LTC Bullet: If Government and Business Renege, Will Individual Responsibility Flourish?

Tuesday, March 25, 2003

New York City--

LTC Comment: The news is not good for income and health care security as America ages. As hope for help from government and private industry lags, will individuals and families save, invest and insure more? Continued, after the ***news***.

*** BRING THE LTC GRADUATE SEMINAR AND STEVE MOSES TO THE MID-WEST. Do you have access to a conference room and a VCR/TV? Why not sponsor an LTC Graduate Seminar during the week of June 2, 2003 in Chicago, Milwaukee or anywhere within a 200 mile radius of those cities. All days that week except Tuesday, June 3 are available. Sponsors who provide the training facility and help advertise the program will receive two free admissions. For details on the LTC Graduate Seminar, see . To plan an LTC Graduate Seminar in your town and at your facility, call Amy McDougall ASAP at 425-377-9500 or email .***


LTC E-Alert #3-021--Medicare Drug Benefit vs. LTCI Tax Deductibility
LTC Reader #3-012--Good News on Alzheimer's and Dementia
LTC Data Base #3-008--CDC Says Lives Longest, Deaths Lowest Ever

DON'T MISS OUR "VIRTUAL VISITS" TO: The Society of Actuaries' LTC Insurance Conference at AND The 16th Annual LTC Insurance Conference at . You'll find our comparison of the conferences, session summaries, interviews and pictures. Enjoy.

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LTC Comment: Throughout most of the twentieth century, government and private business sent a strong message to Americans: "don't worry, we'll take care of you." Social Security and Medicare promised a secure base of retirement income and health care access. Private industry offered generous "defined benefit" pensions with "guaranteed" future incomes. In the last decade or so, the message from government and industry has changed: "don't count on us, you're on your own." Warnings from the Congressional Budget Office and the General Accounting Office about the future prospects for Social Security and Medicare have been positively scary. The private sector's retrenchment toward "defined contribution" pension plans has left most employees dependent on their private investments' success (doubtful lately) for future financial security. A comfortable "entitlement mentality" instilled by a half-century of government and corporate promises is gradually being replaced by nervous anxiety about the future and a growing tide of individual responsibility.

These developments bode well for the future of all forms of private insurance, the primary economic tool individuals have to mitigate risk. Today's Bullet cites some excerpts from recent news on public and private entitlement programs. We query: will the growing flood of evidence that public and private income and health care security programs are languishing increase demand for private insurance products, especially LTC insurance?


"U.S. PENSIONS LOST $1 TRILLION IN LAST 3 YEARS. New York, Feb. 28 (Reuters, by Chris Sanders) - US retirement plans for public employees, corporate pensions and endowments lost $1 trillion in the last three years after being hammered by poor stock returns, a survey released on Friday said. The three-year loss -- equal to China's GDP last year -- was 'probably the most destructive in the whole history of the U.S. fund business,' Greenwich Associates consultant Dev Clifford said in the survey released by the consulting and research firm. The miserable state of the stock market, coupled with pensions paying out more than they are taking in as healthier Americans live longer and collect more benefits, crippled the 1,729 pensions and endowments surveyed between 2000 and 2002. Assets dropped to $5.1 trillion at the end of 2002 from $6.1 trillion in 2000, or 17 percent, Greenwich said. . . . Corporate pensions took the biggest hit, falling 23 percent since 2000, while public pensions ended the last three years down 18 percent. Endowments and foundations, like those run by Yale University and the Ford Foundation, fared better as a group, sinking just 9 percent."

Source: INSURANCE-LETTER for Tuesday, March 3, 2003. To subscribe send an e-mail to with the word 'subscribe', or call 888.282.1765, or subscribe online at .


"Greenspan Warns Against Reform Delays. On February 27 [the] Senate Aging Committee held a hearing on the economic impact of global aging. The highlight was the testimony from Federal Reserve Board Chairman Alan Greenspan, who warned that delays in reforming Social Security would make the later adjustments needed for baby-boomers' retirement both 'abrupt and painful.' In his testimony, Greenspan said that the aging population in the United States 'makes our Social Security and Medicare programs unsustainable in the long run, short of a major increase in immigration rates, a dramatic acceleration in productivity growth well beyond historical experience, a significant increase in the age of eligibility for benefits, or the use of general revenues to fund benefits.'

