LTC Bullet:  Inspect This Plane

Friday, April 18, 2014


LTC Comment:  There are good and bad ideas in the LTC Think Tank’s remarkable “Land This Plane” report.  Which are which?  We’ll opine after the ***news.***

*** GOOD LTCI NEWS.  Center for LTC Reform Premium Member and clipping service subscriber Melissa “Missy” Vanderwaal of LTC Benefits in Indianapolis shared the following client letter that she received April 15 (slightly edited and names replaced with initials). 

Dear Missy,


In the Fall of 1999 you wrote a LTC policy for a 77 year old woman, my mother.  My sister and I decided to pay the premium for her by splitting the premium and each paying half.  Mother could not afford the premium but we looked into the future and decided LTC insurance was the best option for her and us.  In the Spring of 2011 mom was diagnosed with dementia (which she denies to this day) and she was placed in Assisted Living.  She remains in Assisted Living but we are beginning to consider the next step, Memory Care. 


But my point is this:  the LTC insurance you helped us choose has been a blessing.  We did not have to sell her home to afford her care.  The independence and stimulation she receives in Assisted Living is better than the fewer choices she would have had without LTC insurance.  Even though she has been using her benefits for 3 years, she still has a large amount of value left in her policy which eases our concern for her future care. (You helped us choose an Indiana Partnership plan).


So, I'm sure you get the gripes when things go wrong, but I wanted to remind you of the times when things go, oh, so right.  Don't know what we would have done without you and LTC insurance. 


P.S.  My sister and I are both retired now and our mother is 92.  Sis and I were both able to go to Florida for a few months this Winter.  How in the world would we have been able to go if we did not have confidence that our mother would be well taken care of while we were gone?


Thanks for helping us chose the right policy for mom,




T. W. ***


LTC Comment:  Sponsored by the Society of Actuaries and prepared by John O’Leary, the LTC Think Tank recently published a report titled “Land This Plane:  A Delphi Research Study of Long-Term Care Financing Solutions.”  Read it here

Sticking with the aeronautical metaphor, every aircraft requires periodic inspection and maintenance.  We’ll have a look at this plane in today’s LTC Bullet.  Will it fly or should it be grounded?  Your feedback is welcome.

Let’s start with some background about the study from the report’s Executive Summary:

In January 2013, the Long-Term Care Think Tank launched a comprehensive study with the goal of articulating solutions to the nation’s long-term care (LTC) financing challenges. The project, called “Land This Plane,” was conducted by the Long-Term Care Think Tank, and sponsored and supported by two of the Society of Actuaries’ professional interest sections: the Long-Term Care Insurance (LTCI) Section and the Forecasting and Futurism Section. The Long-Term Care Think Tank was established in 2005. Its broad purpose was to provide a forum for a broad coalition of LTC experts from inside and outside the insurance industry to discuss the looming LTC financing crisis. The hope was that the group would research and discuss needed changes, and would publish solutions with broad public and private support.

I participated in the first phase of this project, but dropped out when it became too time consuming and seemed to be drifting toward some recommendations with which I preferred not to be associated.  Nevertheless, I think this was an exceptional effort and that all those associated with it should be congratulated and thanked for the professional time and effort they invested in it.  Kudos especially to Roger Loomis and Ron Hagelman.

What follows are brief excerpts from the “Land This Plane” report’s “Executive Summary” with our “LTC Comments” on each.


Quote:  “A systemic overhaul of the LTC financing system is needed.  . . .  The overhaul needs to clarify, define, and structure today’s somewhat disjointed system of private and public funding options for the American consumer.”

LTC Comment:  LTC financing in the USA is a mess.  That’s for sure.  But we don’t need anyone or anything to “overhaul” it.  The very idea evokes what?  A deus ex machina, a Long-Term Care Czar, a five-year plan?  Rather we need to reduce government interference that has steered LTC financing off course.  Get Medicaid out of the business of funding LTC for the middle class and affluent.  Put home equity at risk for funding long-term care.  Stop crowding out private funding sources like reverse mortgages and private LTC insurance.  Return to sane fiscal policy (balanced budgets) and honest monetary policy (no Fed gaming interest rates).  Let the market work and it will solve most of the problems with LTC services and financing.  Stop doing what you’ve always done and you will get a different result.

