LTC Bullet--Post Pans Policies, but Tell Tells it Like it Is

Wednesday, October 16, 2002

Santa Fe, NM--

LTC Comment: We desperately need good media coverage of long-term insurance. Unfortunately, most newspaper stories on this topic are inaccurate and misleading. Today's LTC Bullet, written by Eileen Tell of the Long-Term Care Group, is the latest in our series of "LTC Reality Checks." Our reality-check Bullets address inaccuracies and faulty data that abound in media coverage of long term care insurance. They also cover anecdotes from the popular press that highlight the benefits of planning ahead and taking personal responsibility for long term care. (You can read the whole series of 55 LTC Reality Check Bullets at - reality_ck .) We extend our sincere appreciation to Ms. Tell and to her employer, the LTC Group, for this informative critique of a careless Washington Post story. We encourage LTC Bullets readers to forward this Bullet to your local reporters who cover long-term care. Perhaps we can help others to avoid making the same harmful mistakes in their coverage of this critical topic. To share this Bullet with the Washington Post, send a copy to . And to be fair toward the Post, here's a link to a very positive article on LTC insurance that newspaper ran on October 13, 2002 titled "Running for Coverage": . It might just as well have been called "Friends Don't Let Friends Go Without Long-Term Care Insurance." Today's Bullet follows the *** news.

*** Charitable contributions from major donors are way down this year. Nobody had to tell us that. We know it first hand. The Center for Long-Term Care Financing is struggling through our toughest fundraising season ever. Just a reminder: the Center is a 501(c)(3) charitable, nonprofit organization. Your contributions are fully tax deductible. Help us if you can with a check in any amount made out to the Center for Long-Term Care Financing, and mailed to 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Online contributions at are also very welcome. Contributions of $100 or more also qualify for donor zone access. If your employer has a charitable giving matching program, don't miss the chance to double your support for the Center by asking your company or organization to match your gift. Here's a link to a New York Times article that explains why times are so tough for charitable organizations: "Cultural Groups and Charities Are Feeling Each Bump on Wall Street," . ***

*** Time's awastin'. Register now for the next LTC Graduate Seminar to be held in St. Louis on November 20 immediately after the "Great LTC Debates" conference. Get the details at or just click "reply" to this Bullet and ask for Amy McDougall to give you a call about the "Grad Seminar." Space is limited to 15 enrollees and pre-registration is required. 7 Missouri CEUs approved. ***

*** New content added today to the donor-only zone includes "The LTC Week in Review for October 13-18, 2002: LTC E-Alerts #241-#245." Every LTC E-Alert contains some news or information that will help people understand the need to prepare early for the risk and cost of long-term care. If you already qualify for The Zone, you can click the following link, enter your user name and password, and go directly to the latest E-Alerts: .

LTC E-Alert #241--Videos on Aging and Health Viewable on the Web
LTC E-Alert #242--Medicare SNFs Drop Over Cliff but Congress May Break the Fall
LTC E-Alert #243--Another Reason Not to Rely on VA for LTC
LTC E-Alert #244--Boomers Make Matches for Moms and Dads
LTC E-Alert #245--The HHS Push for HCBS

To Zone In, mail your tax-deductible contribution of $100 or more to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Then email your preferred password and user name (up to 10 characters each). He'll get you into The Zone ASAP. You can also contribute online by credit card or direct withdrawal at . ***

*** People in Indiana are allowed to buy rental houses to shelter assets while qualifying for Medicaid nursing home benefits without spending down. This is a bonanza for Medicaid planners, but obviously impedes the marketability of private insurance for long-term care. We'll have more details and analysis in an LTC E-Alert in next week's "LTC Week in Review" on the donor-only zone. In the meantime, here's a link to an Associated Press article that describes the scheme: "Company Makes Landlords of Elderly to Shelter Assets," September 30, 2002,,1626,ECP_745_1450551,00.html. ***


Based on: Tina Adler, "Long-Term Thinking: Federal Long-Term Care Insurance Raises Profile, Questions," Washington Post, September 24, 2002, Page HE01, .

"LTC Reality Check" by Eileen Tell

While Tina Adler’s article "Long-Term Thinking" (Washington Post, September 24, 2002) begins with a real life example of the value of having long term care insurance, freeing the family "from an otherwise terrible financial burden" of paying for costly nursing home care, it continues to offer mostly incorrect or incomplete information about the long term care dilemma and the importance of planning ahead for this need.

