Seeking questions for an interview on long-term care insurance

[Nords]

I have several weeks of blogging material on my plate, but the e-mails just keep coming.

Would you like to ask a long-term care expert the hard questions about long-term care insurance? Tell me what issues you want to raise.

Early next week I'm interviewing an executive of one of the nation's largest long-term care marketing organizations. This exec has several decades of experience and is a frequent national speaker/writer on the industry's issues. I'd like to claim that I tracked them down, or that The-Military-Guide.com popped up on their radar, but the reality is that a PR firm e-mailed me-- perhaps along with a couple hundred other bloggers. For all I know they've been lurking or even posting here for years.

Regardless of how opportunity knocked on my door, here's a rare chance to interrogate an expert who's reaching out. Here's what they said:

Quote:

As more and more baby boomers enter their retirement years, there are new financial concerns they need to consider as they plan the rest of their lives. One that’s often overlooked is long-term care. Nearly 70% of persons over 65 will require some form of long term care, and with 10,000 persons turning 65 every day over the next 19 years, this is becoming an increasingly important issue. The reality is that the cost of long-term care continues to rise and it’s important that people have a sustainable plan in place to protect their assets and to avoid burdening their loved ones financially should they need care. And the earlier they start planning the better. I wanted to reach out to you to gauge your interest in speaking with [...] to discuss the current state of the long-term care industry, and the important role that long-term care insurance can play in a person’s financial plans: • Options available to consumers in an environment where the cost of care is rising • How consumers can save on long-term care insurance premiums • Questions consumers need to be asking themselves when purchasing a long-term care policy • Creative plans available in the market to meet individual needs overtime

I think they want to give us bloggers a chance to promulgate their "LTC 101" material, but I'm going to take a different perspective. Here's how I responded, and now we're setting up an interview time:

Quote:

I think that there are already plenty of resources for people to research the basics of long-term care insurance. The most frequent questions from my military readers are when to purchase it and whether the inflation rider is worth the expense. By "when" I don't just mean "at what age"-- I also mean "when will the industry have a policy whose premiums and guarantees we can trust?". Frankly the industry has destroyed its credibility by misjudging the pricing of its products and the return on its investments. When a market leader like John Hancock uses payment processes straight out of the 1980s, and when other large firms are pulling out of the Federal Long-Term Care Insurance Program... self-insurance seems like the better alternative to the risks of rising premiums and bankrupt promises.

What questions do you want me to ask?

[imoldernu]

Thanks... for your effort and what you do.

I'd like to hear an opinion on the safety and the future of the Long Term Care Policies Trust being handled by SHIP.... Senior Health Insurance Co. of Pennsylvania. SHIP - About SHIP

Am becoming concerned after reading some reviews about poor service and contentious pay-off policies. Conseco, Travelers and several other LTC Companies have been rolled over into this Trust, which is being handled by the State of Pennsylvania Insurance Division as I understand it.

Quote:

SHIP administers long-term care insurance policies originally sold by Conseco Senior Health Insurance Company, American Travelers Life Insurance Company, Transport Life Insurance Company, United General Life Insurance Company, and Continental Life Insurance Company.

We have 20 years of premiums paid in, to the tune of about $48K.

Some of the complaints are here:
Senior Health Insurance Company of Pennsylvania

I understand there is a class action suit from California members for failure to honor payment obligations.

[JoeWras]

Trust, trust, and trust. Looks like all the above posts mention that. How do I know it will be there after I've dropped $30k into over the years?

I also like you question about service, Nords. Why are insurance companies in general so terrible with their service options. Seems like none of them have any kind of decent on-line service either. I know you have this fax issue. That's just crazy. But I'm even talking about checking on your policy on-line, etc. Seems like you sign up and they go into a paper black hole.

[Nords]

Bump.

I haven't forgotten about these questions & issues, but the interview has been postponed until 7 AM Monday (Hawaii time).

So if you have another question or issue about the subject, you have 14 more hours to bring it up...

[brewer12345]

Given the steady exit of carriers from this market and the multi-notch downgrades of some of the biggest players (Hancock and Genworth, to name two), what is the long term viability of this product for both the insurers who sell it and the policyholders who buy it?

What is the implicit cost of the LTC combination products (annuities with LTC riders, etc.) and how does the LTC coverage and cost of these products compare with a traditional straight LTC insurance policy?

[growing_older]

The policies I am aware of all suffer from the two problems: 1. Rates can change every year and historically they have gone up considerably. 2. Insurers can exit the business and leave policyholders abruptly.

Unless there is a way to address these two problems, this product seems less like insurance and more like opportunity to (temporarily?) participate in a risk pool, where the risk is borne collectively but as a policyholder I have no control over it and no expectation that I can quantify the risk. Is anything developing in the industry that would address these two problems?

[pb4uski]

The potential for rate changes scares me in that one can assess the premiums in relation to benefits and coverage at the sale but the insurer can jack up the premium later at will. If you buy early (say in your 50s) any premiums paid to date would be for naught unless you want to swallow hard and pay the increase (assumes most claims are later in life).

I'm less concerned with an insurer exiting the business in that they are still under contract, but they then have more incentive to jack up the premiums within contractual limits and hope policyholders vote with their feet.

I'm currently self insured but in the early stages of looking at LTC so I'm sure it will be interesting.

