $115,000 ($100,000 for the house + $15,000 gifted). In John’s state, the penalty divisor is $8,500/month. For every $8,500 gifted or sold under fair market value, John will be penalized with a month of Medicaid ineligibility. Therefore, John will be penalized with 13.5 months of ineligibility ($115,000 ÷ $8,500 = 13.5 months), during which time John must pay privately for his care before Medicaid begins.

How the LTCI Policy Works with the Medicaid Program
State partnership-qualified long term care insurance policies essentially form a partnership, or better, a collaboration, between private insurance companies and the public government. Partnership policies exist for the expressed purpose of encouraging the purchase of these policies to help cover the costs of long term care while diminishing the burgeoning burden on the states to pay the high costs associated with long term care, which continues to be the single largest line item in each state’s Medicaid budget.

State partnership plans offer policyholders dollar-for-dollar protection and can serve as excellent estate planning and asset preservation tools. Owners of partnership qualified LTCI plans can protect some, or in some cases all, of their estates, depending on the depth and breadth of the plan and the size of the estate as well as the length and degree of required care.

In the event the policyholder exhausts their LTCI benefits and must continue with care under Medicaid, the assets that were protected by a partnership qualified LTCI policy are also safe from Medicaid’s mandated asset recovery program, further ensuring these assets remain as inheritance for family after the passing of a Medicaid recipient. This also allows Medicaid recipients to, in essence, retain assets above and beyond the limits set forth by Medicaid.

To date, nearly all states have their own version of partnership. States that do not currently have partnership are Alaska, Hawaii, Mississippi, and the District of Columbia.

The huge advantage of the asset protection afforded by a partnership qualified LTCI policy is that an individual, or couple if purchasing a shared plan, can protect additional funds, dollar-for-dollar, based on the amount of coverage paid out by the plan, and subsequently qualify for coverage. For most people, the single largest asset that they possess is the family home. With a qualified partnership LTCI policy, a Medicaid recipient can declare their home as a “protected” asset, thus protecting it from the mandated Medicaid estate recovery program. This allows the home to remain with the family as inheritance.

Example: Partnership Qualified LTCI
Scott has always been a planner, so when he met with his advisor he decided to purchase a partnership qualified LTCI policy. He faithfully paid the premiums over the years, and because of the inflation rider partnership required, the policy’s pool of benefits grew. Eventually, Scott’s family and doctor determined that Scott’s declining health and his inability to perform two of the six activities of daily living warranted filing a claim with his LTCI carrier. Ultimately, over the course of three years, he received reimbursed benefits totaling $300,000 before the policy pool was exhausted. Still very much alive and in need of care, Scott’s family assisted him in applying for Medicaid. At the time of application, Scott’s house was valued at $225,000, and he had modest cash on hand in a checking account of about $85,000. Because of his partnership qualified LTCI policy, Scott was eligible to retain $300,000 (his home and cash assets) in addition to his standard allowance of $2,000 while still qualifying for Medicaid.

Requirements for a Policy to Be Eligible for a State Partnership Program
A long term care partnership policy provides the added benefits of offering those who own them a way to protect their assets, dollar-for-dollar, in the amount of policy benefits paid out on their behalf in the event they ever need to apply for long term care benefits under a particular state’s Medicaid program. Additionally, a long term care partnership policy has beneficial tax treatment and requires inflation protection features that protect younger purchasers from increases in expenses caused by inflation.

For most people, the benefits of a partnership policy are likely to cover all the care they will ever need. However, because of the unique asset protection feature, they won’t have to impoverish themselves if they run out of benefit coverage and still need care. The individual plans must conform with federal guidelines in terms of tax qualification, benefit triggers, and other defined conditions. Partnership plans are portable and can be utilized in any state, provided both states have partnership programs and mutual reciprocity agreements.

Partnership plans accentuate the very reasons people have purchased this form of insurance for nearly fifty years since they prevent them from becoming burdens on their family. Additionally, long term care insurance assists in maintaining their independence, prevents the dissipation of assets, and preserves their personal dignity. It also prevents them from becoming dependent upon the government for welfare assisted services.

The Table To The Right Shows States That Have Approved Long Term Care Partnership Insurance.6

Alternative Policy Design Options Your Clients May Want to Consider
Traditional long term care insurance saw its high-water mark in 2002 with over $1.024 billion in policy sales.9 Since that year, sales for the traditional product offerings have dropped (with only an occasional bump in sales that reversed this trend) with more and more consumers and producers flocking to hybrid/combination/asset-based products that usually consist of life insurance with a long term care rider or an annuity with a long term care rider.

