LTC Bullet: LTCI Expert Fights Back
Friday, February 2, 2018
LTC Comment: Bill Comfort, a seasoned veteran of many LTCI policy skirmishes, offers evidence and logic in response to the often uninformed media criticism of the product and its purveyors, after the ***news.***
*** BIG SONIA is not to be missed! It’s an inspirational film spotlighting the resiliency of Sonia Warshawski, a 4’8” holocaust survivor. I saw this movie last week in Santa Fe. It’s the right antidote if you’re feeling beaten down by life’s adversities (including the attacks on LTCI). This indomitable woman survived more than we can imagine and yet thrived, giving hope and inspiration to others. Click here for a trailer; here for a review; and here for a list of screenings. Special thanks to long-time Center friend and supporter Claude Thau and his wife Tina, for their non-profit financial support of this moving film. Claude says “You might like to inform schools, religious groups, and prisons, as well as friends. Schools or non-profits (for $300) and theaters can request screenings by submitting contact information at https://bigsonia.com/request-a-screening/.” ***
*** MORE MOVIE NEWS: Center member and LTCI producer/author Ross Schriftman reports his movie is cast: “Based on the book of the same name by Ross Schriftman, My Million Dollar Mom is a film about a mother diagnosed with Alzheimer's just as her son is offered his last chance to be elected to Congress. He must decide between his life-long dream and his mom's wishes to remain in her home under his care. The script for the feature film was selected as a semi-finalist in Story Pros' screenwriting contest in the drama category.” Read more and learn the cast here. ***
*** LTC E-ALERTS PRAISED: “I look forward to every E-Alert. A definite, mandatory read for anyone in the LTC market. Personally, I appreciate the time and effort that Damon and Steve put in everyday to keep us not only motivated, but ahead of the naysayers. It’s tough down here in the trenches especially when you get those negative WSJ articles. I ask a favor. Would you please send that latest article by Leslie Scism, from the WSJ, Jan 17th 2018, on “Millions Bought Insurance….They Face an Awful Choice” I don’t subscribe to the WSJ but would like to see the article in its entirety…thank you.” Thank you, Randy Gallas, CLTC, LTCP, President, Long-Term Care Insurance Agency, LLC, for your support. We’re happy to help. ***
LTC BULLET: LTCI EXPERT FIGHTS BACK
LTC Comment: It seems like private long-term care insurance is always under fire. But the last few weeks have been worse than ever. Like shooting fish in a barrel, the media have been taking easy shots at the product and the people who manufacture, distribute and sell it.
We’ve covered the latest onslaught in (1) LTC Bullet: Don’t Buy LTCI?!, January 12, 2018, correcting errors in “Long-Term Care Insurance Is a Poor Buy, CFP Says;” (2) LTC Bullet: Three to Get Ready, January 19, 2018, responding to “Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice,” by Leslie Scism, in the Wall Street Journal; and (3) LTC Bullet: LTCI Under Fire, January 26, 2018, bringing you LTCI veteran Claude Thau’s comments on and partial rebuttal of the WSJ fusillade.
The latest article about LTCI that deserves mention and response is “What’s Bad for GE Will Be Worse for America,” by Timothy L. O’Brien of Bloomberg. This piece is much better than the earlier ones, but it does invite comment. We covered it this way in an LTC Clipping:
1/29/2018, “What’s Bad for GE Will Be Worse for America,” by Timothy L. O’Brien, Bloomberg
Quote: “General Electric’s multi-billion-dollar loss in a unit that sold long-term-care insurance is a blow from which the iconic company is still reeling. But it’s also a harbinger of a much greater challenge for society at large: paying to care for the growing number of Americans who can’t look after themselves. … [T]he debacle illustrates a troubling truth: Private insurance can’t handle this problem by itself. … Medicare covers only a short period of care after a person has been hospitalized. That leaves Medicaid, the state-administered program for the poor. But it kicks in only after people have burned through their assets -- precisely the outcome that insurance is meant to avoid. … The challenge is to design a safety net that will deliver long-term care when it’s needed -- without making people destitute first, yet without burdening taxpayers unduly.”
LTC Comment: Finally an article that recognizes the magnitude of the long-term care financing problem without casting blame. Good. On the other hand, it adopts the conventional wisdom that Medicaid LTC benefits are only available to the poor. If that were true, people would be eager to buy private LTC insurance at almost any price. The fallacy that only the poor get Medicaid stands in the way of a “safety net that will deliver long-term care when it’s needed -- without making people destitute first, yet without burdening taxpayers unduly.” We delivered the evidence, the logic and the solution in “How to Fix Long-Term Care Financing.”
