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 ***

*** 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 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:

  1. Insurers are losing a lot of money on their old LTCi policies.  Although it was clear from the start that LTCi was a risky business, the “perfect storm” problems that the insurers are experiencing was unforeseeable.

  2. Both claimants and healthy policyholders cherish their policies (for good reason), hence will either stretch to pay the increased premiums or will reduce coverage to keep their policy in effect.

  3. Price increases are a big problem for people who bought LTCi policies long ago and don’t have the cash flow to pay the premium increases.

  4. People who can afford the price increases are getting a good deal, although they expected a much better deal.  I think it is appropriate that the burden of the adverse experience is being split between the insurers and the policyholders, but choosing the right balance is subjective.  I empathize with both sides, but more so with the policyholders.

  5. The industry is not meeting its potential in helping to solve the country’s LTC financing problems.  There are many reasons why the industry is not developing adequate market share.  Some people blame the industry; some people blame various levels of government.  However, human nature and other factors also contribute.

  6. Despite the problems, a good number of insurers have stayed in the market or entered the market, offering good ways that many people can insure their LTC risk.

  7. The price increases are taking a heavy toll on the industry, partly because media attention is focused on these older blocks, which causes people to be unduly wary of good opportunities to protect against LTC risk.

  8. The problems of existing policyholders, while severe, are significantly less common than Ms. Scism suggests.

  9. A key issue:  How do we encourage insurers to develop coverage for new risks, particularly distant future risks (long-term care is much more risky for insurers than annual property and casualty risks such as cyber risks).

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:

  1. There were 47.8 million above age 65 as of July 20157, obviously even more today.  Dividing the “7.3 million” by 47.8 million produces less than 15% (still overstated), not “about a fifth” as she wrote.

  2. She is including people below age 65 in the numerator but not in the denominator.  If she did an apples-to-apples comparison, the ratio would be significantly lower than even 15%.

  3. She is also including policyholders who no longer pay premiums (generally because they are on claim) and those who have purchased more recently-priced policies.

  4. She wrote “Credit Suisse analysts tallied more than 4,500 rate-increase requests nationwide from 2009 to early 2017 by 16 once-big sellers of long-term-care insurance. The proposed increases affected hundreds of thousands of policyholders.”  Even if all those “hundreds of thousands” are over age 65, the Credit Suisse data suggests probably less than 10% of people age 65+.  Did she make any effort to reconcile the conflict between her statements and her Credit Suisse source?

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. 

Best wishes,

Claude Thau
Director of Long Term Care Insurance Funding Solutions, Target Insurance Services
We're in it for the Long-Term... We Care SM
11020 Oakmont St., Overland Park, KS 66210
Phone direct: 913-403-5824; WATS line: 800-999-3026, x2241
Click here to connect with Claude on LinkedIn

1  NAIC 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, etc..
Thau, Claude; Schmitz, Allan; and Giese, Christopher, Milliman LTCi Survey, Broker World Magazine, July 2017, p. 3 of the reprint.
LifePlans, “Experience and Satisfaction Levels of Long-Term Care Insurance Customers: A Study of Long-Term Care Insurance Claimants”, September 2016, p. 14.  “…only six percent of claimants had a disagreement with their insurance company about policy coverage, and the majority of these disagreements (65 percent) were resolved to the satisfaction of the claimant. Put another way, for every 100 people making claims under their insurance policy, only two are likely to have had a disagreement about coverage that was not solved to their satisfaction.”  A table on page 22 shows that 70% of claimants were “very satisfied” with their policy, 27% were somewhat satisfied, 2% were somewhat dissatisfied and 1% were very dissatisfied.  The lower satisfaction rate in this table appears to reflect the claims process as well as the amount paid, whereas the 98% statistic is related solely to the amount paid.
4  U.S. Department of Health and Human Services, Office of Disability, Aging, and Long-Term Care Policy (2006 and 2008). “Service Use and Transitions: Decisions, Choices, and Care Management Among an Admissions Cohort of Privately Insured Disabled Elders” (2006); “Following an Admission Cohort over 28 Months to Track Claim Experience, Service Use, and Transitions” (2008); “Care Management, Claim Experience, and Transitions Among an Admissions Cohort of Privately Insured Disabled Elders over a 28-Month Period” (2008).  This study found that 14% of home care claimants, 5% of assisted living facility (ALF) claimants and 11% of nursing home claimants were dissatisfied.  It differed from the 2016 study in that this older study dealt with people earlier in the claims process.  Satisfaction apparently increases with time on claim, perhaps because the paperwork hassle is concentrated at claim initiation and because the monthly payment tends to increase and cumulative payments definitely increase.
5  LifePlans, “Experience and Satisfaction Levels of Long-Term Care Insurance Customers: A Study of Long-Term Care Insurance Claimants”, September 2016, chart p. 15 shows that 78% said it was easy; 15% said it was difficult and 7% did not know.  Of those who expressed an opinion, 15/93=16.2% thought it was difficult)
National Long-Term Care Insurance Claims Decision Study: An Empirical Analysis of the Appropriateness of Claims Adjudication Decisions and Payments, April 2010; Figure 5; p. 11 Total Paid/Total that should have been paid = Total Paid/((Total paid - (Amount that auditors would have denied – amount that auditors would have approved)) = $155,925,300/(155,925,300 – ($5,905,708 -$719,999)) = 3.4%
7  See