These policies have great appeal to people who fear they will not use the policy and essentially waste these premium dollars. For them, the “Live Die Quit” mantra may be presented because if they do live and require long term care, the policy will have available benefits; if they do not use the long term care aspect of the policy, they will eventually die and their beneficiaries can avail themselves of the death benefit; or, if they change their mind down the road, they can recover their invested principal.

Conclusion
With the advent of new pharmaceuticals, advancements in the practice of medicine, and changes to lifestyle and eating habits, as a society we are lingering longer. When Theodore Roosevelt was President of the United States at the beginning of the twentieth century, life expectancy was only 47 years of age. Today, it is more than 81. While the U.S. is faring better than many other countries, our demographics reveal a population that is aging in place with diminished available savings and a growing need for long term care.

As more Americans require long term care, Medicaid continues to be the largest payer of these costs. Therefore, the elderly will only continue to apply for benefits in order to meet long term care needs at the end of their lives. Long term care insurance, particularly those plans that are partnership-qualified, will make a huge difference in the lives of individuals, their families, and on society as a whole.

Because of the growing need for long-term care insurance, the wide array of available products makes it a must-have for all portfolios. State partnership has proven to be a wonderful addition to the formula, as people can safeguard assets, establish and protect financial legacies, and still enjoy the much-needed care they will likely need at the end of their life.

Private long term care insurance is an economical way for individuals and couples to protect their savings and provide themselves with a variety of options regarding their long term care. It allows them to pay for these services without exhausting their retirement assets or family savings. It also affords them choice as to where they wish to receive these services. A partnership-qualified plan further allows them to safeguard, on a dollar-for-dollar basis, a portion of their estate equal to the amount of money disbursed by the issuing carrier on a reimbursement basis.

Reference:

  1. A Precarious Existence: How Today’s Retirees Are Financially Faring in Retirement, TransAmerica Center for Retirement Studies, December 2018, https://www.transamericacenter.org/docs/default-source/retirees-survey/tcrs2018_sr_retirees_survey_financially_faring.pdf.
  2. Projections of Risk of Needing Long-Term Services and Supports at Ages 65 and Older, U.S. Department of Health and Human Services, January 2021, https://aspe.hhs.gov/sites/default/files/private/pdf/265136/LTSSRisk.pdf.
  3. WA Cares Fund, 2021, https://wacaresfund.wa.gov/about-the-wa-cares-fund/.
  4. Washington State Retools First-in-the-Nation Long-Term Care Benefit, Kaiser Health News, April 2022, https://khn.org/news/article/washington-state-retools-first-in-the-nation-long-term-care-benefit/.
  5. 2022 Milliman Long Term Care Insurance Survey, Broker World Magazine, July 2022, https://brokerworldmag.com/2022-milliman-long-term-care-insurance-survey/.
  6. American Association for Long-Term Care Insurance, March 2014, https://www.aaltci.org/long-term-care-insurance/learning-center/long-term-care-insurance-partnership-plans.php.
  7. The Effective Date is the date the U.S. Department of Health & Human Services approved the state plan amendment. Original Partnership indicates one of the four original partnership states.
  8. Policy Reciprocity indicates whether the state will honor partnership policies from other DRA partnership states when it comes to allowing asset disregard when filing for Medicaid. All DRA states plus New York, Indiana, and Connecticut have reciprocity. California does not.
  9. LTC Insurance and Medicare Supplement Executive Summary, Annual 2002, LIMRA International.

The False Positive Drug Test

It’s a nightmare ending to a slam-dunk case: Everything looks solid heading into routine blood and urine requirements and a positive drug test sends the case into question or, even worse, into decline. The applicant is surprised, disappointed, perhaps even angry that he or she would test positive when they are not taking what is being suspected. And a company may be adamant about not allowing a repeat or maintaining an original decline. How can such problems be anticipated and properly explained before they even reach the problem stage?

Insurance labs are excellent and make very few errors in testing. The quandary usually becomes what is the insured taking that may have caused a false screening into a more serious drug or compound of abuse or danger? Unlike the who-dun-its on late night television, no one is slipping you a “mickey” (chloral hydrate in the days it was used as a sleep aid) or foreign substance to sabotage the test. It is much more likely another medication or substance used for a benign indication is causing the problem. What can be done to prevent this?

