Combing through our extensive continuing education series (if you haven’t, maybe you should), you might notice that a few areas of producer expertise warrant extra education. Among them is long-term care insurance (LTCI).
LTCI is facing a pivotal moment in history: With a series of market failures in its past, and only a dozen companies currently offering policies, long-term care funding as an insurance prospect certainly has its doubters. So, how did this industry segment reach this point? And what might a more robust LTCI market look like?
While we’re looking to provide some industry perspective, remember this is a little bit of market forecasting and isn’t advice of any legal or professional sort. In other words, be sure to do your own research and due diligence to abide by whatever rules govern you and your business.
LTCI basics and history
Long-term care got a foot in the insurance industry in the 1960s, with policies intended to cover the basics of a stay in an institutional facility. With that decade’s rise of programs intended to address the health risks of older seniors, long-term care insurance was a natural private-market fit. As health care changed and morphed, more seniors needed institutional care, care that is not covered by government care unless it is short-term and of a rehabilitative nature (Medicare) or you meet very low bars for income and assets (Medicaid). LTCI policies of yesteryear were fairly straightforward, trying to step in and give those looking for institutional care a way to pay for their care without spending their assets down to the poverty line.
LTCI policies seem fairly straightforward: When the policyholder is unable to do two or more activities of daily living on their own, like basic hygiene, toileting, getting dressed, or eating independently, the insurance policy will pay for their care. Unfortunately, a few factors made the long-term care market unstable:
- Worldwide, medical progress has increased lifespans.
- While some of those gains have been in healthy years, most are in health-challenged years.
- The rate of inflation is much, much higher in both medical and senior expenses, and long-term care is the intersection of both.
This confluence of factors has had difficult repercussions for LTCI insurers. The number of insurance carriers offering policies dwindled from hundreds to only a dozen. Those that have stayed in the market have had to reprice benefits multiple times, applying to states for approval to raise contractual rates, lower benefits, or both. The high failure rate of earlier LTC insurers has served as a cautionary tale for others exploring new territories in insurance with little or no prior underwriting data.
Americans’ long-term care needs
Most Americans will need long-term care – seven out of 10, in fact. While this idea is often used as a cudgel to scare people while they’re planning ahead, the reality is the study that developed that number encompassed a variety of care scenarios:
- In-home care or care with relatives
- Residential community care (non-institutional)
- Adult daycare
- Institutional care
According to the statistics on LongTermCare.gov, women will typically need more care than men (3.7 years compared to 2.2 years, on average). Most people who need care will get by on informal caregivers for most of the time they need care – only 37 percent of those older than 65 have historically used nursing home care, and for an average of one year. But this is what makes the insurance piece hard to account for: While about a third of people older than 65 won’t need any kind of care, 20 percent of people older than 65 may need a combination of informal and institutional care for longer than five years.
But to really put the discussion on long-term care into perspective, let’s talk about cost.
Cost of care
If you or a loved one enters formal care – institutional, adult daycare, in-home health, etc., – you’ll encounter the hard costs of care. For a number of years now, the final word in tracking and tabbing these expenses across the nation has been Genworth Financial with their annual Cost of Care Survey. If you’ve got time, feel free to click around their site and get state-by-state data, accounting for historical inflation and even projecting costs into the future.
According to their 2020 Cost of Care Survey data, the average national cost of a year of care in a semi-private room at a nursing home was $93,075. For those who pay to have a skilled caregiver visit their home approximately 44 hours a week, the average annual cost is $53,768. And for those who use adult day care services, the annual cost is $19,240.
Even for those who receive informal care, while we often neglect the reality that unpaid caregiving is work, one source puts it this way: “income-related losses sustained by family caregivers ages 50 and older who leave the workforce to care for a parent are $303,880, on average, in lost income and benefits over a caregiver’s lifetime.” While the original source of that longitudinal study was published in 2011, what do you think are the odds the cost went down?
Where and how someone receives care are questions steeped in nuance, culture, family, and medical situations, but the universal issue here is that most of us will need some kind of care, and it isn’t inexpensive.
LTCI challenges in sales
So, why isn’t everyone lining up to buy long-term care insurance?
There are a lot of explanations for why we aren’t all clamoring for LTCI, and which make it difficult to want to grab a classic LTCI policy:
- It costs a lot
- Old policies were use-it-or-lose-it, and the stigma sticks around
- Some people assume that Medicaid will pay (incorrect for those who have substantive assets)
- You have to prequalify, meaning if you know you’ll need LTCI (for instance, if you’ve had cancer or a diagnosis of a chronic or degenerative illness), then you will not qualify
LTC insurers are now much fewer and further between, with those that remain in the industry facing more scrutiny to be sure they aren’t taking the undue risks that previous LTCI did. As we’ve covered elsewhere, some of the increased scrutiny includes heightened LTC CE requirements for producers, both initially and on an ongoing basis. Some states also have fairly exclusive LTCI marketplaces, where plans follow a standardized state rubric.
While heightened compliance requirements can mean scaling back the amount of LTCI an agent sells, don’t let it scare you into ruling out opportunities.
LTCI sales opportunities
LTCI takes more maintenance from a compliance standpoint, and many in the market are still a little sore over the underwriting mistakes of yesteryear. Still, one complaint in all markets is that middle-market insurance companies aren’t doing enough to make agents part of their risk management strategies (and, we’d warrant this isn’t too different from large firms). Instead of viewing agents and brokers as a team of overeager liabilities, being thorough in building a culture that respects the mandatory CE could put everyone on the same side of the table in doing what’s right for both the company and consumers.
The gender gap plays a role in insurance, with studies routinely saying women are underinsured. Women also disproportionately take on the caregiving burdens for a family, with women stepping in over brothers, fathers, and husbands to pick up caregiving responsibilities (at a tune of 3:1). This sounds like a challenge, and it is. But it’s also an opportunity. A conscientious producer who has their client’s interests at heart should be making the case that, if a client has a daughter or wife who may end up taking on informal long-term care duties, LTCI can help them shoulder that burden by giving them a monetary payback for the care they provide.
Agents and brokers can also help in another way. Many producers who are licensed to sell LTCI are licensed to sell other products, as well. By acting in more of an advisory role, producers can steer consumers toward products that fit their best interests. For some consumers, LTCI really will be that solution. For others, other policies like annuities with riders or permanent life insurance with LTC benefits may be a better option. Having producers who are licensed to sell these products and trained to help consumers figure out what is in their best interests can:
- Help consumers get protection at an affordable rate
- Protect insurers from risky underwriting
- Give insurance producers a wider range of products and a broader referral base
Another opportunity we see for LTCI in the future is to be more flexible. The pandemic was hell on nursing homes, and understandably has Americans questioning the future of institutional living for the elder population. Successful LTC insurers may consider leaning into that, expanding on the concept of adult day centers, and otherwise accommodating the 90 percent of us who hope to age in place. Being reactive to the way someone wants to receive care, and doing better at marketing the benefits for caregivers and receivers alike can make LTCI more palatable across cultures and demographics.
While long-term care continues to be a soft ping-pong issue of politics, there are also tech resources that may make LTCI more affordable, such as wearable technology that can take biometric data or send alerts for fall risks. The internet of things may also help seniors age in place longer, with automatic pill dispensers and telehealth on the rise.
Whether LTCI wades bravely into the future or cedes the cost of long-term care to other pieces of infrastructure remains to be seen. But one thing is certain: The conversation about LTC is only going to get louder as the U.S. population trends toward gray.
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