LTC Bullet: Guest Column, “Real Sleight of Hand”
Friday, June 26, 2015
LTC Comment: Author and LTCI marketer Stephen D. Forman opines about prestidigitation in the insurance domain after the ***news.***
*** SUMMER WEBINAR SERIES: We highlighted Phyllis Shelton’s new program in a recent LTC Bullet. The first webinar in the series took place on June 24: “How to convert term life insurance into guaranteed issue LTC insurance.” The next one will occur on July 8: “How to sell long-term care insurance that is affordable in today's market / Finding money with High Deductible Plan F with a reserve annuity / Should we sell short-term care plans?” Check out the whole series here. ***
*** CLTCR Premium Membership -- Center for Long-Term Care Reform premium members receive our full suite of individual membership benefits including: our LTC Bullets and E-Alerts; access to our Members-Only Zone website and Almanac of Long-Term Care; subscription to our Clipping Service; and email/phone access to Steve Moses for 24-hour turnaround queries. Our Premium Membership is designed to give you a competitive advantage in your long-term care profession. Your increased knowledge of the critical issues and challenges we face in the field of long-term care service delivery and financing equals improved professional success for you and better LTC services for your clients and for those who have no choice but to rely on scarce public resources. Premium Membership is $250 per year, paid up front or monthly by automatically recurring credit card payments. Contact Damon at 206-283-7036 / email@example.com to start your Premium Membership immediately or go directly to our secure online subscription page and sign up for as little as $21 per month. ***
LTC BULLET: GUEST COLUMN, “REAL SLEIGHT OF HAND”
LTC Comment: The purpose of genuine insurance is to replace the small risk of a catastrophic loss with the certainty of an affordable premium. Hence we buy life insurance, auto insurance, or fire insurance so that if we die, crash or burn (unlikely but potentially catastrophic outcomes) we’re compensated far beyond our outlay in premium payments. Our financial risk is at least mitigated.
Insurance works because carriers spread our risk across many other people in a way that allows for adequate indemnification at reasonable rates while covering administrative costs and profits for the underwriter. But private insurance also prices risk. You pay more for health insurance if you smoke, for example. So insurance has the socially beneficial effect of encouraging responsible behavior and discouraging the opposite. Real insurance is a neat, lean solution to a fundamental problem of human life, the unpredictability of individual tragedy.
Unfortunately, genuine insurance is getting harder and harder to find. Government social programs, even welfare programs, call themselves “insurance.” They spread risk, but they don’t price it so they reward irresponsible, self-destructive behavior instead of discouraging it with higher premiums. Nowadays people expect insurance to pay for minor routine expenses, such as doctor’s visits, not just for major medical expenses. It’s as if auto insurance paid for tune-ups. If insurance pays routine costs, it has to be very expensive. Hence premium costs rise or deductibles and co-insurance inflate. I developed these points in detail here: "The Inherent Individualism of Insurance," Navigator, Vol. 5, Nos. 10-11, November/December 2002, published in January 2003, http://www.atlassociety.org/individualism-insurance.
But today, I’ll pass the baton to guest columnist Stephen D. Forman of Long Term Care Associates to talk about another aspect of the corruption of insurance. He homes in on a “Real Sleight of Hand” that few people see for what it is, pseudo-insurance.
“Real Sleight of Hand”
In the world I inhabit—long term care—there are classically four solutions. Any salt-of-the-Earth agent knows you can only pay for long term care with Medicare, Medicaid, self-insurance, or private insurance[i]. When we speak across the metaphorical kitchen table, we are careful to point out why none of these options are viable except for private LTC insurance. We paint a picture in which our clients who have the health and means would never choose to wind up “uninsured”. To do so would risk losing everything, and ending up on welfare (Medicaid).
In another universe, the nonprofit RAND Corporation has just released new figures which point to the glowing success of the Affordable Care Act. Nearly 17 million more people in the US “have gained health insurance since the [ACA’s] major coverage expansion began.” That’s the net total of 22.8M newly insured people (who never had coverage before) less 5.9M who lost their insurance[ii]. RAND elaborates: for those gaining Medicaid coverage, “6.5 million, or 52 percent, were previously uninsured.”
Sleight of Hand
There’s just one problem.
In their official stats, RAND—and everyone else for that matter—are counting the 21M American adults presently on Medicaid as part of our “insured” population. Isn’t it funny how words evolve?
What sleight of hand! Even ten years ago, we would not have said an individual on Medicaid had health insurance. And no agent today would say that a senior on Medicaid has LTC insurance. The very statement is an oxymoron.
