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.***
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:
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 ***
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
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 http://www.metlife.com/WPSAssets/24157399001148653670V1FMay.pdf.
Check out their "grandparents poll" at http://www.metlife.com/WPSAssets/81911529701150382761V1FGrandparentPoll.pdf.
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 BULLET: A
DIFFERENT APPROACH TO LTCI
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 www.centerltc.com.)
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
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.
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 www.conning.com) 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;
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
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 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.
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.
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.
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
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
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.