LTC Bullet: The Long-Term Care Trifecta

Thursday, January 17, 2019


LTC Comment: How is long-term care financing like a trifecta bet? The answer, after the ***news.***

*** TODAY'S LTC BULLET is sponsored by Claude Thau, whose revolutionary “Range of Exposure” tool projects clients’ likelihood (joint for a couple) of spending $100,000; $250K; $500K or over $1,000,000 on LTC, based on their personal characteristics, and estimates how much of their cost in each range would be covered by various traditional or linked insurance designs. He also offers other ways to educate and help clients make informed final decisions in 15-20 minutes! Change work-site LTCi from a series of proposal deliveries to an interactive consultation! Claude is the lead author of Milliman’s annual Broker World LTCi Survey & a past Chair of the Center for Long-Term Care Financing. You can reach him at 913-403-5824 or ***

*** SPECIAL DEAL: You know the movers and shakers of the LTC insurance profession are meeting for the 19th annual Intercompany Long-Term Care Insurance Conference in Chicago this March. But did you know that if this is your first time attending the ILTCI, you may be eligible for an additional $50 scholarship?! Please reply to to receive your discount code, which you can use when registering at Find details about the conference and registration here. If today’s LTC Bullet is correct, this conference could be your opportunity to get in on the ground floor of LTCI’s resurgence! *** 

*** MOVIE UPDATE: Ross Schriftman’s “My Million Dollar Mom” movie continues to make news. I found this 30-minute interview with Ross and female lead Susan Moses [no relation] interesting and inspirational. Ross reports “We are planning lots of community events around the country to show our film this year. Our program page will highlight these:
Stay tuned.”***



LTC Comment: Invited to survey the “state of the long-term care insurance industry” at the start of 2019, I took the high-altitude policy perspective that follows. I hope this speech, delivered to two groups of LTC insurance producers in early January, educates, motivates, and inspires everyone on the front lines of LTCI sales to carry on despite the challenges this business faces. Here’s the speech as delivered, once as a webinar and later in person. You can find the “handout” that went with it here. If you’d like to have this speech or another developed to meet your unique needs delivered to your group, contact me at or 425-891-3640. 

The Long-Term Care Trifecta
Stephen A. Moses

You don’t need me to tell you that the long-term care insurance business has faced some pretty strong headwinds lately … so I won’t dwell on that.

Let’s forget about bad publicity over premium increases, carriers leaving the market, consumer indifference to planning, damaging public policy, and so on.

Set all that aside and think positively with me today. Let’s try to understand what happened, why it happened, and what’s most likely to happen in the future.

Believe me, the view through the windshield is much more encouraging than the one through the rear-view mirror.

My goal today is to tell you some things that, when you think about them and apply them to selling LTC insurance, you will be more successful, help more people, and feel great about yourselves. In fact, it will be much easier than you ever thought possible. Sound good?

OK, when you face a challenge in life, and selling long-term care insurance certainly qualifies, the best way to begin is to review and understand what you’re up against.

Let me tell you a little story.

In 1968 … yeah half a century ago, hardly seems possible … my late wife and I joined the Peace Corps. We were assigned to a tiny town in the Venezuelan grasslands called Carmen de Cura, three hours south of Caracas by bus.

Our site sat behind a river with no bridge that flooded in the rainy season. We had electricity four hours at night if the generator was working. The house they gave us flooded from rain run off but also from the septic tank because of the high water table. How charming was that? Still, we loved the people and enjoyed the work.

Part of our job was to meet with visiting doctors and nurses and back them up by supporting good health care practices when they left town and we remained. Unfortunately, they rarely showed up, never when scheduled, and did very little to promote good health habits.

The Venezuelan constitution promises health care to all citizens, but the government didn’t deliver. That was a bitter early lesson that political entitlements guarantee nothing.

Nowadays, everyone knows what a tragedy Venezuela has become by pursuing public policies that promise everything but deliver nothing.

What concerns me is that we seem to be following a similar path here at home. We promise American citizens retirement income security, senior health care and even long-term care. But Social Security, Medicare and Medicaid come with no guarantees. A future Congress and President can, and may have to, cut those programs radically or even eliminate them entirely and they can do it with the stroke of a pen.

