Hyman Low on LTCI Savvy
Wednesday October 11 2000
We've criticized Attorney Harley Gordon's long-term care insurance certification program from time to time for its over-emphasis on Medicaid eligibility and collaboration with elder law attorneys. (See "Certified Suckers," December 1998 and "Three Cheers.But One from the Bronx," December 1999 in the LTC Bullets archives on www.centerltc.com/)
Now comes the perfect reason why everyone should be leery of advice about long-term care insurance from elder law attorneys. In an article entitled "The Elder Law Attorney as Financial Planner: Long-Term Care Insurance" (The ElderLaw Report, September 2000, pps. 1-4), author Jerry A. Hyman provides some very bad counsel indeed. Here are a few examples followed by our commentary on each.
Hyman: "My job as an elder law attorney (as it would also be as a financial planner) is to help clients evaluate how much they are actually likely to receive from their investment in a very hard-to-predict aspect of their future. My discussion with this couple [considering the purchase of private long-term care insurance] would focus first on their individual health histories, and then on the health histories of their parents and other blood relatives, in order to get some idea whether either might be particularly susceptible to a need for long-term care."
LTC Bullets: The idea that someone's need for long- term care insurance depends on his or her genetic proclivity or other likelihood for requiring care someday is fallacious. The purpose of insurance is to replace the small risk of a catastrophic loss with the certainty of an affordable premium. The fact that one person is marginally less likely than another to incur a disastrous loss is immaterial compared to the fact that the huge loss is the same to whoever incurs it. Furthermore, the healthier and more genetically sound a person is today, the more likely it is that person will live to an advanced age and become vulnerable to expensive, long-term chronic illness--regardless of family history. Trying to predict your own--or worse, your client's--risk of needing long-term care in the distant future is professionally irresponsible and little better than a crap shoot.
Hyman: "If it appears that long-term care will be a major concern for at least one spouse, then I turn to an examination of their assets and income.I might conclude that they have enough resources, now and for the foreseeable future, to 'self-insure' long-term care . . . . Alternatively, their resources might be so small that one or the other could quickly qualify for Medicaid, so that any premium paid for additional insurance would be unnecessary."
LTC Bullets: How many resources are "enough" to advise a client to pass up long-term care insurance? Most people with significant wealth to protect obtained that wealth by using every financial tool at their disposal, including insurance. Why should they stop using such powerful financial tools when they are older and more vulnerable? To suggest that people self-insure simply because they could afford long-term care makes as much sense as to suggest they go without fire insurance because they could afford to rebuild their home. On Hyman's Medicaid recommendation, see below.
Hyman: "In my view, a long-term care policy--if it is to be purchased at all--is for the spouse likely to die second . . . if one spouse needs care while the other is still alive, more flexible Medicaid planning options are available to fund that care, using the various community spouse protections and allowances . . . . Life- time care is usually far too costly and probably not needed. I typically focus on three years of coverage as the maximum to be purchased, on the assumption that planning for Medicaid (or any successor future government program) can be accomplished within that time frame if the client eventually needs more than three years of long-term care coverage."
LTC Bullets: Hyman's idea that people should be indifferent between private long-term care insurance and Medicaid eligibility is preposterous. Such an attitude displays ignorance, disregard, the venality of a Medicaid planner, or all three. The difference between private LTC insurance and Medicaid is the difference between access to quality care in the private marketplace at the appropriate level as compared to institutionalization in a welfare home. A good financial adviser would help clients with limited resources to find creative ways to afford insurance premiums, such as obtaining help from adult children, taking out a reverse annuity mortgage, or annuitizing an underperforming investment.
Hyman: "No one knows what the future course of inflation will be, particularly how it will affect long-term care expenses. So I suggest the purchase of a policy at the highest daily indemnity benefit that the client can afford today, without an inflation rider. The money the client saves in not paying for an inflation rider can be invested to pay any additional, inflated costs of long-term care--above the indemnity amount--that he or she may obtain in the future."
LTC Bullets: Anybody want to bet on low inflation in health and long-term care expenses as the baby boom ages? What do you think the probability is that people will invest the savings on an inflationless LTCI policy successfully enough to pay the inflated cost of long- term care thirty years hence?
Hyman: "Most [long-term care insurance] policies are either 'guaranteed renewable' or 'noncancelable.' The former merely means that the policy must continue if premiums are timely paid and that the insurer can't change the policy's terms. However, the insurance company can still increase the premiums . . . . It's best if the policy states that it is noncancelable, which prohibits the insurer from unilaterally changing any provision of the policy, including the premium."
LTC Bullets: Anyone who knows anything about long- term care insurance knows that noncancelable policies are almost non-existent. Furthermore, such policies may well be irresponsible. The insurance industry does not have actuarial data for morbidity (illness) comparable to the data it has for mortality (death). To guarantee that LTC insurance rates will never increase under any circumstances regardless of claims experience decades in the future is a promise no responsible insurance company can make. Only one institution in American society can promise you everything, deliver nothing and get away with it. That's because government can always cover up the problem by deficit spending and inflation. Private companies have to meet their contractual obligations or go bankrupt, which does no one any good.
If such advice as this--published in a premier elder law newsletter by a member of the National Academy of Elder Law Attorneys (NAELA) who is also a Certified Financial Planner--is the best we can expect from the elder law bar, we'd better look elsewhere for legal liaisons.
An attorney friend of ours queried: "Wouldn't an attorney who advised a client against long-term care insurance for reasons like these be vulnerable to a malpractice suit?" Perhaps, but one thing is for sure, any long-term care insurance agent or broker who gives such advice had better have excellent, paid-up Errors & Omissions coverage.