LTC Bullet: TQ/NTQ, Touche
Wednesday August 11, 1999
The Center for Long-Term Care Financing does not take a public position on the highly polarizing tax-qualified vs. non-tax-qualified issue--except to urge policy makers to resolve it once and for all as quickly as possible. We know from the barrage of inquiries we receive, however, that the TQ/NTQ question is a major concern to many readers of "LTC Bullets." Therefore, we thought it would contribute positively to the debate to pass on the following letters to the editor of National Underwriter by Sam Kaplan (published in the July 26, 1999 issue) and by Bill Comfort (published in the August 9, 1999 issue.) While we do not want to belabor the issue, we will consider publishing a thoughtful comment on either or both of these letters if anyone believes that more needs to be said to achieve a balanced presentation of the subject.
First, Sam Kaplan's letter:
While I applaud your enthusiastic support of long-term care tax deductions, I believe you should have one serious reservation concerning the Johnson-Thurman Bill. This legislation specifies tax relief only for a "qualified long-term care policy," not all long-term care policies. Today, 75 percent to 80 percent of all LTC policies sold are Non-Tax-Qualified (NTQ) because NTQ policies offer broader and more accessible benefits. "Qualified" LTC policies have a number of onerous requirements that can actually prevent policyholders from ever accessing the benefits they paid for.
For example, the Tax-Qualified (TQ) requirement for a 90-day letter of certification is a real barrier to the payment of any claim for confinement or home care that lasts less than 90 days in duration. According to "Health Care Financing News," Summer 1993, 77 percent of all nursing home cases and 83 percent of Medicare home health care cases last for less than 90 days. This requirement places the financial burden for LTC services of shorter duration on those who can ill afford to pay for them.
In addition, TQ policies have strict benefit trigger requirements: A policyholder must be chronically ill with (1) severe cognitive impairment; or (2) be unable to perform 2 or more ADLs for at least 90 days without substantial assistance of another person, as certified by a health care professional.
If TQ plans existed in 1995, 86 percent of Medicare's patients age 65 and older would have received no benefits from their plans because their recovery care lasted less than 90 days (e.g., 94 percent of 1,242,664 Medicare patients in skilled nursing facilities, plus 83 percent of 3,182,000 Medicare home health care patients ages 65 and over).
You are "embracing unreservedly" the Johnson-Thurman bill, which will, despite good intentions, actually perpetuate another "fraud on consumers." You should support broadening the bill to cover all LTC policies.
Samuel X. Kaplan
Next, Bill Comfort's response to the Kaplan letter:
From: Bill Comfort, Jr.
RE: "LTC Bill Needs Broadening," letter from Samuel X. Kaplan, July 26, 1999.
While I respect Mr. Kaplan's position as an LTC innovator and his years of experience in the LTC marketplace, I would like to respond to several points in his letter that are insidious misconceptions in the Long-Term Care Insurance (LTCI) industry.
First, as insurance professionals we must remember that we are selling an insurance product for a LONG-TERM need. This is long-term care, not short-term care insurance. Just as we sell long-term disability and short-term disability plans to meet different needs, so too, I think we need to keep in mind the different short-term care and long-term care needs of our clients.
LTCI should not be sold to cover short-term needs. This is a misuse of the purpose of LTCI that is often used to justify the sale of Non-Tax-Qualified (NTQ) LTC contracts for their "broader and more accessible benefits." Mr. Kaplan's condemnation of the Tax-Qualified (TQ) 90-day letter of certification is misplaced. The certification puts the focus where it should be: On providing coverage for true long-term needs.
It is disingenuous to quote Medicare figures that show how a TQ policy would not pay for care lasting less than 90 days. If Medicare is paying the bill, why is LTC insurance even needed? (An example of short-term care and inappropriate double coverage.) I realize there are circumstances where Medicare does not cover even short-term care needs, but Mr. Kaplan is quoting figures of "Medicare's patients" suggesting that Medicare is paying the bills already.
I would suggest that if a client can not afford to cover 60 to 90 days of LTC costs out of pocket, he or she is probably not well suited for LTCI anyway. If Mr. Kaplan wants to innovate, how about a true Short-Term Care policy, designed and priced for that risk? And Medicaid is still standing by for those who don't have means if the care need becomes long-term.
Mr. Kaplan also knows better than to simply state that the words "severe" and "substantial" in TQ contracts make them somehow worse than NTQ contracts. The best TQ policies define these terms in detail and often provide better coverage than some NTQ contracts that don't include bathing as an Activity of Daily Living (ADL), may require a loss of three ADLs, and often require hands-on assistance. All contracts - TQ and NTQ - must be fully examined on their own merits, not lumped together as an either/or decision. There are cases where a NTQ policy is appropriate. But it is a case - by - case choice to be made by a fully-informed client. Remember, the taxability of benefits under an NTQ policy is still up for debate - a far greater potential financial risk for clients than paying for just the first few months of care.
I do agree that NTQ contracts are more liberal, but I think Congress did us all a great service by putting the brakes on an industry that was frantically bidding up LTC benefits to an unsustainable level. We only need look at the lessons learned with non-cancelable disability insurance. Unsustainable LTC benefits and dramatically increasing premiums would be a much greater "fraud on consumers" than well-sold, quality, stable Tax-Qualified LTC insurance.
In the end, TQ LTCI keeps the focus in the right place: On the true long-term needs of our clients. TQ policies provide a proper balance of insurable risk for companies and long-term benefits for the insured. TQ LTCI should be 100% deductible for all, with no age-based premium limits and fully accessible through pre-tax cafeteria plans. If Congress sees fit to liberalize TQ benefit triggers, that's great. But please don't justify the sale of any long-term product with short-term scenarios and statistics. It's wrong and unprofessional.
William E. Comfort, The LTCPro(tm)