The number 1, 2 and 3 answer: Be sure the applicant admits to everything they are taking up front when they are asked for their list of medications. Simple prescribed or over the counter medications can occasionally test positive for drugs that raise red flags. Which drugs? Ones like THC (cannabis), opioids (both prescription and illegal), PCP, cocaine, amphetamines, benzodiazepines and barbiturates. Medications like LSD and ecstasy can also be detected in urine drug samples, even when those aren’t the ones being suspected or looked for.

Let’s go over a few that are common offenders. Certain decongestants that are commonly used (like Sudafed) may come up as a positive test result for amphetamine. Diphenhydramine (or commonly used Benadryl) can turn a test positive for PCP. Some over the counter anti-inflammatory medications (even like Aleve, Naprosyn or Advil) can rarely test positive as a barbiturate. This doesn’t happen often or half our laboratory tests would be positive. But sometimes people’s individual metabolism may fool an assay into being reported as a positive substance.

Prescribed medications for legitimate use may cause trouble even when they might not have been any cause for alarm in underwriting an application. Phentermine is a weight loss medication (one of the phens in phen-fen), but may cause a positive urine test for amphetamine. Antidepressants are not uncommon sources of positive tests for other substances. Venlafaxine (Effexor) and the newer compound desvenlafaxine (Pristiq) may result in a positive PCP test. Sertraline (the commonly prescribed Zoloft) may turn up a positive benzodiazepine test. Trazodone, sometimes given as a sleeping aid, may result in a positive amphetamine test. So may bupropion (used in smoking cessation or as a mild antidepressant) that likewise may show up as amphetamine positive.

The list is pretty extensive. A couple more to note: Proton pump inhibitors, most commonly Protonix, used to treat GERD, may test as THC positive. Quinolone antibiotics may test as opiate positive. Promethazine, often given for nausea and vomiting, may test as amphetamine positive. And finally Tramadol, a commonly prescribed pain medication given when a doctor doesn’t want to prescribe codeine, may result as a positive test for methadone.

When a positive drug test comes up out of the blue, the underwriter will immediately question its veracity or look to see if a medication is being taken or prescribed that could possibly have caused a false positive. When admitted upfront, it isn’t a problem at all. When the test comes up positive and there is no available explanation, an underwriter will more likely assume the worst and give the applicant the more difficult task of explaining it away. This also goes for legitimately prescribed drugs that aren’t admitted on application. If there is a reason codeine or amphetamine or any drug being taken for a medical reason will show up as a positive test, admission upfront almost always has no consequences. Non-admission, and the post decline “Oh yeah, I was taking “XYZ” (for whatever cause) will raise questions of honesty on all parts of the application.

There are also unusual circumstances that no one expects but are discovered with some good old-fashioned detective work. An older couple in their late 60s both tested positive for cocaine in their urine. They were aghast at the result and we were just as surprised. A second test (“of course it must be a lab mistake”) came up with the same finding. We asked the couple to be sure their daily routine was as they represented to us. Weeks later, we received a call that the couple was always prepared a calming tea by their maid before bedtime. Their maid was a trusted part of their household ever since emigrating from Columbia 20 years before. The tea was Coca tea—made with Coca leaves. Having heard similar stories, I dared them to send me the tea bag. It came Express mail the next day. The amount of coca leaf was miniscule, but enough to turn the test positive. In my 30+ years of underwriting, unbelievably this has happened three times. Each time, to paraphrase Jerry Maguire, I said “Show me the teabag.” And each time, it arrived promptly and resulted in a policy issued as applied for after a good laugh.

Building Memorable Marketing Events

In our previous article we talked about the importance that marketing events can play in the creation of selling opportunities. Notice that we refer to selling opportunities and not to “appointments” or “leads.” Selling opportunities are so much better than leads or simply appointments. Our experience is that you will close virtually one hundred percent of those who are health qualified with a significantly higher placement rate as well. It all starts with the relationship that you start to build when they attend your marketing event.

It is important to remember that these marketing events are really client appreciation and client development events and not merely public events. In the past week alone, my wife and I combined received five invitations to public events from financial planners or law firms interested in soliciting us as their clients. While the restaurants are tempting, we have no desire to attend these events. However, there are a great number of people who will attend these events. Some of them attend every event they are invited to, and for that reason we have good-naturedly dubbed them professional “plate lickers.” We do not want to engage with these people because with their attendance they literally and figuratively consume valuable marketing dollars and your time with no intention of ever utilizing your services.

