by Maxwell Schmitz
This recent article in The New York Times, Why Long-Term Care Insurance Falls Short for So Many, falls short for at least five big reasons.
A lot of industry context was ignored for the above-mentioned piece.
It’s always tough to see a well-researched article go on without any modern nuance or foundational understanding.
In a media climate where the word "misinformation" flies around all too often, I will qualify it and accuse the NY Times of a slightly more benign variant: "misapplied information."
1. What is actually representative of LTC?
The authors start with a look at a facility-only policy as if that is representative of the broader LTC insurance market. It is not. I don’t even think any carriers sell facility-only policies anymore...? In my 15 years in the business, I’ve never competed with one and would never recommend one.
Why is this being used as a representation of the broader marketplace?
Makes no sense and already demonstrates the authors are way off base.
2. Is it truly unaffordable?
There is an assertion that traditional LTC policies are too expensive, and in the ensuing paragraph, the authors chastise the solutions that do not have inflation riders.
That’s talking from both sides of the mouth. You cannot argue that it is too expensive and simultaneously complain that it carries no value. There's a reason why the pricing is structured this way so let's examine more closely.
The reality is that the CARE itself, at $6,000-$15,000/month depending on the setting, IS expensive. Therefore it is expensive to fully insure.
This all-or-nothing mindset was perpetuated by the LTC insurance industry a generation ago when premiums were more affordable (and woefully mispriced as it turns out) so I’m surprised to see the authors play right into that.
The facts show that this is not how people buy LTC coverage anymore (or at least shouldn’t be pressured to think this way).
Tack on insurance against inflationary risk (guaranteed benefit increases!) and you are mathematically predisposed to an even more expensive premium, especially in a low-interest rate environment like from 2008-2021.
Lost in their charge to vilify insurance: There is so much room between having a fully insured plan and no plan at all.
Example: Homecare might cost someone $15,000/month and having an insurance policy to cover $7,500 per month for 4 years is fantastic for that family. This will drastically reduce the cost of the insurance policy. None of this is reviewed in the NY Times article.
3. Who’s actually responsible for low market penetration?
The authors cite a LIMRA statistic that shows only 3-4% of retired adults have long-term care insurance. I have always heard the LTC insurance industry had a weak 9% ceiling...
I don't go to bat for the carriers very often, but no matter how you slice it, these numbers show that this is a failing of planners and insurance brokers (like us), not just the carriers' lack of innovation.
People are “blindsided” by the need when it is clear that a majority of people over age 65 use some form of long-term care. It is not hard to plan for if taken seriously early on.
Planners and brokers continue to think of care planning as an afterthought instead of a prominent feature of a retirement strategy. It should be in the top 4 items on the discussion board around investment, and distribution, and tax-planning strategies.
For some reason, it's just not. And that is a big problem.
4. Why is underwriting so hard?
There is a valid criticism of the underwriting process. It does feel unfair at times. And it’s hard not to take it personally when met with a declination. However, this is not term life insurance with a <2% claim rate.
LTC has a much higher degree of claim and that means the carriers need to be extremely cautious about the risk they accept or else questions of solvency do begin to appear.
5. Is insolvency a legitimate risk?
On that subject, the risk of solvency is completely overblown in this article.
Yes, some small carriers got extremely aggressive with benefit offerings and underwriting and were not diversified well enough to take that on. But you can say that about carriers of all product lines!
It is the exception to the rule -- for LTC as well. It is not accurate to portray the industry as an outlier. Carriers in today’s marketplace have adjusted from:
infinite lifetime benefit structures,
aggressive inflation riders,
simplified underwriting, and
low premiums to:
finite benefit amounts,
more inflation variety,
thorough underwriting practices, and
appropriately priced premiums.
Now, there was a time when there were serious questions about some carriers that were overweight on LTC insurance. (See comments about this article being written in 2010.)
However, the implementation of multiple rounds of rate increases, which are egregious in many cases and unfortunate in all cases — have re-built a strong foundation for an industry that mis-priced its products for 35-40 years.
It is painful but necessary to ensure that they can continue to fulfill their promise of paying claims. I have written more about this subject in greater detail here: https://www.yetworth.com/ltcrateincreases and here: https://www.yetworth.com/post/are-ltc-rate-increases-a-thing-of-the-past
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It sucks to see pieces like this rear their head time and time again.
Journalists need to team up with experts and vault their voices instead of attempting to dominate the narrative to bolster their predisposed (and nascent) opinion on a very complicated math equation that affects millions of policyholders.
It is incumbent on us to put pressure on outlets like the NY Times to encourage and support responsible journalism. A shock piece like this — designed to scare clients into a position of thinking no one can save them except the federal government — is flat-out wrong, factually and ethically.