LTC Bullet:  Who Buys LTCI and Who Doesn’t?

Friday, January 13, 2017

Seattle—

LTC Comment:  LifePlans’ quinquennial answers to these momentous questions and our targeted comments follow the ***news.***

***  SUPERSTITIOUS?  Consider this confluence:  It’s Friday the 13th.  The moon is full.  And the Trump Administration is about to take office.  Kind of reminds me of the old Chinese curses:  “May you get what you wish for” and “May you live in interesting times.”  Such times also evoke the pinyin symbol for “crisis,” composed of the characters for “danger” and “opportunity.”  Whether you’re worried or hopeful, one thing’s for sure.  For the first time in a decade, long-term care policy reform for the better is a real possibility.  Let’s make it happen. ***
 

LTC BULLET:  WHO BUYS LTCI AND WHO DOESN’T?

LTC Comment:  As anyone who reads these LTC Bullets knows, long-term care financing in the USA is a mess.  Medicaid, a welfare program, pays for most expensive extended care.  With its reputation for problems of access, quality, low reimbursement, discrimination and institutional bias, you’d think anything—especially private insurance—would be preferable to Medicaid.  But, think again.  Private LTCI remains the relatively rare exception rather than the rule for most people contemplating the potential need for costly long-term care someday.  Why?

That’s the question LifePlans sets out to answer every five years on behalf of America’s Health Insurance Plans (AHIP).  Their latest report, titled “Who Buys Long-Term Care Insurance?:  Twenty-Five Years of Study of Buyers and Non-Buyers in 20152016,” was just published.  Get a copy here and devour it.  You won’t find a better insight into the vagaries of marketing long-term care insurance anywhere.  The Executive Summary and a long list of “Key Findings” make capturing the essence of the report quick and easy.  Here are some abbreviated highlights followed by our comments focused on the report’s findings regarding government’s LTC financing role.

  • The average LTCI buyer is 60 years old, and wealthier than the average non-buyer
  • Current buyers average income is $87,500, same as 2010, but up from $27,000 in 1990
  • Buyers are “planners”
  • Non-buyers are less likely to think they’ll need LTC someday
  • 96% of LTCI policies were comprehensive in 2015; institution-only plans are nearly gone
  • Covered benefits up only 5% compared to five-year increases of 20% to 30% formerly
  • Shorter benefit durations; a new low of four years
  • Inflation protection down from 3 in 4 to 2 in 3
  • Average annual premiums up 19% to $2,727
  • Value is down due to new lapse and interest rate assumptions for new policies
  • 1/3 of buyers bought mainly to protect assets; 1/5 bought to ensure service affordability
  • ¾ of  buyers said state participation in the LTC Partnership Program was important
  • 2/3 cited potential cost increases as their main reason to buy now
  • 71% of married couples have policies on both
  • Spouses, agents and financial planners, rarely their children, influence buyers
  • For 15 years, agent’s recommendation and insurer’s reputation have been key
  • Only 20% of buyers knew their carrier raised premiums, but 40% expected it to happen
  • 55% of non-buyers expected future premium increases
  • Most buyers prefer gradual premium adjustments to less frequent, larger increases
  • 1 in 5 buyers considered a combo product before buying a stand-alone product
  • Half of non-buyers said they’d be more likely to buy a combo than a stand-alone product
  • Cost has been the key factor for non-buyers for 25 years; only 15% say too confusing
  • Only 1/3 of non-buyers said they’d never buy, so most are future potential buyers
  • Non-buyers’ worries that companies won’t pay are down to 41% from 71% 25 years ago
  • ¾ of non-buyers would reconsider if premiums stable, deductible, with gov’t stop-loss

LTC Comment:  Let’s turn now to what the new report has to say about LTCI buyers’, non-buyers’ and the general public’s opinions regarding LTC financing.  First a quote from the report’s highlights, then our point of view on the subject.

Report:  “Compared to earlier years, non-buyers have greater understanding that if they need LTC the government will not likely pay for it (although more non-buyers than buyers are still mistaken about this).  . . .  Individuals from the general population were most likely to believe that the government will pay for LTC . . ..”

LTC Comment:  Do the authors of this report really not know that the government does pay for most expensive long-term care?  Ironically, the non-buyers and general public who think government does pay for LTC are more correct than the reports’ authors.  For proof, consult government data or read virtually anything the Center for Long-Term Care Reform publishes.  Why deny such an obvious truth?  Keep reading.

