Statistical Conundrums

My required statistics classes were the nightmare of my academic journey. Means, modes and medians gave me numerous sleepless nights. I was never really comfortable with the fact that “on average” would never again ring automatically true in my mind. Frankly graduate school was an endless parade of research findings analysis. I learned early to briefly scan these exercises of self fulfilling prophecies. First layout what you will try to prove by conducting a hopefully unbiased statistical analysis and magically the conclusions invariably support the initial question. This is now where the real problem begins, I was never interested in a sterile mathematical body count. I wanted to know what the meaning of that end fact is, the one held up proudly to the light of truth and introspection.

I recently came across some excellent consumer research from the Milken Institute Center for the Future of Aging and Innovative Finance. The statistics presented were big, bold and moderately helpful in understanding why long term care is bigger than a bread box and, considering the trajectory of current marketing efforts, perhaps not smaller than an elephant. Which leaves me, however, as confused as ever as to what they may mean, to whom, and under what circumstances.

Fifty-two—the percentage of adults 65 and older who will require a high degree of long term care. We have all quoted the “70 percent will need some level of care” statistic. I’m not sure we have adequately condensed understanding the risk to the flip of a coin. Betting red or black at a casino roulette wheel does concern the house that they will lose money. So serious long term care risk becomes defined as heads you win if you have an abrupt mortality event and tails you lose and your precious retirement savings are decimated.

Two times—twice your annual income will be required for one year of nursing home care. And I might add nursing home costs are inflating at over five percent per year. Not so sure wages will keep pace. What strikes me is even this is too big a number to honestly understand or provide an adequate step in a buying decision tree. Average savings in an American’s 401k is basically half that average six figure income. Americans understand they are unprepared for retirement; the fact that they have no insurance on a non-existent retirement account is a moot point after all.

Twelve—the number of LTCI carriers today after a high of more than 100 about 20 years ago. This has been flogged enough. We innocently underpriced. We tragically underestimated that, once sold, the sale stuck hard. Investments underperformed and the industry’s built in protection mechanisms required insurers to strengthen reserves. At this point the exodus was unstoppable. Claims rose, interest rates fell, the perfect storm descended; perhaps we were just another victim of global warming. Underwriting in my humble opinion remains the most onerous in insurance history. Rate increases became the hot stove where agents and consumers were required to burn fingers and in many instances jeopardize long standing relationships. Remember this was always supposed to be a happy medium sale. The market was created for the middle class—those with the most at risk. The last 20 years have left the companies with few options. Price new sales adequately, remove non insurance benefits and try to stabilize past blocks of premium with additional income. The rise of combo sales is commendable. However a very small number of options are complete with a health 7702B rider relying perhaps too heavily on chronic illness riders which may provide some marketing cover but may also impede an aggressive claims administration. Now let’s try to make sense of who pays:

  • Fifty-two percent—Individuals and Family
  • Thirty-four percent—Medicaid
  • Three percent—Private Insurance

The statement that Medicare does not pay for care is no longer completely true. Some home care service expense is picked up by Medicare and a growing number of Medicare Advantage plans have some limited managed care benefits. Alright no matter how your brain processes those numbers the truth should be shouting at you. Since the advent of modern TQ comprehensive LTCI our sales success has not been sufficient. Even pulling out the social safety net leaves you with the fact that the majority of Americans are clearly exposed to a financial and emotional conflagration. The Goldilocks principle must guide our efforts. Self insurance and government dependence delineate the opposing goalposts with a massive open and virtually empty football field of sales opportunity in between. We have constantly drifted from our original intentions of maintaining the quality of claim control for the middle class. The very cohort outlined so vividly and statistically spot on above. Regardless of how you or your client arrive at your own happy middle ground, on average the problem is real and the solution is painfully obvious.

Other than that I have no opinion on the subject.

Ronald R. Hagelman, CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products.

A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing “friend” of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman and his partner Barry J. Fisher are principles of Ice Floe Consulting, providing consulting services for Chronic Illness/LTC product development and brokerage distribution strategies.

Hagelman can be reached at Ice Floe Consulting, 156 N. Solms Rd., New Braunfels, TX 78132 Telephone: 830-620-4066. Email: