LTC Bullet: The Myth of
Unaffordability . . . Still!
Friday, December 7, 2012
LTC Comment: Too little has changed
since we debunked “The
Myth of Unaffordability” in 1999, as
LTCA’s Steve Forman elucidates after the ***news.***
*** REMEMBER PEARL HARBOR DAY and
those who served. ***
*** MEDICARE LTC SETTLEMENT UPDATE:
here an update on the proposed court settlement that expands Medicare
coverage of longer-term "maintenance care." The update comes from an
organization that favors the proposed settlement for which the judge has
granted preliminary approval subject to a "Fairness Hearing." The
downside, of course, is that as Medicare pays for more and longer skilled,
home and therapy care, the program’s $38.6 trillion unfunded liability
will continue to increase and the public will perceive less incentive to
plan privately for LTC risk and cost. ***
*** LTCI SUMMIT PRESENTATIONS
AVAILABLE ONLINE: Recordings of 32 workshop and keynote presentations
from the 2012 National Long Term Care Insurance Sales Summit are now
accessible for insurance and financial professionals. Some 560 agents,
brokers and marketing professionals attended the event held November
10-12, 2012 in Las Vegas. "Summit sessions ranged from the very basic for
those just getting started to some highly advanced topics featuring many
of the nation's leading industry experts," explains Jesse Slome, executive
director of the
American Association for Long-Term Care Insurance. They varied in
length from 45 minutes to two hours. Get free access to the first five
minutes of each presentation here: www.aaltci.org/audios.
Download complete sessions for $20 or $390 for all. To download sessions
or order CDs, take advantage of a special 33 percent professional discount
arranged by the Association. Simply enter the code SAVE33 during the
online checkout process. The discount is valid through January 2013. ***
*** “FISCAL CLIFF” news coverage
reminds us of this advice from an old Ann Landers column:
by the Reverend William J.H. Boetcker
You cannot bring about prosperity by
You cannot help small men by tearing down big men.
You cannot strengthen the weak by weakening the strong.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor man by destroying the rich.
You cannot keep out of trouble by spending more than your income.
You cannot further the brotherhood of man by inciting class hatred.
You cannot establish security on borrowed money.
You cannot build character and courage by taking away men's initiative and
You cannot help men permanently by doing for them what they could and
should do for themselves.
From: Ann Landers Advice Column,
Seattle Post-Intelligencer, July 29, 1995, page C2.
LTC BULLET: THE MYTH OF
UNAFFORDABILITY . . . STILL!
LTC Comment: In the Center for
Long-Term Care Reform’s 1999 monograph titled “The
Myth of Unaffordability: How Most Americans Should, Could, and Would Buy
Private Long-Term Care Insurance” I reached the following
Confronted with the stark reality of long-term care
financing risk, most Americans (realistically as many as 70 or 80 percent)
can afford to purchase the protection of private long-term care insurance
at one stage of their life or another. For the young and middle-aged, the
challenge is to get their attention. For older people, the challenge is
to help them find creative ways to generate the cash flow for premiums.
Please don’t batter me with emails
insisting “that’s nuts” unless and until you’ve read our 84-page,
extensively documented, 13-year-old study. You may find a happy discovery
waiting for you there. For a quick summary of the report, see our
LTC Bullet: The Myth of Unaffordability, published August 27, 1999.
But whether or not you find my
analysis and conclusions in the “Myth of Unaffordability” persuasive, that
was then and this is now. How can anyone seriously suggest today, after
rising premiums and plunging incomes, that private LTC insurance remains
affordable? Here’s how:
Special thanks to Stephen D. Forman,
Senior Vice President of Bellevue, Washington based
Long-Term Care Associates, for permission to re-publish his article
Premiums Have Decreased! Say What?," which follows.
"LTC Premiums Have Decreased! Say
Stephen D. Forman
Stop me if
you’ve heard this one: “Long-term care
or “LTCi costs too much,” or “The
Sound familiar? What makes it even worse is that such clap-trap
comes not only from the mouths of agenda-driven journalists and
chicken-little consumers, but is also repeated by our own peers,
shrewd than my own established that repetition turns opinion
into fact. The danger of this potent marketing concept is when
it’s used without forethought. When we repeat the statement that
LTCi is unaffordable we damage our sales and our industry
reinforce the narrative.
That rates are rising is already the dominant storyline in the
media, and a hole we must climb out of every morning just to begin
our workdays. It helps the industry not one bit to provide news
outlets with soundbites claiming our own product is expensive.
make sales harder than necessary.
Most consumers believe LTCi is—are you sitting down?—too
expensive. As a result, we devise all sorts of contortions to
accommodate this objection, including a movement afoot to persuade
consumers to under-insure themselves just to make a sale.
change the way the product is sold.
There was a time
when planning began with a suitability review and needs-analysis,
followed by personalized plan design. However, in a world where
price is paramount, such ideals are quickly jettisoned.
Out goes “needs-based analysis”, and
in comes “spreadsheeting”, which I’ve argued has led to the
ruination of our business.
discourage the use of important riders.
industry has adapted to the varied needs of our clientele by
a brilliant array of unique riders,
the fact is that each of these planning tools nudges up the price
of a plan incrementally. Sadly, there are perhaps 2 which are sold
to any great degree, while the others primarily “sit on the
encourage budget-based solutions.
More than one carrier has introduced illustration software which
permits an agent to enter a budget, and work backward to produce a
matrix of available benefits. The result of years of groupthink
has been visited upon us in the form of agents losing control—and
rendering their services redundant—to Priceline-like consumers who
now “name their price”.
But what about
the premise? This knock against runaway LTCi pricing—how the
product is increasingly more expensive and must be shaved,
contained, or sliced—what if it’s all wrong?
