Welcome And Guest Introduction

SPEAKER_00 0:01

Welcome to the Chalk Talk Gym Podcast, where we explore insights into health care that help uncover new opportunities for growth and success. I'm your host, Jim Jordan. Today I'm joined by Lily DeRook School. She's the co-founder and CEO of Waterlily, a platform built on predictive long-term care risk. Lily was on an aerospace track working at NASA and started college at 14. That changed when her family spent two and a half years caring for her aunt with terminal cancer, an experience that nearly bankrupted them financially and rationally and relationally. She pivoted to genetics and AI at Berkeley and now uses half a billion data points to forecast when care will hit, how long it will last, and what it will cost. We get into why more than half of Americans over 65 will face this and why fewer than 10% will plan for it. And how Medicare myths keep families frozen until it's too late. So Lily, tell me in the audience a little bit more about your journey.

SPEAKER_01 1:06

So I'm Lily. I'm the co-founder and CEO of the company Water Lily, where we focus on long-term care, which I'll dive into. It wasn't my initial ambition to go into long-term care as a kid. If anything, my initial ambition was actually an aerospace. So I built a lot of my background from 12 to 16, doing some work with NASA, went to college early at 14 for it, and we navigated a long-term care event in my family when I was 16. My aunt was diagnosed with terminal stage colon cancer. And as a result of chemotherapy, her becoming more frail. Many of us might know this that she just needed help with her daily needs, being too frail to get in and out of bed, to take a shower by herself, needing help with eating, things that we might be more familiar with our grandparents or our aging parents right now. And so we navigated two and a half years of daily long-term care needs for her. And it was really devastating for us. We financially nearly became bankrupt, just paying anything and everything for her care. Once we realized traditional health insurance wasn't going to cover the care. And two is it did bankrupt our relationships. So without any form of a plan in place, reactively taking care of her, trying to make the best decisions for her, we've come to realize how broken specifically long-term care as an industry is. And so I pivoted my technical background from Berkeley to genetics and AI, led product and engineering at multiple companies before realizing no one was solving the problem in a way that I thought it could be. And so I founded Waterlily with a core purpose of helping families understand and prepare for better outcomes around long-term care.

SPEAKER_00 2:41

So what's your business model associated with that? How do you is it that you provide advisory services or what is it that you do?

SPEAKER_01 2:48

We provide our software. So we're software as a service that financial professionals and care professionals use so that they can help guide families through their predicted long-term care needs and aligning that to their care preferences and their financial needs as well.

SPEAKER_00 3:04

Aaron Powell So you obviously have a data background. So the software has some sort of sense of where each disease state is going and what the average trend is to give people perspective.

How Waterlily Predicts Care Needs

SPEAKER_01 3:15

Our leading and our understanding of the morbidity of long-term care, that is correct. We predict for what is your likelihood of having the event, you personally, based on half a billion data points of families that we've been following for several decades. And so for you, James, we would be able to predict, okay, what's your likelihood of having long-term care need? It might be 78%. I'm just giving an example. Your long-term care event will start at age 87, most likely, based on other James in our kind of database following them. And we think it'll be about 4.5 years of care, starting with about 30 hours of care per week, ending with about 68 hours of care per week. And based on your zip code cost of care resources in your area and healthcare inflation, your future long-term care cost will be$1.5 million by the time you need care at age 87. Now, let's walk through what we predict you're going to choose what care resources, what care environments you're going to choose from early care to later care needs, how that affects cost, and see if you have any insurance, or if you're trying to evaluate insurance, or you're trying to evaluate certain accounts that you have or assets that you have to see if you have enough to pay for long-term care.

SPEAKER_00 4:20

Where does your organization fit in the continuum of healthcare in general? Are you in the consumer retail side or are you working with payers and providers?

