Layaway Legacy LTCI

LTCI is much like layaway.

LTCI is much like layaway. Wikipedia can help here. ‘…the layaway customer does not receive the item until it is completely paid for…There is sometimes a fee associated, since the seller must “lay” the item “away” in storage until the payments are completed…If the transaction is not completed, the item is returned to stock; the customer’s money may be returned in whole, returned less a fee, or forfeited entirely’.

The item being referred to, of course, is the LTCI contractual benefit(s) once on claim. If you don’t complete the transaction, you might get a tiny bit of your money back subject to “conditions”.

LTCI is much different than layaway. ‘The main advantage of layaway is that no interest is charged…In addition, the price is fixed.’

In LTCI, after having paid many installments, you may discover the price has changed and that you are responsible for your installment underpayments from inception. You might be saddened to learn you are responsible for interest payments of your underpayments too.

Other classes

It gets worse. You are also responsible for your pro-rata share of under-payments of those who are long gone, bought the same item, eventually paid for the item on an installment plan, took it home and used it. You are also responsible for a pro-rata share of the interest rates of their under-payments. Pro-rata refers to those others who remain in the installment program for the same item.

Gets even worse. You are responsible for the under-payment of perceptive ones who simply left town early, never fully paid or received the item. With interest, but only your pro-rata share.

Ultimate insult. Same idea, but the class of those that fully paid for the item but they haven’t picked up or used the item yet. They will simply hang around until the item is needed. They seem to have made a really smart decision. Or maybe not, according to Wiki: “…consumers face potential financial loss in the case where a retailer declares bankruptcy prior to collecting the item”.

Finally, one more class. One prescient group cut a different payment deal with the store. They agreed to pay slightly more than others for the first few installments with reduced payments thereafter. In some cases this group is immune from price changes, so you are also responsible for their alleged underpayment plus interest too.

Another way to look at this

You buy an item and agree to installment purchase plan. You have not been told that you have taken out a loan at ~4.5%. Initially, the principal of your hidden loan is $0, so no problem. At some point after you have paid many installments, someone from the store calls you and says, “we are sorry, but we underpriced the item a long time ago, so we need to triple the price of your item. Oh, by the way, you agreed to a 4.5% loan, so we are charging you both the outstanding underpricing balance plus the interest from the time you bought”. Neat. The store forgets to tell you that your new loan balance is also increased to reflect your pro-rata share of the other classes described above. But, don’t worry — you can pay this hidden loan off if you agree to increased future installments payments, otherwise the store says,”get lost”!

Famous Quote

“How could it be”?

E. Benes: “Oh, it be”.

Gunn v. Continental Casualty

This case was found for Continental but it is being appealed by the US 7th Circuit Court of Appeals. The plaintiff’s claim concerns whether premium increases are discriminatory to class. Part of the plaintiff’s argument relies on the fact that states have jurisdiction over rate increases, but there is no uniformity across states. For example, if one state has an annual cap of 2% but another state has no cap, then a policyholder in the latter state is extremely disadvantaged compared to the policyholder living in the former state. This case seems to test the notion of state, rather than national, jurisdiction over rate increases.

Seems like a tough argument. But, upon reading, you be the judge. The case is an interesting read, despite what you might think of the claim(s) contained within.

On Sept. 3rd, 2019, the judge for the case found for the defendant. The attorneys for the case, HAGENS BERMAN SOBOL SHAPIRO LLP, then appealed to the 7th Circuit Court of Appeals.


There are 2 cases we are tracking. Both are moving targets:

The claims in each are different. The Introductions help explain differences:

This action challenges a deliberate, long-term scheme by defendant Genworth, an insurance holding company, and by its affiliated defendants, to bleed capital from GLIC, a wholly-owned insurance subsidiary of Genworth upon which over a million policyholders depend for long-term care insurance benefits in the event that they become disabled.


This case does not challenge Genworth’s right to increase these premiums, or the need for premium increases given changes in certain of Genworth’s actuarial assumptions. Nor does this case ask the Court to reconstitute any of the premium rates or otherwise substitute its judgment for that of any insurance regulator in approving the increased rates. Rather, this case seeks to remedy the harm caused to Plaintiffs and the Class from Genworth’s partial disclosures of material information when communicating the premium increases, and the omission of material information necessary to make those partial disclosures adequate. Without this material information, Plaintiffs and the Class could not make informed decisions in response to the premium increases and ultimately made policy option renewal elections they never would have made had the Company adequately disclosed the staggering scope and magnitude of its internal rate increase action plans in the first place.


