Stop me if you’ve heard this one: “Long-term care insurance is too expensive,” or “LTCi costs too much,” or “The product is unaffordable.” Sound familiar? What makes it even worse is that such clap-trap comes not only from the mouths of agenda-driven journalists and chicken-little consumers, but is also repeated by our own peers, carriers and spokespeople.

CATAPULTING THE PROPAGANDA

Minds more shrewd than my own established that repetition turns opinion into fact. The danger of this potent marketing concept is when it’s used without forethought. When we repeat the statement that LTCi is unaffordable we damage our sales and our industry multi-fold:

1.   We reinforce the narrative. That rates are rising is already the dominant storyline in the media, and a hole we must climb out of every morning just to begin our workdays. It helps the industry not one bit to provide news outlets with soundbites claiming our own product is expensive.

2.   We make sales harder than necessary. Most consumers believe LTCi is—are you sitting down?—too expensive. As a result, we devise all sorts of contortions to accommodate this objection, including a movement afoot to persuade consumers to under-insure themselves just to make a sale.

3.   We change the way the product is sold. There was a time when planning began with a suitability review and needs-analysis, followed by personalized plan design. However, in a world where price is paramount, such ideals are quickly jettisoned. Out goes “needs-based analysis”, and in comes “spreadsheeting”, which I’ve argued has led to the ruination of our business.

4.   We discourage the use of important riders. Although the industry has adapted to the varied needs of our clientele by devising a brilliant array of unique riders, the fact is that each of these planning tools nudges up the price of a plan incrementally. Sadly, there are perhaps 2 which are sold to any great degree, while the others primarily “sit on the shelf”.

5.   We encourage budget-based solutions. More than one carrier has introduced illustration software which permits an agent to enter a budget, and work backward to produce a matrix of available benefits. The result of years of groupthink has been visited upon us in the form of agents losing control—and rendering their services redundant—to Priceline-like consumers who now “name their price”.

But what about the premise? This knock against runaway LTCi pricing—how the product is increasingly more expensive and must be shaved, contained, or sliced—what if it’s all wrong? Fortunately for us, it is.

SORTING FACT FROM FICTION

Let’s start with a crash course in economics. According to the Federal Reserve of Dallas, “Making money takes time, so when we shop, we’re really spending time. The real cost of living isn’t measured in dollars and cents but in the hours and minutes we must work to live.”¹

An example may help here, “A pair of stockings cost 25-cents a century ago. Of course, the average wage at the time was 14.8-cents an hour, so the real cost of stockings in 1900 was one hour and forty-one minutes of work for the average American. If you walk into a department store today, stockings (pantyhose) are seemingly more expensive than they were in 1900—but they’re not. The price has gone up, but our wages have gone up even faster. Stockings now cost around $4, while America’s average wage is over $13 an hour. As a result, a pair of stockings costs the average worker only eighteen minutes of time, a stunning improvement from an hour and forty-one minutes.”²

It’s actually one of the great marvels of Western technology and efficiency that over successive generations we can work less and less to pay for equal goods and services. In economics it’s called “productivity”, and such material progress is not to be taken for granted. It’s at most a few centuries old—remember the stagnation called the Dark Ages? With “productivity” as our backdrop, let’s examine the cost of long-term care insurance in a new light.

PUTTING IT IN PERSPECTIVE

For this study, we gathered 15-years of statistics, from 1995 – 2010. We examined average premiums at four different ages (60, 65, 70 and 75) for a nearly-identical benefit across 10 representative carriers. For example, although the average premium for a 60-yr old tended to rise over time for the same coverage, this was neither unexpected, nor particularly telling. This is why most LTCi price indices we’ve read tend to be of limited utility.

We need to add context.

Therefore, for the same time period we obtained both Income and Wealth statistics from the US Census. Although the Census does provide very good Median and Mean Income statistics by year, it groups them by age-band (55 – 64, and 65+), which forced us to make some accommodation in our calculations. We were consistent with our choices when borrowing the Net Worth statistics as well (55 – 64, and 65 – 74 age bands).³

The results?

A 60-yr old in 1995 spent 4.1% of her income on LTCi, while a 60-yr old in 2010 spent 4.2%. Meanwhile, a 65-yr old spent 9.1% of her income on LTCi in 1995, while a similar 65-yr old in 2010 spent only 8.8%. One could charge that LTCi is expensive for some individuals because it costs more than 7% of one’s income— the arbitrary and discredited method found on the NAIC Suitability Form—but that would miss the point entirely. Rather, we should all marvel how—in 2010—LTCi costs roughly the same, or less, than it did in 1995.

Besides, we all know you don’t pay for LTCi out of income—you pay for it out of assets! So let’s look at Net Worth. A 60-yr old in 1995 spent 0.25% of her Net Worth on LTCi premiums, whereas a 60-yr old in 2010 spent 0.21%. The 65-yr old in 1995 spent 0.39% of her Net Worth on LTCi, while the 65-yr old in 2010 spent 0.26%.

Once again, the bottom line is clear: LTCi premiums may have increased, but our incomes and net worth have both risen faster.