If you’re like most LTC agents, you’ve grown comfortable in your presentation. Having been around awhile, I’ve probably heard it once or two thousand times before. So don’t take offense if I presuppose how you introduce the topic of Medicare and Medicaid with your prospects. Most producers cover the two government programs with the same sense of obligation as children being force-fed “peas and carrots”. A typical exposition might be that “Medicare requires a 3-day prior hospital stay and doesn’t pay for custodial care which most people need, while Medicaid is a state-federal program that requires you to spend-down virtually all of your assets before you can qualify.” Having fulfilled your duties, you swiftly move on, and both parties are satisfied. Your clients rarely bring it up, and you don’t like to talk about it…
The Medicaid Myth
…except for one nagging thing, one poorly-guarded secret: the Medicaid Myth is not true. Let’s face it, no one feels comfortable when we’re not truthful with our clients, but the Medicaid Myth serves us so well, we see no reason to overturn it. In fact, carriers, service providers, consumers, and the government alike ALL participate in the Medicaid Myth– the notion that one must be impoverished to qualify– because we each gain a little by perpetuating it.
But it would be better to tell the truth. Consider: if it’s true that you must impoverish yourself to receive Medicaid LTC, then how come “The Medicaid Insurance Company” paid out over $122 Billion in long-term care receipts in 2009 all by itself, while private carriers reimbursed an estimated $6 Billion as an entire industry? (American Association for Long-Term Care Insurance, 2010 LTC Sourcebook)
Looking at this another way: Genworth is private LTC’s 800-pound gorilla (1 of every 5 in-force policyholders has a Genworth plan), and their claims-paying engine has no equal. But for our industry to equal the claims-paying magnitude of one “Medicaid Insurance Company”, we’d need over 98 Genworths operating at full-tilt, every day of the year.
Where are these impoverished masses? America must be teeming with them. If it’s true that one must spend-down to all but $2,000 (and a paltry personal allowance of $40/month), our nightly news would run round-the-clock stories of families who’ve lost everything– it’s a sensational, tear-jerking story that even the almighty Oprah herself would rally behind. Better yet, stuck between the “rock” of catastrophic spend-down and the “hard place” of $100,000/year care costs, who in their right mind would risk going a single day uninsured?
Since no one would, the phones at our office ring literally off the hook from buyers begging for LTC insurance. Don’t yours?
Of course not. Neither assets nor income are obstacles to Medicaid eligibility. (Rather than educate the un-initiated, I will refer interested readers to the excellent research conducted by the Center for Long Term Care Reform, www.centerltc.com). Just last month (September, 2011) Congressional Hearings were held to explore how rampant Medicaid abuse has become, with one NY Medicaid Eligibility expert testifying that, “people with over $1,000,000…qualify easily.” The average applicant qualifies with over $300,000 banked (a far cry from the $2,000 we began with).
Income is no less a barrier, since “Medically Needy” states deduct the cost of care FROM your income before determining eligibility, while “Income Cap” states can be defeated by means of a “Miller Trust”. In short, as one Rhode Island Medicaid Specialist stated for the record, in his 3-decade tenure with the program, Medicaid had only disqualified 2 people based on income.
This poses a problem. Unlike our product– which should be purchased years if not decades in advance– an individual can apply for Medicaid even after suffering a disabling accident or illness. “Asset protection”, which many agents use to distinguish our product, is already a benefit conferred by Medicaid in the form of exemptions up to 3/4s of a Million dollars (strictly speaking, amounts are “limitless”), even before touching a spousal allowance worth as much as $109,500 more.
Keep in mind the lion’s share of applicants qualify for Medicaid straightaway without needing or seeking professional assistance. However, for the affluent a cottage industry of Medicaid Planners and Elderlaw Attorneys exists to finagle and exploit every loophole. Rather than save, invest or insure, our wealthy neighbors use exotic financial planning techniques to hitch a ride on the public safety net. Recently the GAO was asked to assess one such abusive “self-impoverishment” technique– asset transfers– and concluded that mechanism alone (among the least popular) cost Medicaid around $1 Billion/year. To put that in perspective: this amount of abuse from just one technique used by the middle-class and wealthy in order to “game” Medicaid exceeds the annual LTC claims-paid by most of our industry carriers.
Since both public and private insurance confer asset protection, I don’t think it’s a particularly strong selling point. On consumer surveys you will often find respondents voicing “asset protection” as an important feature to them– I don’t deny that. However, working against us is an undercurrent called the “crowd-out effect”: that sentiment taxpayers feel about paying for something that replaces a government benefit they already get for free. It is estimated that Medicaid “crowds-out” 2/3rds to 90% of our private LTCI market (the groundbreaking work for this paper was published in the most prestigious of economic journals, NBER). This is why LTCi is bottled up and has yet to take off.
