LTC Bullet:  Guest Column, "Yes on I-2124"

Friday, October 11, 2024

Seattle—

LTC Comment: Today’s special Guest Column brings us Stephen D. Forman, Senior Vice-President of LTC Associates, who weighs in on Washington State’s currently-compulsory public long-term care insurance program, after this ***message.***

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LTC Bullet:  Guest Column, "Yes on I-2124"

LTC Comment: The fate of Washington State’s WA Cares Fund hangs in the balance as voters will soon decide whether to make participation in the State’s long-term care insurance plan voluntary, putting at risk its long-term financial viability. Could WA Cares Fund go the way of the CLASS Act? For thoughtful analysis of such issues, we often turn to Washington State resident, author and long-term care insurance expert, Stephen D. Forman. For previous installments on the WA Cares Fund’s saga by Mr. Forman, see also: “LTC Bullet: The WA Cares Fund Gets a Bad Wrap” and “LTC Bullet: Kill or Cure WA Cares?.” In the meantime, here’s his latest.

"Yes on I-2124"
by
Stephen D. Forman

Spend any time listening to opponents of ballot Initiative 2124[1]—that is, those who are fighting to maintain mandatory employee participation in WA Cares—and a powerful message comes through. They believe passionately in long-term care insurance.

“Our loved ones can’t afford to lose our long-term care benefits,” says this ad.

“By ending our long-term care insurance program, I-2124 will take away help from family caregivers who help their older parents, spouses, and other loved ones remain in their homes for as long as possible, where they consistently tell us they would rather be,” says AARP of WA.

These WA Cares supporters not only love LTC insurance, but evangelize as if they always have, and already fear losing a benefit that’s not available until July, 2026. But if this is true, why haven’t these true believers been taking our calls?

Many would love insurance all right—just not from us. These consumers have no desire to buy from, or work in partnership with, Big Insurance, a market they’ve been told to distrust. One can take the temperature of the room from this paper-cliché villainizing “for profit insurance companies.”

But wanting is not the same as valuing.

Our profession has learned from decades of AHIP Buyer vs Non-Buyer surveys that non-buyers undervalue LTC insurance, just one-quarter of whom would be willing to spend what a policy actually costs. Most have some appreciation, but when shown the actual price, non-buyers backpedal: “Oh, in that case, I don’t value it that much.”

For most proponents—but not an insignificant minority we’ll get to in a moment—this has been their WA Cares dynamic.

Because an employee’s premium rises with income, most who’ve so far chosen not to contribute to WA Cares earn roughly 3.9x the median wage: $194,000/yr on average.[2] If more employees were given the opportunity to opt-out, and remaining insureds were asked to pay an unsubsidized rate—that is, would they still value WA Cares—I-2124 opponents seem convinced the answer would be, “Not at that price!”

Heck, here are I-2124 opponents in their own words: “It’s very difficult for any of us to imagine NEEDING [sic] services or support at home after an illness or injury so we will be tempted to not pay the premium.”

If I-2124 were to pass and WA Cares to become voluntary, you’ve been led to believe the sky will fall. You’ve been warned of an “insurance rate spiral.” But I find a measure of reassurance in Milliman’s modeling of a fully voluntary program. WA Cares could lose nearly 75 percent of its participants, and the resulting premium assessment might only need to double, to 1.14%[3].

The STC [short-term care] insurance market has been very rate stable, and their appropriately-rated blocks have tended to produce profits, not rate spirals.

Are there 775,000 motivated employees in Washington—25 percent of the original 3.1m—who value WA Cares sufficiently that they’d be willing to shell out—not 0.58%—but a 1.14% payroll tax—an average premium of $582 per year? Could WA Cares still command these glowing testimonials?

According to Ben Veghte, we may never know: “There’s no appetite in the Legislature to increase the premiums right now. And I don’t know if there will ever be.”

Perhaps I-2124 opponents are right to fear a voluntary program and its inability to lure even 775,000 people. After all, WA Cares already has a 100% voluntary program—the self-employed market. The state assumed that 40,000 self-employed would voluntarily opt-in during the first year, then another 25,000 every year thereafter. The last cumulative total I saw in April, 2024 had reached 620 volunteers.

Call me an optimist, but I actually think in a post-I-2124 world WA Cares could command a lot of voluntary interest—even 775,000 participants. The reason owes to that “not insignificant minority” I mentioned earlier. These are non-buyers with a quite understandable reason for “waiting” for WA Cares:

They’re commercially uninsurable.

The coalition against I-2124 has added groups such as the National Multiple Sclerosis Society and ALS Association to its roster, while making the point that it’s not about money: “Medical underwriting limits access to insurance regardless of the affordability of the policies.”[4]

On the other hand, “WA Cares covers all pre-existing conditions. That means that the 57% of non-elderly adults with pre-existing conditions can now get long-term care benefits if we need it, when we’d otherwise be stuck without an option.”

There’s no denying WA Cares’ guaranteed insurability is its winningest proposition. The upshot is that—speaking in broad strokes—the individuals who are most vocally defending WA Cares are those who expect to file a claim on the first day they can, and to use the entire benefit. This is hardly breaking news: in the actuarial graphs it looks like a double black-diamond ski slope of claims.

Intuitively, it makes sense that if you removed most of the healthy insureds and left behind mostly claimants—and paid out $36,500[5] on each of them without even much time to earn interest—you’d soon have a problem on your hands. For context, the state anticipates paying out $1.87b in claims in FY 2027.

That’s why things couldn’t remain as they are if I-2124 passes: you’d have to take countermeasures. We’ll learn what contingencies the state has planned just six days before the election, on October 30^th. I expect the LTSS Trust Commission will revisit the vesting provisions. The “3 of the last 6 years” rule has always felt like it was courting disaster, and lengthening the vesting period is one of the steps explicitly advised to counteract a rate spiral.

I exaggerate by saying everyone would file a claim immediately, of course, and as time goes on every new participant’s “immediately” can occur no sooner than three years after making their first premium assessment. Obviously, the longer the vesting period, the more defense against adverse selection. The part-time work requirement is another underwriting trick, borrowed from group/multi-life LTC.

As it is, not everyone agrees that rate spirals are inevitable, since not everyone agrees that we are good judges of our own future risk and need for care. Besides, the pool of money is not very substantial. To put the WA Cares benefit in perspective, it’s just 1/3^rd the size of the maximum pool of money Penn Treaty was selling in WA eighteen years ago under its impaired risk policy series.[6] Some readers are allergic to the mention of Penn Treaty, but that policy series has had only a 20 percent rate increase, and its $263,525 benefit (2024, for those who bought inflation protection) is fully backed by the Washington Life & Disability Guaranty Association.[7] WA Cares is vulnerable to change every time the legislature meets, and nothing is guaranteed from year to year, not even so-called “vested” benefits, which the state could unwind prior to July, 2026.

I can’t tell you what will happen at the ballot box this November, when we celebrate the 24^th LTC Awareness Month. No matter what happens, I say to our new friends, “Better late than never!”  I hope neither the state, its agencies, nor WA Cares surrogates lose their passionate belief in long-term care insurance.

(Many thanks to CLTCR friend Stephen D. Forman and corporate member Long Term Care Associates for this latest contribution to LTC Bullets.)