SPEAKER_01 4:31

We work with the payers and providers within long-term care. Usually the long-term care conversation is brought up or should be brought up by financial advisors, which is unintuitive because you think, oh, they just manage my money and they help to make better returns on the market, which is not true. As a fiduciary, the fiduciaries themselves also have to address risk management. And one of the biggest risks in retirements is actually long-term care. And so they're supposed to have a long-term care conversation with you about the risk and how you're trying to cover that risk, whether it's insurance or through your own assets. Our software is provided directly to them so that they could serve their clients better on this topic and feel more confident. But similarly, we also work with carriers, long-term care insurance carriers, on essentially bringing their new products to market, having better fiduciary education around it, building more trust within that ecosystem just because of a lot that's happened. And two is within the kind of traditional provider sense, where our software is also used by the largest CCRC in the Midwest, one of the largest, where they use our software as a part of the initial consultation with families that are thinking about going into a continuous care retirement community and understanding what are my future needs going to look like? And does this community have a plan? Whether it's a plan A, we're going to cover your continuum of care under this cost model, or it is a la carte, you know, as you have care needs in our system, here's how much it's going to cost. And let's plan out, you know, let's do asset planning. Do you have enough to try to cover this, et cetera? So both kind of the traditional sense of kind of healthcare providers that focus on long-term care, as well as your most consumers don't understand, like also the wealth management, the life insurance space also are our customers.

SPEAKER_00 6:12

So I imagine I'm making this number up, but the top 20, 25% of our economy probably has an awareness to even ask these questions. What so what's that profile look like in America right now?

SPEAKER_01 6:25

Depending on what statistic you look at, less than 10% of individuals over the age of 55 have some form of long-term care plan slash coverage on this topic. That's a vast minority in this case. And it makes sense because majority of wealth advisors do not bring up the long-term care topic. They wait for their client to bring up long-term care to them. And then for the families that go to retirement communities, oftentimes they only go to try to evaluate it for themselves after they've gone through a long-term care event with an aging parent specifically. And so that is still a minority of cases because on average, every single household in the US is going to go through a long-term care event. So it's interesting that you said 25%, 56%, over half of the individuals over the age of 65 is going to go through some form of a serious long-term care event. So whether it's in that house, it's our parents or it's us, it's roughly when you think about it, like a quarter of us kind of come up with that like awareness. And even then, there's not very clear online resources about where do you even go for this? Can I even talk to my primary care physician, doctor about this? Like many do these primary care doctors also have limitations in terms of their time and their ability to redirect them to, they don't know wealth advisors. They also, when they redirect them to a retirement community, that's also there's also not good infrastructure there. So oftentimes I think a lot of families come to dead ends on this topic.

SPEAKER_00 7:48

What is the state of long-term insurance today?