WHAT MEDICARE DOES AND DOES NOT PAY. For example, the article says that "Medicare pays the full cost of all necessary medical care for up to only 20 days. Then it pays $100 per day for the next 80 days and after that nothing." There are several problems with this statement. First, the article does not clarify that the "necessary medical care" that Medicare might pay for has nothing to do with "long term care" needs; one reason Medicare pays little or nothing for long term care is that long term care is about on-going personal or custodial care needs, not medical or skilled care needs. Also, it is the CONSUMER, not Medicare that has to pay $100/day for the next 80 days. Medicare’s portion is only the difference between the roughly $100 co-payment the consumer has to pay and the costs of care in excess of that, IF there are any and IF Medicare approves the nursing home stay. So the amount Medicare might pay is even more limited than the article suggests. This explains why Medicare paid for less than 10 percent of all nursing home costs in 2000.

NOT HAVING LTC INSURANCE IS A GAMBLE. The article says that "LTC insurance is a gamble. You may pay ten of thousands of dollars and never qualify to receive a cent in benefits." This gives the false impression that it’s a "gamble" whether you can count on the insurance to pay for your care when you need it. The words have been ill chosen; we believe what the author meant to say is that someone might buy LTC insurance and then end up never needing long term care. This is true of any insurance. I buy homeowners or car insurance and actually hope that I never have to use it. I buy it for the peace of mind and for the financial protection in case I do end up having a loss. But I don’t consider it a "waste" if I buy that insurance and then thankfully never have a car accident or a flood or fire in my home. The article should also point out that NOT having LTC insurance is a gamble. Consider people who refuse to think about a time when they might need long term care. Hoping they never need care doesn’t make it so. They could "gamble" that they will never need care and then end up, like the people in the article, requiring costly nursing home care on an on-going basis.

HOW CLAIMS ARE PAID. This article is filled with pejorative language describing the products and procedures of the long-term care insurance industry. Consider the sentence that says . . . "the high costs of care will force companies to . . . haggle over claims even more than they do already." Companies don’t "haggle" over claims. The policy language that consumers inspect before they buy clearly defines the terms and conditions on which claims will be paid. Today there is even more standardization across policies in terms of how services and qualifying losses are defined. The vast majority of policies today are federally tax-qualified, in which companies use objective and reliable measures of when someone qualifies for benefits. These policies don’t have room to "haggle" in the required terms and definitions. Companies that "haggle" would open themselves up to costly appeals or legal battles which do not serve anyone’s interests.

Similarly, the article talks about the "so-called ‘activities of daily living’" that are used as the basis for benefits as if they are an ill-defined or arbitrary concept. Actually, Activities of Daily Living (ADLs) is a concept, developed outside of the insurance industry by gerontologists, that has a more than 20-year history and a sound body of research supporting its use as an objective and reliable indicator of when someone needs long term care. Basing LTC insurance benefits on loss of ADLs is a good thing for the consumer--not an arbitrary insurance company construct to confuse the public. The article says that "insurers normally require a letter from a doctor confirming disabilities." In reality, most insurers rely upon objective, third-party assessment of the nature and degree of the individual’s loss, using these objective and reliable measures.

The article says that long term care is "not the kind of risk that lends itself to private insurance." But, in fact, it is the type of risk especially well suited to insurance--one with a relatively small probability of occurring that would be financially catastrophic. Pooling the risk and the costs across a large number of people (insurance) makes paying for that very catastrophic event which only some in the pool will experience much more affordable.

WHAT COVERS WHAT? The article implies that policies today are largely focused on facility care, saying that they pay for care in a facility and that they "may" pay for a nurse or an aide at home. In fact, over three-fourths of all policies purchased today are "comprehensive" policies, covering both care in a facility and a wide range of services and care provided in the home and in community-based settings.

RELYING ON MEDICAID. The article mentions Medicaid as an option that pays for "lifelong care in a nursing home, and, in some cases, at a private home or a moderately priced assisted-living facility." This would have been an appropriate place for the article to have also mentioned other relevant facts, such as:

o People must meet stringent income and asset criteria to qualify for Medicaid benefits. (The Medicaid eligibility requirements are mentioned only in passing and not until nine paragraphs later.);

o The vast majority of the care Medicaid pays for is nursing home only;

o There are serious quality of care concerns in predominantly Medicaid nursing homes; and,

o Many people do not want to give up control of their assets, income and ability to choose where they can receive care in order to qualify for Medicaid public assistance.

POLICY COSTS. The article says that "premium[s] usually exceed $1,000 annually . . .." Precise information on premium costs is available and could have been cited in the article. The average annual premium cost for policies purchased by individuals in the year 2000 was $1,677 per year and the average for policies purchased through a group plan like one offered by an employer was $722. The article does accurately caution the reader to compare the costs of insurance to the costs of long term care without insurance, to put the premium cost in the proper perspective. This is an important point that should be have developed further. All too often, people talk about the cost of coverage, without talking about the dramatically higher costs of care. One could buy a policy today costing $1,000 per year and continue to pay that premiums for 30 years before needing care. But in 30 years, the $30,000 paid out in premiums over one's lifetime might not pay for more than a month or two of care in a nursing home, given the rising cost of care. It’s that kind of "thinking through" the "gamble" of NOT having insurance that the article should have emphasized.

