LTC Bullet:  A Different Approach to LTCI 

Wednesday, June 21, 2006 


LTC Comment:  Do we need a whole new approach to long-term care insurance?  Martin McBirney thinks so.  Details after the ***news.*** 

*** DAMNED WHATEVER THEY DO.  Nursing homes are the Rodney Dangerfield of long-term care:  "can't get no respect."  Medicaid estate planners put everyone on the welfare program which pays nursing homes too little to provide quality care.  Then the states, feds and celebrity activists add insult to injury by blaming the victims: 

"Brockovich takes aim at nursing homes in latest activist pursuit.  A famous activist who was the subject of a 2000 Hollywood film has filed suit against hospitals and nursing homes over medical errors.  Erin Brockovich filed seven lawsuits to force hospital and nursing homes in California to return any Medicare payments for illnesses they helped cause through medical errors or neglect.  The suits seek to find evidence of wrongful treatment and billing.  According to government estimates, medical errors may account for more than $9 billion in unnecessary healthcare costs annually.  Nursing home defendants include:  Kindred Healthcare, Louisville, KY; and Mariner Health Care, Atlanta.  A spokeswoman for the California Hospital Association called the suits a publicity stunt for Brockovich.  The activist's successful crusade against Pacific Gas and Electric Co. inspired the movie 'Erin Brockovich,' which starred actress Julia Roberts in the title role."  Source:  McKnight's LTC News Daily Update, 6/9/6 *** 

*** ARTICLE CITES MOSES AND CENTER:  "Nursing homes:  Medicaid falls short," by Barry Smith.  The Free Press.  June 19, 2006.  "Stacy Flannery, of the North Carolina Health Care Facilities Association says that the state's nursing homes 'are completely at the mercy of Medicaid for our stability.'  Fees for 75 percent of all nursing home residents are paid by Medicaid.  Those reimbursements are short $14-per-patient-per-day, which amounts to a total loss of $117-million for the current rate year.  Stephen Moses, president of the Center for Long-Term Care Reform explains, 'In 1965, the government stepped in with Medicare and Medicaid and said that we'll take care of you.  As the public funding infrastructure implodes over the next decade or two, we're going to hurt a lot of poor people who won't have any access to a decent safety net.'  He says that when the government makes it easy for people to qualify for Medicaid, they are unlikely to purchase long-term care insurance.  'It's hard to sell something when the government is giving it away,' Moses said."  For the full article, click here  Source:  AHCA / NCAL Gazette, Monday, June 19, 2006 *** 

*** MORE METLIFE MATURE MARKET MEMORANDA.  Find the latest edition of MetLife's "QuickFacts" newsletter with information about retirement, long-term care and the mature market at  Check out their "grandparents poll" at  Did you know 55% of grandparents plan to contribute financially to their grandkids' education and 35% of these intend to give $50,000 or more?  Let's just hope such sums are not being given to obviate the need for LTCi by avoiding Medicaid's spend-down requirements. *** 



LTC Comment:  Last week, we posed this question in a "LTC Bullet":  why are long-term care insurance sales lower than hoped?  Readers responded with many and varied explanations and speculations which we reported in another Bullet.  (Read both Bullets on the "LTC Blog" at  

But consultant Martin McBirney figures the problem is the product itself.  Have a look at his article which follows and see what you think.  

Our first question after reading Martin's article was:  what would a long-term care insurance product such as you're recommending look like?  He declined to offer a product outline saying "That's how I make my living?"  Fair enough.  

So, if this appetizer leaves you wanting more, you can contact Mr. McBirney at the email address in his byline.  We thank him for a thoughtful and provocative piece. 


"LTCI:  A Different Approach"
By Martin McBirney, Consultant, 


Long term care insurance (LTCI) has been considered a product with high market potential for more than ten years now.  Yet market conditions would seem to suggest otherwise.  Consider:

Policy sales in the first quarter of 2006 are down 14% year over year, marking the sixth year of consistent decline; they now stand at half their peak in 2000;

Profits are negative and seem to be getting worse.  According to research conducted by the Conning Company ("Long Tem Care Insurance:  Opportunity Knocking – Again?” available for $1,750 at profits in 2004 were a negative 16.5% of premium, a drop of nearly 14% since 2001;

Of the companies that wrote more than $10 million in 2000, nine, exactly half, have departed the market;

More than half of the meager growth in premium over the last five years is due to rate increase activity whose long term legal, regulatory, financial and PR consequences are far from obvious;

And finally, the distribution community appears to be losing interest in the product.

Explanations and excuses abound, from a depressed interest rate environment to low lapse activity, insufficient consumer education and the role of Medicare and Medicaid.  Nonetheless, it is becoming apparent that part of the blame for weak sales and low profitability is due to a product whose evolution has been misdirected, with the result that neither the needs of consumers nor those of companies are being met. 

Today’s LTCI products are grounded in a crisis-driven, reactive model that intermediates the risk “at a distance.”  In the vernacular, it waits until you’re broken to keep you from going broke.  That is, there is no provision for engaging customers in order to help them reduce or manage the risk of needing services.  It is purely a financial vehicle that brings the most expensive resources to bear when an individual’s options are the fewest. 

