LTC Bullet: It’s Time to Stop Bashing Long-Term Care Insurance

Friday, March 2, 2018

Seattle—

LTC Comment: The title of this week's LTC Bullet says it all. Phyllis Shelton speaks her mind after the ***news.***

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LTC Bullet: It’s Time to Stop Bashing Long-Term Care Insurance

LTC Comment: Many of you surely know Phyllis Shelton, but for those who don't, she's a highly regarded author, teacher and consumer advocate for LTC planning. She's a friend and member of the Center for Long-Term Care Reform and is passionate and prolific in her work helping to protect people from the risk and cost of long-term care. We enjoy following her work. We have all noticed a recent spate of negative and unbalanced media treatments of LTCi, so when we read her latest blog post, "It’s Time to Stop Bashing Long-Term Care Insurance," it resonated with us. The title says it all. If you're tired of reading articles that bash LTCi without context or an opposing view, read what follows.

Reprinted below with permission is "It’s Time to Stop Bashing Long-Term Care Insurance" by Phyllis Shelton. Get in touch and read more of her blog posts via her website: www.gotltci.com.   

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It’s Time to Stop Bashing Long-Term Care Insurance

by Phyllis Shelton

Enough. Stop. The plethora of LTC insurance bashing articles has gotten to me.

These people aren’t bashing LTC insurance!

  1. Mr. C. Vernon Duckett – he was able to take care of Helen, his most precious asset, with the best care possible AND continue to play golf four times a week for his own well-being.
  2. Mary and Don – Don died the day before his 75th birthday after 10 years of Parkinson’s disease and Alzheimer’s. He paid just over $18,000 in premium before receiving about $530,000 in tax-free cash benefits. Mary has received two rate increases and is the first to tell you she will never let her policy go. (names changed to preserve anonymity)
  3. Ella Keith spent her 65th birthday in the hospital, having suffered a major stroke. Her family was able to keep her at home for the next 15 years because her LTC insurance policy paid over $300,000, almost half.
  4. Russell Polston – he is not only happy with how his wife’s claim was paid, but also the three year claim paid for another family member.

Rate Increases and Why the Sky Isn’t Falling

Yes, there have been rate increases. Long-term care insurance is “guaranteed renewable” which means it can never be canceled as long as you pay your premium in a timely manner. It also means there can be a “class” rate increase, which means on an entire class of people, not just on individual policyholders at the whim of the insurance company. Frankly, I struggle with why this is a big deal when I look at my health insurance going from $330 a month for my husband and me in 1993 to $1690 a month in 2016. I’m not a math whiz, but isn’t that FIVE times as much?

I’ve had people come to me with a 90% rate increase on long-term care insurance.  After I compare what they can spend by age 80 vs. the benefits at that time, they peel themselves off the ceiling…I don’t have to do it for them. It’s all relative. Older policies were so underpriced that while a rate increase of 130% sounds terrible, it doesn’t even get the premium up to what is being charged today. Why were they so underpriced?

  1. No one knew how to price for long-term care back in the 80s and 90s.
  2. Companies thought many more people would let their policies lapse but most people don’t, even when they receive rate increases. They appreciate them for the gold they are.
  3. People are living much longer today than anyone expected, which means they are more likely to have a claim.
  4. Claims are lasting longer than expected, largely influenced by the really nice assisted living facilities that exist today but didn’t exist 30 years ago when I got in the LTCi business. The latest claims study (also from the Society of Actuaries) shows that women who need care longer than a year average 4.67 years and men 3.8 years, as opposed to 3.7 and 3.1 respectively. The average for all claims regardless of length has gone from 1.9 years to 2.5.
  5. The cost of care is steadily growing. I project the cost of a “country club” assisted living facility at 5% compound as only 10% of the 80 million baby boomers are in their care receiving years. So if the current cost is $5000 a month today, that’s $21,000 a month in 30 years. Yes believe it.
  6. The bottom fell out of interest rates as we all know back in 2008ish. When an insurance company prices for a 7% interest rate on reserves and gets 2-3%, you can imagine the impact!
  7. Yes, there were a few bad apples that intentionally priced policies too low, accepted people in poor health and paid out higher commissions than other companies. They did this to steal market share, but it backfired on them. I warned agents away from them in my 20 training years.

So when you hear the annual premium for a 55 year old female as follows…

  • $5,700 (single)
  • $4,848 (part of a couple)
  • $3,992 (both issued)

…you fall over with shock. But when I tell you these premiums are buying a plan that will be worth $1.5 MILLION in 30 years, payable at $21,000 a month for six years, now what do you think? Even the highest one of $5,700 x 30 years equals only $171,000, vs. $1,500,000 in benefits. Will there be rate increases? Maybe, but there’s a huge difference between $171K and $1.5M. That particular company can pay dividends in the older years, thus offsetting the need for a rate increase.

The Society of Actuaries just came out with research that shows policies issued 2014 and later have been priced correctly for all the bad stuff that has hit long-term care insurance. (FYI, those of you who have had much larger rate increases most likely bought before 2000.)

Some people maintain 5% compound inflation is too aggressive. This article just came out today.

New estimates released today from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) and published online in Health Affairs project an average annual rate of national health spending growth of 5.5 percent for 2017–26, outpacing average projected growth in gross domestic product (GDP) by 1.0 percentage point.

LTC facility costs usually outpace overall health costs. Home care has been growing much slower but I’m seeing it start to pick up as more and more people need extended health care.

But What if I Never Need Care? 

Listen to me. Walk around your neighborhood and ask every single household if their house has ever burned to the ground. Not many yes answers, right? Now ask if they know someone who has needed help longer than three months with bathing and dressing or with a cognitive impairment. That’s long-term care. How many people can you think of in that situation?

Do you honestly think people sit around and worry that they haven’t gotten their money’s worth out of their homeowners or auto policies? Just how do you want to “get your money’s worth” out of your long-term care insurance? Do you want to have a brain tumor, get hit by a drunk driver, have a major stroke…or maybe suffer with Parkinson’s or Alzheimer’s for 10 years?

If you never need care, count your blessings!  It means you paid the annual premium for peace of mind.

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You will die before you will know you never needed it, so you will always be glad you had it!

I see so many families who are SAVED by long-term care insurance and it cuts me to the quick to read the bashing articles. Let’s reward the hand full of companies that have weathered the pricing storm and stayed in the market. Some offer both traditional and products combined with life insurance and/or annuities. If you don’t have a professional who is well-versed in the latest LTC planning options today, I would be honored to help you. Click here for my questionnaire that will get you a no-obligation consultation.

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Phyllis Shelton is celebrating her 30th year in long-term care insurance as an author, teacher and consumer advocate for LTC planning.