Hindsight being 20/20, it is easy to look back on what did and did not make our marketing events both memorable and profitable. After years of conducting these events, debriefing them afterwards, and compiling a list of lessons learned, here are a few of the key learnings that we have filed away.

Key points regarding client events:

  • Think outside the box—in terms of the audience you wish to draw, the variety of topics you may wish to offer—keep it fresh for your clients and yourself by varying the venue. We had one client who attended no less than seven of our events in one calendar year, dutifully bringing a different couple to each event, resulting in over $35,000 in premium (2011 dollars). In terms of topics, for whatever reason, any time we invited someone from the Social Security Administration as a guest speaker, we packed the hall. As people are nearing retirement age, they want this interaction with someone who can answer their questions.
  • Invite both your clients (to show genuine appreciation) and to expose them to your strategic partner’s practice, and their friends (for potential growth) and of course your strategic partner’s clients and their friends for the same reasons. The gentleman I referenced in the previous paragraph would “talk people up” about the benefits of buying a long term care policy while they are young and healthy during the dinner portion of the event. He more than earned every meal he consumed!
  • You want to conduct events that have an extended “shelf life.” While dinner events at popular restaurants will never go out of style, creating an experience for the client will pay dividends well into the future. One such event that I had to be convinced was worth the investment of our time and money was an event where all participants would be invited to learn the art of sushi making. For months after the event I would receive texts, emails, or phone calls from those who had been in attendance, telling me how much they enjoyed the opportunity to acquire the skill, how much fun they have had sharing their newfound expertise with friends and family, and how “Every time I eat sushi, I think of you guys!” Can an event have any more desired outcome? Other memorable events that we put on included sponsoring a chef’s private table, golf lessons from a professional, and of course catered events on a 42-foot Chris-Craft as we cruised Lake Michigan and/or the Chicago river, affording guests the opportunity to view the Chicago skyline. One of the more outside the box events we sponsored was an after-hours event at a jewelry store, where attendees could receive free appraisals and cleaning of their jewelry, and enjoy a chocolate fountain. To this day I marvel at the business that this event produced for us. Fishing trips, special sporting events, and anything you think would be entertaining become memorable events if you take the time to plan it right.
  • In a nutshell, make the events fun and memorable so that when people encounter something in their regular life, such as eating sushi, they think of the time that their advisor team created an environment in which they learned how to make it. They will share these experiences with their family and friends, and referrals will follow. I did receive a phone call from the friend of a client who called me solely to be “put on the list” for one of our next “fun” events. They later became clients as well.

Key considerations of client events:

  • They are a lot of work!
  • Consistency and regularity are absolute musts.
  • Use a calendar and plan your events out for the next 180 days. Reserve desired venues. Nothing is more frustrating than to have a great idea and to be frozen out of a desired venue.
  • If you are conducting an event with a strategic partner, be prepared to manage the relationship. Odds are you will have to be the professional planner in the relationship.
  • Establish and follow a process and timeline that you can reduce to a checklist.
  • Ask your agency to help promote and support the events either financially or with personnel support. If you have five tables of eight that is forty people and probably 20-25 households when you account for couples and singles in attendance. You want a host at each table, and you want people to talk to them as they mill around at the end of the event and you are encouraging them to sign up for appointments later that week.
  • To this end, I liked to do events on Monday and Tuesday evenings, so that we could encourage them to sign up for appointments over the remainder of the week. Their interest in seeing you is never going to be higher than at the conclusion of the event. You have planted the seeds, so we want to see them as soon as possible and to get them to the end of the buying cycle as soon as possible.

For agency managers and marketing leaders:

  • Plan events that will facilitate the launch of new agents utilizing their Project 100 lists.
  • Get involved with your local Chamber of Commerce and host events for fellow chamber members.
  • Encourage agents to partner with other agents in your firm, particularly if they have complementary skills to one another.
  • Leverage the success of these events to promote more events.
  • Get potential new agents to buy in to these events during the recruiting process.
  • Use existing resources as much as possible.
  • For those agency leaders who struggle with getting their producers to adopt this time-tested business practice, remember that as leaders you must “Know it, Model It, and Be Involved.”
  • First line supervisors must be able to “apply it and monitor it,” and the best way to do this is to be modeling the way with your own events.
  • As always, a best practice includes tracking activity and success, debriefing events, and looking for ways to improve the process.

