Thursday, December 6, 2007

Retirement Planning, Long-Term Care Insurance and Lying

Carl Sagan once said: “One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. The bamboozle has captured us. Once you give a charlatan power over you, you almost never get it back.”

The lie. As we continued our discussion about insurance and retirement planning, we are faced with falsehood. In all fairness, insurance companies are not necessarily liars but without a good indication of what the truth is, you have little hope in distinguishing whether or not what you are being told is true.

Oddly, the insurance industry feels just as strongly about you. Long-term care insurance, a policy that is bought well in advance of actual use, and sometimes by folks who trust that the policy they purchase is the right one for them, are often denied the claims they make and for reasons that seem to the average eye, simply minutiae.

“Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.” Demosthenes




In the book I wanted to emphasize the possibility that LTC insurance sales people were not as truthful about the product they are selling. I wrote “Back in 1965, noted psychologist/anthropologist Paul Ekman believed that human facial expressions were individual and not the result of some sort of evolutionary step that made the message we portray on our faces somehow universal.



Darwin published his work “The Expression of Emotion in Man and Animals” in 1872. The work suggested that particular emotions are attached to particular expressions in humans and in principle, to animals. What Darwin failed to understand was the nature of the falsehood. In fact, Darwin gave but one reference to the subtle art of deception when he wrote: “They [the movements of expression] reveal the thoughts and intentions of others more truly than do words, which may be falsified”.



Margaret Mead disagreed with Darwin suggesting that expressions were a result of culture not some universally inherited trait. This led Mr. Ekman on a worldwide journey to find the truth about what would later be a blueprint for falsehood. He showed pictures of faces experiencing a variety of emotions to a wide variety of people around the world and recorded their reactions.

But the experiment, he realized after a time was flawed. The people he had hoped would show some sort of innate reaction, one that was universal had been tainted by their contact with the outside world. Because, even in 1965, the world had shrunk considerably, many of his test subjects had seen Charlie Chaplin or John Wayne and understood what those faces meant. He needed to find subjects who were untouched by outside influences, a peoples who were technologically remote. He found just such a group in Papua, New Guinea.

Mr. Ekman found that there was a certain universality to how we express ourselves, confirming what Darwin suggested. From his study this remote tribe, he found that anger, disgust, fear, joy, sadness and surprise were universal expressions developed without outside influences. The ultimate goal: how to find out if someone was lying. He never, at least to my knowledge, applied his study of those 43 facial muscles, the ones that offer telltale glimpses into truth and lies to that of the insurance industry.


“Falsehood is easy, truth so difficult.” George Eliot

The reason you should be as skeptical as I am of this particular corner of the insurance industry has less to do with its relative newness as a product but rather with its aggressive selling by the industry. When a product comes to market, it is always promoted to the widest audience available. It is not different with insurance.



Trouble is, we only come face-to-face with an agent who represents a company and a product and that product is something we might not need in the near future. Long-term Care insurance is bought on good faith, research and soul-searching” and because of the time an effort most of us put into the purchase, we expect it perform flawlessly.

A large number of the claims the companies denied were due to paperwork not filled out properly or the right forms were not submitted. They also cited denial of claims were a result of the facilities the clients chose for care were not appropriate or acceptable for nursing care – although all of the people who had filed complaints had used state licensed facilities.

This is cause for concern among current and future policyholders. If Congress can offer incentives such as tax breaks to the industry to encourage people to buy the product, federal oversight may be necessary. This would take the industry’s current overseer, the state, out of the regulation game.

Even as states begin their own market investigations into the practice of long-term care, it adds another layer of concern about whether this industry is too young to be an important part of your retirement planning.

“Always tell the truth. That way, you don't have to remember what you said.” Mark Twain

3 comments:

Scott A Olson, CLTC said...

This statistic is shocking:

There has been a 92 percent increase in the number of complaints about long-term-care insurance from 2001 to 2006.
This statistic is particularly weighty, since it is coming from an impartial source: the National Association of Insurance Commissioners (NAIC).

When considered in light of other reports made by the NAIC, this statistic loses its “shock value.”

In the year, 1999, according to the NAIC LTC Experience Report, the long term care insurance industry incurred over $1.5 Billion dollars in claims.

In the year, 2004, (which is the most recent publicly available data), the long term care insurance industry incurred over $3.3 Billion dollars in claims (according to the same report.)

Over that 6-year period, long term care insurance claims increased by 117%.

