LTC Bullet:  The Long-Term Care Crisis:  Why Now But Not Yet?

Friday, January 15, 2016


LTC Comment:  If the LTC crisis is such a big deal and government is the cause, why hasn’t it happened already and when will it occur?  Our thoughts follow.



LTC Comment:  Tomorrow morning, I’m speaking to a group of long-term care insurance producers at the ACSIA Partners 2016 Kick-Off conference.  What follows is the message I plan to share with them.  My goal is to explain why the crazy, mixed up long-term care financing marketplace is the way it is, why it has worsened lately, and why it will change for the better sooner rather than later. 

Selling long-term care insurance is a tough business.  Agents need hope and understanding.  They need dedication and perseverance.  But just as important, consumers need what they’re selling in spite of all the obstacles to the sale, including rising premiums, tougher underwriting, and public policies that crowd out private financing options. 

Why are things the way they are and what’s going to happen next?  Read on.



“The Long-Term Care Crisis:  Why Now But Not Yet?”
Stephen A. Moses

What’s the deal with long-term care?

Do you know?

Just look at the facts.  They present an army of puzzles.

Aging population
High incidence of LTC
Very expensive for some
Insurance is perfect solution
Yet few buy even if they can afford

We’ve known all that for 20 years

Latest facts and puzzles even worse 

Premiums higher
Underwriting tougher
Consumer denial/indifference continues, even greater
Yet need is bigger than ever

What gives?

Anybody here know?

If so, I’ll step aside.


Well, here’s the good news:  I know and I’m going to tell you.

I figured it out 34 years ago.

It hasn’t played out exactly as I predicted . . . yet!

But it will.

Here’s the story.

I was working for HCFA in 1982.

My job was to make sure the state of Oregon followed federal law and regulations implementing Medicaid.

I was doing a routine state assessment when I came across the estate recoveries program.

Little state of Oregon collected $5 million or 5% of LTC expenditures from estates of deceased recipients.

Wait, I thought.  How can that be?  Don’t you have to be poor to get Medicaid?

That set me to studying Medicaid eligibility.  What I found created a public policy uproar.

Income allowed practically unlimited—up to cost of a nursing home.

Assets truly unlimited—home and contiguous property, one business, one auto, term life, home furnishings, personal property, IRAs—all uncounted

Whoa!  This is huge, I thought. 

The aging baby boom will overwhelm Medicaid when they need LTC.

But people won’t buy the budding new LTC insurance product if they can ignore the risk, avoid the premiums, wait to see if they ever need extended care and then get Medicaid to pay.

The whole public welfare system will collapse if something isn’t done!

So I wrote reports explaining this for the Inspector General of the US Department of Health and Human Services.

I recommended tightening Medicaid LTC eligibility and requiring estate recoveries.

I met Secretary Louis Sullivan of HHS on a plane and told him about my findings.  Next thing I knew Cabinet secretaries were outbidding each other to deal with the issue. 

Almost everything I recommended passed into federal law in 1993.  Longer and stronger transfer of assets restrictions and mandatory estate recoveries.

We gave Americans a publicly-financed line of credit on their estates to pay for long-term care recoverable from their estates in order to encourage responsible LTC planning to avoid that eventuality.

Problem solved, right?

That’s what I figured, but . . . alas, no.

State Medicaid programs didn’t implement the new requirements aggressively; the feds didn’t require them to do so; the media didn’t publicize the new rules; so consumer behavior didn’t change.

I don’t have time to cover all the details.  Several Congresses and Presidents tackled the problem over the years, but our next big success didn’t come until 2005.

The Deficit Reduction Act of that year closed some more loopholes and put the first cap ever on home equity—at $500K to $750K, now $552K and $828K

That law as it applies to Medicaid was written by my co-founder of the Center, attorney David Rosenfeld when he became counsel to the House Medicaid committee.

I spent half a year lobbying for it commuting half time from the good Washington (Seattle) to Washington, DC.

That was a big victory, but didn’t solve the problem either.

Medicaid remains the primary payer for long-term care, not only for the poor, but also for the middle class, and even for many of the affluent.

LTCI remains a niche product as a result.

All this is well documented and we fully report the research in Center publications and on our website:

OK, so here we are over 30 years later.

The problem we found so long ago still persists and worsens

Boomers are retiring at 10,000 per day.

