“Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice,” by Leslie Scism, Wall Street Journal

“Long-term-care insurance was supposed to help pay for nursing homes, assisted living and personal aides for tens of millions of Americans when they became unable to take care of themselves. Now, though, the industry is in financial turmoil, causing misery for many of the 7.3 million people who own a long-term-care policy, equal to about a fifth of the U.S. population at least 65 years old. Steep rate increases that many policyholders never saw coming are confronting them with an awful choice: Come up with the money to pay more—or walk away from their coverage.”

LTC Comment (from Stephen A. Moses, President, Center for Long-Term Care Reform):

Following is the letter I sent to the author of this front-page Wall Street Journal article:

Dear Ms. Scism,

There is a critical aspect of the LTC insurance issue that your otherwise fair and well-researched article missed entirely.

When LTC insurance carriers recognized their reserves were inadequate to pay future claims, they did the honorable thing. They raised premiums to ensure future claimants would receive full benefits.

Compare that with the federal government’s failure to fund Social Security and Medicare adequately, leaving those programs with upwards of $100 trillion dollars in unfunded liability. What’s more, government policy actually impaired private LTC insurance.

Beyond the reasons you cited for LTC insurance problems (actuaries’ errors regarding lapse rates and utilization, plus the Federal Reserve’s forcing interest rates to near zero, for which actuaries should not be blamed) there is another cause. Medicaid is the dominant payor of long-term care. Easy access to Medicaid for middle class and affluent people after they already needed care crowded out up to 90% of the potential market for LTC insurance, according to authors of peer-reviewed research published in the American Economic Review.

In other words, government policy impaired demand for and profitability of private long-term care insurance, while itself, leaving most aging Americans vulnerable to social insurance and public assistance programs that are hopelessly unprepared financially for the coming age wave.

It is a tragedy to blame private insurers and the dedicated people who’ve tried to make the LTC insurance product work for problems caused by poor public policy. Blame the culprits, not the victims.

For a full explanation, evidence and documentation of these facts and this analysis, please see my monograph “How to Fix Long-Term Care Financing,” published by the Foundation for Government Accountability (also the source of yesterday’s WSJ op-ed about millionaires on food stamps, a very similar problem.)

If you would like to follow up on these aspects of this complicated problem, please contact me.

Steve Moses

Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice

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