Houston: We May Have a Problem! (Sacramento: We DO Have a Problem!)

Many of you may remember that now famous phrase which was used by the crew of the Apollo 13 moon flight, to report a major technical problem back to their Houston base.

As described in detail in our last legislative update titled “Three Feet from Gold” SB-1248 is sailing through the legislative fast-track approval process. According to those who track the bill’s process, they are extremely pleased and excited on how quickly it is moving and the potential support behind it!

However, my personal concerns associated with all this great legislative process is twofold.

With the California Department of Insurance expressed willingness to expedite the policy review process based on the insurance carriers promised to reply in kind to their requests, my single greatest concern is if the LTC Insurance companies be willing to participate in the Partnership?

And two, will insurance and financial professionals want to participate in presenting a more simple or an affordable long-term care insurance product to (eighty) 80% of California’s middle-class market! A policy that is not only approved by the DOI, but also certified by the state itself!

Let’s be perfectly clear here, California is a state of over forty (40) million people and according to the California Partnership’s 2013 Cal Berkley’s “Will Boomers Bust the Budget” Report, the state’s population of individuals age 50 to 74+ is roughly 10 million (regardless of income and assets brackets) of which roughly 2.5 million fall into the Partnership “At Risk” population.

That is, those who have income of less than $120,000 per year and assets, net of home, of less than $250,000. Oh, and by the way, the state is enjoying an LTC Insurance market penetration rate of less than 5%!

So let me see if I get this straight!

For the past (5) five years, California has been working to “roll back” regulations and legislation to make LTC Insurance simpler and more affordable, and for the last (3) three years, working with the department of insurance, state legislators and now an LTC Insurance task force to help reduce their (the carriers) exposure and to simplify their filing process in order to offer a “state certified” product, asset protection, with a unique care management component.

Now comes the joke … what some of the “big Names” companies are telling me – they haven’t made a decision yet to participate in the program!!

Wait! What!

I mean folks! Really?

In the #1 target market state in the Country!

Did the DRA make it better?

Let me put this in perspective, in 2006, the Federal government passed the Deficit Reduction Act of 2005; which was designed to rebalance long-term care costs and exposure from Medicaid and attempt to spread the risk of such care between consumers, insurers and state Medicaid programs.

Unlike the “Original Four Programs” which were launched back in 1991 through 1994 between Connecticut, New York, Indiana and California. They DRA was designed to be simple, easy and streamlined in order to allow states and carriers to quickly comply.

Simply put, fill out this “State Plan Amendment” (SPA) form and as long as your current LTCI product is “Tax Qualified” and approved on or after February 8, 2006, and has these “Minimum Inflation Offerings” built in – Their Partnership approved!

Age 61 less than- Some form of Compound Inflation
Age 62 to 75 some form of Simple or Compound Inflation
Age 76 plus-offer Inflation but optional

Oh, and they (the states) must require that all agents receive an initial 8-Hour DRA/LTC I CE training course to sell with a four hour renewal every two years thereafter. Also that training requirement can all be done via the Internet!

Okay, so all a carrier needs to do is simply offer those inflation options and their products be “tax qualified” but no other requirements or changes and they simply become “Partnership Approved” with “Asset Protection” and no rate caps or unique Care Management, like California, that’s correct!

No mandatory 5% compound or minimum daily benefit like California, that’s correct! I can’t tell you how many articles that I have from industry experts from around this country that said this program would explode the sale of LTC Insurance Nationwide.

Nope, the DRA Didn’t Get It Done!

Guess what?

It didn’t; and I’ll show you why!

Well, let’s look at some facts.

Within just two years after the launching of the DRA/National Partnership Program an article is printed in the National Senior Market Advisor, January 2008 edition, titled ”Preparing yourself for Partnership policies”.

The article is laid out in a Q&A format with the opening question:

“I’m in a state where the LTC partnership policies will soon be introduced. What information
and advice can you provide about who should buy these policies and who needs to take this training?”

“Expert” Answer 1:

Who should buy them?

First, determine what coverage the client needs. If the appropriate coverage fits PQ (Partnership Qualified), then always sell it.

If the coverage best suited for the client does not fit PQ requirements, then both should be presented to the Client; and the client must decide which he/she wants. The agent needs to present the pluses and minuses of each. In any event the agent should document what was explained to the client to minimize E and O exposure. (I am speechless still!)

What kind of answer is that, I mean, the only issue is inflation Yes or No?

Now look at the next “Expert”!

“Expert” Answer 2:

Not all clients are good candidates for a Partnership policy, especially if they have higher net worth or significant income expectations.

Those clients are usually better off with an LTC I policy that has been designed to meet their unique needs and expectations, not those guidelines established by the state.(

I actually called both those people and ask them if they had received their 8-hour training before they wrote their responses in this article and they said yes!

Side note: these are both considered experts in the field of LTC I). Stupid is as Stupid does!

The only thing I got out of those responses was that they better have good E&O coverage.

Also remember this; it was well before the LTC I Hybrid sales explosion that occurred after 2010! It even gets worse!

Between 2005 and 2010, the national (conducted every five years) Study of “Who Buys Long-Term Care Insurance” is released in early 2011.

On page 47 of the report titled Partnership Programs, it states that the number of states now offering the National Partnership has grown to 38 states and that the only real difference between Partnership versus non-Partnership is the requirement that buyers age 75 and younger have policies with inflation protection, that’s it!

So when the non-buyers of LTC I were asked if their state participated in the LTC I Partnership Program, 7% said yes, 18% said no and 75% that they didn’t know. But when they were informed about the program and how it worked, 45% said they would have been more likely to buy!

It even gets better, let’s now jump seven years later to 2017.

Again referencing the 2010-2016 Buyers versus Non-Buyers; Twenty Five Years of Study “Who buys Long-Term Care Insurance?”

“The Non-Buyers were asked” if there was a “Front-End” private policy with a “back- end Public coverage (Partnership Approach) three in four (75 percent) of the non-buyers said they would be more interested in purchasing a private policy!!!

Folks, Forty Four (44) states are in or offering a Partnership Product with the average age of the buyers in 2016 being 60 years of age of which 38% of them did not buy inflation protection. Holy Schnikee’s! A lot of agents better have damn good E&O Insurance and or disclosure documents showing that they at least offered some type of inflation.

See, this is my second concern, the lack or poor education and training of agents.

That’s why I have been asked to develop the new and approved training program in conjunction with other key sub-task force members.

With the lowering of the daily benefit to $100 with a monthly minimum of $3000 a month and if the carriers are smart and simply offer the “Pools of Money” ($75,000, $100,000, 150, 200, 250) approach and if and when the client asks you:

“What do you recommend?”
“How much should I buy and Why?”
“Should I buy Inflation and Why?”
“Based on What?”
What does “State Certified” Mean?
“How does the Partnership differ from Non-Partnership’s?”

You must be prepared and we will help you to answer them!

Get Educated Now – Before the New Partnership Rollout

These and many other questions need to be addressed and you need to learn how to question skillfully and listen carefully!

This stuff isn’t hard, but over the last 30-years everybody (carrier’s & their agents) thought that with more bells and whistles and 125 options would make the product more flexible and easier to sell!

However, with that came higher premiums …Blah, Blah, Blah … and with the consumers saying that the products had gotten to complex, too confusing and to expensive…. sales declined, underwriting became tougher, carriers left or are leaving and Company Wholesalers are far & few.

Folks, think about it … all you are selling is a pool, a bag, a bank, a “Pot of Money” and there are only 100-pennies in a buck!