Back Up Now!
It is no mystery that LTC planning options have never achieved the traction or market position we would have wished. Insurance remains the answer. In truth it makes no difference whether that aggregate funding response is public or private. Ultimately, some structural compromise to achieve adequate funding will be accomplished. Some funding mix of tax and premium dollars will be necessary. The problem is that the goal of leveraging dollars has lost its way.
We are continuously asked to "keep it simple %$@&#!" In the wonderful world of LTC planning, we have tried, over the last twenty years, to do just that. Although there is nothing simple about a risk with numerous moving parts, we have condensed benefit options, moved as close as possible to cash benefit payments, and built policies that were intentionally inclusive as the care community changed over time.
In my humble opinion, we goofed at the beginning, We viewed this evolving risk the same way we had previous responsibilities - measure the size of the potential catastrophic risk and transfer that potential problem to the insurance company. Game, set, match. There was never any confusion in explaining that the potential inflation extrapolated risk could hit seven figures. The problem of course was that the philosophical approach and competitive marketing strategies that were applied to the sale invited the perfect storm of excess persistence, rigid underwriting, claim spikes, and including benefits that are not exactly insurance (like paying family members for care.)
Then the interest environment fell into a black hole. The net result was rapidly rising premiums on new and in-force premiums. Precipitous advisor and company retreat from the market began in earnest. Approximately 90% of LTCI premium is now in a closed block of business. (It is also true that new higher levels of premium are therefore now more stable and dramatically less vulnerable to massive future rate increases.) New premium levels for traditional stand alone and life combo options are now more than ever just out of reach for most consumers.
Our original intention was to help those who might run out of money when on an extended claim, slowly but surely we have isolated our sales to those who could probably self- insure anyway. The answer is as plain as the nose on your face. Premiums must be reduced by at least one third. That can only be accomplished by a substantial reduction in benefits. The only way to reduce benefit’s is to change the way we sell the product!
Return now to the beginning of our plan of attack on the risk and change the sales algorithm. Our goal can remain the same. Do all in your power to help those you care about maintain PRIVATE PAY status. Instead of how much can you sell please ask how little more you might need to add to existing cash flow at the point of a claim. The cost is the problem. Co-insurance was always a better answer.