LTC Bullet:  The Myth of Unaffordability . . .  Still!

Friday, December 7, 2012


LTC Comment:  Too little has changed since we debunked “The Myth of Unaffordability” in 1999, as LTCA’s Steve Forman elucidates after the ***news.***

*** REMEMBER PEARL HARBOR DAY and those who served. ***

*** MEDICARE LTC SETTLEMENT UPDATE:  Find here an update on the proposed court settlement that expands Medicare coverage of longer-term "maintenance care."  The update comes from an organization that favors the proposed settlement for which the judge has granted preliminary approval subject to a "Fairness Hearing."  The downside, of course, is that as Medicare pays for more and longer skilled, home and therapy care, the program’s $38.6 trillion unfunded liability will continue to increase and the public will perceive less incentive to plan privately for LTC risk and cost. ***

*** LTCI SUMMIT PRESENTATIONS AVAILABLE ONLINE:  Recordings of 32 workshop and keynote presentations from the 2012 National Long Term Care Insurance Sales Summit are now accessible for insurance and financial professionals.  Some 560 agents, brokers and marketing professionals attended the event held November 10-12, 2012 in Las Vegas.  "Summit sessions ranged from the very basic for those just getting started to some highly advanced topics featuring many of the nation's leading industry experts," explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance.  They varied in length from 45 minutes to two hours.  Get free access to the first five minutes of each presentation here:  Download complete sessions for $20 or $390 for all.  To download sessions or order CDs, take advantage of a special 33 percent professional discount arranged by the Association.  Simply enter the code SAVE33 during the online checkout process.  The discount is valid through January 2013. ***

*** “FISCAL CLIFF” news coverage reminds us of this advice from an old Ann Landers column:

"Ten Cannots"
by the Reverend William J.H. Boetcker

You cannot bring about prosperity by discouraging thrift.
You cannot help small men by tearing down big men.
You cannot strengthen the weak by weakening the strong.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor man by destroying the rich.
You cannot keep out of trouble by spending more than your income.
You cannot further the brotherhood of man by inciting class hatred.
You cannot establish security on borrowed money.
You cannot build character and courage by taking away men's initiative and       independence.
You cannot help men permanently by doing for them what they could and should           do for themselves.

From: Ann Landers Advice Column, Seattle Post-Intelligencer, July 29, 1995, page C2.



LTC Comment:  In the Center for Long-Term Care Reform’s 1999 monograph titled “The Myth of Unaffordability: How Most Americans Should, Could, and Would Buy Private Long-Term Care Insurance” I reached the following conclusion:

Confronted with the stark reality of long-term care financing risk, most Americans (realistically as many as 70 or 80 percent) can afford to purchase the protection of private long-term care insurance at one stage of their life or another.  For the young and middle-aged, the challenge is to get their attention.  For older people, the challenge is to help them find creative ways to generate the cash flow for premiums.

Please don’t batter me with emails insisting “that’s nuts” unless and until you’ve read our 84-page, extensively documented, 13-year-old study.  You may find a happy discovery waiting for you there.  For a quick summary of the report, see our LTC Bullet:  The Myth of Unaffordability, published August 27, 1999.

But whether or not you find my analysis and conclusions in the “Myth of Unaffordability” persuasive, that was then and this is now.  How can anyone seriously suggest today, after rising premiums and plunging incomes, that private LTC insurance remains affordable?  Here’s how:

Special thanks to Stephen D. Forman, Senior Vice President of Bellevue, Washington based Long-Term Care Associates, for permission to re-publish his article titled "LTC Premiums Have Decreased!  Say What?," which follows.


"LTC Premiums Have Decreased!  Say What?"
Stephen D. Forman

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.


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.

The cost of living is measured in the hours and minutes we must work to live.


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.


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.

The 65-74 and 75+ age brackets are the only ones to experience rising real median incomes between 2007 and 2010.


We could still point an accusatory finger at our own industry and product, except that we have nothing to apologize for. During roughly the same time frame as LTCi prices stood still—relative to Income and Net Worth—the cost of items such as Auto Insurance (45%) and Health Insurance (131%) skyrocketed.

Yet the industry has chased a myth—a belief that our own sales have suffered due to price. (Fact is, even if LTCi were half the price, it would still cost more than our #1 competitor. [Ie., Medicaid) This is why product designs and sales schemes which rely on cost-cutting fail: know anyone who’s making a killing selling Short Term Care lately? GPO and Co-Insurance designs have been around for a decade, and even though they’ve sunk entire carriers, companies keep re-introducing them as if they were an industry savior. You will notice a theme: even when our ads and marketing pieces begin with the premise, “It’s a myth that LTCi is expensive,” the solutions put forth inevitably cave by suggesting ways to lower the price.†

And yet, according to the latest National Partnership Survey, nearly 50% of partnership policyholders of All Ages are today paying less than $2,000/yr, and nearly 63% pay less than $2,500/yr. Compared to just about anything else we might pay $2,500 for, is this a lot of money? It’s dang cheap! To close, let’s channel the words of my father, “Mr. Client, do you think you and your wife would have a hard time coming up with $5,000 a year?”

“Oh my, Mr. Forman, we could manage it out of our savings, but it might be a little tough some years.”

“Well then you’re damn sure not gonna be able to come up with $5,000 a month should either one of you ever need nursing home or assisted living care, wouldn’t you agree?”

Let’s get back to basics. Let’s not cede control of the narrative to the media and consumers. Our product is not expensive—it’s a terrific value and its price has held steady for at least 15 years. As always,

Good Selling!

Stephen D. Forman, SVP





¹ Michael Cox and Richard Alm, Time Well Spent: The Declining Real Cost of Living in America, Federal Reserve Bank of Dallas, 1997 Annual Report.

² Charles Wheelan, Naked Economics: Undressing the Dismal Science, p. 152, 2002.

³ The statistics for Net Worth were offset a year or so from the points-in-time when we calculated Avg Premiums, but the effect should be marginal: for instance, comparing 1997 to 1995, or 2000 to 2001.

† The ultimate endgame? Linked-benefit products. These demand no premium from the consumer at all, simply a re-positioning of assets “from one pocket to the other”.

Image Courtesy of Lewis W. Hine.

Image Courtesy of "The Saeculum Decoded", a blog by Neil Howe, Once Again Economy Hammers Gen-Xers and Favors the Silent, June 12, 2012.