Additional networking opportunities through the strategic alliance partner

  • Who do they know?
  • Have them make personal introductions to their own Centers of Influence that can help you mutually expand your long term care sphere of influence.
  • Health Benefits Brokers—the new wave. We have found that this is especially important when dealing in the business-to-business (B2B) arena, where even after you have convinced the decision maker of the business that long term care makes sense for the company and the individual employee, he will often default to “Let me check with my benefits person.” Rather than being frozen out, it is so much easier if the benefits broker is the one making the introduction and opening the door for you. We enjoyed great success by partnering with a health benefits broker and sponsoring these types of events.

Concluding thoughts on formal and informal marketing events:

  • Marketing must become part of your lifestyle and DNA, and not remain just a series of separate events in which you occasionally participate.
  • Just do it!
  • Face and conquer your fears.
  • Talk to everybody about what you do! Have fun!
  • Have an elevator speech that flows off your tongue and that prompts questions from those with whom you are speaking.
  • “I help people protect their financial futures…” How?
  • “I am a long term care planning specialist.” What is that?
  • “I educate people on their options for safeguarding themselves and their families against the ravages of long term care and of outliving their money.” How do you do that? Can you help me do that?
  • “I can protect your future.” Oh really. How can you do that?
  • “I help people plan for the events in life that they do not wish to talk about.”

To quote the Godfather II, “This is the business we have chosen.” Where you are right now is the business you chose for yourself. The key is to be both happy and successful in all your endeavors. In this day and age, marketing is the key to success.

Marketing does not need to be intimidating or expensive. These marketing events are fun to conduct, and it is a genuine rush when you walk out of these events with a paper calendar that contains selling opportunities in the guise of appointments that people have signed themselves up for over the next few days. Remember that in service industries such as ours, people have a choice as to whom they will work with and refer their friends and family to. For this reason, marketing is not an event, but rather a lifestyle. Embrace it, and you will enjoy tremendous success.

Customized Bonus Planning

Using IRS Code Section 162 To Attract, Reward And Retain The Very Best Employees

Customized bonus planning (CBP) and leveraging the use of IRS Code Section 162 is what employers can use to help them to attract, reward and retain their best key employees. Finding employees in general is one thing, finding the best for your industry can be more difficult and competition can be challenging when you want the best talent and loyalty. Benefit packages and perks do matter and top employees who bring something to the table do factor this in.

In addition to providing incentives to reward the best people in their field, successful employers who are doing exceptionally well financially, are also often looking for more tax deductions. CBP can be a great help for this as well. Some employers want to stand out from the competition by doing something extra, exceptional, different. In addition to the benefits themselves, the employer providing a top insurance and financial advisor for concierge style, one-on-one financial planning sessions at no expense to the employee can be a huge differentiator!

What about conventional benefits like 401(k)s, simple IRAs, SEP IRAs, or medical, dental and short or long term disability insurance? While these valuable plans do provide extra benefits to the employees and are certainly tax deductible to the business as a valid business expense, these plans don’t really allow much flexibility in picking and choosing who you want to reward because of rules about having to include everyone. This can be frustrating especially when employers really want to reward based on merit and self-initiative and loyalty; some frankly deserve the extras—others do not. In addition, the IRS puts limits on how much you can contribute into retirement plans, especially for business owners if they are highly compensated and considered “top heavy.”

So what is CBP and how does it actually work? Customized bonus planning is essentially leveraging IRS Code Section 162 which is considered “non-qualified” planning. Unlike “tax-qualified” plans like 401(k)s, simple and SEP IRAs, which “qualify” for certain tax advantages like pre-tax contributions, CBPs are considered “non-qualified,” plans which allow the employer much greater flexibility and latitude in what they want to do—and who they want to do it for. They can selectively arbitrarily pick and choose who they want to provide benefits and bonuses to, including only themselves if they wish or just their top people—or everyone. Maybe they have certain valuable employees with an extra good work ethic that have truly proven that deserve it. On the other hand, everyone knows about those employees who are only willing to do the absolute minimum. They do enough to stay and not get fired, but they don’t go the extra mile either.

