PA to Promote Long-Term Care Insurance

On March 7, 2008, the Pittsburgh Business Times published an article entitled "Pennsylvania encourages residents to consider long-term care coverage", by Kris B. Mamula, which reported that "Pennsylvania is preparing a marketing blitz this month to encourage consumers to think about whether long-term care insurance is right for them."

The big unknown is whether the campaign -- and similar ones planned by brokers to coincide with the state push -- will goose sales in a sleepy, sometimes-poorly-understood corner of the insurance industry.

"Logically, a state would be quite eager to participate in a program of this kind," said Steven Weisbart, vice president and chief economist at the New York City-based Insurance Information Institute, a trade group. "If people don't buy insurance, the state winds up paying the bill."

The state is keeping details of its campaign secret. Jane Crawford, spokeswoman for the state Department of Aging, declined to comment on the state's effort.

But insurance experts say the campaign impetus is an anticipated 22.8 percent rise in the state's Medicaid spending, which is expected to reach $1.1 billion by the end of fiscal 2009, according to state Department of Public Welfare figures. * * *

On the Elder Law Listserv (of the Elder Law Section, of the Pennsylvania Bar Association), this "secret", but anticipated-soon, state publicity campaign has been the subject of energetic debate recently. There is real skepticism about its purpose, fairness, & effectiveness.

Five years ago, the complexity & unpredictability of long-term care insurance policies were noted in a Consumers Report article, entitled "Do you need long-term-care insurance?" (11/2003), which concluded:

[W]ill such insurance really work?

A CR investigation, for which we reviewed 47 policies, reveals that for most people, long-term-care insurance is too risky and too expensive.

As with health insurance, you must keep paying to keep it in force. If premiums rise, you may have to drop the coverage, possibly losing everything that you’ve paid.

The policy’s benefits may cover only a portion of the total expense. Many policies are packed with catches that can keep you from collecting.

Finally, there’s no guarantee that long-term-care insurers, some of which have weak balance sheets, will be around 20, 30, or 40 years from now when you need them to pay.

Long-term-care insurance may be a lousy deal, but right now it’s just about the only deal. So in this report, we help you decide whether, despite its deficiencies, a long-term-care policy is right for you. We also establish criteria for choosing a policy.

Using data from Weiss Ratings Inc., a Palm Beach Gardens, Fla., company that evaluates the safety of financial institutions, we reviewed plans offered in California, the state with the largest elderly population, to see how many measure up. (Niis/Apex, an actuarial firm based in Princeton, N.J., assisted us in the review.).

The answer: a scant 3 out of 47. * * *

Consumer Reports had warned consumers about the "Sales pitches and their catches" in describing the "promises" (the "Pitch") made by sellers of LTC insurance, versus the realities (the "Catch") experienced by consumers who bought policies. The examination concluded:

Such coverage really shouldn’t be considered before age 60 except by those with chronic diseases.

Insurance agents, however, wax on about the policies’ benefits, often pushing the plans on people in their 40s. And no wonder. Agents can reap hefty commissions -- 50 percent of your first year’s premium and 10 percent of your payment for every succeeding year.

Even without high-pressure salesmanship tactics, long-term-care insurance can stymie the most conscientious consumer because it is so complicated.

Indeed, although the policies have become more standardized in recent years, they are fraught with uncertainties that can leave you much less secure than you planned. * * *

Other points about LTC insurance were made in a Newsweek article by Jane Bryant Quinn, entitled "Insuring Your Future Care" published on June 18, 2007. She concluded: "You'll need an experienced LTC agent to sort out these choices and hold your hand while you're writing the check. But believe me, you won't regret the cost, if long-term care becomes necessary for someone you love."

More recently, on February 17, 2008, Parade Magazine published an article by Lynn Brenner entitled "Do You Need Insurance for Long-Term Care?" that raised questions regarding LTC insurance.

Americans are living a lot longer. That’s good news.

But increased longevity has created a new financial dilemma: how to prepare for the high cost of old age. Some of us will need care for chronic ailments, and many more will need assistance with dressing, bathing and housekeeping tasks. Professional help is expensive. On average, a home health aide costs $19 an hour; an assisted-living facility is $2968 a month; a private room in a nursing home is $206 a day.

