LTC Bullet: WA Cares Repercussions

Friday, October 28, 2022

Seattle—

LTC Comment: Washington State politicians and bureaucrats think they can do LTC insurance better than private sector professionals. What could possibly go wrong?, after the ***news.*** [omitted]
 

LTC BULLET: WA CARES REPERCUSSIONS

LTC Comment: In my estimation, no one knows more about private long-term care insurance than Claude Thau. He’s run a carrier, been a broker/dealer, and guided hundreds of producers up the steep ladder of success in LTCi sales. Claude is the lead author of Milliman’s annual Broker World LTCi Survey and a past Chair of the Center for Long-Term Care Financing (1998-2005). He knows whereof he speaks.

In the current month’s issue of Broker World, he addressed future prospects for the WA Cares Fund (WCF), Washington State’s foray into compulsory, payroll-funded, social insurance for long-term care. Following are some key points from Claude’s article, but definitely go to the source itself for all the interesting context and details. (If you don’t yet subscribe to Broker World, you can correct that oversight here.)

“What May Be The Repercussions of The Washington Cares Fund?,” by Claude Thau, Broker World, October 1, 2022

Thau: “When working to get the law passed, proponents expressed confidence that WCF would stimulate a significantly increased future market for private LTCI because WCF would educate consumers regarding their need for LTCI.”

He points out several reasons why such a positive outcome is doubtful:

Confusion: “WCF uses different triggers than the HIPAA-defined triggers used by private LTCI and pays different providers. To the degree that it is hard to remember trigger definitions and provider qualifications, it becomes much more difficult when faced with conflicting definitions.”

Dried-Up Stream of Sales: “Because Washingtonians wanted to be exempt from the WCF tax, the industry sold more than 90 times as many WA policies with LTCI features in 2021 than in 2020. Because of the avalanche of 2021 sales, demand is likely to be greatly muted for the next several years. … Rather than devoting disproportionate attention to WA’s small, unattractive LTCI market, insurers, brokers, employers, and others might sit on the sidelines for an extended period.”

Lack of Perceived Need: “Many Washingtonians seem likely to think they need no additional coverage. Unfortunately, rather than educate Washingtonians regarding the value of supplemental coverage, the state promotes WCF with messages such as ‘We no longer have to worry about how we will afford long term care as we age.’”

Denigration of the Private LTCI industry: “In addition to suggesting that WCF is all the coverage Washingtonians need, WA officials spread inaccurate and misleading comments denigrating private LTCI.”

Financial advisor hesitance: “Because of the complications introduced by WCF, financial advisors seem more likely to be hesitant to raise the issue of LTCI with their clients. The reduced likelihood of a sale also discourages what may be fruitless discussion, and more work for less compensation is not very motivating. … Employers and employee benefit managers also seem less likely to be interested. Thus, much of the private LTCI industry might sit on the sidelines for at least several years.”

Increased Total Cost: “The combined cost for LTCI (WCF plus private insurance) will increase significantly compared to prior to WCF for two reasons:

• Buyers are forced to have a zero-day elimination period which increases the price (but provides additional value).
• People who can afford private LTCI tend to be healthy high-earners, who are overcharged for WCF coverage to subsidize less affluent and less healthy Washingtonians.

“The market is not likely to respond favorably to the high combined cost.”

Future Impact: “For the above reasons, WCF seems likely to shrink future LTCI sales significantly, particularly stand-alone LTCI sales. Future sales may migrate heavily toward life insurance or annuities with LTCI features. The life insurance or annuity side of the contract is less confusing and guarantees a pay-out.”

“The 2021 private LTCI sales in WA were less likely to include automatic compound benefit increases. In addition to providing less coverage up-front, the shortfall is likely to increase over time.”

“In addition to its impact on future LTCI sales in WA, WCF has encouraged other states to consider state-run LTCI programs. In California, a task force is exploring creation of a state LTCI program. Most observers think a CA-run program is nearly certain.”

LTC Comment: Next Claude opines about how this shotgun spread of state LTC programs might differ in terms of exemptions and “triggers, total coverage, compounding, benefits, vesting, etc.” He asks:

“Will insurers be interested in complementing state programs if those programs vary by jurisdiction? Will financial advisors consider such complexity worth their effort? Will employers and employee benefit advisors consider LTCI programs if they must vary by employee resident state? What will happen to individuals who move from one state to another? Will inconsistencies increase pressure for a uniform national program? Will consumers, employers, advisors and insurers sit on the sidelines in what they might view as a turbulent market with a questionable future?”

In sum: “Hopefully, other jurisdictions will involve the insurance industry in discussions about all aspects of a state-run LTCI program throughout the development process. Such involvement should include front-end salespeople as well as insurance company home office personnel. It should include careful consideration of the insurance industry’s comments, not just token participation.”

LTC Comment: Left unsaid is the fact that the WA Cares Fund designers did not consult the insurance industry in any meaningful way which may account for many of that plan’s problems.