Report:  “Across all groups, and over the last 10 years, well under half of respondents believed that it is the federal government’s responsibility to pay for the LTC needs of all people. Over that decade, among the general population age 50 and over, the proportion who believe that the federal government is primarily responsible for paying for care has dropped from about 1 in 3 to about 1 in 4.”

LTC Comment: Now, that is interesting.  While the federal government, specifically Medicaid and Medicare, continues to pay for the vast majority of expensive long-term care (see LTC Bullet:  So What if the Government Pays for Most LTC, 2015 Data Update), the public is less likely than ever to think paying for LTC is the government’s responsibility.  If you sense an informational disconnect, you’re right.  Why that matters?  Keep reading.

Report:  “Large majorities of respondents among the general population age 50 and over believe that it is the federal government’s responsibility to encourage people to buy LTC insurance by making premiums fully tax deductible or by allowing employed individuals to use pretax dollars to pay for the insurance.  Roughly 2 in 5 Americans over age 50 believe that the single most important action government could take is to offer more tax incentives for the purchase of private insurance policies.”

LTC Comment:  People like tax deductions?  Not exactly big news.  But based on past history and future budget prospects, the probability of above-the-line tax deductibility for LTCI without compensating expenditure reductions is as remote as ever.  (By the way, we know how to deliver those compensating expenditure reductions.  See Save Medicaid LTC $30 Billion Per Year AND Improve the Program.)

Report:  “Most respondents (65 percent) felt it was important to avoid relying on Medicaid for any LTC they might need in the future.”

LTC Comment:  That’s nice, but evidently avoiding reliance on Medicaid LTC isn’t important enough for them to plan, save, invest or insure for long-term care.  How can people think they should avoid Medicaid, but fail to act?  Keep reading.

Report:  “Individuals were asked about their views and preferences on two potential program structures: 

“A private insurance policy would pay for roughly the first two years of LTC services, and then the government would take over and pay for any LTC services needed after that (Back-end or Catastrophic Public Coverage).

“The government would pay for roughly the first two years of LTC services, and then a private insurance policy would take over and pay for any LTC services needed after that (Upfront or Front-end Public Coverage).

“Fifty-five percent preferred a ‘back-end’ program and 27 percent preferred a ‘front-end’ program.  . . . 

“Three in 4 non-buyers said they would be more interested in purchasing a private policy if there was a back-end public program; slightly fewer (69 percent) said the same thing about a front-end public program.”

LTC Comment:  Now we’re getting to the crux of the matter.  People like the idea of buying a little private insurance, preferably with a big tax deduction, and having the government pay for the higher, back-end catastrophic costs?  Well, yeah.  No surprise there. 

What’s really going on here?  What’s the principle underlying all these findings?  People want something for nothing and the closer to nothing the better.  Want proof?  Check out the next report finding.

Report:  “Regardless of what type of potential program they preferred, respondents were willing to pay about $85 per month, or a little over $1,000 per year. Slightly less than one-third would be willing to pay at least $100 per month for either of these programs.”

LTC Comment:   Obviously, people are not willing to pay enough in premiums for the coverage they need, but they’re quite happy to have the government make up the difference, even though they don’t think that’s the government’s responsibility.

Confused?  So are the public, LTCI buyers and non-buyers, and the authors of this report.  Here’s the explanation to reconcile all the foregoing contradictions.

Government does pay for most expensive LTC and does so without impoverishing many relatively prosperous people.  That 50-year-old policy desensitized the public to LTC risk and cost.  Hence, few people know who pays for LTC, nor do they care, until they need care and don’t want to pay for it.  Then Medicaid and Medicare step in.  That’s why, despite decades of teaching consumers they’ll lose their life’s savings if they don’t buy LTCI, people still don’t buy what LTCI is selling.  Sure, make it cheap enough with subsidized premiums and big tax deductions and have the government cover the bigger risk, and well, then maybe.  But don’t believe it.  That won’t work either.  As long as people can ignore the risk, avoid the premiums, wait to see if they ever need LTC and if they do, transfer the cost to tax-payers, they will not buy LTCI in significantly higher numbers.  The only way to change that reality is to give Medicaid LTC back to its intended recipients, the genuinely needy, by tightening the program’s generous eligibility rules and eliminating the big asset exemptions and loopholes.  Do that and you fix the problem.  Don’t and the confusion and contradictions documented by this report will continue indefinitely.