TAX QUALIFIED PLANS. The article provides less-than-accurate information about the distinction between tax-qualified (TQ) and non-tax-qualified plans (NQ). While it is true that today’s tax incentives are small, it is hoped that these will be expanded over time through one of the many proposals currently being considered by Congress. Advantages of TQ plans include standardized consumer protection features and similar contract provisions that help the consumer "comparison shop." It is simply not true, as reported in the article, that "many consumers" prefer NQ plans because these plans "don’t have to follow federal regulations governing benefit triggers…" The vast majority of consumers (86 percent of all policies sold in 1999) buy TQ plans, not NQ plans (Health Insurance Association of America, 2001). The "federal regulations governing benefit triggers" merely codified into regulation what were the prevailing, reliable and objective, "best practice" benefit triggers already in place in the industry. The difference in the benefit trigger language between most TQ and NQ plans is marginal and the impact on access to benefits is smaller still. This fact is often evidenced by little or no difference in premium cost for identical plans under TQ or NQ benefit triggers. If benefit access were significantly different between the two policy types, one would expect a corresponding premium differential.

HOW POLICIES WORK. The article incorrectly states that ". . . plans usually require that patients use licensed caregivers or purchase a rider allowing them to pay non-licensed individuals." While some policies limit coverage to licensed providers, many cover "independent providers" not affiliated with a licensed agency. Some will pay the costs associated with a non-licensed provider obtaining the required training and licensure to be eligible for payment. Most policies have the flexibility under an Alternative Care Provision to pay for a wide range of provider and service types, including non-licensed providers. Many policies pay for services that support family caregivers and some pay for care provided by family members.

The "indemnity" type policy is also inaccurately described in the Post article. Indemnity policies pay the full daily or weekly amount specified in the policy, but only when the individual both qualifies for benefits AND receives covered paid care as specified by the policy, e.g., care in a nursing home or from a home health aide. Benefits are paid up to the policy maximum the insured has chosen, not "for the life of the policy," unless the insured has specifically obtained a "lifetime/unlimited" policy. The type of policy that the article refers to--where the insured can spend the benefit amounts on "whatever they choose" including buying a new car, and where there is no requirement to received paid, covered care, is called the "disability payment" approach, not the "indemnity" policy.

OTHER OPTIONS? The article mentions "other options" one might consider instead of long term care insurance, but most of those other options have serious limitations. The article mentions "government programs other than Medicaid, including veterans benefits." But veterans’ benefits for long term care are very limited and there are also limits on who can receive them. The article doesn’t identify the "other government programs" besides Medicaid or veterans benefits but seems to suggest some exist. A reverse mortgage is also mentioned as an option, but the funds leveraged through this vehicle are typically inadequate to pay long term care costs and the individual loses the ability to maintain their home as part of their estate.

WHEN SHOULD I BUY? While the article correctly cites the advantages of buying at a younger age--lower premium and easier to qualify for coverage--the premium illustration presented dramatically understates the savings from buying young. The analysis failed to take into account the effect of inflation on long term care costs. The policy used in the example is one that pays $150/day today, for someone buying at age 44. But if that individual waits until age 55 to buy, the corresponding daily benefit amount that would provide comparable protection against nursing home costs 10 years from today is $244/day, not $150/day (assuming nursing home costs increase by 5 percent per year). The premiums paid, by age, would really be as follows:

Purchase Age

Annual Premium Total Premium Paid through Age 74
44 $1,512  $45,360
54 $3,660 $73,200
64 $8,861 $88,610

MAKE SURE THEY’LL PAY. The article concludes by urging consumers to look closely at policy language for when policies will pay. This is certainly good advice, but the examples cited as things to watch out for are no longer valid. For example, the article says that "the plan should not require hospitalization prior to your beginning to receive benefits . . .." Such policy provisions have long been prohibited and no longer exist except in policies purchased years ago. Similarly, there is now tremendous uniformity in how policies define inability to perform activities of daily living and which activities are used to evaluate a loss. In fact, an important advantage of TQ policies is exactly this standardization of benefit triggers so that the consumer doesn’t have to worry about "the fine print."

CONCLUSION. It is unfortunate that writing an article about problems and pitfalls of long term care insurance is easier and more news-worthy than to write an article that is accurate and complete. People need information about the risks and costs of long-term care and about the impact on their lives of having insurance or not having coverage. "True life" depictions of how people address this risk and about the proper role of insurance today would have served consumers better.