"LTCI is too expensive" — The importance of controlling the narrative about priceArticle added by Stephen Forman on January 23, 2013
Stephen D. Forman (LTCA)

Stephen Forman

Bellevue, WA

Joined: February 07, 2011

Rising rates are already the dominant storyline in the media, and a hole we must climb out of every morning just to begin our workdays. It helps the industry not one bit to provide news outlets with soundbites claiming our own product is expensive.

Stop me if you’ve heard this one: “Long-term care insurance is too expensive,” or “LTCI costs too much” or “The product is unaffordable.” Sound familiar? What makes it even worse is that such clap-trap comes not only from the mouths of agenda-driven journalists and chicken-little consumers, but is also repeated by our own peers, carriers and spokespeople.

Catapulting the propaganda

Minds more shrewd than my own established that repetition turns opinion into fact. The danger of this potent marketing concept comes when it’s used without forethought. When we repeat the statement that LTCI is unaffordable, we damage our sales and our industry in multiple ways:
  1. We reinforce the narrative. Rising rates are already the dominant storyline in the media, and a hole we must climb out of every morning just to begin our workdays. It helps the industry not one bit to provide news outlets with soundbites claiming our own product is expensive.
  2. We make sales harder than necessary. Most consumers believe LTCI is — are you sitting down? — too expensive. As a result, we devise all sorts of contortions to accommodate this objection, including a movement currently afoot to persuade consumers to under-insure themselves just to make a sale.
  3. We change the way the product is sold. There was a time when planning began with a suitability review and needs-analysis, followed by personalized plan design. However, in a world where price is paramount, such ideals are quickly jettisoned. Out goes “needs-based analysis”, and in comes “spreadsheeting,” which I’ve argued has led to the ruination of our business.
  4. We discourage the use of important riders. Although the industry has adapted to the varied needs of our clientele by devising a brilliant array of unique riders, the fact is that each of these planning tools nudges up the price of a plan incrementally. Sadly, there are perhaps two which are sold to any great degree, while the others primarily “sit on the shelf”.
  5. We encourage budget-based solutions. More than one carrier has introduced illustration software which permits an agent to enter a budget and then work backward to produce a matrix of available benefits. The result of years of groupthink has been visited upon us in the form of agents losing control — and rendering their services redundant — to Priceline-like consumers who now “name their price”.
But what about the premise? This knock against runaway LTCi pricing — how the product is increasingly more expensive and must be shaved, contained, or sliced — what if it’s all wrong?

Sorting fact from fiction

Let’s start with a crash course in economics. According to the Federal Reserve of Dallas, “Making money takes time, so when we shop, we’re really spending time. The real cost of living isn’t measured in dollars and cents, but in the hours and minutes we must work to live.”1
An example may help here: “A pair of stockings cost 25 cents a century ago. Of course, the average wage at the time was 14.8 cents an hour, so the real cost of stockings in 1900 was one hour and forty-one minutes of work for the average American. If you walk into a department store today, stockings (pantyhose) are seemingly more expensive than they were in 1900 — but they’re not. The price has gone up, but our wages have gone up even faster. Stockings now cost around $4, while America’s average wage is over $13 an hour. As a result, a pair of stockings costs the average worker only 18 minutes of time, a stunning improvement from an hour and forty-one minutes.”2

It’s actually one of the great marvels of Western technology and efficiency that over successive generations, we can work less and less to pay for equal goods and services. In economics, it’s called “productivity,” and such material progress is not to be taken for granted. It’s, at most, a few centuries old — remember the stagnation called the Dark Ages? With productivity as our backdrop, let’s examine the cost of long-term care insurance in a new light.

Putting it in perspective

For this study, we gathered 15 years of statistics, from 1995–2010. We examined average premiums at four different ages (60, 65, 70 and 75) for a nearly-identical benefit across 10 representative carriers. For example, although the average premium for a 60-year-old tended to rise over time for the same coverage, this was neither unexpected, nor particularly telling. This is why most LTCi price indices we’ve read tend to be of limited utility.