"Greenspan argued that even with increased productivity growth, the economy could not grow at a rate fast enough to enable the program to pay legislated benefits. Social Security contributions will fall short of promised benefits by 2017, according to the intermediate projections of Social Security's trustees.

"While urging action, Greenspan argued against raising payroll taxes. 'Aside from suppressing economic growth, large increases in payroll taxes can exacerbate the problem of reductions in labor supply, whereas policies to promote longer working life can ameliorate it,' he said.

"Greenspan concluded his testimony before the Senate Aging Committee with sobering yet optimistic remarks:

"Early initiatives to address the economic effects of baby-boom retirements could smooth the transition to a new balance between workers and retirees. If we delay, the adjustments could be abrupt and painful.

"Fortunately, the U.S. economy is uniquely well suited to make those adjustments . . . Our capital markets can allow for the creation and rapid adoption of new labor-saving technologies. . . ."

Source: Social Security This Week, a weekly newsletter on social security reform published by the Cato Institute, week of March 7, 2003, to subscribe or unsubscribe, contact Jennifer Assenza at (202) 789-5202 or .


"WASHINGTON -- Medicare's finances appear to have worsened significantly over the past year, while Social Security's long-term prognosis brightened a bit.

In annual reports released [recently], trustees of the two programs projected that Medicare would run out of money to pay benefits in 2026 -- four years earlier than predicted last year -- while Social Security gained a year on its expected life span, to 2042. The reasons include more-pessimistic assumptions about wages, which could erode Medicare payroll-tax revenues, as well as more-optimistic assumptions about future immigration trends, which could help Social Security.

The reports give the Bush administration new ammunition in its effort to overhaul Medicare, the federal health-insurance program for the elderly and disabled. At the same time, the findings slightly diminished the political pressure to shore up Social Security. . . ."

Source: John D. Mckinnon, "Health of Medicare Ebbs; Social Security Fares Better, Wall Street Journal, March 18, 2003,,,SB104793005116135200,00.html (access to full article requires WSJ online subscription).


"Social Security Deficit Increases by Trillions

"The annual report [ ] from Social Security's Board of Trustees outlining the financial status of the Social Security program was released March 17. Michael Tanner, director of the Cato Institute's Project on Social Security Choice, says:

"'This year's report reinforces what we already know: that Social Security faces massive long-term deficits . . .

"Following are highlights of the findings of the 2003 Trustees Report:

"What are Social Security's total cash deficits? Social Security's net cash shortfall over the next 75 years totals $25.33 trillion in 2003 dollars, a $1.46 trillion increase from the 2002 report. That figure assumes today's surpluses are saved; if surpluses are not saved, then from 2018 through 2077 Social Security faces gross cash deficits of $26.40 trillion (in $2003), an increase of $1.37 trillion from the 2002 report.

"When do cash deficits begin? In the 2003 report, cash deficits began in 2018, a delay of one year from the 2002 report. Once payroll taxes are no longer enough to pay scheduled benefits, the government must produce extra cash - either to redeem the bonds in its Trust Fund or to pay benefits directly. The multi-trillion dollar cost to the government of redeeming these bonds would require tax increases or reductions in non-Social Security programs.

"When is the Trust Fund exhausted? In the 2003 report, the Trust Fund is projected to be exhausted in 2042, an increase of one year from the 2002 report. Trust Fund bonds can't themselves pay for benefits, since the government must come up with cash to repay them. However, the Trust Fund exhaustion date is still important: when the fund's bonds are exhausted then, by law, Social Security must cut benefits by 27 percent to the level payable through Social Security's dedicated tax revenues.

"What's new in the 2003 Report? This year the Trustees measure Social Security's cash shortfalls not simply over 75 years but in perpetuity, which increases the present value unfunded liability from $3.5 trillion to $10.5 trillion (plus the trillion-dollar cost of redeeming the Trust Fund's bonds). Only personal account reform proposals have been shown by Social Security's actuaries to make Social Security solvent permanently. More importantly, measuring deficits in perpetuity removes a significant methodological bias against personal retirement accounts. A truncated scoring period counts taxes paid into accounts during the period but ignores benefits paid after the period ends, adding trillions to the apparent 'cost' of a personal accounts proposal."

Source: Social Security This Week, a weekly newsletter on social security reform published by the Cato Institute, week of March 17, 2003, to subscribe or unsubscribe, contact Jennifer Assenza at (202) 789-5202 or