Benefits Products & Services

Long-term care—A clear need,
but how to deliver it?

Multi-life policies supplant true group; the coverage need that won't go away

By Thomas A. McCoy, CLU

Employee benefits plans are made up mostly of products that protect employees from financial risks involving their health and their retirement. Ironically, long-term care insurance—which provides significant security on both of these fronts—has had limited penetration in the employer market.

The success that the product has enjoyed has been mostly in the individual market, although there, too, a strong case can be made that current sales have barely scratched the surface of meeting existing needs. Jesse Slome, executive director of the American Association of Long Term Care Insurance, says that the long-term care market has changed dramatically in the last five years and that more change is on the way.

"The past really is irrelevant," says Slome. "There are people who wish this was 2007, but it's not. It's a very different world, a different economy and a different long-term care insurance industry and marketplace. What's important is what's happening today, and what is likely to happen in the future."

Slome says record low interest rates have been a major change agent, pressuring long-term care insurers to increase premiums and reserves. Also, most insurers that were selling true group business have left the market; only Genworth continues to sell true group long-term care. "As the sole remaining player, Genworth gets to be highly selective as to the clients they'll serve and who they'll accept," Slome notes.

Other companies still offer long-term care through benefit plans, but Slome explains that they have done so by "shifting to 'multi-life' policies, which are individual policies offering a group discount and some underwriting concessions."

Deb Newman, CLU, ChFC, LTCP, who heads Newman Long Term Care based in Minneapolis, uses multi-life policies for group business, but the majority of her firm's business is in the individual market. Like other long-term care specialists, Newman partners with property/casualty agents, financial planners and others whose clients are seeking long-term care coverage.

"We're still bullish on the long-term care market," says Newman. "Our new business premiums are up 40% this year." She sees the carrier withdrawals from the market as a somewhat temporary phenomenon.

"We went through this same cycle with disability about 25 years ago," Newman says. "It used to be that every life company would have disability policies. Then they started providing really generous disability benefits, and the claims experience deteriorated, so some insurers got out of the market. Eventually the disability market stabilized, and today there are about 10 key companies with products that are somewhat similar. I think that's what's going on today in the long-term care market."

Newman adds that several major companies continue to provide individual long-term care coverage, including John Hancock, Genworth, Transamerica, Mutual of Omaha, Northwestern Mutual and State Farm.

With long-term care insurance, unlike traditional insurance products delivered via benefit plans or individually, outside influences—notably from government and media sources—can play a major role in promoting the product. "More and more, I'm seeing positive messages on long-term care coming from outside our industry," says Newman. One example she cites is a program funded by 26 individual states called Own Your Own Future.

"Minnesota was the most recent state to roll out the program, in October. To kick it off, the governor sent a letter to one million Minnesotans between the ages of 40 and 65. The message was: 'Long-term care is probably going to impact your family. What's your plan?' The letter points out that Medicare doesn't cover it, and Medicaid is only for people who are impoverished."

Newman also mentions a syndicated column written last August by Suze Orman, personal finance television personality and best-selling author, whom Newman describes, with tongue in cheek, as "not always a fan of insurance." In the column, Newman says, Orman shares personal situations where she wishes long-term care insurance had been purchased for two different generations of her family.

Many states provide a tax credit or deductions for long-term care premiums. Federal tax law permits individuals to deduct long-term care insurance premiums as a medical expense—subject to the medical expense threshold of 7.5% of income. (The amount gradually rises from $350 for persons below age 40 up to $4,370 for those age 70 and above.)

Still, whether delivered via benefit plans or individually, long-term care insurance can be difficult to sell because of its cost. The pertinent obstacle for many consumers considering the coverage is: What if I never use it?

In response, some insurers are packaging individual long-term care insurance with life insurance and annuity products. These hybrid products enable buyers to tap into the life or annuity benefits to pay for long-term care expenses if needed. Some of these products have sold well.

Heart of the matter

Jesse Slome at the American Association of Long Term Care Insurance looks at change in the long-term care market as much broader than individual product repackaging. He knows that a means must be found to pay for everyday living assistance for the elderly—those expenses that are not covered by Medicare. Consumers know this too.

"Most long-term care insurance sales are made because the consumer brings it up," says Slome. He hears from some of these consumers every day. "Eighteen months ago we were getting 18,000 to 20,000 unique visitors to our Web site per month—mostly consumers. Now we're getting 50,000 a month."

It's clear that long-term care insurance is a product with huge potential. But Slome sees it as only part of the solution to the nation's problem of financing long-term care. What's needed, he says, is a national discussion of what both the public and private sectors should provide. So far, he says, "We're not close to doing that." Perspectives from other countries will be helpful, he believes, noting that Germany, Japan, England and Norway all have public programs, along with private supplements, to help finance non-medical care for the elderly.

"Japan, especially, has been forced to address long-term care issues because it has such a high percentage of elderly people," says Slome.

Up to now, the U.S. government's most prominent attempt to address long-term care financing, outside of Medicaid, has been the CLASS Act (Community Living Assistance Services and Support). It was passed as part of the Affordable Care Act, signed up 270,000 policyholders, and then aborted when the government concluded that the costs to fund it were too high. With that history, and the enormous budget challenges facing the United States in the coming years, is it possible for the federal government to deal constructively with the issue of long-term care financing?

"It has to," says Slome. "The states don't have the ability to print money. Medicaid is the largest component of most state budgets, and the biggest part of that is long-term care for the elderly. At some point the federal government won't be able to keep throwing money at the states. The states won't be able to keep raising taxes. We're going to have what I call a 'generational benefits war.'

"That's because if a state has only 'X' number of dollars, it will have to allocate it either to education or to long-term care for the elderly," Slome explains. "The states are already realizing this problem, but change won't happen until there's a real crisis."

No matter how governments ultimately decide to deal with these issues on a macro level, agents and brokers today can provide their clients, one at a time, with a viable solution to their long-term care needs. One way to visualize the scope of those needs is to consider a question posed by Ken Dychtwald, a gerontologist and author, in an article that originally appeared in the October 2011 issue of Caring magazine.

Dychtwald asked, "Are we prepared to spend more years and dollars caring for our aging parents than for our children?"