Friday, June 23, 2017

No. 223: Long-Term Care Insurance—Why It Is Wrong for States To Help Private Companies Sell the Product

In May 2017 an Indiana resident shared with me a long-term care (LTC) insurance promotional mailing he had just received. The mailing purported to be from the Indiana Partnership for Long Term Care, but in reality it was from a lead-development company in Texas. I wrote major articles in the July 2008 and January 2012 issues of The Insurance Forum about the California and Indiana LTC insurance partnerships. Here I provide an update and explain why I think it is wrong for states to help private companies sell LTC insurance.

LTC Insurance State Partnerships
LTC insurance state partnerships began in the late 1980s as a demonstration project funded by the Robert Wood Johnson Foundation. The original four states selected to participate were California, Connecticut, Indiana, and New York. Section 6021 of the Deficit Reduction Act of 2005 resulted in the expansion of the program into almost all the other states.

An LTC partnership program affects a state's Medicaid system. When a person buys a "partnership qualified" (PQ) policy, the person receives a one-dollar "disregard" for Medicaid qualification purposes for each dollar of LTC benefits received. For example, if an insured with a PQ policy receives $100,000 in LTC benefits, the insured would be able to keep $100,000 of assets beyond the minimal asset level required for Medicaid eligibility. It is important to recognize there is no "disregard" merely from ownership of a PQ policy. Stated another way, there is no "disregard" until the insured receives LTC benefits. Thus an insured whose claim for LTC benefits is denied by the LTC insurance company would receive no "disregard" for Medicaid qualification purposes.

The American Association for Long-Term Care Insurance (AALTCI), founded in 1998 and based in Westlake Village, California, describes itself as "the national professional organization exclusively dedicated to promoting the importance of planning for long-term care needs" and "the nation's leading independent organization serving those who offer long-term care insurance and other planning solutions." Its members are agents and companies selling LTC insurance, it provides information about state LTC insurance partnerships, and it offers various services to its members.

When I checked AALTCI's website ( in May 2017, I found a list of state partnerships as of March 2014. When I inquired, AALTCI provided a list as of February 2017. The updated list shows for each state the status of enabling legislation, whether the state provides reciprocity with other states, the effective date of the partnership, and whether the partnership is operational. Also, for each state, there is a description of the BIO, which is the benefit inflation protection option.

My Two Articles
I wrote my July 2008 article after The Wall Street Journal carried an article critical of the California LTC insurance partnership. I examined the program, expressed the opinion that the problem of financing LTC cannot be solved through the mechanism of private insurance, and explained the reasons for my opinion. I also expressed concern that the promotional letter was over the signature of the California governor, thus giving the appearance of an endorsement by the state. I wrote my January 2012 follow-up article after seeing a letter over the signature of the Indiana governor promoting LTC and the Indiana LTC insurance partnership.

In both articles I described the mailings and indicated that the response forms were addressed to Senior Direct, Inc. (Rockwall, TX), a private lead-development company. I also said Senior Direct sold the response forms to insurance agents.

The Recent Indiana Package
The May 2017 Indiana package consisted of four items: (1) a one-page letter, (2) a response form attached to the bottom of the letter, (3) a postage-paid-by-addressee reply envelope, and (4) an outside window envelope with no return address. In the upper left corner of the letter were the words "Information Concerning" in small type followed by the words "The Indiana Partnership for Long Term Care" in large type. Next to those words was a partial outline of the state of Indiana. In the upper right corner of the letter was information about nursing home and assisted living facility costs in Indiana, with a footnote indicating that the source of the data was the "Indiana Department of Insurance." The salutation was "Dear Fellow Hoosiers" and the letter was unsigned. Following the text of the letter, the recipient was urged to send back the response form, which was addressed to "SD Reply Center" at a post office box in Rockwall. The response form showed the name and address of the addressee and asked for the person's age, the spouse's age, telephone numbers, and an email address. At the bottom of the response form was a single line of small print consisting of three sentences:
Please verify address. Fill out card in its entirety and mail in the enclosed envelope today. Not affiliated with or endorsed by any government agency.
I sent the Indiana Department of Insurance a copy of the components of the promotional mailing. I pointed out several of the ways in which the package, although in this instance not signed by the Indiana governor, had the earmarks of an endorsement by the state and the Indiana department. I also expressed the opinion that the small-print disclaimer at the end of the one-line note at the bottom of the response card was not enough to offset all the earmarks of an endorsement.

In response, a department official said the state and the department no longer endorse the sale of LTC insurance to Indiana citizens. Further, the official said that the department was launching an investigation of the recent mailing, but that the results of the investigation probably would not be available for some time. I decided to post this item now and prepare a follow-up after the results of the investigation become available.

General Observations
For at least five reasons, it is my opinion that it is wrong for states and state insurance departments to allow themselves to be drawn into efforts to sell private LTC insurance to their citizens. First, as explained in my July 2008 article, the problem of financing the LTC exposure cannot be solved through the mechanism of private insurance. Second, many of those who try to solve the problem through private LTC insurance will suffer disappointment in several ways, including large premium increases. Third, the problems have become widely known not only because of substantial premium increases but also by the withdrawal of many LTC insurance companies from the LTC insurance market. Fourth, among the few remaining LTC insurance companies, some have experienced significant declines in their financial strength ratings, and one has been placed in liquidation. Fifth, when a state or state insurance department endorses or appears to endorse LTC insurance, citizens will blame their state government when they encounter disappointment.

Available Material
I am offering a complimentary 11-page PDF consisting of the July 2008 and January 2012 articles in The Insurance Forum (7 pages) and a copy of the recent promotional mailing to Indiana residents with the name and address of the recipient redacted (4 pages). Email and ask for the June 2017 package about state LTC insurance partnerships.