Fortunately for us, it is.
The cost of living is measured in the hours and minutes we must work
Let’s start with
a crash course in economics. According to the Federal Reserve of
Dallas, “Making money takes time, so when we shop, we’re really
spending time. The real cost of living isn’t measured in dollars
and cents but in the hours and minutes we must work to live.”¹
An example may
help here, “A pair of stockings cost 25-cents a century ago. Of
course, the average wage at the time was 14.8-cents an hour, so
the real cost of stockings in 1900 was one hour and forty-one
minutes of work for the average American. If you walk into a
department store today, stockings (pantyhose) are seemingly more
expensive than they were in 1900—but they’re not. The price has
gone up, but our wages have gone up even faster. Stockings now
cost around $4, while America’s average wage is over $13 an hour.
As a result, a pair of stockings costs the average worker only
eighteen minutes of time, a stunning improvement from an hour and
one of the great marvels of Western technology and efficiency that
over successive generations we can work less and less to pay
for equal goods and services. In economics it’s called
“productivity”, and such material progress is not to be taken for
granted. It’s at most a few centuries old—remember the stagnation
called the Dark Ages? With “productivity” as our backdrop, let’s
examine the cost of long-term care insurance in a new light.
PUTTING IT IN
For this study,
we gathered 15-years of statistics, from 1995 – 2010. We examined
average premiums at four different ages (60, 65, 70 and 75) for a
nearly-identical benefit across 10 representative carriers. For
example, although the average premium for a 60-yr old tended to
rise over time for the same coverage, this was neither unexpected,
nor particularly telling. This is why most LTCi price
indices we’ve read tend to be of limited utility.
We need to add
the same time period we obtained both Income and Wealth statistics
from the US Census. Although the Census does provide very good
Median and Mean Income statistics by year, it groups them by
age-band (55 – 64, and 65+), which forced us to make some
accommodation in our calculations. We were consistent with our
choices when borrowing the Net Worth statistics as well (55 – 64,
and 65 – 74 age bands).³
A 60-yr old in
1995 spent 4.1% of her income on LTCi, while a 60-yr old in
2010 spent 4.2%. Meanwhile, a 65-yr old spent 9.1% of
her income on LTCi in 1995, while a similar 65-yr old in 2010
spent only 8.8%. One could charge that LTCi is expensive
for some individuals because it costs more than 7% of one’s
the arbitrary and discredited method
found on the NAIC Suitability Form—but that would miss
the point entirely. Rather, we should all
marvel how—in 2010—LTCi costs roughly the same, or less, than it
did in 1995.
Besides, we all
know you don’t pay for LTCi out of income—you pay for it out of
assets! So let’s look at Net Worth. A 60-yr old in 1995 spent
0.25% of her Net Worth on LTCi premiums, whereas a 60-yr old
in 2010 spent 0.21%. The 65-yr old in 1995 spent 0.39%
of her Net Worth on LTCi, while the 65-yr old in 2010
Once again, the
bottom line is clear: LTCi premiums may
have increased, but our incomes and net worth have both risen
The 65-74 and 75+ age brackets are the only ones to experience
rising real median incomes between 2007 and 2010.
NO APOLOGY NECESSARY
We could still point an accusatory
finger at our own industry and product, except that we have nothing to
apologize for. During roughly the same time frame as LTCi prices stood
still—relative to Income and Net Worth—the cost of items such
as Auto Insurance (45%) and
Health Insurance (131%)
Yet the industry has chased a
myth—a belief that our own sales have suffered due to price. (Fact is,
even if LTCi were half the price, it
would still cost more than our #1 competitor. [Ie.,
Medicaid) This is why product designs and sales schemes which rely on
cost-cutting fail: know anyone who’s making a killing selling Short
Term Care lately? GPO and Co-Insurance designs have
been around for a decade, and even though they’ve sunk entire
carriers, companies keep re-introducing them as if they were an
industry savior. You will notice a theme: even when our ads and
marketing pieces begin with the premise, “It’s a myth that LTCi is
expensive,” the solutions put forth inevitably cave by suggesting
ways to lower the price.†
And yet, according to the latest
National Partnership Survey, nearly 50% of partnership policyholders
of All Ages are today paying less than $2,000/yr, and nearly
63% pay less than $2,500/yr. Compared to
just about anything else we might pay
$2,500 for, is this a lot of money? It’s dang cheap! To
close, let’s channel the words of my father, “Mr. Client, do you think
you and your wife would have a hard time coming up with $5,000 a
“Oh my, Mr. Forman, we could manage
it out of our savings, but it might be a little tough some years.”
“Well then you’re damn sure not
gonna be able to come up with $5,000 a month should
either one of you ever need nursing home or assisted living care,
wouldn’t you agree?”
Let’s get back to basics. Let’s not
cede control of the narrative to the media and consumers. Our product
is not expensive—it’s a terrific value and its price has held steady
for at least 15 years. As always,
Stephen D. Forman, SVP
¹ Michael Cox and Richard Alm, Time Well Spent: The
Declining Real Cost of Living in America, Federal Reserve Bank of
Dallas, 1997 Annual Report.
² Charles Wheelan, Naked Economics: Undressing the
Dismal Science, p. 152, 2002.
³ The statistics for Net Worth were offset a year or so
from the points-in-time when we calculated Avg Premiums, but the
effect should be marginal: for instance, comparing 1997 to 1995, or
2000 to 2001.
† The ultimate endgame? Linked-benefit products. These
demand no premium from the consumer at all, simply a re-positioning of
assets “from one pocket to the other”.
Image Courtesy of Lewis W. Hine.
of "The Saeculum Decoded", a blog by Neil Howe, Once Again Economy
Hammers Gen-Xers and Favors the Silent, June 12, 2012.