Where did we get the idea that government programs can take care of us? What has confidence in that idea done to our sense of personal responsibility? I think answering those questions will explain why long-term care insurance faces the challenges it does today.

In the 19th century as the United States was evolving from an economic backwater to an industrial super power, people had to fend for themselves. There was no public safety net of any kind, only private charity.

Free-market capitalism prevailed. Waves of creative destruction disrupted markets. Competition compelled improvement. Sink or swim was the order of the day. That environment got the most out of everyone. People had a positive incentive to achieve and prosper, backed up by a negative incentive to avoid the poor house.

Rough and tumble? Of course. Most people prospered but some didn’t either by dint of bad luck or through their own irresponsibility. Life punished the irresponsible and provided strong lessons on how to turn their lives around.

But good, hard-working people were also vulnerable to ill fortune. Private insurance evolved as a way to protect responsible individuals and families from the bad luck of unforeseeable events. Insurance allowed them to replace the small risk of catastrophic financial loss with the certainty of an affordable premium.

In the absence of government programs to lean on, responsible individuals worked hard to succeed and they bought insurance to mitigate unpredictable risks. Such a system works well if you believe most people are good, capable, self-interested and hence motivated.

That’s what our country’s founders believed and that’s what they counted on when they gave us a government based on protecting life, liberty and property, AKA the pursuit of happiness.

So Americans did great for many decades after our founding, but no system is perfect. The more prosperity we achieved, the harder it became to accept misfortune or poverty of any kind in any amount for anyone.

The Great Depression shook our country to its foundations. Arguably government interference in previously freer markets caused that economic catastrophe, but whatever the cause, people were having a very hard time. The government wanted to help. Franklyn Delano Roosevelt and his Administration pushed hard for the idea of “social insurance” as the solution.

They said “social insurance” would improve on “private insurance” because it would have the widest possible risk pool, inasmuch as everyone would be required to participate. Social insurance would also be better than private insurance, they argued, because it would treat everyone the same, giving equal benefits to everyone.

Therein lie the two fatal flaws of social insurance. It is compulsory and therefore violates the fundamental principle of freedom on which our nation’s earlier success depended. And it spreads, but does not price risk, thus rewarding irresponsible behavior at the expense of more responsible people. Let me explain what I mean.

Ted Marmor is a Yale professor emeritus of some influence. He recently explained the difference between social and private insurance this way: “In commercial insurance,” he said, “price must reflect risk. Social insurance, by contrast, operates on the premise that contributions are calculated according to one’s income and benefits are related to one’s needs.”

Does that idea ring a bell? Ever heard the motto “From each according to his ability to each according to his need.” Yes, that’s the Marxist creed, the fundamental principle of communism. That’s exactly where Venezuela … not to mention Cuba and the Soviet Union … went astray.

This is a fundamental difference between social insurance and private insurance. Both spread risk but only private insurance prices risk. Social insurance pays benefits to everyone the same regardless of the level of risk they bring into the risk pool. Consequently, social insurance rewards risky behavior. You can be lazy, smoke, drink, take drugs, no matter, social insurance pays everyone the same.

Private insurance spreads risk, but it also prices risk. Your premium is based on underwriting which measures the amount of risk you bring into the risk pool and charges you accordingly. That’s why smokers pay more for life insurance. And it’s why people already demented or dependent on walkers can’t purchase long-term care insurance at any price.

Pricing risk is fair to everyone. It is justice. It rewards good health care behavior and early planning, punishes poor behavior or failure to plan, and hence promotes social good. This is a critical point. Keep it in mind.

Its other main difference from social insurance is that private insurance is voluntary. You’re free to participate or pass, but social insurance is mandatory. It violates deeply held American values of freedom and personal responsibility.

Now, what does this have to do with long-term care insurance?

Since 1935, the government has told Americans work hard, contribute to Social Security, and it will take care of you financially in your old age.

Since 1965, the government has told Americans, pay your Medicare premiums and you won’t need to worry about health care in your senior years.

Since 1965, the government has told Americans, whether or not you work or pay taxes, Medicaid will cover your long-term care if you ever need it and can’t afford it.

Americans believed those promises. Look what it got them.

