LTC Bullet:  Why 9 Out of 10 Get LTCI Wrong

Friday, November 4, 2011

Sundance, UT--

LTC Comment:  Today's guest column explains why the "Medicaid myth" is fallacious, but most LTCI agents still fall into the trap dragging too many potential buyers into it with them.



LTC Comment:  I was practically blown over when I read the following article by Steve Forman, a long time supporter of the Center for Long-Term Care Reform whose company, LTC Associates, is a corporate member of the Center.  "I couldn't have said it better myself" isn't praise I give often or lightly, but it's deserved in this case.  I hope you enjoy these excerpts and that you check out the full article on the Producers eSource here.


Excerpts from "LTC Insurance:  Why 9 Out of 10 People Make the Wrong Choice," by Stephen D. Forman

"Keep in mind the lion's share of applicants qualify for Medicaid straightaway without needing or seeking professional assistance.  However, for the affluent a cottage industry of Medicaid Planners and Elderlaw Attorneys exists to finagle and exploit every loophole.  Rather than save, invest or insure, our wealthy neighbors use exotic financial planning techniques to hitch a ride on the public safety net.  Recently the GAO was asked to assess one such abusive 'self-impoverishment' technique- asset transfers- and concluded that mechanism alone (among the least popular) cost Medicaid around $1 Billion/year.  To put that in perspective: this amount of abuse from just one technique used by the middle-class and wealthy in order to 'game' Medicaid exceeds the annual LTC claims-paid by most of our industry carriers.

"Since both public and private insurance confer asset protection, I don't think it's a particularly strong selling point.  On consumer surveys you will often find respondents voicing 'asset protection' as an important feature to them- I don't deny that.  However, working against us is an undercurrent called the 'crowd-out effect': that sentiment taxpayers feel about paying for something that replaces a government benefit they already get for free.  It is estimated that Medicaid 'crowds-out' 2/3rds to 90% of our private LTCI market (the groundbreaking work for this paper was published in the most prestigious of economic journals, NBER).  This is why LTCi is bottled up and has yet to take off.

"Having said this, I'm not dismal about our market, and neither should you.  There are good ways to sell our products, and a future which endorses them.  You've heard how Medicaid has become the dominant payor of long-term care in this country, and why it can be difficult to sell what is essentially 'ice' to Eskimos.  Now it's time to tell 'the rest of the story...'

"First, if you've kept an eye on our economy lately, then you're aware that what began as a New Year's Eve party is turning into a New Year's Day hangover of epic proportions.  One of the largest contributors to this has been- and continues to be- our Big Three entitlements (Social Security, Medicare, and Medicaid).  According to a GAO Report from earlier this year, by 2020 our country could spend as much as 89-cents of every dollar on the Entitlements and Interest, leaving only 11-cents for every other program, need, interest group, and worthy cause we'd like to fund.

"Because this path is unsustainable, choices will be made which reduce or eliminate the easy access to Medicaid of the past.  In 5, 10, or 20 years we will not recognize Medicaid (or Medicare, for that matter) as the programs we know today.  Medicare is becoming increasingly means-tested as a result of the Affordable Care Act, raising both the payroll tax and premiums for higher wage-earners (Parts A, B and D), all for the sake of gaining 8 more years of solvency.

"Medicaid fares worse.  Jointly run by the Federal Government and the States, it's partially dependent on how much water the states can take on before sinking.  Unlike the Federal Government, States must balance their budgets, and going into 2012, they collectively face a $121B deficit- not counting the 17M new Enrollees they are mandated to add to their rolls in 2014 as a result of ACA.  (Washington has pledged to cover the cost of these new Enrollees for a few years, but these matching funds will eventually sunset.)

"States are feeling squeezed.  Already, nearly half (24) are preparing to cut $4.7B from their Medicaid budgets, reducing both provider reimbursement rates and services which beneficiaries receive.  Adding insult to injury, the President's recently unveiled Deficit Reduction Plan recommends an additional $320B in entitlement cuts over the next ten years.

"I hope by now the clever reader will acknowledge why I haven't suggested working 'with' Medicaid by selling a long-term care Partnership product.  What's the use of promoting a 'guarantee' from a Government Program which may be unrecognizable, capricious, or worse- bankrupt?

"To fully explore that point, let's talk about how we 'sell against' the 'Medicaid Insurance Company'.  We're going to win by making a qualitative sale, not a quantitative one.   . . .

"In the end, you can have coverage on the cheap, but there are serious trade-offs, including loss of quality, access, choice, and independence.  A cursory review of some of Medicaid's 'greatest hits' in the last two years includes canceling transplant coverage for 98 people dying on a waiting list; unilaterally raising the number of qualifying ADL's to 4 in Minnesota; providing unreliable coverage of Assisted-Living; and adding, constricting, expanding, then cost-cutting of HCBS like a sail caught in the political winds (and how is that 're-balancing' working out?  Fine, unless you count the 365,000 people wait-listed for Home Care).  Add to this the news that some major nursing home chains have made the switch to 'private-pay only', and it's all the proof you need that a 2-tier HealthCare system is developing in our country.

"That positions you right where you need to be: selling the experience.  Private long-term care insurance allows your clients to choose the highest-quality care in the most-appropriate setting of their choice.  Although Medicaid is a powerful undertow, you cannot let them get swept out to sea, subject to a budgetary system that is $100,000,000,000,000 in the red, and feverishly, furiously looking for ways to cut corners, including eligibility restrictions, provider payment reductions, and service cuts."

About Stephen D. Forman:  A pioneer and leader in LTC insurance since 1974, LTCA has distinguished itself as one of the country's leading voices on this specialized topic. As Senior Vice-President, Stephen D. Forman has dedicated nearly two decades to this field, and is frequently sought for his expertise, appearing in such publications as "Kiplinger's Personal Finance", "Agents Sales Journal", and in the Congressional Research Service's confidential report to Congress on the CLASS Act. He can be reached at 800.742.9444 or