If any company had twice as many customers this year over last year, it's only reasonable to conclude that the number of complaints would double as well.

Here we could conclude that a 117% increase in usage, has resulted in a 92% increase in complaints. That would mean that the overall complaint ratio has actually decreased over the past several years.

According to the March, 2007, NY Times article, the leading long term care insurers average one complaint for every 10,000 policyholders. According to the Des Moines Register, only 18% of long term care insurance complaints are “claims-related”. That means the leading long term care insurers receive one “claims-related complaint” for every 55,550 policyholders.

Long term care insurance is regulated on both the state and federal level. Every long term care insurance policy has a specific “claims process”, that meets state and federal guidelines.

Each policy also has a simple, step-by-step “appeals process” if the claim is initially declined. If a claim is declined the insurer is required to delineate the reasons for denial. Appealing a denied claim rarely requires an attorney. In most cases, it simply requires a clarification of information provided by your doctor or care provider.

The statement that 70% of claims that are initially declined are approved after the “appeals process” indicates that there is a lack of understanding in the healthcare industry of what is needed to process a claim for long term care. Most healthcare professionals are accustomed to processing medical insurance claims, not long term care claims. Fortunately, the appeals process works.

Scott A. Olson, CLTC
www.LTCInsuranceShopper.com

Retiring_with_a_Plan said...

I'll publish your comment but you are in too deep to be realistic about the stats you propose. If the number of policies that were issued increased, that only points to the success of the industries salesmanship. Policies issued cannot be equated with complaints.

Increases in complaints however can point to what may be only the cusp of greater problems down the road. More telling would be if the average age of the policyholder was revealed against the average age of the claimants. Then the statistic would become more poignant and shocking. Removing new policyholders from the calculation would also reveal that the complaints are not inline with any success of the coverage.

I commented that the industry is too new to be considered part of a retirement plan and the money spent for LTC coverage could be better allocated elsewhere. LTC insurance offers coverage for fear of nursing homes, loss of inheritable property and the belief, however naive, that a policy bought years in advance of any need will still be effective and beneficial and more importantly, will perform to their high expectations.

You even state so in your website's video, "the policyholder will need to make up the shortfall in costs." Today's costs? Tomorrow's costs? Even after paying premiums for years, you may still be out-of-pocket with expenses. And that is if the insurer pays without questioning the claim based on some technicality.

People buy LTC insurance because they want seamless coverage at a time when they are least able to make lucid decisions. LTC policies do not fair better at providing this than any other corner of the insurance industry. All I suggest is that folks looking to buy a policy understand why this product was developed and who it was developed for. Unfortunately, many folks have saved far too little for their retirement, amassed for too little in inheritable wealth, and worry far too much about what they could have more control over now than the the product you pitch is worth.

Scott A Olson, CLTC said...

Paul,

There are some points that you may have misunderstood. I'll reply to each point.

Scott



P: I'll publish your comment but you are in too deep to be realistic about the stats you propose.
S: The statistics I quoted are published by the National Association of Insurance Commissioners (NAIC). The NAIC requires insurers to submit their long term care claims data to them every year. The information is published periodically by the NAIC. It's called the LTC Experience Report.


P: If the number of policies that were issued increased, that only points to the success of the industries salesmanship. Policies issued cannot be equated with complaints.
S: I didn't say that the number of policies increased by 117%. I said that the amount of claims had increased by 117%. Since the amount of claims had increased by 117% but the amount of complaints had increased by only 90%, that shows that the industry has decreased the overall percentage of complaints over the past 6 years.


P: Increases in complaints however can point to what may be only the cusp of greater problems down the road. More telling would be if the average age of the policyholder was revealed against the average age of the claimants. Then the statistic would become more poignant and shocking. Removing new policyholders from the calculation would also reveal that the complaints are not inline with any success of the coverage.
S: Again, you mis-read my statement. I did not say that the number of policies had increased by 117%, but the amount of claims had increased by 117%.


P: I commented that the industry is too new to be considered part of a retirement plan and the money spent for LTC coverage could be better allocated elsewhere.
S: Certainly, LTCi is not the highest financial priority. Those who have saved very little for retirement or those with a total household income less than $50,000 per year, should not be looking into LTCi. Before looking into LTCi, higher financial priorities should be taken care of, namely, in this order:

1) quality medical insurance
2) long term disability insurance to replace a portion of your income in case you're not able to work
3) term life insurance (only if you have dependents who rely on your present and future earnings)
4) little or no credit card debt
5) maximizing contributions to IRA's/401k's each year.