Medicare rarely pays these bills. Medicaid does, but only for the poor.

Long-term care insurance is an alternative, but policies are expensive and may pay less than you expect.

That article briefly explored these topics: the cost, the policy, its language, and some "expert advice", which was condensed into four general points:

• Buy from a company that has top financial ratings. You want the insurer to last at least as long as you do.
• Avoid policies you need a paycheck to pay for. You must be able to afford premiums after you retire.
• Don’t buy more insurance than you need. Few people require lifetime benefits. The average stay in a nursing home is just 2.5 years, and 43% of residents stay less than one year.
• Don’t choose a policy solely on the seller’s recommendation. Get a second opinion from a certified financial planner or an elder-law attorney.

It concluded with reference to online resources, and then summarized what could occur for consumers:

At best, the right long-term care insurance policy can supplement your own savings, making good care more affordable to you.

At worst, a policy may provide little or no coverage when you need it, either because of fine print restrictions in coverage, or because you can't afford to keep paying the premiums, or because the carrier has gone out of business.

Simple & straightforward as that Parade article & its general advice appeared, still it drew significant criticism -- even insults about the author -- in some of the twelve comments posted by readers to the article. (Many were made by people who sell such policies.)

Then, on March 8, 2008, Stephen I. Nussbaum, of Loudonville, NY, wrote a letter to the editor of his local newspaper, the Times Union (Albany, NY), which was published under the heading "PARADE story on long-term care insurance was inaccurate, misleading". He criticized the Parade article as "misleading and irresponsible, not to mention factually incorrect". (He is described on his website as "currently the Director of Long-Term Care for Worlco Management Services Inc., a Queensbury-based, private insurance agency specializing in long-term care solutions for New Yorkers.")

Yet other publications had raised similar concerns about the personal value of LTC insurance and the potential for abuse or neglect from both agents & issuers.

The New York Times had raised questions about the servicing of long-term care policies by issuers in its widely-noted, extensively researched article published March 26, 2007, entitled "Golden Opportunities: Aged, Frail and Denied Care by Their Insurers", by the highly-respected reporter Charles Duhigg. See also: "Claim Denied: A Horror Story (7 Letters)", published in the New York Times on March 29, 2007, providing some readers' reactions to Mr. Duhigg's article. The result was governmental inquiries about such situations.

In an editorial published by the St. Petersburg Times on April 9, 2007, entitled "Keep an eye on insurers", that newspaper concluded:

Long-term-care policies can be beneficial to retirees as well as states, which otherwise would have to pay the cost of assisted-living or nursing-home care through Medicaid programs.

Yet such policies are worthwhile only if they are understood by the buyer and administered fairly by the insurer.

So an aggressive consumer protection program can mean not only a better quality of life for the frail elderly, but also a savings for taxpayers.

Most recently, on February 26, 2008, The Wall Street Journal published a lengthy article entitled "States Draw Fire for Pitching Citizens On Private Long-Term Care Insurance", by Jennifer Levitz & Kelly Greene. The article noted:

Of all the insurance types on the market, long-term care is among the most complex -- and expensive -- forms of coverage.

Typically sold to people well in advance of need, it promises to pay for care when a policyholder can no longer perform certain basic activities on his or her own. Premiums are determined by the length of coverage and the age of the insured, among other factors. Rates are also affected by the policy's daily benefit allowance, an amount capped by most insurers, as well as the waiting period before benefits kick in. The cheapest policies often carry the longest waiting periods -- 90 days or more is common.

"These policies are very difficult to use, and the payouts and benefits are difficult to get," says Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif.

He calls the partnerships "sort of an unholy alliance between the state and these corporate titans to sell products that will supposedly save the state money on health care later." * * *

So, it appears that the skepticism, held by the many practicing attorneys who made comments on the Elder Law Listserv about Pennsylvania's anticipated, but presently unspecified, publicity campaign promoting private purchase of long-term care insurance, is (to use the double negative) not unreasonable, in the absence of strict regulatory control over the sellers & issuers of such long-term care insurance policies.

Update: 03/13/08:

A letter was sent by elder law attorney Daniel R. Fredland, of Riverside, CT, to the authors (Jennifer Levitz & Kelly Greene) of the recent article published by The Wall Street Journal, referenced above ("States Draw Fire for Pitching Citizens On Private Long-Term Care Insurance").