[MBAustin]

Seems to me that the models used to create LTC insurance are seriously flawed, resulting in the unpredictable rate increases and shrinking number of firms in the business. Does the expert have any information about how the industry is addressing this in a fundamental (vs. band-aid) way?

[Corporateburnout]

I am also evaluating LTC policies and concerned about the difference in premiums between insurance companies for the same policy. Why are NY life and John Hancock premiums 100% higher than Mutual of Omaha? Why such a large premium gap? Is MOO looking to sign up new customers only to increase premiums at a much higher rate in the future?

[Nords]

It was a good interview. Debra Newman is "Chair of the Board of Directors for the nonprofit LIFE Foundation" and founder of Newman Long Term Care.
http://www.lifehappens.org/debra-newman/

She's knowledgeable and articulate. But she's trying to help the whole industry recover from a horrible credibility gap.

Regrettably I couldn't tell that she read any of the background material I sent (including the earlier group of questions). I don't know if that's an indication of where I stand in the interview pecking order, or a lack of time on her part, or the oversight of the PR agency that set this up. She started out at a pretty basic level, but she ratcheted up when I used vocabulary like "lapse rate" and "actuarial assumptions".

Regardless I was able to ask all of your questions (and yours came up too, CorpBurnout).

The short version is:
1. The industry screwed up their assumptions on the lapse rate. They figured a 5% lapse, or a 95% retention rate per year for 10 years. Reality turned out to be more like 99%/year for a decade. So rather than spreading their returns among 65% of their customers, they were parceled out among 91%.
2. Four years of low bond returns, and more to come. Insurance companies have not been able to generate sufficient return on the invested premiums.

My reading of Berkshire Hathaway annual reports also indicates:
3. Individual company misconduct: underpricing policies to grab market share. ("We lose a little on each policy but...")

She says the good news is that policies sold during the last 4-5 years have been priced appropriately:
- 1% lapse rate
- Assuming people live longer with illnesses
- Reserves are being accounted for more conservatively.
In other words everything should work out fine, and this time we really mean it.

She mentioned that Hancock is already supposed to be setting aside higher reserves due to being owned by Manulife, which has to operate under more conservative Canadian rules. My cynical perspective is that Hancock has still been downgraded, and maybe they're just the last to fall. I don't know which perspective has more merit. "Higher reserves" might explain why MOO is cheaper than Hancock, or it might just mean that MOO has a cheaper claims process.

The best answer she had for failed insurers is that their policy guarantees would be under state supervision, using funds raised by taxing the surviving insurers. This also implies that there won't be much money left over for customer service, which might explain the SHIP trust situation.

For those of you in the Federal Long Term Care Insurance Program, she said that John Hancock pushed through a 25% premium boost on those with v1.0 policies. (She thinks that was for policies sold before 2010. Today's website is selling v2.0.) However v1.0 policy owners were offered an opportunity to reduce their inflation benefit from 5% to ~4.1% in exchange for keeping the same premium. If you're one of those policy owners, I'd appreciate hearing the details from you.

She concluded with a discussion of hybrid policies: annuities sold with life insurance and long-term care insurance benefits. See page 7 of this PDF:
http://www.lifehappens.org/pdf/print...m-care-pcg.pdf

The theory is that:
1. the owner buys a SPIA and accepts a lower annuity rate (which pays for long-term care benefits if necessary) or
2. the owner buys single-premium life insurance which also includes LTC benefits or
3. the owner could redeem the life insurance policy (but not the annuity!) to get their premium back.
This hybrid policy costs more money than the traditional policies (or the hybrid offers less benefits for the same price) but this time the guarantee is supposed to be more credible. I haven't verified this next statement, but the hybrid premiums are supposed to be lower than the cost of buying two separate policies offering the same benefits.

Another option is a joint LTC policy, where a married couple shares the benefits. Each would start out with a $250K limit, but if he needed more then he could dip into hers (leaving her with less). Again the premium of a joint policy is supposed to be lower than two separate policies. This seems great as long as you're the guy who dies on the actuarial schedule. It's not so great if you're the woman who lives to be 110 years old and survives with Alzheimer's for 20 years.

She says that turnaround experts have been brought in to fix Hancock's claims-approval and claims-payment processes. I wish them luck.

I think that LIFE is doing a great marketing job by breaking the situation down into "old bad policies, administered by states if necessary" and "new smart policies, problems solved". It could help restore trust, but I'm not sure how long the effect will last.

We're a skeptical, cynical crowd too... LIFE's marketing approach will probably go down well with the usual clientele.

I'm writing this up (with a few more details and links) for a blog post to go up on Thursday 6 December. Let me know if there's more to write about.

[Corporateburnout]

"Another option is a joint LTC policy, where a married couple shares the benefits. Each would start out with a $250K limit, but if he needed more then he could dip into hers (leaving her with less). Again the premium of a joint policy is supposed to be lower than two separate policies. This seems great as long as you're the guy who dies on the actuarial schedule. It's not so great if you're the woman who lives to be 110 years old and survives with Alzheimer's for 20 years."


In our case the shared policy premiums from MOO was not cheaper than the individual policies as the policy we are evaluating is a 5 years benefit period for $360K each. To get the same premium with shared benefits we would have to reduce the benefit period to 3 years and $220K limit each which would not make sense.