Yet a study was just published (by one of the same celebrated economists behind the “Medicaid Crowd Out Effect”) which may turn what we know about Medicaid on its head. For one thing, it asserts that Medicaid works as health insurance. But to reach this conclusion, it presupposes a world in which health insurance acts differently from its siblings: we buy home and auto insurance to protect us from catastrophic costs. Nowadays, we buy health insurance so we can use more healthcare. If that’s our benchmark, then Medicaid does the job: beneficiaries do get more healthcare (including preventive services) and find that doctors do not turn them away.
Of course, even before the ACA was but a glimmer, it could be said that everyone in America was covered. In fact, someone did say it—John Goodman (father of the HSA) in 2008. He was only half-joking when he suggested we count, “...only people who are denied care [as] truly uninsured. Everyone who gets care is effectively insured by some mechanism.” While an interesting thought experiment, such an overbroad definition may require fine-tuning.
It turns out there’s a third way, a star-crossed category known as the “under-insured”. Remarkably, the number of us who can call ourselves members of this group has doubled in the last decade to 31M.
One-quarter of Americans who actually have health insurance are paying so much in deductibles and out-of-pocket expenses that we’re skimping on care and less likely to see a doctor when sick for fear of the bills. Fifty percent of this group is busy paying off medical debt exceeding $4,000 or more.[iii] The big driver of under-insurance is the rise of health plans with large deductibles—both their ever-increasing size and the number of people buying them. (This rise is driven, in turn, by the shift away from employer-sponsored health insurance, and the desire by individuals paying their own freight to keep premiums down.)
Since the Commonwealth Fund (compiler of these stats) defines under-insurance as the percent of household income directed toward medical bills (10%) or the size of one’s deductible (5% of income), it will be interesting to see how Medicaid enrollees are accounted for. (The expansion had barely begun by the time the last survey was completed.) For if we were to compare, a long-term care recipient on Medicaid must contribute nearly 100% of her income toward the cost of her nursing home or home care before the public program will step in as “second payer”. Does it not follow that every Medicaid LTC recipient would meet this definition of “under-insured”?
And yet, the public is clamoring for it.
We’re told expansion states are “reeling” from enrollment numbers that are sometimes double what they anticipated. But that’s not even the problem. (After all, as one official put it, you don’t roll out a program like this then hope no one shows up.) The trouble comes from the “woodwork effect”, which is what happens when folks come out of the woodwork to utilize a benefit that’s been made more desirable.[iv] Many people who were already eligible for Medicaid before the ACA have finally decided to enroll only because of the publicity and broader outreach accompanying the expansion.
These “woodwork” enrollees are costly. Unlike the expansion signups who are covered at the high 90%+ federal matching rate promised by the ACA, these folks receive the regular reimbursement, just 57% on average with states picking up the balance.
Those who enroll in Medicaid receive services of questionable value. That’s not this author’s opinion: that’s another conclusion from the study cited above. When the economists tried to quantify the value of benefits provided by the program they ranged from 15-cents on the dollar at a low to 20 – 40 cents at a high. In other words, a beneficiary would trade $1.00 in services for 15-cents in lump-sum cash.
Maybe that’s why you can’t give the program away. It was estimated before the ACA that 1/3rd of our nation’s uninsurance problem could be solved if those eligible for Medicaid and other public programs simply signed up—no law needed. And yet here we are 5 years down the road—plus an individual mandate and $2B/month in subsidies later—yet 36M Americans are still officially counted as uninsured (12% of the population).
During the last five years—the first five years of the Affordable Care Act—a change in the narrative has occurred. The national vocabulary has shifted beneath our feet. It is now acceptable to count 21M Americans on Medicaid as “insured”. Take away those who found “insurance” through Medicaid and the ACA isn’t just a smaller program, it’s a prodigious failure.
Public vs. Private “Insurance”
Whether this sleight of hand is a proper description, an improper appropriation or a total misnomer is anybody’s guess. At some level it’s a counting question—of import only to public policy wonks, record-keepers and statisticians. At a far more intimate level it’s about families—who can and cannot receive the care they need, the services they desire, and what the financial consequences will be.
For those of us who educate the public about their long-term care options, it’s important to note how the walls are coming down between public and private options. When ordinary Americans call on us for retirement advice in the future, it may prove difficult to reverse the consequences of years of such ingrained thought.
[i] We can quibble with the fringes—whether to include the VA, or what new products are meant by the term “private insurance”, but you’ll see it’s not germane to this argument.
[ii] All numbers in the RAND survey are extrapolations based on a longitudinal survey of nearly 1,600 adults 18 – 64.
[iii] This is significant: more than 60% of Americans do not have the savings to cover an emergency medical bill of $1,000. Source: http://blogs.wsj.com/economics/2015/01/07/most-americans-dont-have-savings-to-pay-unexpected-bill/
Mr. Forman is co-author of "The Advisor's Guide to Long-Term Care" (2nd Ed.) published by National Underwriter, and a regular contributor to LifeHealthPro and ProducersWEB. Reach him at firstname.lastname@example.org.