Unfortunately, the long term care risk is a complex, amorphous event grounded in emotional, financial, social, governmental, family and provider issues and does not seem to conform well to this approach.  However, rather than embrace measures that could mitigate such risk volatility, insurers have tended to compete on fairly meaningless secondary benefits (caregiver training, ambulance services, etc.) that have little to do with the core risk.

The net result is an expensive, overly complex product that seems to be suffering declining public appeal.  Evidence a recent Kaiser Foundation study that finds the public perceives LTCI as too complicated and too expensive and that it will likely not meet their needs when the time comes. 

The public is remarkably perceptive on these counts and the industry needs to take note.  To have a product that is chronically under-priced and continuously subjected to the addition of ever more features tied to today’s provider network in the face of this perception means that something in the overall approach to the risk can’t be right. 

It is my opinion that what is needed is a new approach; one that brings together customers with today’s most advanced risk management resources while still providing financial protection in a simple useable form.  By so doing, a product can be provided that has greater appeal, higher value and most important, increased profitability. 

Influential Trends 

Two trends in health care and related technology point to a product model with the potential to provide greater value and the opportunity for increased sales and profits: 

Consumer Direct Health Care – The difficulty many individuals have in navigating today’s health care system, coupled with the rise of readily available information on the internet and America’s move toward increased individual responsibility has fueled a change in the approach to advice and treatment.  No longer is the personal physician the principle and only source.  Rather, he or she is rapidly becoming one of several sources individuals use in making their health care decisions.  Indeed, many physicians find that their patients have researched a matter of concern quite extensively before engaging in consultation.

Interestingly, this has become a source of frustration for some physicians, as many of their patients are increasingly better informed (and, admittedly, often misinformed) on a matter of interest than they.  Rapid medical advancements make it all but impossible for any one doctor to be current on everything that may be of concern to their patients.  This splintering of resources is further evident in the direct marketing of new pharmaceuticals and other treatment options through television and other media.

The result is a population that is increasingly comfortable with receiving advice and treatment recommendations that don’t necessarily come from their doctor.  It is difficult to imagine that this trend won’t continue to grow into the future.

Technological Advances – Methods for detecting and isolating certain medical conditions have improved dramatically in the last ten years and have been coupled with an equally dramatic reduction in unit cost.  What used to require several office visits and sometimes invasive procedures, with weeks before results were known now can be had almost immediately at a fraction of the cost.

Of particular relevance to LTCI is the ability to cheaply and quickly detect certain chronic conditions that, if treated at their earliest stage, can lead to a dramatic reduction in the future need for care and, therefore, use of policy benefits.

Since many of the diseases and conditions that result in large claim amounts are relatively infrequent, methods available in the past for early detection and treatment were not economically compelling.  With recent advancements, however, this equation has changed.  A case in point is Alzheimer’s disease and related dementia (ADRD). 

Early Detection and Treatment of ADRD 

According to the Society of Actuaries 2004 Intercompany Long Term Care Experience Report (available at, ADRD is the single largest source of claim expense for LTCI.  Dollars spent to date on ADRD are nearly four times greater than the next leading cause (stroke) and are increasing rapidly.  In the face of the current trend, it is not unreasonable to assume that ADRD alone will comprise more than 50% of all claims paid within the next three to five years. 

As recently as five years ago, early, accurate detection of ADRD required several office visits, a spinal tap, a time lapse of around six weeks and a cost in excess of $2,000.  With an incidence rate of less than 4% above age 65, it did not make economic sense to regularly screen individuals for this condition.  Further, it was believed that relatively little could be done.  Today, that has changed. 

A highly accurate (98% sensitivity) internet based screen grounded in a standard question battery and Knowledge Discovery and Data Mining (KDD) techniques can produce the same results as a spinal tap in fifteen minutes at a cost of around $30.  Further, disease management protocols, if applied at the earliest stages of the disease, when symptoms first diverge from those of normal aging, can now delay the need for nursing home placement by three to six years.  With such developments, the economics of screening, when faced against a disease that accounts for upwards of 45% of LTCI claim costs, becomes quite compelling. 

Additional capabilities exist in the area of osteoporosis, stroke and peripheral arterial disease, though perhaps with not quite as great a return.  It can only be presumed that these and similar screening and disease management mechanisms will become increasingly available and, if the consumer trend outlined above is to be believed, equally popular. 

The choice LTCI insurers will be faced with is to embrace these trends, and incorporate proactive components into today’s purely reactive product model, or to sit on the sidelines while this and related technologies find their way as tools of anti-selection.  This latter outcome, interestingly, is already in evidence.  As reported in the National Underwriter, early Alzheimer’s victims select against insurers at a rate six times higher than that associated with any other disease segment. 

Simply put, insurers can bring today’s technology inside their industry so as to reduce costs and improve outcomes, or allow them to reside outside and drive up costs.  The tradeoff, however, is acknowledgement of the prospect of a chronic condition before it occurs, which given today’s reactive product model, is heresy to most insurers.  Nonetheless, these developments will continue, as the forces of medical research and demography are not deterred.

Proactive measures that reduce the need for LTC, and therefore compress morbidity, will be a part of this country’s landscape in the future.  The United States will not endure the reduction in living standards that results from the large scale diversion of labor required to meet aging Baby Boomer’s LTC needs.  LTCI insurers would do well to recognize this and be among the beneficiaries from such an approach.