LTC Bullet: Who’s Responsible? Who Isn’t?

Friday, June 8, 2018


LTC Comment: Social Security and Medicare are underfunded by trillions of dollars, while private LTC insurance is fully funded. Who’s responsible and why, after the ***news.***

*** NBC BLASTS LTCI: In a June 2 video report titled “Consumers reconsidering long-term care insurance as premiums skyrocket,” NBC News said “The nation’s largest long-term care insurer says its lost billions of dollars, forcing them to raise rates. Now families are choosing between paying for insurance they may not need, or risk going without it.” Such criticism stings, especially because it’s unwarranted as today’s LTC Bullet explains below, but it annoyed LTCI producer Romeo Raabe for a different reason. He writes:

NBC recently had a segment on supposedly horrible increases on LTCi premiums and how the companies jack up the price on seniors. Interesting that they never mentioned what benefit was purchased on the sample LTCi policy whose premium increased to $3,500 a year for two people in their 70’s.


When we sell LTCi, do you think the client really grasps the concept of how the benefits will increase over 20 – 25 – or 30 years? That benefit with the inflation factor it should have, might be $500,000 or more. Quite a good deal for $3,500 a year, wouldn’t you agree?


At 5% compound, the benefit will double every 15 years, so $100/day can become $400/day. Even this does not adequately convey the growth in benefits.


You propose a premium of $4,000/year with 5% compound inflation and a daily benefit of $100/day. The client sees a cost of $4,000 and a benefit of $100 and thinks it’s too expensive.


I propose a premium of $4,000/year with 5% compound inflation and a daily benefit of $100/day. I tell the client that if they pay this premium for 30 years and then one person claims for 10 years of care that one person will receive $1,984,140 in total benefits. Now this looks like a good deal and they buy. That is nearly $4,000,000 total benefits for both insureds.


The point is, why let them expect to receive only $100 as a benefit when the total years later will be huge? Prospects who would and could buy will not if they perceive it to be too expensive.


I keep this little chart laminated and in my pocket, with 3% inflation on one side and 5% inflation on the other. Just multiply the initial daily benefit by the factor for the full benefit potential. Yes, not all will claim for the full benefit, but show them the potential!

20 years – 3 yr benefit  2036.7
20 years – 5 yr benefit  3500.35
20 years – 10 yr benefit 7555.5
25 years – 3 yr benefit  2361.55
25 years – 5 yr benefit  4058.8
25 years – 10 yr benefit 8760
30 years – 3 yr benefit  2737.5
30 years – 5 yr benefit  4704.85
30 years – 10 yr benefit 10157.95 

20 years – 3 yr benefit  3051.4
20 years – 5 yr benefit  5350.9
20 years – 10 yr benefit 12180.05
25 years – 3 yr benefit  3898.2
25 years – 5 yr benefit  6829.15
25 years – 10 yr benefit 15545.35
30 years – 3 yr benefit  4971.3
30 years – 5 yr benefit  8716.2
30 years – 10 yr benefit 19841.4

Romeo Raabe, LUTCF, LTCP is The Long-Term Care Guy of Wisconsin, a proactive advocate for better LTC financing policy, and a long-time Regional Representative of the Center for LTC Reform. Contact him at (920) 884-3030 or



LTC Comment: Their trustees have just delivered the annual financial prognosis for Medicare and Social Security. As usual, the prospects for both programs are dismal. The outlook for Medicare is especially bad with its expected insolvency coming three years sooner, 2026, than predicted just last year. I’ll list a few places where you can learn about just how bad the situation is, but pointing those details out is not my objective today.

The 2018 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,” June 5, 2018

2018 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” June 5, 2018

The 2018 Medicare Trustees Report: Fiscal challenges and future reforms,” American Enterprise Institute video panel discussion featuring Paul Spitalnic, the chief actuary for the Centers for Medicare and Medicaid Services (CMS), June 6, 2018

Medicare’s Trust Fund Is Set to Run Out in 8 Years. Social Security, 16,” by Robert Pear, New York Times, June 5, 2018

Social Security Expected to Dip Into Its Reserves This Year,” by David Harrison, Wall Street Journal, June 5, 2018

Medicare Financial Outlook Worsens,” by Phil Galewitz, Kaiser Health News, June 5, 2018

Rather, my purpose today is to compare and contrast the way government has handled its responsibilities to citizens with the way the private insurance industry has handled its obligations to policy holders.

First, who’s responsible? If you promise somebody something, whether as a political commitment or in a private contract, you are responsible. So in the case of Social Security and Medicare, politicians are responsible. They made the promises. But most of the politicians who made the promises are long gone and the ones in office now would not be for long if they did what needs to be done to keep the promises. In other words, the responsible parties are irresponsible and those of us impacted, American citizens, have no recourse.

Compare that situation with the condition of a private citizen who has a commercial insurance policy, say for example a long-term care insurance contract. Such a policy holder owns a commitment enforceable in a court of law to receive certain specified benefits in exchange for a specific premium. Make the payments and you’re guaranteed the benefits. What if your carrier goes bankrupt? Then a guaranty association pays with funds supplied by the rest of the industry. But what if the whole industry fails? Then you’d be stuck, just like Social Security and Medicare beneficiaries. But that isn’t what happened to long-term care insurance.

Unlike irresponsible politicians who’ve failed to ensure entitlement programs’ solvency, the private long-term care insurance industry bit the bullet. They took the difficult, costly, embarrassing, financially responsible steps to be sure their LTC insurance policies can pay in full when claims come due. They raised premiums, tightened underwriting, and/or exited the market, passing on new business while taking responsibility for their previous commitments. Ironically, yellow journalists criticized private insurance carriers mercilessly for doing the right thing while largely exempting their irresponsible political counterparts from criticism.

When the current generation has to pay for the unfunded social insurance liabilities run up by earlier generations, the questions “Who’s Responsible?” and “Who Isn’t?” will be answered starkly. By then, however, it will be too late for private insurance to save the day, because you can’t buy private coverage after the insurable event has already occurred. But if it’s too late to dodge the social consequences of politicians’ irresponsibility, it’s not too late for individuals and families to mitigate the aftermath for themselves. Save, invest or insure for long-term care before it’s too late.