Benefits-wise, the world is your oyster and there is great flexibility in what you can offer in the way of benefits, dollar amounts and to whom and under what conditions or circumstances. Insurance and financial advisors can sit down with employers ahead of time, plotting out what they want to do and accomplish and for whom and to what extent budget-wise. They can go over a list of employees the employer feels are eligible and determine how much per month or year they wish to allocate to each specific employee. Employers can also set up special by-invitation-only Zoom call webinars introducing eligible employees to their new financial advisor that the employer has selected to work with and get a little general financial education 101, covering basic concepts like disability income protection, life insurance and retirement planning. We do this at Radwick Financial Group, and then also provide a convenient online calendar scheduling tool, right on our website, where each eligible employee can book a time that works for them and their spouse to visit with an advisor in a more personalized one-on-one basis.

Everyone is different with unique financial challenges and needs. Maybe one person is single with no dependents to worry about. For them, maybe they are only concerned about protecting their income with first class disability insurance, regardless of what social security or worker’s compensation does or doesn’t pay. For another person with dependents, maybe their concern is having enough life insurance. And yet for another, they are most concerned about really maxing out every dollar they can into planning for retirement. Maybe some people have a combination of needs. For example, let’s say an employer really wants to reward a top employee with a tax-deductible $15,000 “insurance and financial planning bonus.” During their one-on-one Zoom call with the advisor, they decide to apply $6,000 per year into their Roth IRA, another $6,000 into the cash value life insurance policy of their choice, such as indexed universal life, and use the remaining $3,000 to protect their income with quality long term disability insurance with all the bells and whistles such as return-of-premium (ROP), where they can get a 100 percent tax-free refund of all their premiums back at retirement age if they never actually had any claims. Total coverage if they need it—all their money back if they don’t. And yet others really don’t know what they need and could benefit from an experienced advisor sitting down with them to provide wisdom and guidance. Who wouldn’t want to work with an employer who truly values them, not only providing them awesome customized benefits, way more than the cookie-cutter plans of competitors, but also one-on-one planning sessions with an advisor, all free of charge?

It’s a real win/win. The employer gets to pick and choose who gets a bonus and to what extent and has a whole new way to get tax-deductions for their business. The employee feels a strong sense of belonging, and value to the employer and the business, strengthening their loyalty. The employer is by no means “pushed” into this decision by virtue of some union negotiation or matching contributions rule; they are doing it because they want to do it for those who deserve it.

Tax-wise, the employer’s business receives a tax deduction for whatever they spend on the valued employee. The employee receives the “bonus” as pure money, ordinary earned income and pays the income tax on having received the bonus as reflected in their W2 (or 1099 if a contracted employee). The actual benefits received such as life insurance pay out a tax-free death benefit to the employee’s beneficiaries and the cash values can also be accessed tax-free during retirement (similar to a Roth IRA) or along the way for opportunities or emergencies—even before the age of 59 ½, but without the 10 percent early withdrawal IRS penalty associated with a 401(k)or IRAs. Similarly, disability insurance benefits are also received income-tax free. For the employer to bonus “themselves,” and also write off the premium payment as a tax-deduction, the business needs to be a truly separate entity, such as a C-Corp versus an S-Corp, LLC or sole proprietor which has pass-through income. The C-Corp gets the full tax deduction for providing the bonus, and the executive/business owner receives the bonus as taxable income and pays the income tax on the bonus received.

Rather than paying out the bonused monies directly to the employee, billing is set up directly between the life or disability insurance or annuity or investment company, typically on a list bill basis. This ensures that the bonus is actually used for something responsible, rather than just pure cash which can go into buying a new jet ski or some other toy. It also ensures that premiums are getting paid on time, alleviating the employee from this responsibility and keeping insurance policies from lapsing.

As an option, if the employer decides to do so, they can apply “Golden Handcuffs” by working out sales or production requirements or benchmarks that must be met or lengths of tenure. For example, with some cash value life insurance policies, a “Restrictive Endorsement Bonus Arrangement,” or “REBA” for short, can be used to set up a vesting schedule to ensure loyalty. For instance, maybe the life insurance policy’s death benefit can be unhindered on day one, protecting the employee’s family, however accessing the policy’s cash value would be off-limits until the employee has been with the employer for “X” amount of time, i.e., 10 years or more. It’s all up to the employer and what they want to do and accomplish.

In summary, Customized Bonus Planning can be a fantastic tax-deductible way for an employer to truly attract, reward and retain their very best employees with a personalized financial advisor planning experience and generous customized benefits versus the competition offering nothing at all or only cookie-cutter plans such as 401(k)s.

Life Settlement—Five Tiers Of Fiduciary Best Practices

Administration of a family trust for ultra-wealthy clients is a complex undertaking. As such, the proper management of the trust requires the highest level of fiduciary competence.

