LTC Bullet: Reality Check: Flawed Article on LTCi

Wednesday, October 20, 2004


LTC Comment: Last week, Wall Street Journal columnist Jonathan Clements held his nose and recommended long-term care insurance. We offer excerpts from the article and some corrective analysis, after the ***news.***

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*** CLTC MASTER CLASS SCHEDULE. The Center for Long-Term Care Financing does not endorse specific companies or professional designations, but we are acutely aware of the need for education and certification of LTC insurance agents. We've often found that LTCi agents with the "CLTC" certification rank high in professional knowledge and expertise. We also appreciate the financial support provided to the Center for Long-Term Care Financing by the Corporation for Long-Term Care Certification. As a public service, we will provide each month a schedule of forthcoming CLTC classes with a link to further information. The Corporation for Long-Term Care Certification will offer the "Certified in Long-Term Care" (CLTC) program in a classroom setting referred to as a Master Class on October 28 and 29 in Virginia Beach, VA; Atlantic City, NJ; and Seattle, WA; on November 18 and 19 in Atlanta, GA; on November 22 and 23 in Pineville, NC; and on November 30 and December 1 in Rochester, NY. For more information, call 877-771-2582 or go to .***

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LTC Comment: Long-term care insurance. Can't live with it; can't live without it. That's the media's schizophrenic attitude toward this struggling financial services product.

Jonathan Clements' "Getting Going" column, titled "The Flawed, Expensive Insurance Policy That You Really Ought to Consider," in the October 13, 2004 Wall Street Journal is a case in point.

If you have a subscription to the WSJ Online, you can access the Clements column at,,SB109761785904843414,00.html .

Following are some quotes from the piece followed by our comments.

WSJ: "What do you get when you buy long-term-care insurance? An unproven product sold by an industry in turmoil that will cost you a small fortune in premiums -- with no guarantee those premiums won't go even higher."

LTC Comment: Guilty as charged? Well, LTCi has had its challenges: it is a relatively new product, still pinpointing proper pricing, in a marketplace plagued lately by consolidation, and facing a public in denial about the cost and risk of long-term care. But at least it offers a contract enforceable in a court of law. Consider the alternative. If you go bare and rely on the government to provide, here's what you confront. Social Security and Medicare face $72 trillion in unfunded liability. Medicaid is already a huge drain on state and federal coffers and unattractive based on access and quality. Public programs can raise premiums (payroll taxes), slash benefits, and add means tests (welfarize) with impunity. They will certainly have to do one or all of these things as the boomers age. In the meantime, private long-term care insurance keeps collecting heart-warming examples of families saved from fiscal and emotional distress by benefits paid in their time of need.

WSJ: "And yet, despite all that, I think folks age 50 and older should at least consider long-term-care insurance. Nursing-home costs are a huge risk for older Americans, so hedging that risk with insurance can be a smart move."

LTC Comment: "There you go again," as President Reagan used to say. Media people just don't seem to get that LTCi is usually bought as "stay-out-of-a-nursing home insurance." Asset protection against the risk of a long-term institutional stay is important, but people can get that from a Medicaid planning attorney after the insurable event occurs for the cost (on average) of one month in a nursing home. The major value added by LTC insurance is the financial wherewithal to remain free, independent and at home while receiving community-based services, with a private-pay assisted living facility as an alternative if facility care becomes necessary. LTCi avoids dependency on Medicaid and its serious problems of access, quality, reimbursement, discrimination and institutional bias.

WSJ: Right in the middle of Clements' article is an ad for's ratings and recommendations for long-term care insurers.

LTC Comment: Anyone who has followed the long-term care marketplace for the past decade knows that Consumer Reports has a dismal reputation for ideologically distorted coverage and terrible advice about long-term care insurance. After lambasting the product in general, CR even recommended a specific policy marketed by a company that was out of business by the time the magazine hit the newsstands!

WSJ: "Be leery of insurers that have raised premiums on existing policies. Cut costs by opting for a one-year 'deductible.' Protect against inflation by buying a policy with a benefit that rises each year. Use an insurer with a top rating for financial strength. Go for a lifetime benefit if your family has a history of dementia."

LTC Comment: These specific recommendations from the article are arguably sound, although persuasive arguments are often made for shorter deductibles and lifetime coverage for everyone who can afford them.

WSJ: "If history is any guide, this is clearly a treacherous market for consumers. Should you bother? If you have few assets, you can skip long-term-care coverage and rely on Medicaid to pay your nursing-home costs."

LTC Comment: This is terrible advice. Equating the care private insurance will buy with what Medicaid provides is irresponsible and unconscionable. Medicaid is a bankrupt welfare program that pays nursing homes on average only 70 percent of the private-pay rate, $4.1 billion short of break even nationwide, and frequently less than the cost of providing the care. Not to mention the fact that Medicaid rarely pays adequately for care outside a nursing home. People with low income and liquid assets should not resign themselves to dying in a welfare home. They should look for help from their children or their home equity (through a reverse mortgage) to make LTC insurance premiums affordable. Alas, perverse incentives in public policy and poor advice in the media, discourage responsible long-term care planning and channel even prosperous seniors toward Medicaid dependency.

WSJ: "Similarly, wealthier folks can also take a pass. According to a MetLife survey, the average cost of a private nursing-home room is $70,000 a year -- and the tab could be twice as high if both you and your spouse need care. If you can cover that cost with Social Security and your pension and portfolio income, you probably don't need insurance."

LTC Comment: Yeah, right, and you could rebuild your house without insurance if it burned down, but who is stupid enough to go uninsured against that risk?

WSJ: "As you hunt for the right policy, be prepared for sticker shock. Premiums can top $2,000 a year."

LTC Comment: If every tenth house burned down, fire insurance wouldn't be cheap either. With a one in nine chance of a highly expensive 5-year or longer institutional stay for chronic care, it only makes sense that LTCi premiums are higher than premiums for insurance against less likely risks and that they increase with age as the insurable event becomes more likely. On the other hand, LTCi policies are eminently affordable at younger ages. A long-term care financier who provides debt and equity financing to build, operate and maintain LTC facilities told us he was surprised to learn that he could buy top-quality LTCi policies for himself and his wife at age 40 for less than what they spend on Starbucks coffee annually.

WSJ: The Clements article proceeds to offer some calculations comparing the benefits of LTCi with the effect of saving and investing the premiums instead. The author concludes that insurance is a money loser unless you go to a nursing home and stay for an extended period.

LTC Comment: Nonsense. Do we consider our car insurance premiums to be a money loser if we're lucky enough to avoid an accident? In the long-term care sweepstakes, if you live a long, productive life and die suddenly at 100 on the tennis court never having collected on your LTC insurance -- you won!

By the way, when it comes to calculating the true risk and cost of long-term care, don't depend on the kind of "back-of-the-envelope" analysis offered in the WSJ article. Rather, consult the extraordinary software developed by Ralph Leisle that we covered in "LTC Bullet: Handy New Tool," November 17, 2000, . For latest details, go to .

There is no such thing as bad publicity. Even an article like Clements' which damns LTCi with faint praise contributes toward raising the public's consciousness about the risk and cost of long-term care. We only hope that in the future, when reporters write about this topic, they consult better sources, collect more reliable information, and convey sounder advice to their readers.

If you would like to forward a copy of this critique to the Wall Street Journal article, send it to .