 LTC Bullet: LTCI Sales Surge Friday, July 29, 2022 Seattle— LTC Comment: All of a sudden LTCI sales exploded to the upside last year. What happened? Could it happen again? How? Some thoughts after the ***news.*** *** LTC CLIPPINGS are notifications we send to Center Premium Members daily with news, data, reports, and information they need to know to stay at the professional forefront. Steve Moses scans the popular and scholarly media, condenses vital information, and forwards to you a message with the title, author, a link, a representative quote and his “LTC Comment” analyzing the significance. Don’t miss any more LTC Clippings. To subscribe contact Damon at 206-283-7036 or damon@centerltc.com. Here are two examples of need-to-know LTC clippings we sent recently: 7/27/2022, “Older adults’ home equity exceeds $11.12 trillion in first quarter: report,” by Kathleen Steele Galvin, McKnight’s Senior Living Quote: “Homeowners aged 62 or more years increased their home equity by the first quarter of 2022 by 4.9%, to a record $11.12 trillion, from the fourth quarter of 2021, according to the latest quarterly release from the National Reverse Mortgage Lenders Association, published Tuesday. That’s a difference of $520 billion. … Some older adults are using reverse mortgages to finance their moves to senior living communities.” LTC Comment: Expect senior home equity to decline as the housing recession continues but to remain a critical source of LTC financing when the broader economic recession takes its toll on public LTC funding programs. 7/28/2022, “Low pay, poor working conditions common for long-term care workers: report,” by Kathleen Steele Galvin, McKnight’s Senior Living Quote: “Low pay and poor working conditions are the norm for workers in long-term care, according to a report published Wednesday by the think tank Economic Policy Institute. … Their key findings:
Increased public funding is an answer to ensuring higher pay, better staffing levels and improved working conditions for workers, according to the researchers. They also called upon policymakers to raise the minimum wage and strengthen protections for workers seeking to organize a union.” LTC Comment:
The kneejerk answer is always to throw more money at the problems. But
shouldn’t the first step be to ask why LTC has these problems? The market
is dominated by public funding and government regulation. If it is such a
mess, do we really believe more public funding and regulation will make it
better? To understand what’s wrong and what can fix it, try these studies:
Medicaid_and_Long-Term_Care (2020) and
How to Fix Long-Term Care Financing (2017). *** LTC BULLET: LTCI SALES SURGE LTC Comment: In the 1980s and ‘90s long-term care insurance sales moved gradually upwards. We had every reason to believe that trend would continue. After all, the undesirable alternative was to pay out of pocket for long-term care if needed or to rely on public welfare. But by the early 2000s, LTCI sales took a downward turn. Analysts and policy makers wrote the product off as a way to offset public funding from Medicaid. The private long-term care insurance market languished. Until now! What happened? To find out, read the “2022 Milliman Long Term Care Insurance Survey” in Broker World’s July 2022 issue. (Subscribe here.) This is the magazine’s 24th consecutive annual review of stand-alone long-term care insurance (LTCI). Kudos to authors Claude Thau, Allen Schmitz, and Chris Giese. Here are some pull quotes (footnotes omitted, but emphasis added) from the article followed by our comments.
LTC Comment: Wow! That’s amazing. All of a sudden, national sales tripled, though premiums only increased one-third. Worksite sales jumped over nine fold, but worksite premiums only tripled. More men than women bought policies for the first time ever. National placement rates jumped from 57.8 percent in 2020 to 61.7 percent in 2021. Most amazing of all, one state—Washington—accounted for 60 percent of national sales after generating only three percent the year before. But it’s not all good news. Outside of Washington, new insureds dropped 9.4 percent and premiums declined 6.0 percent. What’s going on? It’s pretty obvious. Faced with a real and immediate risk and cost of long-term care—that is, Washington’s payroll tax threat—people grabbed the only way available to avoid it—to buy LTCI by a date certain. Nearly half a million workers sought the exemption. Overrun by demand the LTCI market froze and most seeking the coverage were unable to close the deal by actually purchasing a policy. No problem. That and other issues of poor design caused the state to send WA Cares back to the drawing board, delaying implementation until July 2023. But the key point was made. Lesson learned: while consumers won’t buy private long-term care insurance to offset a risk and cost that may or may not occur decades in the future, they will snap up the product to escape an immediate cost imposed by the government in the form of a compulsory payroll tax. Hmmm. What should we make of that new insight? Should every state, or even the federal government itself, impose a WA Cares-like payroll tax to fund meager LTC benefits and give everyone a chance to opt out in the hope they’ll insure privately to escape the trap? Even if others did a better job than WA Cares of planning and designing such a program, it would be a very unfortunate development indeed. It would follow the social insurance programs we already have, such as Medicare and Social Security, currently unfunded to the tune of $56 trillion, down the fiscal sinkhole. There is a better way. Instead of imposing a politically unpopular and economically ill-advised new tax to fund an inadequate LTC “trust fund” with a private LTC insurance escape hatch, why not simply establish and publicize a new personal long-term care responsibility. Let a private organization or agency actuarially determine each individual’s personal contribution and responsibility to the LTC risk pool. Then allow people to meet their responsibility as they see fit as long as they satisfy agreed upon measures of accountability. How? The possibilities are endless. One could purchase private LTC insurance in a sufficient amount. Or earmark a portion of home equity--now $11.12 trillion just among older homeowners--to long-term care. Or tap life insurance--$19.6 trillion. Or draw from IRAs ($13.2 trillion)/401Ks ($7.3 trillion). Or contribute to a new kind of IRA for LTC. Or formally encumber part of one’s estate. Given a reason to do so, consumers and entrepreneurs would find creative, economically beneficial ways to meet each person’s LTC responsibility. Research shows that the LTC responsibility is not as onerous as previously thought. On average “an American turning 65 today will incur $138,000 in future LTSS costs, which could be financed by setting aside $70,000 today” (Favreault and Dey, 2016, p. 1). That does not sound so daunting. If we could get most Americans to satisfy that level of risk now, we would be left with a far tinier share of the overall cost of LTC for public financing to pick up later. But what about those who do not or cannot cover their personal LTC responsibility up front? If they can but will not, then let government enforce the responsibility, but not with a universal, compulsory, payroll tax punishing everyone and damaging the economy. Rather more conventional methods should suffice such as withholding other public benefits or imposing a new, narrowly focused tax clearly defined to cover the individual’s LTC responsibility. For those who don’t satisfy their individual LTC responsibility because they can’t, well, at least there will be many fewer of them when the time eventually comes that they need long-term care and less depleted public coffers will be better able to provide access to and quality of care for them. It turns out financing long-term care for an aging population isn’t the overwhelming problem all the studies make it out to be. Reconceptualized as an immediate cost, long-term care planning is manageable. There’s more than enough wealth in the American economy to ensure every person receives quality care in the most appropriate setting when they need it. We tried getting people to plan responsibly for long-term care by threatening them with the loss of their life’s savings if they have catastrophic LTC costs. But in the end, when the time came, Medicaid stepped in and paid for most high-cost long-term care. So generation after generation never came to grips with the real risk and cost of LTC. That was the real problem all along. Now that we understand it, we know what to do about it. All that remains is to summon the political will and act. |