GE Long Term Care Insurance Problems

GE has a long-term care insurance problem

By Kimberly Adams

January 01, 2019 | 6:54 AM

A home health aide helps an elderly man with his laundry in Miami. - Joe Raedle/Getty Images
Caring for the elderly is getting more and more expensive at a time when Americans are living longer than ever. For General Electric, that means that premiums on its 300,000 long-term care insurance policies aren’t even close to covering the cost of coverage. Marketplace senior economics contributor Chris Farrell spoke with host Kimberly Adams about the rising costs of long-term care. Below is an edited transcript of their conversation.

Kimberly Adams: Long-term care insurance, what is it exactly?

Chris Farrell: Long-term care insurance are the policies that cover costs associated with going to a nursing home, being in an assisted living center and, most importantly in recent years, in-home care. So personal care aides might come and help take care of you as you're frail and you're elderly; you know, dealing with some of the issues of getting through everyday life.

Adams: And General Electric was pretty involved in this industry?

Farrell: Yes. They've been involved in the industry. They used to be in the health care industry, they got rid of that, but they still had these remaining policies. And the core of the problem that GE is dealing with right now has to do with these long-term care insurance policies. What's happened is that medical costs keep going up. Americans are living longer, on average. And the people who bought these policies? They're not dropping them. So GE needs to put required reserves, the regulators are saying about $15 billion, to back these policies. Because the premium payments? They're not even coming close to covering the costs that they're incurring. Put that in context: GE's dividend payments is [something] like 4 billion.

Adams: Wow. And we're talking about some couple of hundred thousand long-term care insurance policies they've got left?

Farrell: Yes. It's around 300,000.

Adams: And how is the long-term care insurance market doing right now?

Farrell: It's doing terrible. To butcher a phrase, what's bad for GE is bad for America because the long-term care insurance market — it's not just with GE —that private insurance market has been shrinking and shrinking dramatically. And then we have this sort of patchwork quilt system that we've created. Medicare doesn't cover very many long-term care costs. Medicaid is really our public long-term care service policy. But the problem with Medicaid is it's a means-tested program. You have to be, in essence, poor in order to qualify. And so what's happening is we're turning to the American family and we're saying, "American family, take care of your elders."

Adams: And that is something that is costing many of us a lot. I heard a number that informal care provided by friends and family can add up to something like $470 billion a year. But it's a strain.

Farrell: It's a real strain, and that number, which comes from AARP, is a legitimate number, and I think it way underestimates the costs that families are absorbing. Remember, lots of times people have to go from full-time work to part-time work, they have to go from part-time work to quitting their job in order to take care of their elders. And a lot of millennials — one in about 25 percent of caregivers — are millennials, people who are just launching their careers. And they are taking time off, and they're spending a fair amount of money taking care of their elders. So this informal care system is totally strained. We have smaller families, and there really are limits to what the families can do. Frankly, I think we're way past those limits.

Adams: Is there much movement here in Washington, D.C., to help on this issue?

Farrell: I think the term "health care" is toxic in Washington, D.C., so if you say "long-term care," that's even more toxic. The experts keep talking about the need that we should have some sort of a national system, perhaps emulating what Japan has created or Germany has. And we all know that the population is aging, but I think Washington is going to learn the same lesson that GE and its investors learned the hard way: You can ignore this cost for a period of time, you can. But eventually that bill comes due.

Rare Blood Transfusion during WWII

During World War II, a young Marine lay badly wounded in a military hospital on a South Pacific island. Shrapnel had ripped through his chest, and unless he received a series of blood transfusions at once the boy was doomed to die. But the type of blood required turned out to be very rare. No donors were immediately available and hope for saving the Marine was fading quickly.

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Then a medic discovered a supply of the rare blood in a recent shipment from the United States. The transfusion was given and the marine lived. When he recovered, the grateful young man asked about the donor. She turned out to be a Boston woman, and he wrote to thank her for the gift of her life-saving blood. Then he wrote to his father in Kentucky
and told him about his miraculous experience. His father recognized the donor’s name. She was his long-lost sister and the Marine’s own aunt! The wounded man had never known his aunt, but her donation of rare blood, which matched his, saved his life in the faraway Pacific.

