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LTCI Watch: Promises

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Last week, we posted an article from the Associated Press about how the U.S. Department of Health and Human Services (HHS) may force the states to eat some of the costs involved with keeping the Pre-existing Condition Insurance Plan (PCIP) going until Dec. 31.

It seems as if the PCIP  

Today we have an AP story about how Warren Buffett — a man famous for being a big buyer of underpriced assets — has concerns about how easy (or difficult) it will be for the Federal Reserve Bank to sell all of the bonds it acquired while it was trying to pump up the economy.

Buffett told an AP reporter that selling assets is harder than buying them, and that the Fed move to sell the bonds could be inflationary.

Meanwhile, we run all sorts of homegrown articles in which health policy specialists and representatives from various well-meaning nonprofit groups give private long-term care insurance (LTCI) a cold shoulder and dismiss the idea of private LTCI doing much to help Americans prepare for long-term care (LTC) costs with faint praise.

The nonprofit group reps and think tank reps will say something along the lines of the idea that “private LTCI products might fill niche needs” among the affluent people who can afford the private LTCI products.

Meanwhile, the LTC policy specialists are so cold toward the private LTCI people that, even when the LTC policy specialists are doing something right up the private LTCI companies’ alley — example: promoting the need for increases in the national Alzheimer’s research budget — the private LTCI carriers’ aren’t even represented by an insurance company’s mailroom intern’s roommate, let alone someone with MDRT connections.

At the same time, some state insurance regulators are resisting LTCI carriers’ efforts to increase rates on in-force policies enough to keep the policies’ economically viable.

The PCIP program is, really, an acute health care insurance program for people who, in many cases, are already sick enough that they need help with the activities of daily living.

The drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) created the $5 billion program to provide temporary insurance relief for people who are uninsurable because they have serious health problems. Enrollees are supposed to pay roughly what healthy people in their states would pay for private coverage. 

Enrollment has been much lower than the PCIP creators had predicted, but the enrollees are much sicker than expected. The average annual claims cost for the sickest 4 percent is about $225,000.

So, the program is running out of people. Instead of raising rates — people who need $225,000 per year in care generally don’t have a lot of extra cash they can use to pay higher insurance premiums — the federal PCIP managers are, effectively, trying to put the unexpected risk hot potato on the states’ plates by making them help pay excess claims.

Federal officials say the problem is not that big of a deal, because PPACA is supposed to require health insurers to sell coverage to everybody, including PCIP enrollees, without taking health status into account starting Jan. 1, 2014. 

Who knows what will really happen Jan. 1, but, anyway: Whatever happen to the sick people, their doctors and hospitals, and their state government finances between now and Dec. 31, one thing that’s crystal clear from the PCIP experience, in a bipartisan way, is that predicting what will happen with any kind of health claims is really hard.

Chances are that the most pessimistic actuaries are the correct actuaries, but, even if that’s so, in the long run, who knows whether believing them from the beginning is really the most cost-effective approach.

Maybe, if insurers take the grim actuaries seriously from the beginning, they’ll simply start with high, unaffordable premiums and manage the revenue inefficiently. Maybe insurers that optimistically start with unrealistically low rates will be better at pinching pennies until the cash runs out and they have to go through the wave of bad publicity that comes with raising rates. 

Either way: As smart as actuaries might be, and as wonderful a career as they might have, they can’t really predict the future. 

Think about the creators and managers of the PCIP program. They must have been extremely smart, educated, well-meaning people who knew they were going to be providing health benefits for desperate people. They really wanted PCIP to work. In the beginning, when PPACA was being drafted, if they’d understood how the economics of the program would have worked, maybe they could have gotten more money for the program.

But, clearly, they didn’t really understand how the economics of the program would work. Even if some of the people who read this blog entry can send me e-mails showing that they explained to the PCIP designers, in black, 72-point capital letters, how costly the claims would be, still, wishful thinking clouded the PCIP designers’ eyes. The PCIP designers simply thought the program would be a different program than it’s turned out to be.

I know that the consumer group reps who are so cold toward the LTCI carriers must be thinking about frail elderly people who come in with notices of sky-rocketing LTCI premiums, or thick folders full of correspondence about problems with claims. It must be tempting to think that the problem is just that greedy executives at the for-profit LTCI carriers stuffed the money in a safe deposit box in Bermuda.

I think the sad reality is that, in most cases, greedy bastards are just a small part of the acute health care and LTC rate increase problem. 

The real problem is that not even Warren Buffett has enough of an idea about what will happens with prices or interest rates to lock in profits based on accurate expectations.

Certainly, private insurers need to be a lot more careful about making fixed promises and using terms such as “guaranteed.” They ought to be quick to admit that, in extreme conditions, the price of anything can go up.

But the designers and managers of government acute care and LTC programs also ought to show more humility about the nature of the benefits promises that they make and can actually keep, and they need to learn to have some empathy for employees of private insurance companies who simply made the same kinds of mistakes that the designers of PCIP, the Social Security retirement program and the Social Security Disability Insurance program have made, without having the benefit of the obfuscation and budget fudging mechanisms that federal insurance programs enjoy.

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