In a recent email exchange, Dan consented for me to post his letter, which appears below. It illustrates some of the concerns expressed on that listserv by lawyers.

Dear Ms. Levitz and Ms. Greene:

I want to thank you for your informative article in the February 26 issue on long term care (LTC) insurance. That states should be involved in a collaborative effort to market this complex product, which is prone to the abuses you describe in the article, is shocking.

Long term care insurance is not health care insurance in the usual sense. Long term care is insured by Medicaid, subject to the condition that the recipient has to give up leaving any estate to survivors and assets which may be critical for the living standard of the "community" spouse.

What LTC insurance protects is the estate of the insured and the retirement reserve of the more healthy spouse. The insurance pays for care without the necessity of spending down virtually all of one's assets. It is not a good idea for everyone.

People who should consider it are those whose net worth is sufficient to be worth protecting, but not enough to self insure.

For a couple with a net worth of $20,000 plus a paid up home, it is of no benefit. The spouse able to stay at home can keep the home and that amount of financial assets. Raise the assets to $50,000 plus the home, and the premiums are likely to be too much to be worth the asset protection.

For a couple with net worth of, say, $500,000 plus a paid up home, long term care insurance is well worth considering. Anyone whose net worth is, say, $5 million plus the home can pay for care from income. LTC insurance is superfluous to their needs.

The exact cutoffs vary, of course, depending on myriad specifics. There are also the questions of whether one wants to cover in-home care and assisted living, for which Medicaid provides limited or no coverage, and -- as you discuss -- the affordability and potential increases in premiums.

What states should be offering, if anything, is consumer counseling on the pros and cons and complexities of LTC insurance, and information on the performance of the different insurance companies, not the kind of uncritical promotion you describe.

Updated: 03/14/08:

On Thurday morning, March 13, 2008, while driving, I heard National Public Radio broadcast, on its "Morning Edition" program, a segment entitled "Boomers Reluctant over Long-Term Care Insurance", by Patti Neighmond. Afterwards, NPR posted text derived from the broadcast, and also provided a link to hear it:

Over the past 20 years, long-term care insurance has expanded from simple nursing home coverage to covering care in assisted living facilities and in an individual's own home. Today, insurance companies are busy marketing their product to boomers. But, according to a number of surveys, boomers are not listening.

Bill Vaughn is a policy analyst with Consumers Union, the group that publishes Consumer Reports magazine. Vaughn is considered an expert when it comes to health care issues. But when he looks at long-term care insurance, like most Americans of about the same vintage, he resists.

"It's the last thing you want to buy," Vaughn says. "You want to spend your money on vacations. It's a chore to buy this. It brings up negatives images, images of the end of the road, of death. It's certainly not a product you go joyfully off buying. So, people keep putting it off." * * *

Greg Seal is a financial planner who runs his own company in Denver. He says boomers are skeptical about long-term care insurance not only for emotional reasons like this, but also for practical ones.

"Baby boomers are carrying a lot more debt than their parents were at this age," Seal says. "So they have more debt responsibility and they're more concerned about paying off that debt than they are about funding this 'risk.'" * * * [Links added.]

Read the article online, or listen to the broadcast online, too.

Update: 03/17/08:

In an "encore" posting on March 16, 2008, The Wall Street Journal considered another approach to long-term care insurance coverage, which is contrary to the provisions of many policies sold presently.

In "Stretching Out Long-Term-Care Insurance", by Glenn Ruffenach, other backup coverage modes are considered, focusing instead on the "[f]ive, seven or 10 years of care [that] could effectively bankrupt" a family. * * * "That's the biggest threat, and that's what you need to prepare for."

When it comes to long-term-care insurance, "long and thin" might be better than "short and fat."

Conventional wisdom holds that buyers of long-term-care insurance -- assuming they can't afford lifetime coverage -- should look for a policy with a hefty daily benefit that covers about three or four years of care. The rationale: Studies indicate long-term-care needs typically don't extend beyond that length of time.

But Charles Farrell, with Northstar Investment Advisors in Denver, suggests the conventional wisdom could be faulty. * * *

This demonstrates another permutation of long-term care insurance, which surely bears scrutiny as an individual purchase decision.