What else in the Bloomberg editorial needs comment and correction? For that we turn to Bill Comfort of Comfort LTC, a highly regarded LTCI expert and trainer. Following are Bill’s comments on “What’s Bad for GE Will Be Worse for America,” by Timothy L. O’Brien, Bloomberg. We recommend that you click through to the article first, read it and then consider what Mr. Comfort has to say.
Bad for GE Will Be Worse for America”
The overall point of the Bloomberg editorial (1/29/2018) is important: we need to look more deeply at how we fund long-term custodial care in America. However, the editorial perpetuates several significant misunderstandings:
The LTC business that is at issue with GE is NOT the direct pricing, issuing, and managing of LTC policies (that business was spun-off into Genworth in 2004), but rather the REINSURANCE of other companies' LTC business. In fact Moody's recently issued a report stating that because of the limited scope of policies backed by GE's reinsurance and GE's indirect ability to manage those blocks, that this is NOT a good example for the health of the rest of the overall LTCI industry.
LTC insurers did NOT miscalculate on how long people would live or how many would go on claim - the "claims rate" or percentage of policyholders who would claim - they have hit that pretty much on the mark. What they missed - dramatically - was the "lapse rate,” that is how many policyholders would keep the coverage in-force over the long term. If you expect about 33% (yes, that's the real number) of policyholders to claim but you have 2x to 3x more policies in-force than you predicted then you have made a huge pricing mistake, like 100%+. The unpredictable lapse "mistake" has contributed to about 50% of the pricing changes needed.
2.a. Most LTC companies in the 1990s priced a disability/individual health insurance lapse rate of about 7%. Interestingly AMEX LTC - the early leader that was acquired by GE Financial now Genworth - priced its lapse rate at 4.5% in 1994, which was thought to be extremely conservative at the time. Actual lapse rate for the LTCI industry: 2%; actual lapse rate for Genworth/GE/AMEX: less than 1%. No financial insurance product EVER had such low lapses; the closest is whole life insurance at 3.5%. This was unknowable and devastating.
After the lapse picture started to become clear, the claims issue was not more people (a greater percentage) going on claim, but rather that claims were lasting longer than expected. On average the durations were just an additional year or two (something like 33% to 50% longer for women, 25% to 33% longer for men), but when compounded against more than twice the number of people expected to claim this was disastrous. The claim duration mistake has contributed to about 30% of the pricing mistake, but again all of the elements compounded the individual “mistakes.” We now have 70-times more claims data than in just 2004 - it's approaching true "credibility" and not just an estimated assumption.
Finally, our historically-low for historically-long low interest rate environment put the final catastrophic spin into the perfect storm of LTCI rating problems. If long-term reserve earnings were priced at 6-7% (as they'd been for 60+ years in the industry), and all of a sudden new premiums and maturing reserves had to go into 3% bonds it's a problem.
The Good News: New business premiums today already have all of these more conservative realities priced-in. Looking forward, LTCI will be, must be, more rate stable.
A final note on the ability – or inability – to price long-term care as an “insurable risk.” I see this stated in many places – including an insinuation by Bloomberg – but it’s often said without evidence, and too often paired with the “fact” that “70% of people will need care.” Rhetorically then how could we possibly price and insure a risk that is very likely to happen?! This is where the constant harping on “70%” is so dangerous, because it’s not true – the 70% data assumes help with only one ADL and/or 4 IADLs (shopping, cooking, cleaning, transportation, bill paying, etc.), these don’t qualify for LTC insurance benefits. Using this standard, sure, 70% will need “some type of care,” but not Tax Qualified LTC Insurance-triggered care. One actuarial study from a few years ago showed that using TQ LTCI triggers (2 of 6 ADLs on at least a stand-by basis expected to last 90 days, OR continual supervision for a cognitive impairment) coupled with a 90-day EP would mean that about 33% (1/3) of policyholders could be expected to receive at least $1 in benefits; only about 20% (1/5) would receive benefits for more than a year. It IS an insurable risk, and it IS now being priced correctly.
Bill Comfort, CLTC® is the owner of Comfort LTC, a member of the National LTC Network, with offices in St. Louis, MO, and Raleigh/Durham, NC. Contact him at Bill@ComfortLTC.com or 314-821-5001