Quote:  “Private insurance needs to be part of the financing solution.  . . .  Private insurance could provide a much-needed additional funding source for many people, but both the supply of and demand for private insurance need to increase. There was less consensus on exactly how to do this, but several ideas received positive consideration, including changes to regulations, new product designs, government incentives, public awareness campaigns, and changes to professional standards.”

LTC Comment: All are fine ideas but none will have much effect unless and until the government stops giving away what the LTCI industry is trying to sell to the very same middle class and affluent people to whom they’re trying to sell it.  Fix that and most of the rest of what’s needed will fall into place.

:  “Social insurance is needed as part of the solution. The most surprising finding of the survey is the overwhelming degree to which the panelists agreed on the need for a social insurance component as part of the ultimate LTC financing solution.  . . .  Among the range of social product concepts evaluated by panelists and that emerged with strong support were a high-deductible, long-term care insurance concept to cover catastrophic situations, and a health savings account (HSA)-like LTC savings fund.”

LTC Comment:  Here we part company.  With Medicare and Social Security facing $66 trillion dollars of unfunded liabilities, the last thing we need is another social insurance entitlement.  That’s not to say there’s no role for public financing.  Medicaid could provide a very good LTC safety net for the truly needy if it stopped being the primary LTC funder for everyone.  By giving Medicaid back to the poor, enough money could be saved to pay market rates for quality care across the whole continuum of “long-term services and supports,” home care, assisted living and nursing homes. 

An HSA for LTC is a great idea.  So also is high-deductible LTC insurance, although not through a government program which would leave private insurance with only Medi-Gap-style products for the front end.  The purpose of insurance is to replace the small risk of a catastrophic loss with the certainty of an affordable premium.  Regulatory change should permit and encourage such products.

:  “The government needs to take an active role in the LTC financial solution. Over 90 percent of panelists agreed on the need for the government to take an active role developing and implementing LTC financing solutions. Panelists consistently discussed the need for a logical, consistent, defined LTC system.”

LTC Comment:  Again with the central planning focus!  How’d that work out for the Soviet Union?  Has our government done such a fine job of managing the long-term care marketplace up to now that we should turn over more control to it?

Quote:  “Consumer education and tax incentives are critical to the solution. The study suggests that government’s active role should extend beyond designing the overall system to providing education, incentives and leading regulatory change that encourage planning-oriented behaviors.”

LTC Comment:  This constant plea for the past decade or more from the LTCI industry to the appropriators of government money has always fallen on deaf ears.  Hello!  No one’s listening.  Tax incentives and education programs are within reach, but only if you show legislators where to save the money to pay for them.  You can get the funds for positive incentives for responsible planning by increasing the disincentives against failing to plan.  In other words, give Medicaid back to the poor and use some of the savings to incentivize and educate consumers about private LTC financing alternatives.

Quote:  “The Medicaid program is overdue for a major reform. Panelists consistently and emphatically agreed that major changes are required to the Medicaid program as related to LTC. Those changes consisted of tightening eligibility for Medicaid so the program doesn’t allow people with significant assets to divest them to the benefit of heirs and still qualify for LTC reimbursement. Also, panelists felt that benefit restrictions need to be changed across all states/jurisdictions to enable Medicaid to pay for services in a full range of settings, including home and community care, if appropriate and cost-effective. . . .  Many panelists suggested that reforming Medicaid is the essential first step in the overall LTC system overhaul.”

