If you’ve been reading our lineup of articles, you already know how useful crosstab software can be in theory. And it becomes even more instrumental in uncovering insightful statistics in practice. One of those insights came from a report out of the Center for Retirement Research (CRR), where senior research economist Anthony Webb used crosstab software to dive deep into data on long-term care policies.
Long-term care policies are meant to offset the high out-of-pocket costs of long-term care, which averages $91,000 a year for a private room in a nursing home. Keeping policies active is imperative, yet lapses are not uncommon.
Digging Deeper into Statistics
Data from the Society of Actuaries showed an annual lapse rate of only 1 to 2 percent, but that small percentage can add up significantly over the years. Most long-term care policies are purchased when individuals are in their 60s, with the anticipation of using them when they reach their 80s. A 1 to 2 percent risk of lapse each year over a 20 year period can really start to add up.
Webb decided to calculate exact statistics, finding a lapse rate of 32 percent for men and 38 percent for women at age 65. Women’s lapse rates are a shade higher because they live longer.
Crosstab Software Discovers More
While the higher-than-expected lapse rates were already surprising to Webb, he became even more shocked when he fed the data into crosstab software. Here he did a cross-tabulation between individuals with lapsed policies versus those who eventually went into long-term care.
The results? Those with lapsed policies were the ones most likely to eventually need long-term care. In other words, the people with lapsed policies ended up being the people who needed them the most.
This fact helped support the fact that people were not letting their policies lapse on purpose, a practice known as “strategic lapsing” where you simply stop paying for coverage after deciding you don’t need it.
The lapsed policies were instead due to “financial lapsing” or “forgetful lapsing.” Financial lapsing often happens with the poorer policy holders who can no longer keep up payments. Premiums for a healthy couple in their mid-60s can cost upwards of $3,600 per year for about $165,000 worth of benefits.
Forgetful lapsing is often the case for those who are cognitively impaired, or those who suffer a decline in memory and often have trouble remembering to pay their bills. One of those bills, as you may have guessed, is for long-term care insurance. And those with declining cognitive abilities, as you also may have guessed, are those more likely to need long-term care in the long run – due to their declining cognitive abilities.
Insurance companies were less than thrilled to hear what Webb discovered through crosstab software, and they “pushed back quite hard.” They said a safeguard was in place where policy holders can have premium notices sent to a trusted relative or friend. But that safeguard, as crosstab software revealed, is obviously not working.