Sometimes Even Smart People Don’t Understand Long-Term Care Insurance — even if they write for a leading magazine.
I understand that journalists don’t have time to check all their facts, but this recent article in Forbes is riddled with falsehoods and half-truths. It doesn’t even read like something a journalist would write. It sounds like he’s just a salesman hawking for “longevity annuities”.
If you want to suffer through the article in one sitting, you can read it at this link.
Otherwise, my response, with quotes from the article, is below.
With 38 years of journalism experience, I am sure that Mr. Baldwin is very concerned about accuracy in reporting. Here are some corrections which need to be made to this article:
Mr. Baldwin states: “You are supposed to start chipping in premiums at a young age like 55, building up equity that covers you much later in life.”
This is a common misunderstanding that most consumers have about long-term care insurance. Many people think that the amount of benefits in their long term care policy is dependent upon how long they have paid premiums. They think that they build up the values of the policy as they pay each premium each year. That is not true. After just one monthly premium payment, the full policy benefits are available for any claim made.
Just like with life insurance if someone pays the first monthly premium and then gets hit by a truck the next day, the full death benefit is payable to the beneficiary. The same is true for long-term care insurance. The entire value of the policy is available for any claim made after just one premium payment.
Additionally, long-term care can occur at any age, not just “much later in life”. One of the leading long-term care insurers reported that about 40% of their claims were for policyholders under the age of 65.
Mr. Baldwin states: “The LTC policy covers only LTC. How do you know that it’s a nursing home bill you will be paying?”
It is true that a long-term care policy only covers long-term care. However, most people who need long-term care never go to nursing homes, especially those who own long-term care policies. Less than one-third of long-term care insurance claims are for nursing home care. Most long-term care claims are for care received at home, not in a nursing home.
Mr. Baldwin states: “The LTC policy permits the seller to change the terms after you have put money in.”
This statement is false. Long-term care insurance is highly regulated by both federal and state laws. No insurance company can change the terms of any long-term care policy. Period.
Mr. Baldwin states: “LTC policyholders have confronted surprise rate hikes on the order of 45% to 85%.”
Some long-term care policies have guaranteed level premiums for life. But most long-term care policies are “guaranteed renewable” which means that the insurer has a limited right to request a premium increase from each state’s insurance commissioner.
In most states the premium increase can only be approved if the insurer has incurred significantly higher claims than the insurance commissioner had originally approved for that policy. In most states, premium increases must go towards paying claims only—not profits. And the premium increases must be shared by all the owners of that type of policy.
Most long-term care policyholders who have had premium increases have had only 1 or 2 premium increases over a 10 to 20 year span. And most premium increases have been closer to 20%, not “45% to 85%”. I’m sure most of us wish our medical insurance had only two increases over the past 10 to 20 years.
In 2004, most states adopted “Rate Stabilization Regulations” for long-term care insurance. Most long-term care policyholders who have purchased their policies after those regulations went into effect have not had any premium increases.
Mr. Baldwin states: “They then have the unpleasant choice of either walking away from the premiums they have sunk so far or else throwing good money after bad.”
This statement is false. Every long-term care policyholder can reduce their benefits at any time. Most people who have had premium increases approved for their long-term care policy have simply reduced their benefits and avoided any premium increase (e.g. reducing a 5% compound inflation benefit to a 4.2% compound inflation benefit.)
Mr. Baldwin states: “Imagine buying a Lexus for $5,000 down plus $500 a month under a contract that allows the dealer to raise the monthly payment if he wants to. Six months in, it goes to $800, and you have a free choice between paying up or handing in the car and losing your down payment. That would be a ridiculous contract to sign. LTC buyers sign contracts like that.”
This Lexus example could only be an accurate analogy if Mr. Baldwin included all of the following requirements for the monthly payment increase:
- The state’s “Automobile Commissioner” regulated how much profit the Lexus dealer could make on each car,
- The state’s “Automobile Commissioner” had to approve any increase in the monthly payment,
- The increased monthly payment approved by the Commissioner had to be shared by all Lexus owners who had purchased cars from that dealer,
- The state’s “Automobile Commissioner” would only approve increased monthly payments after the Lexus dealer incurred higher losses and had much lower profits than the “Automobile Commissioner” had originally approved for the Lexus dealer,
- The “Automobile Commissioner” required the Lexus Dealer to give you the option to keep your payment at $500 but switch to a different Lexus one grade lower, and, lastly,
- The monthly payment increase was required in order to keep all the Lexus owners in their cars, driving safely, and the Lexus dealer in business and able to maintain all the cars and guarantee all the warranties.
Lastly, Mr. Baldwin states: “To collect on an LTC policy, your family may have to put up a fight. For an illustration of the point, read this account in the New York Times of what happened to a woman who bought a policy from CNA and then had a stroke.”
The U.S. Senate Committee on Aging commissioned the federal Dept. of Health and Human Services to conduct an audit of the top long-term care insurers’ claims practices. The 21-month study invalidates Mr. Baldwin’s statement. Stories like this from the NY Times are anomalies. You can download the actual study at the following link:
Scott A. Olson