Filed Under:Health Insurance, Disability

LTCI Watch: Why Does the Fed Hate the Elderly and the Disabled?

Time flies.
Time flies.

I really like Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner.

I don't believe that they're engaged in any intentional conspiracy to "help their friends."

I honestly don't even believe that the people in charge of the big investment companies are nasty enough to want to help their companies at the expense of the country as a whole.

I just sense that Bernanke, Geithner and the heads of the investment banks think that the scariest thought they can possibly have that doesn't start with a natural disaster or military action is the thought of a run on a bank. Back in 2008, on crackpot, conspiracy-oriented message boards, there were rumors that the federal government was drawing up contingency plans in case financial company failures led to big bank runs, and in case the big bank runs led to riots and general chaos. 

In my opinion, Bernanke, Geithner and the heads of the big financial services companies really think that the collapse of Goldman Sachs or Bank of America could lead to disorder and bloodshed.

So, the Federal Reserve Board is keeping interest rates very low, even though the low rates are clearly of no use whatsoever to anyone but big banks, big publicly traded industrial companies, and people who are making payments on bad variable-rate mortgages.

Low rates clearly do nothing whatsoever to help home sales, auto sales or retail credit card sales, because ordinary people can't normally get credit with low rates. Ordinary first-time home buyers, and other buyers who are counting on the proceeds from the sale of their homes to help them come up with the down payments for new homes, can't come up with the huge down payments they need to qualify for good rates, and they might not be able to get mortgage loans at all.

Consumers with decent credit scores who pay their bills on time may find that, because credit card companies have lowered credit limits for some customers and taken away cards from others, the shifts have lowered their credit ratings to the point that they can barely qualify for a department store charge card let alone an auto loan or a respectable credit card.

James Glickman predicted during an interview in Las Vegas, at the annual convention of the National Association of Health Underwriters (NAHU), Washington, that, if interest rates rose 2 percentage points, most insurers with blocks of long-term care insurance (LTCI) business would earn an impressive 15% return on equity on the closed LTCI blocks.

Insurers have been better at sticking by their disability insurance programs than their LTCI programs, but low rates are clearly a threat to disability insurance programs as well as to LTCI programs. Both LTCI and disability insurers need access to safe to investment vehicles that pay reasonably high rates to keep coverage prices down.

Preventing bank runs is important, but keeping insurers in the LTCI and disability markets is also important. The economists need to go back to the whiteboards and come up with an approach to government finance that makes offering products that provide long-term guarantees the sensible thing to do.

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Corrections: An earlier version of this article attributed the prediction of the effects of an increase on interest rates on LTCI business profitability incorrectly. Only James Glickman gave that estimate. Also, an earlier version of this article described NAHU's location incorrectly. NAHU has moved to Washington.

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