All three of the major programs Americans were invited to rely on are now on a slippery slope to insolvency.

Social Security and Medicare are already consuming the IOUs in their so-called “trust funds,” funds that the rest of government borrowed, spent and is having to pay back with interest, crippling our economy. Even those borrowed funds run out in the 2030s, only a little more than a decade away.

Medicaid doesn’t even have a phony trust fund to pretend to spend. It’s a direct drain on general funds and hence on private investment capital, further debilitating the economy.

Do you get angry complaints because private long-term care insurance premiums have increased? Don’t take it lying down. Stand tall. LTC insurance carriers raised premiums to ensure that contractual benefit promises would be met. The government has done nothing similar to ensure it will be able to pay for promised benefits that it cannot possibly provide.

Never forget that you occupy the moral high ground on the issue of premium increases. Claim it!

So social insurance has done tremendous damage by making promises it can’t keep. But that’s not the worst of its impact, not by a long shot.

The greatest negative impact of Social Security, Medicare and Medicaid is the effect those programs have had on Americans’ work ethic, saving behavior, and attitude toward private insurance protection.

Nowadays, fewer people work; more rely on Disability or welfare; life spans are shortening; waistlines are widening; we have an epidemic of obesity. Private companies no longer offer retiree health benefits. Why duplicate Medicare, they figure? Who needs long-term care insurance when the government pays for most expensive extended care costs anyway?

Do you see the fix we’re in? We’ve inhaled the social insurance drug for so long that we’ve lost the drive and incentive to take care of ourselves. This is happening when reality is about to force us to go cold turkey, by curtailing, if not eliminating entirely the safety net on which we’ve come to rely.

Let me give you a few examples.

Americans think the government should take care of everyone and they don’t care how much it costs. Here are a couple quotes from the Wall Street Journal:

“A Pew study … found majorities endorsing the view that government does too little to help young people, the elderly, the middle class and the poor.”

Too little to help? Most of the federal government’s budget goes to help those exact groups.

Nor do we care how much it costs.

“[S]urveys also register a steep decline in public concern about the federal budget deficit. In 2013 … 72% of Americans regarded deficit reduction as a top priority. By the beginning of this year the figure had fallen to 48%.”

We are so concerned about the poor that we think deficits and debt no longer matter.

But, here’s the irony with that view. Most of the poor, aren’t!

According to a study published by the Cato Institute: Improved estimates of poverty show that only about 2 percent of today’s population lives in poverty, well below the 11 percent to 15 percent that has been reported during the past five decades.”

How can that be?

Government poverty statistics make the poor look poorer and the rich look richer by ignoring most forms of public benefits paid to the poor and by ignoring taxes paid by the rich.

Here’s the net impact:

It’s a wash for the middle class: “On average, [middle class] households with $63,136 in earned market income get to keep it all. They pay taxes averaging approximately $17,000 per year, but on average they also get an equal amount of government transfers.”

But the affluent have to make up the difference: “The top 47.5 percent of households were taxed to do the following:

  • Transfer enough money to the bottom 52.5 percent of households, to give them average spendable incomes close to the median income
  • Pay for the many activities of government that require 40 percent of all government spending
  • Pay the interest on the national debt, which constitutes 12 percent of government expenditures”

Cato concluded “More than 50 years after the United States declared the War on Poverty, poverty is almost entirely gone.”

I conclude: Government should declare success in the War on Poverty and start eliminating policies that discourage personal responsibility and work.

Besides, what is poverty in America anyway?

According to the Heritage Foundation: “The typical poor household, as defined by the government, has a car and air conditioning, two color televisions, cable or satellite TV, a DVD player, and a VCR. By its own report, the typical poor family was not hungry, was able to obtain medical care when needed. The typical average poor American has more living space in his home than the average (non-poor) European has.” From Heritage Foundation, 2011: “Air Conditioning, Cable TV, and an Xbox: What is Poverty in the United States Today?

Ladies and gentlemen, I have seen poverty up close in Venezuela, South America and Asia. And that is not it!