The Benefits of Private Long-Term Care Insurance
Having said this, I’m not dismal about our market, and neither should you. There are good ways to sell our products, and a future which endorses them. You’ve heard how Medicaid has become the dominant payor of long-term care in this country, and why it can be difficult to sell what is essentially “ice” to Eskimoes. Now it’s time to tell “the rest of the story…”
First, if you’ve kept an eye on our economy lately, then you’re aware that what began as a New Year’s Eve party is turning into a New Year’s Day hangover of epic proportions. One of the largest contributors to this has been– and continues to be– our Big Three entitlements (Social Security, Medicare, and Medicaid). According to a GAO Report from this year, by 2020 our country could spend as much as 89-cents of every dollar on the Entitlements and Interest, leaving only 11-cents for every other program, need, interest group, and worthy cause we’d like to fund.
Because this path is unsustainable, choices will be made which reduce or eliminate the easy access to Medicaid of the past. In 5, 10, or 20 years we will not recognize Medicaid (or Medicare, for that matter) as the programs we know today. Medicare is becoming increasingly means-tested as a result of the Affordable Care Act, raising both the payroll tax and premiums for higher wage-earners (Parts A, B and D), all for the sake of gaining 8 more years of solvency.
Medicaid fares worse. Jointly run by the Federal Government and the States, it’s partially dependent on how much water the states can take on before sinking. Unlike the Federal Government, States must balance their budgets, and going into 2012, they collectively face a $121B deficit– not counting the 17M new Enrollees they are mandated to add to their rolls in 2014 as a result of ACA. (Washington has pledged to cover the cost of these new Enrollees for a few years, but these matching funds will eventually sunset.)
States are feeling squeezed. Already, nearly half (24) are preparing to cut $4.7B from their Medicaid budgets, reducing both provider reimbursement rates and services which beneficiaries receive. Adding insult to injury, the President’s recently unveiled Deficit Reduction Plan recommends an additional $320B in entitlement cuts over the next ten years.
I hope by now the clever reader will acknowledge why I haven’t suggested working “with” Medicaid by selling a long-term care Partnership product. What’s the use of promoting a “guarantee” from a Government Program which may be unrecognizable, capricious, or worse– bankrupt?
To fully explore that point, let’s talk about how we “sell against” the Medicaid Insurance Company. We’re going to win by making a qualitative sale, not a quantitative one. I once wrote that Private LTCI and Public Insurance are no different than Private Cars and Public Transit. We live in a “Nascar Nation”, infatuated with our cars: in fact, having to finally give up our keys is a highly symbolic and emotional act representing loss of freedom, independence, and control. Our cars allow us to drive where we want, when we want, in the make and model of our choice, from modestly comfortable to extreme luxury.
By contrast, public transportation takes one route: their route. Don’t be late or you’ll miss the bus! You’re surrounded by strangers, one whose perfume may offend, another whose music is too loud, and a third who looks like he’s staring at you.
Gas may be expensive at $5.00/gallon, but most people aren’t willing to trade the “experience” of their own car, windows rolled down, music playing for a day on the bus, with its fluorescent lighting and vinyl seats. And so it is with long-term care insurance: sell the “experience”.
In the end, you can have coverage on the cheap, but there are serious trade-offs, including loss of quality, access, choice, and independence. A cursory review of some of Medicaid’s “greatest hits” in the last two years includes cancelling transplant coverage for 98 people dying on a waiting list; unilaterally raising the number of qualifying ADL’s to 4 in Minnesota; providing unreliable coverage of Assisted-Living; and adding, constricting, expanding, then cost-cutting of HCBS like a sail caught in the political winds (and how is that “re-balancing” working out? Fine, unless you count the 365,000 people wait-listed for Home Care). Add to this the news that some major nursing home chains have made the switch to “private-pay only”, and it’s all the proof you need that a 2-tier HealthCare system is developing in our country.
That positions you right where you need to be: selling the experience. Private long-term care insurance allows your clients to choose the highest-quality care in the most-appropriate setting of their choice. Although Medicaid is a powerful undertow, you cannot let them get swept out to sea, subject to a budgetary system that is $100,000,000,000,000 in the red, and feverishly, furiously looking for ways to cut corners, including eligibility restrictions, provider payment reductions, and service cuts.
The signs do point to a future in which LTCI will soon be the only viable solution left, and then our phones really will start ringing.
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