Social Security is overloaded with $25 trillion unfunded liabilities.

Medicare is underwater--$43 trillion unfunded.

Medicaid is even worse off—it has no phony trust fund like Social Security and Medicare to hide the problem.

So why hasn’t the whole public financing house of cards collapsed already as I predicted it would in 1985?

Why hasn’t private LTC insurance come to the rescue as I predicted it would?

The answer to both questions is the same.

The government!  There are two basic problems:

(1)  Fiscal or spending policy—profligate spending on Social Security, Medicare and Medicaid undercut personal responsibility, planning, and LTCI demand.

(2)  Monetary policy--Then, to disguise the damage done by borrowing and deficit spending . . .

The Federal Reserve printed a lot of money, sold a lot of bonds (Quantitative Easing) and forced interest rates to near zero undercutting seniors’ income, making them more dependent on public programs, and ruining LTCI’s profitability.

Government tries to have its cake (big spending) and eat it too (avoid consequences like recession and inflation).

The result is the puzzle we started by describing:  high risk and cost of LTC but consumer denial and indifference.

The economist Herb Stein said:  “Trends that can’t continue, won’t.”

So a day of reckoning is still coming.

But why hasn’t it come yet?  That’s the big question before us today.

Government interference in the economy postponed the reckoning.

Bottom line:  Federal reserve policy printing money and pushing interest rates to zero has created a series of economic booms and busts, one bubble after another growing until they burst.

The first was the internet bubble when low interest rates and easy monetary policy pushed money into high-tech stocks until that bubble popped in 2000.

Then the real estate bubble when low interest rates and easy money flowed into the housing sector until that bubble popped in 2008 leading to the “Great Recession.”

What’s happening now?

A bigger bubble is growing, the third and biggest bubble so far.

Stupendously bigger.

A decade of easy money and artificially low interest rates has enabled federal deficit spending to continue beyond all reason.

How can that be?

Federal debt now $18.9 Trillion; in 2000, $5.7 Trillion  more than triple

Interest on the federal debt was 6.63% in 2000; 2.33% in Dec. 2015 down by 2/3

The federal government is defying economic gravity.

If interest rates return to 2000 levels of 6.7% with 2016 debt $19 trillion, U.S government interest payments would jump from $400 billion to $1.3 trillion, 35% of the federal budget!

Heritage Foundation says “All Tax Revenue Will Go Toward Health Care, Social Security, and Net Interest by 2033

What else happens around 2033?  Social Security and Medicare trust funds will be depleted, automatically reducing those benefits.

In 2031, the first baby boomers turn 85, the age at which long-term care becomes a probability instead of a possibility.

Think of it like a family.

If you live beyond your means, sooner or later you can’t pay your bills and loans.  You go bankrupt.

But unlike a family, the government is able to print money, expand credit, and reduce interest rates.

That delays a reckoning, but it does not prevent one.

The excess money and credit chases investment opportunities that seem smart and profitable in good economic times, but create mal-investment.

That is, too much money goes into bad investments:  such as internet stocks with no revenue; real estate with values pumped up by sub-prime mortgages and “liar loans;” or, now, excess public spending on entitlement programs.

The first two bubbles popped after less than a decade.

The third and biggest bubble—excess debt and credit pumped into government social programs—could pop anytime.

That means an economic downturn even worse than the “Great Recession.”

Why now?

Markets are predictive.  “Buy the rumor; sell the news.”

What’s different now is that all the risk factors are approaching critical mass:

Aging of the baby boomers
Bankruptcy of the entitlement programs
Weakness of the LTC insurance business
Entitlement mentality of consumers

I’ve laid all this out in a new report:  “Cassandra’s Quandary”

Apollo blessed Cassandra with accurate prognostication but when she declined his romantic advances, he cursed her to be disbelieved.

We’ve been lulled to sleep by easy money, generous credit and deficit spending just as everything is about to hit the fan.

Like Cassandra, those of us—like you and me—who see it coming have great difficulty convincing people they should worry about and plan for long-term care.

So what does all this mean?

We’re in a critical period.

You must persevere.

Opportunities are coming.

You are the only line of defense between your clients and the poor house.

You are committed—you have commitment or you would not be in the business

Embrace the passion—let it show

Do what the top sellers do CWQLPK:


Thank you for listening but more importantly, thank you for all you do.