Thursday, August 18, 2016

No. 175: Long-Term Care Insurance—A Follow-Up and a Correction

In No. 174 (posted August 11, 2016) I said I have long expressed the opinion that the problem of financing long-term care (LTC) cannot be solved through the mechanism of private insurance. I offered a complimentary package that included some of my articles explaining the reasons for my opinion. Some readers asked how I think the problem of financing LTC should be addressed. Although some of the articles in the package provide hints about my answer to the question, they do not spell it out adequately. Here I undertake to answer the question more fully. Before doing so, however, I will correct something I said in No. 174 and add additional information about matters discussed there.

A Correction
In No. 174, in the discussion of "The Conseco Separation," I said incorrectly that Beechwood Re is an affiliate of CNO Financial Group. I should have said that Beechwood and CNO have a reinsurance relationship. In December 2013, subsidiaries of CNO—Washington National Insurance Company and Bankers Conseco Life Insurance Company—ceded about $500 million of LTC insurance reserve liabilities to Beechwood. See, for example, page 16 of CNO's 2015 10-K report as filed with the Securities and Exchange Commission (SEC) on February 19, 2016.

Additional Information about Beechwood
In the same section of No. 174 I mentioned Beechwood's ties to Platinum Partners, a $1.25 billion hedge fund. According to a front-page article by Rob Copeland in The Wall Street Journal on July 26, 2016, Platinum and individuals associated with it are under investigation by the SEC and federal prosecutors. Details about those ties are in an 8-K (significant event) report that CNO filed with the SEC on August 1, 2016.

Additional Information about the FIO Roundtable
In No. 174 I mentioned the "Long Term Care Insurance Roundtable" convened on August 4 by the Federal Insurance Office (FIO). I have tried unsuccessfully to obtain the statements made by any of the presenters. Some of them said it was a "closed" or "off-the-record" meeting, perhaps to encourage participants to speak freely. I have seen the July 11 email in which organizations were "invited to attend," but it did not mention the meeting being closed. I question the idea of a closed meeting on a subject of such importance to the public.

The Enactment of Medicare
In the years leading up to the enactment of Medicare in 1965, it became clear there was no way for private insurance to solve the problem of financing the medical expenses of the elderly. I have seen extensive discussions of how President Lyndon Johnson accomplished passage of the Civil Rights Act and the Voting Rights Act, but I have not seen extensive discussions of how he accomplished passage of Medicare. I have always considered enactment of Medicare a political miracle. What happened prior to 1965 with the financing of medical expenses for the elderly is precisely what is happening today with the financing of LTC. It has become clear that private insurance cannot solve the problem of financing LTC.

The Latest Newspaper Article
On August 14, 2016, a lengthy article entitled "When Your Life Insurance Gets Sick," by reporters Julie Creswell and Mary Williams Walsh, appeared on the front page of the business section of the print edition of The New York Times. The article appeared online the day before under the title "Why Some Life Insurance Premiums Are Skyrocketing."

The article focuses on low interest rates as the primary culprit in the sharp cost-of-insurance increases on many universal life policies and mentions use of "various financial maneuvers." Low interest rates are certainly an important contributor to the problem, but there are other important contributors as well. For example, the article makes no mention of the impact of stranger-originated life insurance.

Near the end of the article is a discussion of premium increases on LTC insurance. While low interest rates are certainly a problem for LTC insurance companies, there are many other serious problems. Some of them are discussed on pages 58-61 in the July 2008 issue of The Insurance Forum.

In April 2010, following enactment of the Patient Protection and Affordable Care Act (PPACA), the Kaiser Family Foundation (KFF) issued a report describing "a national voluntary insurance program known as the Community Living Assistance Services and Supports program" (CLASS Act). The CLASS Act was part of the PPACA. The program would have allowed working adults to make voluntary contributions through payroll deductions or directly. Adults with multiple functional limitations or cognitive impairments would have been eligible for benefits after paying premiums for at least five years. With the CLASS Act, the federal government "put its toe in the water" on financing LTC. The voluntary nature of the program was a major problem, because the only way to address the problem adequately is through a mandatory program. The CLASS Act was never launched, and Congress later repealed it.

General Observations
It should come as no surprise to readers of this blog and my other writings that I favor a single-payer mandatory system of universal health insurance, or what is sometimes called "Medicare for All." See, for example, No. 12 (posted December 4, 2013) and Chapter 17 of my 2015 book entitled The Insurance Forum: A Memoir.

One suggestion would be to expand the current Medicare program to include the financing of LTC. Another suggestion would be to enact a universal health insurance program that would include the financing of LTC. I recognize that neither of these suggestions can be implemented under current political conditions. However, anyone who wonders about my suggestions for addressing the problem of financing LTC now knows where I stand.

In the absence of implementation of one of the above suggestions, I have one recommendation for consumers. I think they should embark on a savings program, such as that described in the concluding section of the July 2008 Forum article.

Available Material
I am offering a 22-page complimentary PDF consisting of the invitation to the FIO roundtable (1 page), the agenda for the FIO roundtable (8 pages), the KFF report on the CLASS Act (4 pages), the July 2008 Forum article (5 pages), and the CNO 8-K report filed August 1, 2016 (4 pages, without exhibits). Email and ask for our August 2016 FIO/KFF/Belth/CNO package.