LTC Bullet:  Guest Column, "New Long Term Care Insurance Thinking"

Friday, April 17, 2015


LTC Comment:  In any battle, including the fight to protect Americans against the risk and cost of long-term care, it’s good to hear from someone on the front lines.  Listen to one who’s charged the barricades, after the ***news.***

*** LOUIS BROWNSTONE, today’s guest columnist, testified on April 7 before a Joint Hearing of the California State Legislature’s Senate Human Services, Select Committee on Aging and Long-Term Care and Assembly Aging and Long-Term Care Committee.  Louis got the last word in batting clean-up at the end of the hearing.  To watch his six-minute testimony:

Go to; Click on “Media”; Click on “Media Archive”; Scroll down to “4/7…Joint Informational Hearing”; Click on “View”; Scroll over to 2 hours and 45 minutes.  Sounds complicated but I did it without technical support.  Well done, Louis. ***

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LTC Comment:  Louis H. Brownstone is Chairman of California Long-Term Care Insurance Services, Inc. and a member of the National LTC Network.  He recently took it upon himself to reach out to his industry colleagues, California public officials, and thought leaders in the Golden State.  His mission was to engage them in a review of California’s dysfunctional long-term care financing system, especially as it impacts private long-term care insurance and LTC Partnerships.  No Don Quixote, Brownstone is realistic about the prospects for such a campaign.  But we say “Three cheers for making the effort.”

Here’s Louis Brownstone reflecting on possible new directions for the LTC insurance industry.


“New Long Term Care Insurance Thinking”
Louis H. Brownstone

I’ve reached the following conclusions:

  1. The long term care insurance industry's strategy of raising premiums in order to increase profitability has failed;

  2. This strategy has produced drastically lower sales and reduced profitability.

  3. The industry has neglected to recognize its skyrocketing rates "disease" for many years.

  4. The industry has finally examined itself and recognizes that strong medicine must be taken to cure its disease.

Finally, the long term care insurance industry is waking up.  It has now concluded that past policy structures with increasing premiums won't work.  It is creating new prescriptions to treat its problems.  Lots of innovative products are being filed with lots of new ideas.  The main thrust is to lower premiums.  There is a variety of new prescriptions.  What are they? 

First and most important, there are new ways to deal with the cost of inflation.  The traditional inflation riders can as much as double the premium.  Reducing the cost of inflation is in many ways equivalent to lowering ones blood pressure.  The industry has now pretty much rejected the 5% compound inflation rider, and may reject lesser percentage inflation riders as well.  Inflation may well be dealt with in the future by sloping premiums in some way, so that the initial premium is low but would rise over time as the benefits rise.  Or, policies may be sold with larger daily benefits but without an inflation rider.

Second, there's going to be a big push to sell to younger prospects, particularly in the worksite.  This would make premiums more affordable, but there is the issue of competing financial demands for people in their forties.  Human relations heads of companies need to feel that their other health insurance premiums will be stable in order to take on the long term care insurance entitlement.  This may or may not occur over the next several years.  It could be a game-changer, as selling limited long term care benefits in the worksite makes perfect sense.

Third, carriers will reduce their regulatory and reserve costs by offering policies similar to life insurance.  These would have guaranteed values, some flexibility for the policyholder, and limits of liability for the carrier.  It would result in lowering the cost of filings and making carrier-produced illustrations a central part of the sale.  This complex structure would be best suited to internet selling.  Could the agent adapt to this type of presentation?  Or, would carriers decide to utilize the efficiencies of internet selling without the use of agents?

Fourth, producers will be encouraged to accept the fact that only the wealthy can afford catastrophic protection.  Producers are becoming increasingly comfortable with the concept that some coverage is better than none, and can in many cases wind up being just what the policyholder needed.  This is a paradigm shift from the desire by agents to cover even the most acute scenarios.  Furthermore, since less than 20% of the care takes place in nursing facilities, why protect against that cost, rather than the far lower cost of eight hours of home care or twenty-four hours in an assisted living facility?   Agents are already proposing plans with reduced benefits, and long benefit periods are disappearing.

Again, this is similar in thinking to life insurance sales.  Life insurance agents often sell a $50,000 or $100,000 death benefit, assuring the prospect that the flexibility of the policy will take care of his or her family forever.  We know that this is only partial coverage for most families.  In fact, it is well recognized that despite best efforts, life insurance sales only average $130,000 per policy and only cover about 25% of the need.

If they could cover 25% of the long term care need in this country, long term care insurance agents would become rich and fulfilled.

Fifth, carriers will offer more products with defined benefits and limited liability.  They may even do this with some underwriting concessions, such as simplified underwriting.  This is assuming that they can access the MIB [Medical Information Bureau], the drug formulary, and even conduct a phone interview if they wish.  The carriers know full well that as much as 40% to 50% of their prospects will not pass current underwriting standards.  They need to find a way to sell these folks.  They have been able to do so in life insurance, selling guaranteed issue life insurance with limited benefits

Finally, there is the strong development of non-traditional long term care protection:  hybrids, linked-life and annuities with accelerated death benefits, term insurance, critical illness insurance, and more.  The carriers are more comfortable with these products because they can predict their profitability.  They sound better than they are.  Traditional long term care insurance has about twice the leverage of these products.  But many of these products will be sold, and it is incumbent on the long term care insurance agent to understand their advantages and disadvantages and to be able to sell them if they fill the client's need.

As you can see, there are a lot of new "prescriptions”.  Stay tuned as we learn more about these innovations.  Hopefully, some of them will be just what the doctor ordered.

Mr. Brownstone welcomes comments at