LTC Bullet: LTCI Under Fire
Friday, January 26, 2018
LTC Comment: Analysis and commentary on the Wall Street Journal’s recent critique of private long-term care insurance by a leading LTCI expert follow the ***news.***
*** TURNABOUT is fair play: In the midst of LTCI criticism, it’s good to consider testimonials like this one addressed to Honey Leveen, the self-styled “Queen of LTC Insurance": “Hi Honey, one of the best days in my life was when you walked through my door and sold me my LTCi. That was almost 20 years ago. I never thought I'd have to use it. I will move to an assisted living facility shortly. Without my LTCi I could never afford it. I am grateful to you." Nancy S, Houston, TX, January 2018 Click here for additional client comments. ***
*** SUBSCRIBE TO LTC CLIPPINGS: We scan the news searching for data, articles and reports you need to know about. Then we send you a brief email (like the one below) with title, author, source link, a representative quote, and our brief analysis. LTC Clippings help you stay at the forefront of professional knowledge. To subscribe, contact Damon at 206-283-7036 or email@example.com. ***
*** SAMPLE LTC CLIPPING: 1/22/2018, “Why The WSJ Is Wrong About Long-Term Care Planning,” by Jamie Hopkins, Forbes
Quote: “A recent Wall Street Journal article, “Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice,” has been circulating on the internet but for all the wrong reasons. The WSJ piece essentially falls into the ‘bad news sells’ category of reporting. While the article itself provides plenty of great statistics and touches on a very important topic, the article really misses the mark on two main points about long-term care insurance. Its ‘Woe is me!’ theme actually pushes people away from doing quality long-term care planning. Instead of lamenting past missteps, the article could have emphasized some of the new techniques for building effective and sustainable solutions to the budding long-term care crisis.”
LTC Comment: A
good rebuttal of the WSJ attack on LTCI by Jamie Hopkins, whose
credentials for the task are excellent. To wit: “I
am the Co-Director of the American College’s New York Life Center for
Retirement Income and an Associate Professor of Taxation at the American
College where I helped develop the Retirement Income Certified
Professional® (RICP®) designation. I also hold the Larry R. Pike Chair in
Insurance & Investments. I’ve written about, and published, a variety of
articles on retirement. I frequently write and publish law review articles
dealing with retirement issues, such as long-term care, taxation of
insurance benefits, and estate planning. I am extremely passionate about
the retirement security of Americans and believe that a better prepared
public can enjoy a more secure and fulfilling retirement.”
LTC BULLET: LTCI UNDER FIRE
LTC Comment: Private long-term care insurance has been on the receiving end of media criticism from the very beginning. But lately, the onslaught has seemed heavier than ever. One piece in particular, “Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice,” by Leslie Scism, published January 17 in the Wall Street Journal, struck a chord. Response from LTCI defenders was quick and frequent including our reply in last week’s “LTC Bullet: Three to Get Ready” and “Why The WSJ Is Wrong About Long-Term Care Planning,” by Jamie Hopkins in Forbes, which we cited in the LTC Clipping above.
But few participants in or observers of the long-term care insurance business are better equipped to review what’s right and what’s wrong in the current criticism than today’s Guest Bullet author Claude Thau. He’s directed a major LTCI insurance operation, been a leading distributor of the product for decades, and is a highly respected analyst and author on the topic. We asked Claude if we could share his recent review and critique of the WSJ article with you as today’s LTC Bullet. With his permission, that follows.
For the most part, Leslie Scism’s Wall Street Journal article is accurate, however it leads readers to reach false conclusions. From my perspective, it is clear that:
The industry is losing money because the insurers ARE paying claims1. Insurers sometimes erroneously fail to pay a claim, but failure to pay a claim appropriately is not necessarily bad faith. I have generally succeeded in getting errors fixed or in explaining to the policyholder or family why the claim decision was right. The Independent Review process, which protects against some wrongly-denied claims, is rarely used, which suggests that claims are resolved fairly. To the degree that the July 2017 Milliman LTCi Survey was able to identify such appeals, independent reviewers supported insurers’ declines in nearly 90% of the cases2, which also suggests claims are resolved fairly. A 2016 study3 found that 98% of LTCi claimants were satisfied with their claim payments and an earlier federally-funded study4 found large satisfaction as well. (Footnotes are below my signature block.)
Our society spawns a significant number of fraudulent insurance claims in every line of insurance, including LTCi. Insurers have a responsibility not to raise premiums in order to pay fraudulent claims. Their efforts to avoid fraudulent claims can contribute to (but not fully explain) frustrating claims processes (16% of claimants do not consider the claims process to be easy.5)
Ms. Scism wrote “some policyholders complain that it [the industry] has nothing to lose by denying legitimate long-term-care claims”. She failed to address that complaint appropriately. One of the key risks of denying a LTCi claim is the huge risk of a (possibly class action) law suit. In my view, insurers too often pay claims because the cost of defending a lawsuit would be expensive, even if successful. Perhaps that contributed to a federally-funded study concluding that insurers overpaid LTCi claims by 3.4%6.
Ms. Scism’s title refers to “Millions… Face An Awful Choice” and her second paragraph starts “Now, though, the industry is in financial turmoil, causing misery for many of the 7.3 million people who own a long-term-care policy, equal to about a fifth of the U.S. population at least 65 years old.” This sentence is inaccurate and misleading in several respects:
Policyholders getting huge price increases is worthy of attention and discussion, but focusing solely on the plight of policyholders who bought LTCi long ago leads readers to infer that LTCi is not a good alternative for them today. The past problems have caused today’s products to be much more stably priced. Furthermore, Ms. Scism dismisses the popular combo products (“But such products are often costlier”), without mentioning that many of those combo products are entirely guaranteed, which protects against the “misery” she cites. By the way, of course it costs more if you add a potential death benefit to LTCi coverage. I believe articles about price increases on old policies should make strong efforts to explain that the situation is tremendously better today.
Experience Exhibit Reports through 2014 show LTCi claims compounded 12%
per annum from 2001-2014. The author did not seek more recent
information; growth clearly has continued albeit at a rate that the author
can’t quote. See also the subsequent proof that claimants are satisfied,