The Burhkart case is about bleeding capitol and leaving Genworth LTCI vulnerable threatening PHs and agent/brokers who are reliant on a sustainable company. See related blog Novation. The SKOCHIN case has to do about inadequate disclosures that would enable PHs to make informed choices at critical timeframes. Given that these are lengthy documents and despite how these cases are eventually resolved, there is much more to the story(s) that are teaching moments for those interested in the internals of the LTCI industry.

Given the importance of the cases, not only to Genworth’s PHs but potentially other carriers too, we will track updates:

  1. SKOCHIN case
  2. Burkhart case

We will be adding our own commentary in later posts but we would be remiss in not pointing out what appears on Page 9 of the Skochin filing:

“29…For the first time, however, the 2018 increase announcement candidly disclosed that Genworth “plan[s] to request at least 150% in additional premium increases over the next 68 years.” Such an increase would raise annual premiums on a $5,000 policy to nearly $28,000 a year!

30… To make matters worse, the disclosure of at least 150% increase over the next 6-8 years was not even a full disclosure. At the same time Genworth made that announcement to policyholders, its internal projections demonstrated the need for an increase of more than 300% for the PSC Series III policies over the same period. Such an increase would result in annual premiums of over $40,000 a year. A truly absurd result…”.

This is consistent with our findings in a recent research report of ours — that many LTCI contracts are headed towards a parabolic increase of rates over time.

Margery Newman v. MET

Parties agreed to settle this case in the 7th US Circuit Court of Appeals.

Briefly, the case was about policyholders who selected a Reduced At Age 65 payment option. These PHs elected to pay a higher premium before the age of 65 in exchange for a half-pay once they reached the age of 65. Policyholders usually did this on the premise that during their pre-retirement years the higher premium would still be affordable; but, once retired, the half-premium would be affordable on a reduced fixed-income and, with the understanding that the half-premium was a fixed amount in the contract, that there would be no premium volatility.

Meanwhile, the carrier had other plans as time went on. It was their belief that they could raise premiums like the many that chose to pay annually. It turns out not to be the case.

This raises the question for PHs with contracts from other carries or other payment options. Does this case offer them any possibilities? You be the judge.

There was one other ruling from the case that is very important, but you have to read the case with discerning eyes. A quiz later on.

Strategic Economics of Health

The research team first studied the topic of health in 2009 to determine if and how it might be included in our web-based financial planning architecture. Our belief then, as it is now, not having a Health module in the architecture would be a serious omission. Yet, nearly all retirement readiness tools focus solely on investments and lifestyle spending habits. In 2009, we published an initial health framework to supplement our financial models. Lately, we have dabbled with a closely related topic known as Subjective Well Being (SWB), subject matter discussed in another blog category. Much has changed to alter our original health framework, the Affordable Care Act (ACA) being one of the most significant items.

So what is it that we exactly do in a Health module consisting of more than 10,000 lines of C# code? Here is the simplest explanation possible in 50 words or less. From a health-oriented survey form, we take a client’s answers and determine a benchmark score. This score is used to project future health scores along with health care costs. Health insurance is then applied to offset health costs, but there is the added premium expense.

What are the types of Health insurance? At the highest level of abstraction, you have: Medicare & Supplements for those aged 65 & above; ACA has 4 major classes of Bronze, Silver, Gold, and Platinum. Within each, there are a myriad of specific choices depending on your locality.

You can self-insure. Insurance has what is known as loss-ratios, a value that suggests how much premium is returned to the policyholder in terms of benefits on average. Typically, this might be $80 / $100 (80%) for health insurance, so on average you lose with health insurance. In assessing the probability that your financial plan is a success, if you encounter an unfavorable tail risk, your plan that works for the average will fail in those cases.

You can run highly sophisticated readiness-to-retire Monte Carlo simulations models with glam outputs all day long at your favorite investment web-site, but a lack of consideration of health finances renders such exercises as academic.

Ironically, a poor health state may help one’s financial state if it suggests early mortality, usually not one’s goal. There is also the question of morbidity — living long, but not healthy requiring significant, expensive care.

Health is an extremely broad topic. We have confined our efforts to acquiring large health data sets and modeling with many of these factors and others. After all, those 10K lines of code must be doing something meaningful!

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