We need to add context.

Therefore, for the same time period, we obtained both income and wealth statistics from the U.S. Census. Although the Census does provide very good median and mean income statistics by year, it groups them by age band (55–64, and 65+), which forced us to make some accommodation in our calculations. We were consistent with our choices when borrowing the net worth statistics, as well (55–64, and 65–74 age bands).3

The results?

A 60-year-old in 1995 spent 4.1 percent of her income on LTCI, while a 60-year-old in 2010 spent 4.2 percent. Meanwhile, a 65-year-old spent 9.1 percent of her income on LTCI in 1995, while a similar 65-year-old in 2010 spent only 8.8 percent.

One could charge that LTCI is expensive for some individuals because it costs more than 7 percent of one’s income — the arbitrary and discredited method found on the NAIC Suitability Form — but that would miss the point entirely. Rather, we should all marvel how, in 2010, LTCI costs roughly the same, or less, than it did in 1995.

Besides, we all know you don’t pay for LTCI out of income; you pay for it out of assets. So, let’s look at net worth.

A 60-year-old in 1995 spent 0.25 percent of her net worth on LTCI premiums, whereas, a 60-year-old in 2010 spent 0.21 percent. The 65-year-old in 1995 spent 0.39 percent of her net worth on LTCI, while the 65-year-old in 2010 spent 0.26 percent.
Once again, the bottom line is clear: LTCI premiums may have increased, but our incomes and net worth have both risen faster.
No apology necessary

We could still point an accusatory finger at our own industry and product, except that we have nothing to apologize for. During roughly the same time frame as LTCI prices were standing still relative to income and net worth, the cost of items such as auto insurance (45 percent) and health insurance (131 percent) skyrocketed.

Yet the industry has chased a myth — a belief that our own sales have suffered due to price. (Fact is, even if LTCI were half the price, it would still cost more than our number one competitor.) This is why product designs and sales schemes which rely on cost-cutting fail: know anyone who’s making a killing selling short-term care lately?

GPO and co-insurance designs have been around for a decade, and even though they’ve sunk entire carriers, companies keep re-introducing them as if they were an industry savior. You will notice a theme: Even when our ads and marketing pieces begin with the premise, "It’s a myth that LTCI is expensive,” the solutions put forth inevitably cave by suggesting ways to lower the price.4

And yet, according to the latest National Partnership Survey, nearly 50 percent of partnership policyholders of all ages are today paying less than $2,000 per year, and nearly 63 percent pay less than $2,500 per year. Compared to just about anything else we might pay $2,500 for, is this a lot of money? It’s dang cheap!

To close, let’s channel the words of my father: “Mr. Client, do you think you and your wife would have a hard time coming up with $5,000 a year?”

“Oh my, Mr. Forman, we could manage it out of our savings, but it might be a little tough some years.”

“Well, then you’re damn sure not gonna be able to come up with $5,000 a month should either one of you ever need nursing home or assisted living care, wouldn’t you agree?”

Let’s get back to basics. Let’s not cede control of the narrative to the media and consumers. Our product is not expensive — it’s a terrific value and its price has held steady for at least 15 years.

As always, good selling!

1 Charles Wheelan, Naked Economics: Undressing the Dismal Science, p. 152, 2002.

2 Michael Cox and Richard Alm, Time Well Spent: The Declining Real Cost of Living in America, Federal Reserve Bank of Dallas, 1997 Annual Report.

3 The statistics for Net Worth were offset a year or so from the points-in-time when we calculated average premiums, but the effect should be marginal: for instance, comparing 1997 to 1995, or 2000 to 2001.

4 The ultimate endgame? Linked-benefit products. These demand no premium from the consumer at all, simply a re-positioning of assets “from one pocket to the other.”
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