Thousands of lives are saved every year because of blood donations. Every day someone needs blood that comes from donors. Only 3 out of 100 people in the United States have donated blood. The term “blood bank” was created to describe the collection and storage of blood donations to be used for transfusions. Careful guidelines and screening
of blood lowers the risk of infection or incompatibility of different blood types. Blood doesn’t simply go from a donor to a recipient without being carefully tracked, tested, processed, stored, and transported.

Did you know, friends, that there is a unique type of blood that is still saving thousands today? The Bible says, “But God demonstrates His own love toward us, in that while we were still sinners, Christ died for us. Much more then, having now been justified by His blood, we shall be saved from wrath through Him” (Romans 5:8, 9). The greatest blood donation was made by Jesus Christ when He shed His blood on Calvary to redeem us from sin.

KEY BIBLE TEXTS
Forasmuch as ye know that ye were not redeemed with corruptible things, as silver and gold, from your vain conversation received by tradition from your fathers; 1 Peter 1:18But with the precious blood of Christ, as of a lamb without blemish and without spot: 1 Peter 1:19

A Cup of Water

An Amazing Fact: After the first day of fierce fighting in the Civil War battle of Fredericksburg, hundreds of Union soldiers lay crying on the battlefield, wounded and bleeding. All through the night, and most of the next day, artillery fire prevented their relief. Yet all that time their agonized cries went up, “Water! Water!” Finally, a noble Southern sergeant, Richard Kirkland, rose above his love of life and told his General Kershaw, “I can’t stand this any longer! Those poor souls out there have been praying and crying all night and all day, and it’s more than I can bear! I ask your permission to go and give them water.”

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“But you know,” said the general, “that as soon as you show yourself to the enemy, you will be shot.”

“Yes, sir, I know it,” he answered, “but to carry a little comfort to those poor dying men, I’m willing to run the risk!”

The general hesitated, but his heart was also touched with sympathy over the suffering soldiers. “Kirkland, it’s sending you to your death, but I cannot oppose such a motive as yours. I hope God will protect you. Go.”

So the brave soldier, furnished with a supply of water, stepped over the stone rampart and began his work of Christlike mercy. Wondering eyes watched as he knelt by the nearest sufferer, tenderly raised his head, and held the refreshing cup to his parched lips. Every soldier in the Union line understood his tender mission, and not a single shot was fired. For over an hour, one after another of the crying, wounded, and dying was given refreshing drink, had his cramped or mangled limbs straightened, his head cushioned on his knapsack, and was covered with his coat or blanket as tenderly as though by his own mother.

It’s the same on life’s great battlefield, where souls are crying and dying from the fearful effects of sin. They are thirsty for the water of life, with no one to reach out to them the refreshing draft they so crave, except the One who stepped over the ramparts of heaven and came down to risk His all. Christ, on the cross of Calvary, rescued them from their
sins by giving to them “a fountain of water springing up into everlasting life” (John 4:14).

KEY BIBLE TEXTS
For whosoever shall give you a cup of water to drink in my name, because ye belong to Christ, verily I say unto you, he shall not lose his reward. Mark 9:41

General Electric's Downfall
Was Easy to See

By Rupert Hargreaves

GuruFocus.com

November 13, 2018

GE dipped to a low of $7.72 on Monday 11/12/18.

Of all the companies that have fallen from grace over the past two decades, none is more indicative of the times we're in today than General Electric.

Since the turn of the century, this company has wilted from being one of the world's largest conglomerates, dominating industry all over the world, to a company that is struggling to survive, with flagging sales and a ruined balance sheet.

As General Electric has sputtered to a halt, other companies have overtaken this dying beast in leaps and bounds: Amazon (AMZN), Facebook (FB) and Microsoft (MSFT) are the new industrial giants of the 21st century.

But there's been more to General Electric's downfall than just technological change. This company is possibly one of the best examples of how complex businesses can become their own worst enemy and how overexpansion can be destructive for shareholders.

In August 2000, General Electric's market cap was $594 billion. Nearly two decades later, the company has lost nearly 90% of its value since this point. At the time of writing, the company's market capitalization is just $73 billion.