Insurance Options And Self-Funding Reality

SPEAKER_01 7:52

This is a fantastic question, which is like, what is the state of solutions, financial solutions in this space? With insurance, there's two that are really popular, well known. There's of course like the old traditional insurance, which is traditional long-term care insurance. You pay in a monthly premium. And if you go on claim, then you have a certain amount of benefits that you could tap into. And if you don't have the event, then all that you paid in premium, you just kind of lose. You don't really get it back. The new form of long-term care insurance are called asset-based hybrid policies, which is essentially it's a form of life insurance with a death benefit that you tap into first if you have a long-term care event, but you also have an additional pool of benefits called continuation of benefits. It's essentially a long-term care pool. So you pull into your death benefit first and then you pull into the additional pool of benefits for long-term care. And with that one, you put in a sing, oftentimes a single bucket of money or a limited time period of like 10 years, for example, in which you're putting in kind of a sizable several thousand dollars every 10 years, but then you don't have to pay anymore and you have now a permanent set of benefits. So if you don't have a long-term care event, you still get quite a bit of your money back through the death benefit that you can now pass off to your children. So a lot of folks call this type of policy it's not a use it or lose it. So that's what they appreciate. So it is a bucket of money. And it's hard to evaluate of just like, well, long-term care is in the future. How do I know I can't self-fund for this event? So most folks' default plan is I'm gonna be my own insurance company. I think I could save enough money for retirement. So if I have a long-term care event, I should have enough assets to pay for it. In terms of the quality of like solutions today, there is not good infrastructure for evaluating these various solutions. And so that's what Waterlily, that's why we exist, is because oftentimes talking about long-term care was about national averages. Like as a female, I'm going to have like three and a half years of long-term care needs. Let's base it on a nursing home. What's the cost of a nursing home into my area? Okay, that's what my cost is going to look like today. And that's where people stop. And so one is a solution, the policy, I'll kind of touch on insurance solutions. They're the credit rating, a majority of carers in this space and that exist on our platform that we give you access to are at a plus rating. So that means that the history, like for them as a carrier, oftentimes they're not hyper focused on long-term care. They're focused on other forms of insurance lines as well that also bring in money and they're pretty stable as an insurance company. Also, there are additional infrastructure within insurance where let's just say, worst case scenario, this insurance carrier goes out of business. Oftentimes they would sell that business or sell your contract that you've created to another carrier to take it on. So your terms shouldn't change in that sense, especially for asset-based hyperprox, it shouldn't. But for the traditional LTC products today, many individuals are going through what are called rate actions, meaning when a carrier has come to understand that the risk of the population that they've taken on is higher than they expected, then they go to the state regulators and say, like, hey, we need, we actually need more funds in order to make sure that we could take care of this population. And so that's where they do a broad rate action across all of their policy holders and either raise the premiums to keep your benefits, or they give you opportunities to keep the premium as is or lower the expected premium through different changes in your benefits. That makes it a much more manageable risk pool for them. The asset-based hyperproducts don't allow for that or like doesn't have that mechanism. The solutions today aren't evaluated clearly based on what your most likely long-term care need will look like. And so what we did instead is when we predict what your morbidity of your long-term care event is going to look like, we also simulate the legal and financial terms of these different. So if you have a particular insurance product and you're going through a rate action, we actually could model the different scenarios and actually see, well, based on the strictest limitation of like a daily limit or whatever else, like how will this policy play out if your predicted claim scenario happened as expected? Like what is a money in, money out sort of situation between those different options? If you're evaluating insurance for the first time, you don't actually have to understand, oh, it's asset-based or like traditional. We show you essentially, like, if you care about planning for this event, what is a money in, money out scenario? And if you're thinking about self-funding, we also similarly show you, well, what if you started today? Are you pulling from a brokerage account, an HSA, an IRA, the home? You could actually model those different mechanisms, model those different assets and see by the time you're age 87, James, how did your assets grow up into that point? And how much is it actually going to cover if you're future and ultimately care event? So we think that's a superior way to actually go about trying to evaluate the different financial solutions in this space by simply understanding which one's gonna have the biggest kind of bang for your buck.

SPEAKER_00 12:43

Life insurance that's been around for so long, they'll pay you out. You can get a rating on a company because they had plans. If I buy an insurance policy, pretty much it doesn't change. And sometimes they even get a dividend back, so it goes down. And so that's where people get a little afraid on in terms of this entire category. Having that education and that guidance is quite a gift.

SPEAKER_01 13:04

You know what's fascinating as well is when a lot of people regret buying the policy and I actually model for them, like, what if you just self-funded for this? You want to be your own insurance company. You're like, oh yeah, pull from a brokerage account, set aside$100,000, it's growing at 5%, and I have a 20% tax rate. When I pull it out by the time I do age 87, wherever their predicted age is, the policy, even under its increasing premiums, it's not uncommon that it still can outperform self-funding. But a lot of people feel really bad about it because they don't have a reference point. They don't have a reference point other than understanding premiums. I'm putting money in for some form of coverage. And I don't understand what that coverage is going to do for me. So of course that's gonna make people feel bad. It's either I'm paying in the same amount of money, which is my real money, or I'm now paying in more money in some sense. And I would like to pay in less money, but am I still solving my problem?

SPEAKER_00 13:55

What challenges are your organization facing?

SPEAKER_01 13:57

I think there is a lot of scar tissue in this space that has created a lot of lack of trust between carriers and financial professionals, for example. The carriers are the manufacturers of these insurance products, but the financial professional still has to evaluate these solutions. And oftentimes, because of the rate actions, that they don't fully understand the way it works and why it has come about, even if it made more sense still than even self-funding to actually go through those. Without that, they're just like, well, I told my clients they're paying this, and all of a sudden it's something different. And so there's a lack of trust there. And what's interesting is there's a lack of trust between the financial entities and the care entities themselves, like the insurance companies and like the retirement communities at times about, you know, who's gonna pay and how you paid and whatnot. So, and a lot of misinformation on this topic. A lot of, oh, well, if I am going through a rate action, that just means this entire space is totally unstable and I should never buy an insurance policy. Or because I'm going through a rate action, I was completely ripped off. And, you know, I regret making that decision, or I don't need insurance coverage because I have some assets. If I have enough for retirement, then I should be good on long-term care. Or more importantly, still the biggest, you know, misinformation is, oh, long-term care is going to be covered by Medicare. And there's still that pervading kind of assumption. So there's a lot of that.