While the trustee is legally responsible for overseeing the trust’s assets—including the performance of trust-owned life insurance policies—achieving the grantor’s objectives typically requires consultation with a team of professionals from a variety of financial disciplines.

This article details a life settlement case study that demonstrates how a trustee and a team of four other interdisciplinary professionals achieved a “quinfecta” of fiduciary best practices associated with selling an unwanted TOLI policy for the highest possible value.

Each member of the client’s advisory team—comprised of the trustee, CFP advisor, CPA, insurance specialist, and the life settlement broker—exercised his/her respective fiduciary obligation in a manner that resulted in an extraordinarily successful outcome for the grantor, the trustee, and the beneficiaries of the trust.

This case study provides an excellent instructional tool for financial professionals, estate planners, broker-dealers and other fiduciary professionals who want to raise their competency level regarding the life settlement market.

Trustee: Top of Fiduciary Food Chain
The trustee has the ultimate fiduciary oversight for managing the trust’s assets. Due to the complexity of the expertise required to fulfill his duties, the trustee typically consults with other professionals in the family’s circle of advisors and may outsource certain services. His goal is to assemble a team of multidisciplinary practitioners who utilize fiduciary best practices and who are committed to the highest standards of professional conduct. For them, serving the client’s best interests is not only the cardinal rule, but also good for business.

When the trustee’s duties involve decisions regarding trust-owned life insurance policies that are no longer needed or have become too costly to maintain, the trustee often engages the expertise of a highly competent and credentialed insurance professional. The insurance expert’s role is to identify solutions that are aligned with the grantor’s current wishes. In some instances, the options may involve recommending the sale of unwanted life insurance coverage in the secondary market for life insurance.

TOLI Policy: Exit Strategy Needed
This case involved a 91 year old male who had purchased two permanent life insurance policies (valued at $3 million and $2 million) more than 20 years ago. The purpose for the trust-owned policies was twofold: To reduce the size of the taxable estate, and to create sufficient liquidity for beneficiaries to pay estate taxes and estate administration expenses upon the grantor’s death.

Recently, the grantor decided he no longer wished to maintain the annual premiums totaling $217,381. The costly premiums were eroding the cash assets in the trust and the adult beneficiaries wanted to repurpose the money being spent on premiums to purchase new investments held in the trust.

Insurance Specialist: Fiduciary-Focused and Top in His Field
A critical step toward employing a series of fiduciary best practices began when the trustee and financial advisors (credentialed fiduciaries) agreed to work with an experienced life insurance specialist to conduct a thorough performance review of both policies.

The life insurance expert chosen for the undertaking specialized in comprehensive estate and life insurance planning solutions for high net worth and ultra-high net worth clients. This individual and his associates (combined) had earned the highest credentials in the life insurance field—Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Exit Planning Advisor (CEPA) and Certified Financial Planner (CFP). Maintaining such credentials requires the practitioner to demonstrate they are operating with the highest level of fiduciary commitment to the client.

The trustee (as per his duty), carefully documented the process while the insurance specialist undertook policy reviews for the two policies.

The outcome of the process revealed several unique challenges:

  • Both policies would terminate prior to the insured’s average life expectancy. However, continuing to maintain both policies to maturity would require substantial increases in the premiums. Such a course of action would further erode the cash assets in the trust and would not be an acceptable solution.
  • Another challenge that had to be overcome involved a split dollar arrangement for the $3 million policy wherein a $500,000 loan to the trust from the grantor’s LLC was used to fund the premiums for that policy. Therefore, irrespective of the course of action chosen by the advisory team, the policy loan would have to be repaid at some point, thereby further draining the trust’s cash assets.

After presenting all possible scenarios, the insurance expert noted that achieving the goals of the grantor and his beneficiaries could be accomplished by selling the $3 million policy and using a portion of the proceeds from the life settlement to pay off the $500,000 loan on the same policy.

Depending on the amount of the payout from the life settlement on the $3 million policy, their hope was that the proceeds from the sale of the policy would also provide a substantial amount of liquidity for purchasing new investments owned by the trust, per the goals of the adult beneficiaries.

During the course of their discussions, the trustee, financial advisors, insurance specialist and the CPA noted that the most successful outcome would hinge on selling the policy for the highest possible amount in the secondary market. They agreed it was essential to partner with an experienced life settlement broker who was highly skilled in negotiating with institutional investors in the secondary market, and who also was bound by a fiduciary duty to represent the policy seller’s best interests.

