Alternatives to Long Term Care Insurance

Long term care insurance is disappearing, leaving only a few carriers willing to issue coverage. However, this does not need to spell disaster. There are legitimate alternatives consumers can turn to in order to feel more secure as they age. 

The long term care insurance market is coming upon a fork in the road. A product that seemed lucrative for insurance carriers in the early 1980s has become a money pit as Americans both live longer and experience more chronic illness. Consumers wonder which path will lead them to a comfortable and affordable long term nursing home while  carriers and producers  wonder if long term care insurance (LTCI) policies will be profitable or even feasible in the very near future. 

The insurance industry and the insured are finding out that the future is now. Only 12 LTC insurers remain in 2020, down from 100 in 2004.

This is a staggering statistic that should set off alarm bells not only for people who will need skilled nursing facilities or long term, at-home care as they age, but for the insurance industry as a whole.

Educating the masses about alternatives to long term care insurance

The first order of business for an agent is to educate. There are many misconceptions out there surrounding LTCI, including misconceptions about a long term care plan that could prove very costly down the road for a consumer. The agent can first dispel a few of the bigger myths, which can be a nice way to serve their customer base as well as create pathways to other products, which we will discuss later. 

Insurance agents and the carriers they partner with can both help dispel some myths related to paying for long term care. Only 11 percent of those 65-years and older have LTCI, and many consumers believe the following to be true. (Far from it.)

Americans’ long term care misconceptions

• No. The Affordable Care Act, aka ACA, aka Obamacare, won’t pay for “golden year” accomodations at assisted care facilities. Although, at one point, lawmakers were looking into this, specifically Ted Kennedy. See the CLASS Act, a doomed provision of the ACA.  
• No. Medicare won’t pay. It will only cover short stays after a heart attack or another not-so-fun hospitalization, and then you’re on your own. Let’s hope you own your home free and clear!
• No. Medicaid won’t pay. Well… it will if you only own a pair of socks. Medicaid will pay for long term care if you’re essentially living on the streets. Depending on the state you reside in, your income cannot exceed $2,000 as an individual or $3,000 as a married couple. The bar is pretty low here.

All this doom and gloom is hard to take for everyone, but don’t fret just yet. There are other options we’ll explore for dealing with aging and long term care. 

What can a carrier do?

Besides the education piece for clients, an insurance producer or insurance carrier can look at a few alternatives to LTCI. With more and more companies getting out of the business, some are getting creative in providing alternatives to a long term care policy, and that can be good for business. And when we say good for business, we mean revenue. 

As with many financial instruments, when one becomes obsolete or better alternatives arrive on the scene, opportunity knocks for whoever sells these instruments. Think of a mutual fund versus an index fund. Mutual funds come with high fees and may not produce the returns investors are seeking. Enter the higher-performing and low-fee index fund.

Alternatives to long term care insurance

Pressure is building on the insurance industry as LTCI collapses to find new ways to solve this major problem. Our society continues to get older and the population above 55 is exploding. A perfect storm is brewing: As the need for long term care healthcare insurance increases, the number of carriers willing to provide these policies is heading toward zero. A scary situation for the consumers who need the policies, and a lost opportunity for insurance producers who want to capture revenue from consumer demand. What’s a producer to do?

What is a long term care rider?

The long term care rider is an optional benefit a policyholder can add onto an annuity contract as well as a life insurance policy. This can assist in covering long term health insurance costs. 

This special rider is one option for consumers who may be scrambling for ways to fund a possible long term care stay in the future. According to the U.S. Department of Health and Human Services, seven out of 10 Americans who turn 65 years old today will need some type of long term care services in their lifetime. 

Before we dive into the rider portion, what is an annuity? Simply put, they are income payments an insurer guarantees the contract holder and are popular for retirement planning. The long term rider is an add on that can be extremely attractive to folks who are savvy enough to plan for the not-so-golden years when they are unable to care for themselves. It behooves an informed producer to educate consumers who may not know of this option. Sidenote: annuities and their regulation is a hot topic these days.

The rider is exactly what the word means. For an additional fee, it’s a provision added on to the contract that will meet financial needs of the annuity holder. Visualize a train hopper, but with a paid ticket. 

Some benefits to explain to consumers:

• Premiums won’t increase over time, unlike with long term care insurance
• Value can be passed onto heirs
• Policyholders are able to access funds for LTC immediately

What is a chronic illness rider?

This rider is similar to a long term care rider with one big caveat. Chronic is the keyword here. The condition must be permanent and certified by a doctor before this rider kicks in. 

A good example would be a condition, such as a stroke that causes brain impairment, from which the policyholder won’t recover even after therapy. This person qualifies for the chronic illness rider. A critical illness rider is also the same as chronic illness in that a person is unable to perform certain daily living activities resulting from anything be that cancer or a heart attack. Both are types of accelerated death benefit riders.

Alternatively, if the insured has a stroke and recovers and can function on their own, they wouldn’t qualify but instead they hopefully, and happily, can stay in their home.

Can the private sector alone solve the long term care planning problem?

Carriers, with creative thought and approach, are already beginning to assist in filling the gap left by disappearing long term care insurance with the aforementioned riders. However, there is much work to do. Producers can begin by educating themselves and their clients about the current landscape and available alternatives. Doing so will help consumers view their insurance agents as valuable assets in their quest for effective and safe long term care services.

Lawmakers are beginning to take notice of this problem as well. In 2019, Washington state lawmakers passed a long term care social-insurance program, which is funded by a small payroll tax. This first-of-its kind program could be catching on in other states but speed is generally not the government’s forte.

This leaves it up to carriers and the private sector to step up to the plate and producers to take a swing.

Please note that at AgentSync, we provide data-driven tech solutions to insurance businesses – while we hope you find our perspective useful and interesting, we aren’t providing legal or financial advice. Do your own research and due diligence to follow the guidelines and regulations of your jurisdiction.

AgentSync can assist carriers and producers focus less on spreadsheets and more on the wonderful customers they serve.