Periodically a chain of events will occur that demonstrate just how tenuous a hold we have on events going on around us. After all our best laid plans are set in motion, we suddenly are confronted with circumstances where drastic action is called for simply in an effort to survive.
A situation like that developed while a fellow pilot and I were flying our electronic racetrack over the front lines of Iraq in Desert Storm. Our RC-12 reconnaissance plane was under AWACS control and we were exactly where we were supposed to be. Suddenly from his seat on the right side of the cockpit my partner started yelling, “Dive! Dive! Dive!”
At an altitude of 25,000-plus feet, a turboprop aircraft doesn’t have too many options. I took a fast glance to see what precipitated the frantic yelling. I was looking directly at the nose of a B-52 bomber heading directly for us after having completed a bombing run deeper in Iraq.
Trust me when I say I wasted no time in pushing the yoke forward and getting us out of there. (My partner said he could see rivets in the bomb bay doors when the Buff flew right over us. I was busy flying the plane and missed that sight altogether.)
While possibly not quite so colorfully dramatic, long term care insurance may be in similarly turbulent times. Actuarial assumptions within the industry, used when originally designing the product, turned out to be woefully in error. As a result, premiums collected fell dramatically short of what was necessary to cover costs and pay claims.
One of the biggest problems, however, was that lapse rates were far below what had been projected as people held on to their protection long after purchasing it.
A number of major LTCI carriers exited the market entirely. Others have had a number of sharp premium jumps. What were once feature-rich policies are now becoming austere versions of their former selves.
As those of us who are on the leading edge of the Boomer Generation pass our 65th birthday, the need for LTCI has never been greater and will continue to grow into the future. Each year we wait to purchase protection the age-related cost increases. However, the exponential rise in cost is driven by the compounding increase in benefits needed due to inflation and demand.
At current usage levels the increasing costs are breathtaking. Projecting what they may reach with far greater demand is mind-boggling.
Some are beginning to wonder if LTCI can survive the ravages to which it is being subjected. Radical changes have already occurred and the stressors are miniscule in comparison to what they may become.
Linking benefits to annuities or life insurance may help make a form of LTCI more appealing to the public. However, these linked benefits may not provide the level of reimbursement or the more advantageous definitions of an individual, unbundled LTCI policy. Laboring under the philosophy of “some-is-better-than-none” may mask deficiencies and inure prospects from doing a more thorough job of planning.
Both the states and the federal government have been quite clear that they don’t want to be in the long term care business. Many states have enacted partnership laws that allow LTCI policy holders to retain more of their estate if they have received LTCI benefits. This means more will ultimately pass to surviving spouses and beneficiaries.
Some of the resolution of issues within the LTCI arena must come from players outside it. Bringing inflation under control falls primarily on our government. Building more facilities as the population ages is within the purview of private industry. Training of medical and care-giving personnel is a function of all segments working together.
Creative product design and innovative features start with the various carriers. Finding new ways to deliver the care and contain costs is also a collaborative effort by all involved.
Can long term care insurance survive the maelstrom of factors slamming it from all sides? Will we be able to recognize it in the future? Most importantly of all, will it be priced so that the maximum number of people can economically afford it?
Survival in the skies over Iraq required alertness in recognizing the problem and then swift, appropriate corrective action at the right time. That sounds remarkably similar to what may be required if LTCI is to survive as a viable option in the future.