The anomalies and contradictions in government entitlements are unending. Conventional wisdom states that only poor people get Medicaid but research shows that “at the top of the income distribution. Medicaid covers 21 percent of lifetime costs at age 70, with the fraction rising to nearly 30 percent at age 100. … While most high-income households do not receive Medicaid, those that do [mostly the ones who end up needing long-term care] … tend to have high medical expenses and tend to receive large Medicaid benefits (De Nardi et al., 2016a).” (p. 24)

What impact on demand for long-term care insurance do you think Medicaid’s offsetting about a quarter of rich people’s high medical expenses has had?

Of course, tremendous. Government tells the poor explicitly “don’t worry about long-term care, we’ll pay” but government tells the rich exactly the same thing implicitly by actually paying for most expensive long-term care if and when the wealthy need it.

Nor does the government honestly report Medicaid’s impact on the LTC financing market.

The Centers for Medicare and Medicaid Services (CMS) reports that Medicaid is the “primary payer” for 62 percent of nursing facilities’ residents. Don’t you think that would mean Medicaid pays most of the cost of the care for such residents?

You’d be wrong. If a nursing facility resident is on Medicaid, Medicaid is counted as the “primary payer” even if it pays nothing toward that resident’s cost of care.

How can that be? People on Medicaid have to contribute most of their income, principally their Social Security income but also private pensions and other sources, to offset Medicaid’s cost. In some cases, the private income suffices to pay the entire cost of their care … at the low Medicaid rate.

This is the critical point: even if Medicaid pays nothing and the entire cost of the care comes from the Medicaid recipient’s private income contribution, the nursing home receives the low rate of Medicaid reimbursement, often less than the cost of providing the care. That’s why Medicaid has such a poor reputation for quality of care.

Now, why on earth would Medicaid operate this way? Claiming that Medicaid is the “primary payer” for nearly two-thirds of nursing home residents gives the appearance that Medicaid does more for more people than it really does. It makes public officials, senior advocates, and politicians look good. It wins votes.

There’s still more to this deception, however. CMS reports out-of-pocket costs for nursing facility residents to be over 25 percent, but the reality is that half of all out-of-pocket costs are really just spend-through of private income by people already on Medicaid. That makes it look like Medicaid costs less than it really does.

Bottom line: Medicaid takes credit it doesn’t deserve and then misrepresents its cost to the downside.

In the meantime, the damage to consumers is incalculable. Over 80 years of believing in government promises that social insurance entitlements will take care of us have desensitized consumers to all kinds of insurable risks.

But that’s all about to change. I call what lies immediately ahead “The Long-Term Care Trifecta.”

A trifecta is a bet in which the person betting forecasts the first three finishers in a race in the correct order. Here they are.

The first finisher is Medicare. Its trust fund runs out, not that there’s anything in it anyway, by 2026, only seven years away, three years sooner than previously projected.

The second finisher is the baby boomer generation. It starts turning 85, the age at which health and long-term care costs spike upwards in 2031, only 12 years from now.

The third finisher is Social Security. Its, literally empty, trust fund “runs out” in 2034.

Unfortunately, we may not make it to the first finisher in 2026. As I prepared these remarks, the bottom was falling out of the stock market and a recession in 2019 was looking more and more likely.

Since the Great Recession of 2007-2009, we’ve been living in an economic fantasy land with artificially low interest rates and profligate government spending enabling us to live far beyond our means on funds we’ve borrowed from ourselves and from foreign countries.

When the asset bubble created by those policies bursts, all bets are off. Markets are predictive so collapsing equity and real estate values combined with higher interest rates on private and public debt could plunge our public finances and the entitlement programs they mostly support into crisis much earlier.

We may face the Long-Term Care Trifecta at any time. 

So what does this mean for you and for long-term care insurance?

LTC risk and cost are greater than ever. Oncoming demographic challenges, the so-called age-wave, is cresting and will crash soon. The need for private LTC insurance protection is greater than ever. Consumers need to plan for this risk.

Yet, although consumers are smarter about LTC risk and cost than they used to be, thanks to our decades of work waking them up, most still don’t operationalize their knowledge enough to take concrete action by insuring for the risk.

That’s where you come in. You’re the last line of defense against the idea that people can ignore the risk, avoid the premiums, and wait for the government to take care of them.

That headwind holding back private LTC insurance is disappearing as the LTC Trifecta nears and arrives.

