LTC Bullet:  Long-Term Care Insurance:  Past, Present and Future

Friday, May 22, 2015


LTC Comment:  We tweak your interest to read Paul Forte’s tour de force on LTCI after the ***news.***

*** MEMORIAL DAY WEEKEND:  Enjoy it, we’ll be back on Tuesday with members’ LTC E-Alert.  If you don’t already receive that compendium of the previous week’s most important news, articles and reports, then join the Center.  Contact Damon at 206-283-7036 or  You’ll have password-protected access to our Members-Only website immediately; you’ll begin receiving our weekly LTC E-Alerts and LTC Bullets; and you’ll have phone and email access to Center president Steve Moses whenever you have questions or comments about public or private long-term care financing. ***



LTC Comment:  If you have any interest in long-term care financing, don’t miss Paul Forte’s cover article in the May/June issue of Contingencies titled “Long-Term Care Insurance:  Past, Present and Future.”  Find it here.  This is the best concise and fact-packed treatment of the subject I’ve seen.

Paul E. Forte is chief executive officer of Long Term Care Partners LLC, the company associated with John Hancock, that manages the Federal Long-Term Care Insurance Program.  He knows whereof he speaks having worked for decades in the private long-term care insurance industry.

“Long-Term Care Insurance:  Past, Present and Future” provides exactly what the title promises.  The article begins with a timeline placing the critical events of LTCI’s history in chronological order across the top of the page.  From CNA’s launch of the first nursing-home-only product in 1964 through the growth of hybrid products in 2012-14, each major development is explained in historical and substantive context.  This isn’t just dry history, however.  Forte spices the content by opining frequently and thoughtfully.

Such is the LTCI market today. Coverage is trending toward the more finite, and it is costlier. Actuaries are now more confident that pricing for their products is being corrected, and marketing executives are more circumspect, positioning LTCI not as a total financial solution, but as a limited tool, a valuable adjunct to other financial resources. Whether such a value proposition will prove satisfactory to consumers or render private LTCI untenable is anyone’s guess.  (p. 22)

Section II of the article addresses LTCI’s “Actuarial Challenges.”  Lapse rate expectations plummeted from 5%-8% all the way down to under 1%.  Then interest rates collapsed dangerously impairing LTCI pricing.  “Mortality has been an issue, with older persons living even longer on claim than expected. . . .  But the bigger concern is morbidity, comprising incidence, utilization, recovery, and continuance.” (p.23)  Exacerbating the actuarial challenges is the lack of reinsurance, which “is almost absent in LTCI.” (p. 23)

As if the daunting challenges of making accurate actuarial projections were not enough, Section III of the article tackles the “Operational Challenges” facing LTCI.  These include inflation adjustment, determining benefit eligibility, avoiding fraud in informal benefits covering nonprofessionals, state Medicaid LTC partnership programs, rate increases, and managing closed blocks.

My interest perked up in Section IV covering “Social Insurance.”

Failure of the private LTCI market to grow has not been lost on social insurance advocates. Some have described it as “imploding,” an inaccurate appraisal. In truth, the private LTCI market has not collapsed, but private market troubles have created an opening for social insurance, which is a regular feature of the social security systems of Austria, Belgium, Germany, Israel, Japan, the Netherlands, and other countries.  (p. 25)

Forte does not draw out the irony and hypocrisy of social insurance advocates criticizing private LTCI for failures caused by government monetary and fiscal policies that artificially reduced interest rates to near zero and crowded out LTCI demand by making Medicaid LTC benefits easily accessible after the insurable event occurs.  But those points won’t be missed by regular readers of LTC Bullets.

The article offers a short history of government’s role in financing long-term care, mentioning the 1990 Pepper Commission proposals, the CLASS Act misadventure and concluding that “A more realistic design might be a co-insurance approach, with each dollar of claims divided between public- and private-sector financing.” (p. 25)

In his closing “Section V:  Future Private Market Directions,” the author describes and opines about the future prospects for stand-alone policies, hybrid options, and his own creative proposal described in his earlier Contingencies article “Fresh Thinking on Long-Term Care,” in the January/February 2014 issue. 

I found his observation about state Medicaid programs’ willingness to “sell the liability of current Medicaid beneficiaries to private-equity firms that cap the risk via managed care” (p. 26) especially interesting.  This major development in Medicaid funding of long-term care, private LTCI’s biggest competitor, is ominous for the access and quality of care available to Medicaid recipients, which is already highly questionable.

The article concludes:

Private LTCI can play a major role in financing the nation’s growing LTC needs, or it can play handmaiden to a social insurance scheme that may come to pass in the next decade. Which of these roles it assumes will hinge, I submit, on whether the private sector has the resolve to push past the short-term orientation with which it has been preoccupied, to embrace a market future that is only now starting to arrive—or whether it will decide, in the final analysis, that such a future is not worth the risk.  (p. 27)

LTC Comment:  The hour or so you spend reading this article, or the two or three you invest in studying it, will be well rewarded.  Congratulations to Paul Forte for re-telling a story many of us lived through, for embellishing it with thoughtful analysis, and for giving us his thoughts on what may be unfold next.