LTC Comment:  OK, good, but it could be better.  First, divesting assets isn’t the big problem.  The big problem is that basic Medicaid LTC eligibility rules allow people with very high income and assets to qualify.  Start there, then eliminate the Medicaid annuity loophole, and finally tackle asset transfers.  Regarding the rebalancing from nursing home care to home and community-based care, states can do that now and many have, but it doesn’t save money.  The only way to enable Medicaid to pay for quality care in the most appropriate and most desired venues, including the home, is to have fewer people dependent on the program.

:  “LTC regulations and legislation need substantial revision. Panelists were in strong agreement that regulations and legislation governing LTCI should be revisited and revised to consider consumer realities and needs. . . .  Panelists indicated a need for regulatory change that encourages simpler policies that are affordable and accessible to a broader population.”

LTC Comment:  I agree completely except that “simpler policies” should not limit consumers’ choices.  They should be able to buy whatever a carrier wants to offer, including high-deductible, catastrophic policies as well as more complicated policies that cover much more.

:  “Incenting personal and family responsibility should be part of the solution. Panelists overwhelmingly indicated that a reformed LTC system should incent household and family participation in long-term caregiving situations. Comments from panelists suggested the use of innovative tax credits to encourage family- and community-based caregiving as a way to minimize formal services and keep costs under control.”

LTC Comment:  Again, who’s going to pony up for those costly tax credits?  What if paying caregivers reduces the free care on which the current Rube-Goldberg public financing system depends?  Has anyone considered the unintended consequences that current public policy causes and these new ideas may exacerbate?

:  “Use of retirement savings accounts to fund LTC protection should be incentivized. Panelists overwhelmingly favored the idea of modifying federal tax rules to enable funds in tax-deferred savings accounts (401(k), 403(b) and IRA accounts) to be used on a tax-free and penalty-free basis to fund LTC protection products, including LTCI. Panelists agreed that tax incentives are an attractive way to encourage consumers to leverage existing savings mechanisms to protect against the costs of LTC.”

LTC Comment:  Great idea although unlikely because it would cost the government money that it doesn’t have and legislators would rather spend money they must borrow on things that bring more direct benefits, i.e. campaign contributions.  The first thing to do about tax-deferred savings accounts is to stop exempting them from Medicaid asset spend down limits.  That would save the government money, pump more private funding into the desperately under-financed service delivery system, and radically increase the public’s incentive to plan ahead for long-term care . . . in order to avoid having to spend their IRAs for care.

Quote:  Improvements in LTCI products, marketing and sales are needed. Panelists agreed that the risks of needing LTC, the potential costs of LTC services, and the available LTC financing solutions need to be better communicated both overall and at the point of agent interaction with consumers. Life and health insurance agents and brokers as well as financial advisors need to include the risks, costs and LTC funding options in their consumer presentations.”

LTC Comment:  Agreed.  People who fully understand the downsides of “going bare” will buy LTC insurance if they can afford it.  The problem is that easy access to publicly financed care after the insurable event occurs has desensitized consumers and most of their financial advisors to the real risk and cost.  Hence most people don’t even talk to someone who can fully advise them.  That won’t change until the alleged catastrophic financial consequences of going bare become real. 

Closing LTC Comment:  I conclude this plane needs to go into the hanger for further inspection, but it is repairable.  Two suggestions. 

Number one:  Ask and answer the key question no one ever seems to pose.  That is, how did long-term care in the USA get so fouled up in the first place?  Answer:  Medicaid made nursing home care free, which created the institutional bias problem, crowded out a private home care market, and stifled the private insurance market leaving families unprotected financially and with a huge burden of “free care.”  There in a nutshell is the problem and a pointer to the solution.

Number two:  Don’t ask the government to “overhaul” the same dysfunctional “system” it created.  No mysterious third party is going to fix this mess either.  Central planning does not work.  Just get out of the way. 

Bottom line:  We don’t need an airliner with Uncle Sam at the controls.  We need a glider, unmanned and guided only by the invisible hand of market forces, consumers’ self-interests and free competitive enterprise.  That’ll fly.  And it’ll take us where we need to go.