And it looks as if there is going to be more paying out for shareholders before the company manages to stage a recovery. Earlier this week, the new CEO Larry Culp told reporters on CNBC that the company is looking to sell assets with "urgency" to reduce its high debt.

"We have no higher priority right now than bringing leverage levels down," Culp told CNBC. "We have plenty of opportunity to do that through asset sales."

This is a staggering admission to make on national TV, as it hints that the company is considering a fire sale for its assets. Even if it is not, the very fact that management has told the world that the company is looking to sell assets quickly to reduce debt means it is likely to receive lower prices as buyers know General Electric is in a tight spot.

Problems clear

Looking at the conglomerate, two factors stand out as being behind its problems over the past two decades.

First of all, there is complexity. General Electric has so many different business arms and divisions that it is difficult to understand what goes where and what contributes to what. The company has made several significant acquisitions in recent years that have only added to the pain and piled on the debt.

The last significant deal in the Jeff Immelt era was General Electric's buyout of Alstom for $10 billion in 2014. The company had been hoping to use this deal to become the undisputed champion of power generation from natural gas, but it coincided with the collapse in oil and gas prices.

This deal in itself was not enough to break the company but combined with years of frivolous spending on highly prized acquisitions, it became the straw that broke the camel's back.

Here is the second factor: debt and cash flow. At the end of the third quarter, the company's debt was $114 billion, 3.7 times its equity.

Looking through the company's financials, it is clear that it has been spending more than it can afford for years. Until very recently, the company's dividend was gold-plated even though it should have been cut many years ago. Over the past five years, free cash flow from operations has totaled $45 billion, a respectable sum, but over the same period, the business has distributed $44 billion to investors via dividends, indicating capital spending (around $7 billion per annum). And acquisitions have been funded entirely with debt.

The red flags were on the wall for a while.

As the business tries to divest assets to clean up its balance sheet, its complexity is now becoming all too clear. Asset sales are taking too long and not raising enough cash to make a meaningful dent in the company's debt mountain.

Overall, this is yet another case study to investors of how dangerous debt can be, even for those companies that may seem to be too big to fail.

Sister Mary Williams SCC

Thank you for coming to visit my blog.

I'd like to introduce you to some of the most wonderful people God ever created.

I'll share a short story with you about each person that best illustrates who they are and why they made such a lasting impact on my life.

=====

Sister Mary Williams, SCC

My 8th. Grade teacher at St. Paul's Grade School, Reading, PA was a teacher who loved me, encouraged me, and above all else prayed for me.

It was the first time I'd ever met someone who expected the best from me and yet allowed me to discover what my very best could become without ever basing her acceptance of me on my performance.

Her kind, quiet, and Godly way with me was so liberating that it took me much further than I'd ever dreamed possible.

In the fall of 1960,the Diocese of Allentown announced they were holding a Forensics Competition among all 150 schools within the diocese. Sister Williams said she'd like to appoint me as our schools ambassador to the Public Speaking event of the year. My assignment would be to memorize and deliver, Patrick Henry's speech, Give Me Liberty or Give Me Death, word for word before all 150 schools. Not having any idea what it would take to accomplish the task -- they signed me up as St. Paul's  ambassador.

Sister Mary Williams worked with me throughout the school year to iron out all the kinks in my speech. The big Saturday morning finally arrived in the spring of 1961 and the high school auditorium was packed full of students. I'm thinking there's no way; these kids will bury me and believe me they tried. Parents came dressed to the 9's, some of the young guys were dressed in 3 piece suits, and the young ladies were wearing their best school uniforms.

I'm wearing a thread bare jacket, a simple tie and shiny pants my Mother ironed over and over again. My parents didn't come to the event, in fact no one from my family showed up. It was me, Sister Mary Williams and her prayers.

Everyone had to speak 3 times. We were split up into classrooms with lots of teachers etc. as judges. The 5  finalists were announced and we gave our speech before a packed high school auditorium.

When the winners were announced, our school's presentation won the Grand Champion First Place trophy among all 150 schools.

I'd never dreamed of winning anything yet alone taking home Grand Champion of the entire event and First Place for our school.  

Thank you, Sister Mary Williams.

The trophy for World's most Wonderful Teacher will always belong to Sister Mary Williams.