SPEAKER_00 15:19

Do you want to educate our audience on what Medicare does and doesn't do today, just so everyone's grounded in that? Because I think that is very prevalent.

SPEAKER_01 15:27

So by default, when you turn like age 65, you have, unless, of course, you have like other mechanisms, like you essentially qualify for Medicaid, oftentimes like part A and part B, meaning hospital-based care and your primary care physician, essentially. Anything that sits outside of that, like prescriptions or additional like benefits that you might have gotten from health insurance, that's stuff that starts to sit within like part D and part C that you pay for, you know, out of pocket yourself, if you want that additional coverage, it's not meant to cover long-term care. Long-term care historically has always been intentionally designed outside of Medicare. And it has also been intentionally designed outside of traditional health insurance, you know, as well.

SPEAKER_00 16:06

Well, I also think that often people have to burn down their assets to even qualify for any state.

SPEAKER_01 16:12

If you want state support for long-term care, you're correct that you're asking to qualify for Medicaid. And Medicaid does cover like LTSS, assuming essentially your assets are below a certain level, which oftentimes means like you are bankrupt. And that is why you're able to qualify for Medicaid.

SPEAKER_00 16:30

Often leaves when you're married, perhaps your partner not having enough funding for themselves to continue, which is a real challenge.

SPEAKER_01 16:37

It's like low figures that the partner is able to hold on to in order for you to get access.

SPEAKER_00 16:43

So does your model also talk about Medicaid at all? Because that's unique in all states, right? Every state's slightly different. How do you keep track of all that?

SPEAKER_01 16:51

So we have not built out as much infrastructure around Medicaid. I think that's actually a really great financial solution. Where we're starting with is insurance, just because if you have the means, you have the highest leverage as well. And oftentimes you're more likely to have the means the younger you are. So if you're in your 40s or 50s, that's actually a really great time if you're doing retirement planning to start to think about long-term care and use the compounding effects as to like you can more likely afford it if you planned then and you don't have to go for the kind of Medicaid or the social welfare program of resources around long-term care as a result. So I guess kind of going back to your question, Medicaid is substantially more complex in its rules, and the rules change all the time, especially in light of different administrations and whatnot. And so I expect us to have financial projection around that probably in about a year and a half out from now or two years, if you give us the time to do that. And that's not true.

SPEAKER_00 17:49

Now, who are the resources that you use to stay current on this entire topic?

Medicare Myths And Medicaid Tradeoffs

SPEAKER_01 17:54

You talk to the people who are designing these systems and you hear the core, honestly, like it's coming from inside the boardrooms. Unfortunately, I think you're gonna come across a lot of resources that are generally helpful online. And for the average consumer, talking to an LTC specialist might be a really great way to kind of understand kind of high-level basics about the space. And they might also tell you about coverage in a really basic way, especially if they're not using our software. Same thing for wealth advisors, and that might be a great starting point. But our system is building out net new knowledge and infrastructure in a space that we learn from quietly all the professionals that share with us here are all the pain points across all my clients, here are all my pain points across my policy orders or in building out this new product. And we have to create for these businesses infrastructure that is educational and helps their end user, whether it's oftentimes the families, understand the services that they're being offered or the services that they have bought into and what that actually means and how they could best use it.

SPEAKER_00 18:56

So Do you have any long-term care or nursing home customers that is using your information to create models for their own financial health? Is anyone doing that yet?

SPEAKER_01 19:06

For their own financial, you mean the entities' financial health? Some of the conversations that we are having are from these retirement communities and facilities that come to us and they have these questions or they share with us our actuarial analysis on our infrastructure and resources we have maybe might satisfy regulatory requirements. But in terms of like us and how we have to operate as a commercial model, we have concerns. So that is actually a very common pain point that they share coming to us. We are not going to market to them. Right now, we're hyper focused specifically on the life insurance, wealth management space. But when these care providers come to us, we can take those on a case-by-case basis where we think that this is the right partner to do that sort of design work with. But yes, our system has been seen as a potentially interesting alternative to what they currently.

