From the September 2008 issue of Investment Advisor • Subscribe!

Half Empty, Half Full?

It's a mixed bag for long-term care insurance

The spate of bad publicity garnered by long-term care insurance (LTCI) last year generated a lot of attention, from calls for reform by Presidential hopefuls to a study by the GAO, released in July, on consumer protection standards and enforcement. The news isn't all good by any means, with uneven adoption of new standards by the states; premium increases of varying sizes, with approvals that vary widely from state to state; claims difficulties; and a lack of definition for some vital terms such as "timely" and "reasonable."

However, the news isn't all bad either, insists Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI). "I think...because some of the more potentially inflammatory information [the GAO study] contains lacks any context, it really provides little guidance for legislators," says Slome. And worse, he adds, the study assists people "who have an agenda" to advocate "government-paid-for long-term care insurance" the opportunity to do so with a "15-second sound bite."

Slome goes on to cite a number of issues he has with the study. The biggest obstacle to increasing sales of LTCI, he says, is the perception that it is expensive. While some eight million people have LTCI policies, according to AALTCI, most people rely on Medicaid to provide long-term care--and Slome says that that makes the taxpayer the insurer of last resort. He says the study reinforces the perception of policies' high cost by citing an annual premium of $2,200 for a 55-year-old purchasing a 3-year, $100/day comprehensive coverage policy in 2007 from one company in California. AALTCI does an annual price index, he adds, that shows a premium of $709 for 2008, albeit for an Illinois policy.

While IA's Directories for both last year and this year showed premiums considerably lower than the $2,200 mentioned in the GAO study, many did not include inflation protection; also, they were quoted for 50- or 60-year-olds rather than 55-year-olds, with numerous other variations, such as shorter terms. Most offered payment for care in nursing facilities as well as home care or some other venue.

John Dicken, director of health care at GAO, also points out that the $709 rate from AALTCI's index reflects spousal and preferred health discounts that were not included in the $2,200 premium used in the study. Slome argues that the majority of purchasers of LTCI are married, thus qualifying for the spousal discount, and that many purchasers at age 55 can still qualify for preferred health discounts, but says that if the premium were adjusted to eliminate these discounts, it would still be $1,200-$1250--considerably less than the GAO premium. Yet the whole point of quoting a premium in the study, says Dicken, is "to illustrate how age is a factor in premiums"--something that any planner who's tried to find LTCI for an elderly client will be familiar with. The 55-year-old cited in the study would pay $2,200, while a 70-year-old would pay $3,900 for the same coverage.

Next, Slome says the report focuses too much on rate increases. Conceding that it's a "complicated topic," he says the examples cited in the study (a 50% increase by one company, compared with an 8%-12% increase by another) make it hard to understand how many people were affected by each instance, and the reasons behind a company's quest for an increase--such as lapse rates and interest rates on invested assets. Low lapse rates, he adds, are actually good news, since they mean consumers purchasing LTCI keep it and pay their premiums.

Slome also says that LTCI itself has "a tabulation and terminology problem," chalking up most denied claims to misunderstandings by consumers of their eligibility (for instance, failing to satisfy a waiting period). While certainly this is true in numerous instances, policyholders with legitimate gripes will doubtless disagree with his assessment. (See sidebar, "The Half-Empty Glass.") Asserting that one bad headline can do more to discourage people from buying policies, Slome says taxpayers will end up paying for such inaction.

The good side of LTCI doesn't get enough press, he adds. Citing AALTCI statistics, he says that in 2007, 400,000 people, between individual and group plans, got coverage, and $3.5 billion in claims were paid. And certainly some of the actions cited in the study as being problematic are being worked on, as can be seen in the testimony of Thomas Samoluk, VP of government relations at John Hancock, before the Committee on Energy and Commerce Subcommittee on Oversight and Investigations on July 24. Samoluk mentioned that John Hancock is in the process of launching a new independent third-party review process, something that several states are already considering as additional protections for consumers--and something Slome says will benefit both consumers and industry.


Marlene Y. Satter, a freelance business writer, can be reached at harpwriter@verizon.net.

Reprints Discuss this story
This is where the comments go.