Life Settlement Broker’s Fiduciary Duty
Once a trustee decides to outsource the sale of an unwanted policy to an experienced life settlement professional (i.e. a life settlement broker or a life settlement provider), he does not check his fiduciary duties at the door.

Fulfilling the trustee’s duties requires proper vetting and choosing an experienced life settlement broker who is bound by a fiduciary duty to the policy sell. This means the life settlement specialist must be highly skilled at negotiating with multiple buyers in the secondary market to generate the highest possible payout for the seller’s policy.

As a licensed broker the life settlement company holds a fiduciary duty to represent the policy seller’s best interests in the secondary market, (F.S. Sec. 626.9911). In effect, it is the broker’s fiduciary duty per state law to engage in negotiations with multiple buyers until the highest possible settlement is reached for the seller’s policy.

After obtaining all pertinent documents and completing the underwriting process, the settlement team submitted the case to more than 25 institutional money sources and launched into the competitive bidding process. Competition to purchase the policy was rigorous. By the end of the auction process, a total of 15 offers had been submitted from multiple funding sources. The lowest offer submitted was $1,250,000, and once the bidding process had run its course, the highest bid came in at $1,515,000.

During every step of the competitive bidding process, the life settlement company communicated with the team’s insurance specialist and provided frequent updates and documentation regarding the bids received. Complete transparency is essential for a broker, including disclosing to the seller the amount of their commission on the sale.

It’s noteworthy to point out that had the trustee and the client’s team of advisors opted to accept the cash surrender value (CSV) for the $3 million policy instead of selling the policy, they would have received only $150,000—one-tenth of the highest life settlement offer.

Five Levels of Fiduciary Best Practices
As the life settlement transaction approached the final stage, the insurance specialist presented the results of the competitive bidding process to the trustee and other members of the advisory team.

During their discussions, the CFP advisor noted that the $1,515,000 proceeds from selling the $3 million policy would enable the trustee to achieve several objectives. First, it would minimize or eliminate the drain on the trust’s cash assets that were being used to make the annual premium payments. Secondly, after repaying the $500,000 loan and terminating the split dollar arrangement, the remaining $1 million from the settlement could be invested. The growth from the new investments would help support the required premiums for the $2 million dollar policy to remain in place.

The entire team (i.e. trustee, insurance specialist, CFP advisor and CPA), unanimously agreed to accept the offer for $1,515,000 and directed the life settlement company to finalize the transaction. In their view, selling the policy was clearly the most financially prudent course of action to achieve the goals of the trust and the beneficiaries.

In short, the combination of the $1.5 million settlement to repay the outstanding $500,000 loan to the grantor and keep the $l million in the trust going forward resulted in a win-win-win, (i.e. a win for the grantor, a win for the trustee, and a win for the trust beneficiaries).

Take Away
Given the complex planning needs of affluent clients, life settlements have emerged as a powerful wealth preservation tool for financial advisors, CPAs, estate planners, and family trustees who have a fiduciary obligation to the client when pursuing the most prudent exit strategy for an unwanted TOLI policy.

As noted above, this life settlement success story is a compelling instructional tool for estate planners and other fiduciary professionals who want to raise their competency level regarding the life settlement market. Specifically, this success story showcases the following best practices:

  • Illustrates and underscores the high degree of professional expertise and the fiduciary commitment required involving the prudent disposition of unwanted trust-own life insurance.
  • Demonstrates the necessity for a trustee to partner with other fiduciary-minded professionals to achieve the most favorable outcome when selling a trust-owned policy.
  • Cautions trustees that their fiduciary duty extends to the choice they make in partnering with an experienced life settlement broker to represent the policy seller’s best interests.
  • Reminds professional advisors that accepting a single offer from only one life settlement provider (funder) may run contrary to their fiduciary duty. Unlike brokers, life settlement providers are not required by law to represent the seller’s best interests, nor are they required to disclose their compensation. On the contrary, the provider has a duty to their funding sources to acquire policies at the deepest discount possible.
  • Highlights the fact that when a fiduciary professional is presented with the option to: (a) allow the client’s unwanted policy to lapse; (b) accept a low cash surrender offer; or (c) partner with an experienced life settlement broker to sell the policy for a payout that is multiple times the CSV—the fiduciary’s choice becomes quite clear.

In short, a strong commitment to fiduciary duty and serving the best interests of your high net worth clients is always job one. And it’s also good for business.

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