SPEAKER_00 19:56

Or even evidence for state rate changes. So I would imagine that would be a very interesting and compelling data set.

SPEAKER_01 20:03

Government's really interesting. When you kind of which I I'm sure that you've talked to your fair share of, you know, politicians, regulators, et cetera, where oftentimes I think that they are paralyzed by the sheer number, whether it's like the hundreds of billions, or whatever else, they're like, what am I supposed to do with that number? And it's hard for them to tangibly understand how all they know is like they're being thrown into big numbers all the time, everywhere. And they're just like, I don't know what to prioritize. I don't know what are going to be good solutions. And oftentimes those that create the public policy, you know, design or new tax design or whatever else, it's at least I will share on my side, it's we hesitate to actually go to the state, go to certain individuals there just because for us as a startup, as a kind of like a for-profit model where we use that margin to create more and more innovation and kind of create that cycle. The cycles in which you could build government contracts are it's, I guess investors are not optimistic about that particular model. And so it can't be what we primarily focus on, even though it might be your our biggest bang for a buck over five years or whatever else. And so it kind of just goes back to whoever wants to come inbound and talk to us and are intentional about engaging, we can do something there. But outside of that, I usually find that there's so many dead ends that you could actually hit from a policy perspective.

SPEAKER_00 21:25

So, what's the biggest lesson you've learned in your journey so far on this? Obviously, very different model than NASA.

SPEAKER_01 21:30

But the corporate and regulatory side is pervasive, I think. In any industry that you go to, the biggest thing that I've learned is generally as a principal, how important it is to kind of stick to my at least founding story of like, why did I found this business? It's to take care of these families. And whenever I go back to like, is it serving a family or is it not serving the family? That usually gets me to a pretty compelling solution that oftentimes other businesses that we work with have to listen to. Should we put these families first? Is it gonna actually work and for them and create the NPS that they're looking for, et cetera? From an industry perspective, the biggest thing I've learned is that as much as we have really big problems in this industry and a lack of support for such a small industry, and yet the need is so significant, I remain optimistic. I think it's really important to put your finger on how big the problem is, how every single household is going to go through a pretty serious more long-term care event and oftentimes not be able to financially afford it and may fall on Medicaid as a result. You have to start there, but you can't stay there. I think I'm very optimistic that technology could actually play a really significant part in it's like you should worry about that problem, but I think we underestimate how much we could actually fix those problems under different assumptions, under different models of innovation of just like, oh, we came up with a solution faster than we expected, or it's more efficient or it's more effective than we expected. And it really starts to solve that systematic problem. I do feel very optimistic that we're making really good headway in this space and creating some solutions that have scalable impact.

SPEAKER_00 23:06

What else would you like to share with the audience?

Lessons Learned And How To Get Help

SPEAKER_01 23:08

One is if you are an individual, like a consumer that is just trying to think about this topic, you're more than welcome to look at a lot of our free resources. And even if you need to talk about like long-term, you have no one else to go to, you're actually welcome to go to us and specifically me. So you actually can talk to me. I do run 80 to 90 hour work weeks, but I do spend about a three-hour slot on my Saturdays where you could actually book time with me directly and I could walk you through your results and help you better plan if you have no other infrastructure in place, like no other financial advisor or career professional that you could talk to. If you're talking to those individuals and you want to talk about long-term care, we are the leading edge of what we do. You can actually ask that professional, that care professional, that financial professional to probably use our system or get access to our system free of charge to you and get them to just do better long-term care planning for you and for other families involved. So spreading our message and what we do since we're a relatively new company. We're commercialized for just under two years now. We're making pretty good headway, but I think there's a lot more to be done and word of mouth to be aware of what we do.

SPEAKER_00 24:12

Well, thank you so much. Appreciate it.

SPEAKER_01 24:14

Thanks so much, James.

SPEAKER_00 24:18

Thanks for tuning in to the Chalk Talk Gym podcast. For resources, show notes, and ways to get in touch, visit us at Chalk TalkGym.