Only after these 5 priorities are taken care of should someone consider long term care insurance.


P: I commented that the industry is too new to be considered part of a retirement plan...
S: Long term care insurance policies were first offered in the mid-60's. The largest long term care insurer started offering long term care policies in 1974. The 2nd largest has been offering long term care since 1987. Last year the industry, as a whole, incurred over 3.3 billion dollars in LTCi claims. If an average claim is $100,000, then that means that just in 2006, the LTCi industry had 33,000 new claims (not including claims that are still active that started in previous years.)

CFO's from most of the Fortune 500 companies have been recommending long term care insurance as part of a benefits package to their employees since the 90's. The Federal Government has been offering long term care insurance to all of their employees and retirees, including active duty military, for several years now. USAA, AARP, Cal-Pers, and insurance commissioners from all 50 states all approve of and have been recommending long term care insurance for many, many years. They don't seem to think that the industry is "too new".




P: LTC insurance offers coverage for fear of nursing homes, loss of inheritable property and the belief, however naive, that a policy bought years in advance of any need will still be effective and beneficial and more importantly, will perform to their high expectations.
S: The #1 reason for owning LTCi is so that a healthy spouse does not have to bear the financial burden of the other spouse's care expenses. Most people don't buy LTCi in order to protect an inheritance.

If one should not buy insurance "years in advance of making a claim", it's only logical to conclude that you do not recommend life insurance either. The reality is, that we do not know when we might pass away, nor do we know when we might become disabled and need long term care. The reason for owning life insurance is to ease the burden on my loved ones should I die prematurely. The reason for owning long term care insurance is to ease the burden on my loved ones should I become disabled and need care. If we knew at what age we would die and if we knew at what age we would become disabled, we would not need life insurance nor long term care insurance.



P: You even state so in your website's video, "the policyholder will need to make up the shortfall in costs." Today's costs? Tomorrow's costs? Even after paying premiums for years, you may still be out-of-pocket with expenses.
S: As with all types of insurance, the more benefit you buy, the higher your premium. The lower the benefits, the lower the premium. For example, if someone were to buy a "funeral expense" policy that paid $10,000 of benefits, it would cost less than a "funeral expense" policy that paid $25,000 of benefits. The $10,000 policy might not cover the full costs of the funeral. Does that mean that the insurer was underhanded in issuing a $10,000 policy. No. The policyholder can choose to buy either one: the cheaper or the more expensive.

The complete statement I made on my website's video is this: "If your daily benefit does not cover the full cost of care, you'll have to make up the difference using your own savings or income." When someone purchases a long term care policy, they choose how much they want in benefits and they also choose how they want their benefits to grow each year in order to keep pace with inflation. If they choose a lower Daily Benefit, then they are going to have to make up the difference with their own income or savings. If they choose a weaker Inflation Benefit, then they will certainly need to make up the difference in cost. If a million dollars of life insurance cost the same as $10,000 of life insurance, we'd all buy million dollar policies. The more benefit you buy, the higher your premium. That is why some people choose to buy long term care policies that do not cover the full costs of their care.


P: And that is if the insurer pays without questioning the claim based on some technicality.
S: With $3.3 billion dollars in claims, in just one year, the insurers are doing a lousy job of finding all the 'technicalities' and 'loopholes'. The reality is, Paul, that long term care insurance policies are contracts. They are highly regulated by the state and federal governments, and it's very difficult for an insurer to not pay a claim.


P: People buy LTC insurance because they want seamless coverage at a time when they are least able to make lucid decisions.
S: I think the main reason people buy LTCi is because they don't want their spouse to be faced with the financial burdens associated with long term care.

P: LTC policies do not fair better at providing this than any other corner of the insurance industry.
S: There's nothing seamless about this country's healthcare system, so there's no way that any insurance policy could provide 'seamless coverage'.

P: All I suggest is that folks looking to buy a policy understand why this product was developed and who it was developed for. Unfortunately, many folks have saved far too little for their retirement, amassed for too little in inheritable wealth, and worry far too much about what they could have more control over now than the the product you pitch is worth.
S: As I mentioned a few paragraphs above, LTCi is not for people who haven't taken care of the higher financial priorities. Once someone has taken care of the higher financial priorities, it would be foolish of them to not own LTCi.


Scott