One of the challenges facing issuers of long-term care insurance (LTCI) is the well-intentioned but dangerous effort by the Federal Reserve Board to nurse the economy back to health by keeping the interest rates it controls artificially low.
Not even Adam Smith believed in letting the market be free of government intervention all the time.
In the short term, a little well-targeted government intervention might help accomplish tasks that independent businesses cannot. Government agencies created the Egyptian pyramids, the Great Wall of China and New York’s Off Track Betting parlors. If Fed officials want to jiggle rates from time to time to please CNBC viewers, fine.
But interest rates really represent an estimate of the cost of time. By holding rates so low for so long, the Fed is letting rates lie about the likely future cost of keeping the baby boomers comfortable in their old age.
Another problem is that ultra-low rates give banks an incentive to do nothing but park the almost-free money they get from the government in government loans that pay a slightly higher rate than the insurers have to pay for their Soylent Capital.
The low rates might help give Mom and Pop a boost, but Moms and Pops now gave sub-700 credit scores and can’t get anything resembling those low rates.
Why should the bank lend money to Mom and Pop stores if it can make as much money – with less stress – by passively absorbing government interest payments?
And, of course, the low rates depress the returns insurers earn on their investments.
Prolonged ultra-low rates reward financial companies for refusing to be either hares or tortoises, and instead holding fast to lives as financial jellyfish.
The Fed needs to let rates return to normal levels and get out of farming jellyfish.
DESIGN YOUR OWN DEATH SPIRAL
The SCAN Foundation, Long Beach, Calif., has posted an LTCI program simulator to help explain why many actuaries believe the current version of the Community Living Assistance Services and Supports (CLASS) program would be doomed.
The Obama administration had suspended work on implementing the program because of concerns about sustainability.
The Web tool, created using data from Avalere Health L.L.C., Washington, also illustrates the foundation’s views on the programs that it thinks could work.
The tool, at http://www.ltcpolicysimulator.org, illustrates the relationships between factors such as premiums, enrollment and claims costs.
The National Academy of Elder Law Attorneys (NAELA), Vienna, Va., is giving the 2011 Elder Leadership Award to Jo Rosen of Palm Desert, Calif.
Rosen, the president of the Parkinson’s Resource Organization, founded the group after dealing with the reality that she was the daughter and fiancée of people with Parkinson’s.