LTC Bullet: The Gold Standard for Long-Term Care Insurance

Friday, May 8, 2020


LTC Comment: We face a brave new world—epidemiologically and economically. What’s really happening and how can long-term care insurance adapt? Analysis and conjecture after the ***news.***

*** LTC BULLETS took some time off to reflect on the current sea change impacting long-term care services and financing. In the meantime, we serialized our latest report, published in January, titled Medicaid and Long-Term Care. That report presents our analysis and recommendations for long-term care policy as circumstances existed before the pandemic. Today and for the future we turn to the challenge of analyzing, understanding and opining about the radically different circumstances faced by the long-term care profession today. We invite you to join the conversation by replying to each LTC Bullet as it is published whenever you agree, disagree, or just have something to say. Next week, we’ll address the question “Why Are So Many People Trapped in Nursing Homes?” With SNF residents confined to quarters and their loved ones locked out, it’s never been more important to understand the causes and consequences of Medicaid’s institutional bias. ***

*** ACTIONABLE NEWS about long-term care is more frequent and vital during the pandemic than ever before. The Center for Long-Term Care Reform’s LTC Clippings bring you one or two daily updates about critical information you need to know to stay at the forefront of professional knowledge. Steve Moses scans the news and LTC literature. He chooses reports, articles, stories and data that LTCI agents, financial advisors, and anyone involved in aging issues need to know. He provides the title, author, source, a hyperlink to the original, and a sentence or two of commentary. As a bonus to LTC Clippings subscribers, Steve will answer questions by phone or email usually within 24 hours. Hook yourself into this reliable source and you can safely spend less time scanning for information and more time doing what you do best professionally. Contact Steve at 425-891-3640 or to subscribe or learn more. Two sample clippings from this week:

5/4/2020, “The Grim Post-COVID-19 Future For Nursing Homes,” by Howard Gleckman, Forbes

Quote: “The deaths of more than 16,000 of their residents from COVID-19 has profoundly disrupted senior living facilities—especially nursing homes— and will drive historic change in the industry. Robert Kramer, president of the consulting firm Nexus Insights and a long-time observer of nursing home finances, told me, ‘There never will come a time when we will return to the old normal.’”

LTC Comment: Rare flawless analysis by this writer. Obvious conclusion based on the evidence adduced: stop trapping people in nursing homes on Medicaid and incentivize responsible LTC planning by means of saving, investment and insurance. But no, this article leaves us only with despair. There is nothing about why this system went so wrong and what needs to happen to fix it. For that, read Medicaid and Long-Term Care.

5/5/2020, “States cut Medicaid as millions of jobless workers look to safety net,” by Rachel Roubein and Dan Goldberg, Politico

Quote: “State Medicaid programs in the previous economic crisis cut everything from dental services to podiatry care — and reduced payments to hospitals and doctors in order to balance out spending on other needs like roads, schools and prisons. Medicaid officials warn the gutting could be far worse this time, because program enrollment has swelled in recent years largely because of Obamacare’s expansion.”

LTC Comment: So, tell me again why it makes sense to exempt up to $893,000 in home equity so that affluent Americans can avoid paying for private insurance and qualify for welfare-subsidized nursing home care, where they’re dying in droves cut off from friends and family. The only silver lining in this pandemic/recession is that maybe we can finally reform this corrupt LTC financing system. We made progress after recessions in the early 1990s and the early 2000s, but the system has stagnated unreformed since the Great Recession. To learn why, read Medicaid and Long-Term Care. ***


“This too will pass”
“After the pandemic, markets will surge back”
“We have nothing to fear but fear itself”

If you believe this HHS (Happy Horse Sh**), you’d better open your eyes.

This crisis is not going to pass any time soon. Markets won’t surge back after the virus passes. There is no viable “back” to return to.

The roaring economy a couple months ago wasn’t real; it was an asset bubble.

The Federal Reserve pumped it up by imposing artificially low interest rates through quantitative easing, buying bonds with printed money.

The federal government, taking advantage of the low interest rates, overspent creating huge extra debt.

The private sector over-borrowed at low interest rates to fund malinvestments, starting uneconomical projects that only seemed to make sense because borrowing was so cheap.

All the extra money printed (created out of thin air) drifted into equities so stocks and bonds surged, diverting the huge money inflation so it didn’t show up significantly in consumer prices.

The wealthy, with real estate and equity investments, prospered while the poor and middle class languished economically.

The good times rolled as affluent Americans partied, buying tons of cheap goods from China.

But where’d they get the money to buy those cheap goods? America doesn’t produce much to sell internationally anymore. Our trade deficits are huge.

Easy, we sold the treasury bonds created by the Federal Reserve to China and other foreign countries.

In short, they gave us dollars in exchange for paper promises to pay back the principal plus artificially low interest, someday, somehow.

We prospered on the easy money and left foreigners holding the paper-money bag.

That was the wonderful, booming, “best market in American history” according to the President, that we enjoyed until the bottom fell out in March.

In other words, it was all fake, an asset bubble created by, well, Modern Monetary Theory.

How did we get there?

Twenty years ago, back when we still had some semblance of a real economy, it blew apart with the dot-com bust when the Fed tried to cool the economy by raising interest rates.