You should redouble your efforts in the knowledge that you can save people from the awful fate of relying on public programs as those programs are collapsing.

Do you read Ron Hagelman’s columns in Broker World? If not, I think you should. He argues that in the past we pushed too hard to get full LTCI coverage for every client resulting in too few people being able to afford the protection.

Going forward, he suggests, the challenge is to help people mobilize all of their financial resources, supplemented by whatever LTCI they can afford, with the primary goal to stay off Medicaid.

That’s good advice, makes protection affordable for more people, and ensures that fewer will be stuck in welfare nursing homes as their major funding source, Medicaid, dries up.

One of the biggest problems for LTC insurance lately has been the necessity of companies to raise premiums on in-place business. But actuaries’ concerns about future premium increases are abating.

New policies’ premiums are based on longer and better experience and the huge damage done by government’s forcing interest rates artificially to near zero is reduced as interest rates normalize. You should muster and deploy the verifiable evidence of this development in your meetings with prospects and clients.

Did premium increases and the widely publicized Penn Treaty insolvency hurt traditional insurance? Of course, but asset based products evolved to provide guaranteed premiums and benefits. Both kinds of products have critical roles to play in the market, but one or the other may prevail temporarily as the headwinds, largely caused by poor government policy, shift in direction and intensity.

If I’m right about the plummeting direction public programs are likely to take, all forms of private insurance, including traditional LTCI, hybrids, products modeled on a health insurance chassis, term life that converts to LTC protection as proposed by the Society of Actuaries and designs yet uncontemplated will thrive in the new, challenging economic world.

I’m tremendously encouraged by the amazing creativity and resilience of the LTC insurance industry, including the carriers who are sticking it out, the exceptional distributors of the product, and you, the producers, the AMGs (altruistic, masochistic, geniuses) who manage to carry on in spite of the challenges.

So many of you are driven by a passion for this work because of a personal experience of LTC with a loved one, a parent, grandparent or spouse. You’ve proved over and over again that nothing can stop you.

Many carriers were less persistent. They abandoned the LTCI market when utilization increased beyond actuarial expectations, the Federal Reserve destroyed returns on their reserves, and the media attacked the industry for doing the right thing, that is, increasing premiums to ensure benefits would be paid.

Here’s what I predict. Those same companies and new ones will come rushing back into the business as those problems disappear.

We now have better and longer experience data on which to base premiums and they’ve already increased for new products. So as interest rates and hence returns on reserves return to normal levels, the business will become highly profitable, leveraged by the fact that premiums have already increased.

As the pressure I’ve predicted on public programs hits over the next decade, the public will lose confidence in Medicaid, which is propped up by Social Security and Medicare, in which they’ll also lose confidence.

When that happens, Katie bar the door. The rush to find insurance protection against LTC risk and cost will explode. Consumers will prospect for you!

In the meantime, we’re all in this together. I want to thank you for your dedication, hard work, collegiality and friendship in our common mission to improve long-term care for all Americans.

Before I conclude, I’d like to tell you a little bit about how we pursue that mission at the Center for Long-Term Care Reform.

We conduct state-level and national studies of long-term care financing with a focus on the problems created by government interference in that market.

You can find and read dozens of our reports at our website,, and on the handout you’ve been given for today’s presentation.

We publish periodic essays called the LTC Bullets. The Bullets discuss and analyze current topics related to long-term care service delivery and financing. We’ve done over 1240 of them in the Center’s 21 years and you can find them archived chronologically and by topic on our website.

We publish a weekly compendium of long-term care news called the LTC E-Alerts designed to keep members abreast of everything they need to know to remain on the forefront of professional knowledge and expertise.

Our daily LTC Clippings give premium members access in real time to the latest stories, articles, reports and data as these are released along with our “take” on what they mean in a sentence or two.

Our Members-Only website, AKA “The Zone,” is full of invaluable resource material including our voluminous “Almanac of Long-Term Care,” where we archive all important news about long-term care organized within 11 sub-topics.

Finally, I want to thank our sponsors for this opportunity to share some ideas with you today and for their long and invaluable support for our work at the Center for Long-Term Care Reform.

I’ll be glad to take questions now.