LTC Bullet: Long-Term Care Insurance Under the Microscope
Monday, August 29, 2005
LTC Comment: What
is the current state of the private long-term care insurance market and what
should public policy makers learn from it?
Answers after the ***news.***
*** NEW MONOGRAPH. Steve
Moses's "policy analysis" paper titled "Aging
America's Achilles' Heel: Medicaid
Long-Term Care" will be published September 1, 2005 by the Cato Institute.
It documents the Medicaid long-term care hemorrhage and proposes a
solution we sincerely hope Congress will adopt.
As soon as the paper is available online, we will give you some excerpts,
a link to the full piece, and information on how to obtain hard copies. ***
THE GREAT DEBATE on Medicaid and long-term care.
If you will be in Washington, DC at the time, please consider attending
my debate with Vincent Russo, a major New York Medicaid planner and former
president of the National Academy of Elder Law Attorneys.
The debate will take place at the Cato Institute on Wednesday, September
7 at noon. Free lunch is included.
Details and a registration form (required as seating is limited) are
available online at http://www.cato.org/event.php?eventid=2307.
Ceci Connolly has been invited to moderate the debate and Cato's Michael
Cannon, whose book on health policy will be released September 19, will offer
CAPITOL HILL BRIEFING on Medicaid and long-term care financing.
On Friday, September 9 at noon (free lunch to follow), Steve Moses will
give a briefing titled "The Trouble with Medicaid" in Room B-354 of
the Rayburn House Office Building. Details,
an online registration form and special instructions for news media may be found
Cato's Jagadeesh Gokhale, Senior Fellow and Michael Cannon, Director of
Health Policy Studies will also speak at this event, which is open to the
REGISTER NOW. If you plan to attend
either of these presentations, please make it a point to register immediately.
Cato already has 75 pre-registrations for 150 available seats at the
debate. "That's the most I've
ever had for an event," says my Cato contact.
There will be some "overflow" capacity, but if you want a
ringside seat, register now.
you are able to attend either or both the debate and the Hill briefing, please
make it a point to say hello to Steve. If
you can't be there in person, be sure to catch the webcast live or in the Cato
media archives at http://www.cato.org/realaudio/audiopages.html.
LTC BULLET: LONG-TERM
CARE INSURANCE UNDER THE MICROSCOPE
LTC Comment: The
long-term care insurance market is in a world of hurt as the article that
follows this comment documents. Prices
(premiums) are up; sales are down; and attrition has whittled away many of the
companies formerly in the business.
What's going on? Readers
of these "LTC Bullets" know the fundamental problem.
LTC insurers can't sell a product profitably that the government has been
giving away (through Medicaid and Medicare) for forty years.
Nothing significant will change for LTC insurers until that problem is
But there is more to it than that. Technical problems have beset the LTCi industry.
LTCi companies overestimated lapse and interest rates.
Consequently, they under priced their products.
All have had to raise premiums on new sales and many have raised premiums
on in-place business.
Why do we say there is a lesson for public policy makers in
the experience of private LTC insurers?
Long-term care has a "long tail."
To be able to pay benefits 20 or 30 years later, insurers (whether
private companies or government programs) must build reserves that appreciate
adequately. They have to spread and
price risk, collect sufficient premiums or taxes, and invest them wisely if they
are to have any hope to meet the needs of their policy holders or constituents
when beneficiaries need benefits decades later.
Now, here's the lesson for government policy makers.
Private LTC insurers may have charged too little initially and set aside
insufficient reserves to pay benefits without premium increases.
But public insurers, such as Medicare and Medicaid, have charged and set
Sure, Medicare has a trust fund, but there is nothing in it
except IOU's that the federal government will have to make good in the future by
pulling more taxes out of the productive economy. Medicare's unfunded liability is over $60 trillion.
When that bill comes due as baby boomers age, watch out!
The crippling economic consequences are likely to be catastrophic.
Unlike Medicare, however, Medicaid doesn't even have a
phony "trust fund" to rely on. And
yet, Medicaid is now and will likely remain indefinitely the primary payor of
long-term care. The program is
already stretching state and federal fiscal resources beyond reasonable limits
even as it pays providers too little to ensure quality care in nursing homes or
home and community-based settings.
Ironically, there is nothing safe about the Medicaid
"safety net." By covering
people who would have, could have and should have paid for their own long-term
care, Medicaid has chilled the market for private insurance, locked in an
"institutional bias," dragged down long-term care quality for
everyone, and guaranteed a dismal future for boomers as they age toward
So, as you read the following article that documents the
current state of the private LTC insurance market, ask yourself this question:
What is the government doing right about funding long-term care that the
insurance industry has done wrong? I
think you'll find that the answer is: Nothing!
Government has under priced long-term care by giving away
Medicaid to people who had substantial income and assets before they confronted
a long-term care crisis. Government
has set aside zero reserves to prepare for the gargantuan demands boomers will
place on the long-term care service delivery system. Consequently, when it comes time for America's biggest
generation to need long-term care, government will have no choice but to do what
private insurers have been forced to do.
To wit, government will have to increase premiums, i.e.
taxes, and cut benefits. And by
then, it will be too late to build long-term care reserves responsibly.
The inevitable result will be that boomers will have to use their home
equity to pay for long-term care while their heirs lose inheritances and shrug
under the weight of a vastly increased tax burden.
That's where we're headed.
Thoughtful public policy makers will learn the bitter lesson of LTC
insurance before it is too late, re-target Medicaid to the genuinely needy, and
use the savings to encourage private insurance, so that LTC risk will be
properly spread and priced, and reserves will build adequately to meet the
crisis when it comes.
Our thanks to Claude Thau of Thau, Inc. for providing the
following synopsis of a previously published article and to "Broker
World" magazine for permission to publish it.
The annual Tillinghast Broker World LTCi Survey was
published in the July 2005 issue of Broker World.
Information on how to obtain copies of the full article follow this
The survey was performed by Claude Thau of Thau Inc. and
Steve Pummer of Tillinghast Towers-Perrin.
It displayed detailed features of 42 stand-alone LTCi products from 30
different insurers, including some information not available in policy forms or
sales materials. For the integrated
policies that were listed, premium comparisons were also included.
Company financial information and LTCi history were shown.
Companies offering combination products and group voluntary products were
The accompanying article provided insight regarding the
state of the LTCi industry. Here
are some of the points made:
The annual Tillinghast Broker World LTCi Survey was
published in the July 2005 issue of Broker World. Up to 500 reprints can be ordered from "Broker World"
Complete the online order and pay with a credit card via Verisign online.
Or, print the order form and mail with payment to Broker World
Orders, P.O. Box 11310, Overland Park, KS 66207.
Orders will be processed within three to five business days of receipt of
payment. For over 500 copies, call
Claude Thau is President of Thau, Inc. and formerly the director of a major long-term care insurance carrier and Chairman of the Board of the Center for Long-Term Care Financing.