Instead of letting the economy suffer the hangover of a severe recession that could have squeezed the public and private malinvestment out of the system …

The Fed pushed interest rates down artificially and left them there.

Public and private malinvestment surged with a vengeance, especially in the real estate market, resulting in the 2008 housing bust.

After that bubble burst, the Fed returned to the seemingly tried and true policy of artificially low interest rates.

A Tale of Two Bubbles: How the Fed Crashed the Tech and the Housing Markets

This time they added three rounds of Quantitative Easing (QE) vastly expanding the money supply with the hope of making people spend more because of the “wealth effect” created by all that extra cash going into the equity markets.

So, where are we now?

The Coronavirus pandemic shot through the latest asset-bubble economy like a ballistic missile.

The government closed down the economy to curtail the disease’s spread.

People are suddenly out of work and out of money as are the companies that used to employ them.

Few Americans have any appreciable savings because government programs—from Social Security in 1935 to Medicare/Medicaid in 1965 to the paroxysm of free stuff promised by present-day progressives—have desensitized the public to the need for personal responsibility.

So naturally the people from the government, who are always coming to help us, dove right in.

Did they learn their lesson from the earlier disastrous policies that created the previous asset bubbles?

Well no, they tripled down on those same policies in the hopes of re-inflating the bubble yet again once the pandemic goes away.

The Federal Reserve quickly forced interest rates back to near-zero and implemented not just QE4, but rather QE∞ (Quantitative Easing to Infinity).

The Treasury responded in kind promising to spend whatever it takes.

So the Fed is printing unlimited money and the Treasury is spending it as fast as it appears out of nowhere.

That’s called monetizing the debt and it’s economically fatal sooner or later.

The Trump Administration and Congress have pledged to pay everyone’s wages who isn’t working, to end evictions, to forgive all kinds of late or non-payments, to buy even junk bonds!

Already the money supply is exploding and the checks are still going out with more, big “stimulus” programs coming soon.

Inflation Alert: Money Supply Expanding At 26x Rate Of QE1

Next likely steps: (1) the Fed will start buying stocks so that government will own some of the means of production (the definition of socialism) and (2) the Administration and Congress will authorize trillions more to fund “infrastructure” jobs.

Moral hazard has become moral catastrophe.

OK, so here we are: the economy is shut down; production and distribution have plummeted; supply chains, including those cheap products from China, are interrupted, and suddenly we have a virtually unlimited supply of money.

At the same time, we’re producing fewer goods and services than ever.

Timid efforts to “restart the economy” will likely prove false starts indefinitely as the virus resurges wherever they’re tried.

“Too much money chasing too few goods?” Where have I heard that phrase before? Oh yeah, a couple decades ago before all this economic craziness got started in earnest.

That’s inflation? Yes of course. Inflation is nothing more than an increase in the money supply. So, this is inflation by definition and by orders of magnitude greater than ever before.

Well, then, why aren’t consumer prices going up more?

They didn’t go up commensurately with the increases in money supply during the previous two asset bubbles because most of the new money went into the debt and equity markets instead of consumer prices.

OK, so why won’t that just happen again? We’ll blow up an even bigger bubble and let the good times roll! Isn’t that what the currently resurging V-shaped stock market results are showing?

Nope: too much money this time. Too few goods to buy. Equity markets are unattractive for anyone without the rose-colored glasses of mindless confidence in the Fed.

Too many dollars with no place to go means the dollar loses value. People lose confidence in the dollar. The dollar loses its status as the world’s reserve currency.

Blow a balloon too big and it’ll pop even without a pin like the Coronavirus to puncture it.

So, this is it, the reckoning, the end game. Hyperinflation. The Weimar Republic, Argentina, Zimbabwe, the new USA.

The good news: Social Security and other government pensions and programs will pay in full; the bad news: what they pay won’t buy much.

On the other hand …

We’ll have no more moral hazard as the government will have no more ability to supply it.

Medicaid and Medicare? Maybe some residual safety net will remain, but the smart money will seek protection in the private market: saving, investing and insuring in real money against future risk.

Real money? It’ll be gold again as it always was under the surface and behind the scenes. It’s the only money that keeps its value as fiat currencies fluctuate.

Does this have anything to do with long-term care? You bet.

As the economy stabilizes around real money, we’ll have no more inflation, no more moral hazard from government “help.”

If Medicaid survives, it will be vastly attenuated, and certainly not a resource middle class and affluent people can rely on for long-term care as they have in the past.

Private charity will fill the gap left by disappearing entitlement programs, but it won’t be enough.

People will have to rely again on personal responsibility and private means: saving, investment, and insurance, as they did long ago when America was originally becoming the great economic powerhouse it has since frittered away.

Long-term care will remain expensive and people will need it as much as ever.

With no government program to fall back on, private long-term care insurance will resurge, but underwritten by gold.

We’ll pay premiums, receive benefits, and finance stable long-term care expenditures with gold, the once and future objective standard of value.

Instead of “who needs it” private LTCI will become “can’t go without it” protection.

It’s a long, rocky road ahead, but that’s where we’re headed.

Your thoughts?