An unexpected journey
Why LTCI makes sense and how to make it work
Long-term care insurance has been a difficult product to sell for some time, and recent events have called its marketability further into question. With several prominent insurers, including Prudential and MetLife, announcing decisions to stop signing new LTCI policies, and with the federal government’s decision last year to halt implementation of its own health care reform-based voluntary program—the CLASS Act—the future for the entire issue of long-term care insurance—at first glance—looks grim.
After a second look, though, there are glimmers of promise, and a reason to believe LTCI—especially voluntary LTCi—will present real opportunities for sales, while offering real hope for millions of Americans who might need the protection it provides or the peace of mind it affords. In fact, as a matter of simple arithmetic, it makes sense for agents and brokers to keep the long-term care benefit in play.
Consider this: Out of a population of more than 300 million, roughly 8 million have LTCI right now. The potential for new customers is simply a mathematical fact, particularly when considering the reality that Medicaid-funded long-term care is unsustainable. And keep in mind the U.S. population is aging dramatically, and is set to pick up the aging pace further in the next few years thanks to more than 78 million baby boomers. As a growing number of individuals confront the need for long-term care, and as more of their adult children begin paying for it, the perceived value and pressing importance of insurance will automatically increase.
How critical LTCI really is
There’s another reason why there’s hope for LTCI as a voluntary benefit in particular, and it has less to do with numbers and more to do with strategy and emotion. The passage of the Patient Protection and Affordable Care Act and the Supreme Court’s decision to uphold it have left many employers in the position of having to give their workers a great deal of bad news on the benefits front. In many cases, employees are hearing their core health benefits will be reduced, or their payments increased. Voluntary benefits, including LTCI, can play an important role in providing a positive message for employers to present to their work force when negative information generally dominates. By showing they’re actively searching for creative solutions through a variety of voluntary benefit offerings, businesses can help offset some of the pain.
Of course, to make voluntary LTCI happen, agents and brokers will need to clearly explain its importance to employers, and subsequently they’ll have to help educate employees in order to encourage enrollment. This sales process requires time, and thorough follow-up. Given the level of commitment involved, many agents are reluctant to go down the long and winding long-term care path, but with millions of potential new customers waiting at the end, they should take the long-term view and consider the journey.
Aside from cost—a major concern—the greatest barrier to LTCI sales is information—or rather, misinformation. Many individuals, for instance, believe Medicare covers the cost of long-term care after age 65. In fact, Medicare only pays for nursing home care for 100 days, and then the patient is on his or her own. To educate employers and employees about these facts, and about the overall value of voluntary LTCI, agents must get the word out, and to do this they can turn to partners such as pProfessional employer organizations for help. PEOs administer benefits and payroll, and offer legal and employee assistance programs, and agents who offer insurance products in tandem with the services of a PEO can help boost voluntary product sales.
The truth is that long-term care can bankrupt families, driving patients into Medicaid or leaving their adult children in critical financial condition. LTCI therefore makes sense not only from a health care perspective, but from a financial planning perspective, too. Making employers and their employees understand this is key to LTCI success.
Here are five points agents need to understand about long-term care and the voluntary LTCI benefit:
Long-term care is a general term that refers to services and assistance for individuals who have impairment in at least two of the defined activities of daily living: eating, bathing, grooming, toileting, transfer or ambulation. Services can be provided in a facility or in the home setting, and while Medicare and other insurance products cover immediate medical expenses, such as a limited hospital stay or doctor’s visit, long-term care related to chronic conditions is not covered. Only long-term care insurance—and Medicaid—will pay for the types of services associated with chronic medical problems that interfere with daily living, and these services range from the basic, such as assistance with eating and bathing, to the comprehensive, including skilled therapy and nursing care. Long-term care can be provided over the course of months or even years.
Each year, an estimated 11 million U.S. adults need some kind of long-term care, and according to the U.S. Department of Health and Human Services, at least 70 percent of those over age 65 will need services at some point. Paying for these services, which are expensive, is accomplished in different ways: Some use out of pocket dollars, while others rely on Medicaid or insurance. According to the Congressional Budget Office, about one-third of LTC expenses are covered out of pocket, 60 percent by Medicaid, and only four percent by private insurance policies.
Simply put, wealthy Americans can afford to pay for daily care, while those who have few assets and who qualify for Medicaid can rely on the government. But what about the majority who lie in between these extremes? Without proper financial planning in the form of long-term care insurance, many are forced to spend their way onto Medicaid, using all of their assets to pay for care out of pocket until they have nothing left. Others are turning to family members for support—and many of those family members are barely able to afford the burden.
LTCi is clearly the solution, and agents and brokers should consistently position it this way. Of course, a variety of benefit levels and price points are offered, and this flexibility makes the product more appealing to a wider audience – while also making it useful as a voluntary offering that fits in a typical workplace, which is defined by different ages and needs. Ultimately, driving the number of private policies above the current four percent should be a concrete and consistent goal for those in the insurance business, and an equally concrete goal for the nation as a whole.
2) Why LTC insurance matters
Widely available statistics demonstrate the growing use of long-term care services and the increasing associated costs. Any effort to inform and educate employers and individuals about the value of LTCI should take full advantage of the facts.
One of the most widely publicized statistics comes from AARP, which, like HHS, indicates there’s a near 70 percent probability that individuals over age 65 will eventually need long-term care. HHS also notes that more than 40 percent of those who need LTCI will need full-time care in a nursing home setting. Another AARP talking point emphasizes the impact that long-term care can have on families: 10 percent of family caregivers who are employed move from full-time to part-time employment because of their responsibilities. Since many individuals lack LTCi and cannot pay for full-time care out of pocket, they turn to family members for help. As a result, it’s not only impaired individuals who are affected by the decision to purchase or not purchase LTCi—it is the whole family. Agents should keep in mind that employers or employees are not only targets of information and education, they are conduits as well. In other words, if individual employees are not ready to purchase LTCi, they may encourage their parents to do so.
While the likelihood is higher that those over 65 will need LTCI, the reality is that the need can exist at any age. There is less pressure on younger consumers to purchase insurance for a potential need that seems far away, but the need is there, and it’s important to mention.
Equally important to mention in order to emphasize the LTCi need is the cost of care. A study conducted by Genworth estimates the average cost of one year in a nursing home is more than $74,000, and with an average nursing home stay lasting over two years, the cost of a long-term care need could exceed $200,000. Other studies put the annual cost of private nursing home care at more than $87,000. According to the MetLife Mature Market Institute, assisted-living facilities average more than $41,000 per year, and a home health aide charges $21 per hour.
The data suggests that in a nation that is rapidly aging, the expense of long-term care is unsustainable, and that Medicaid cannot be the solution. Insurance, therefore, is a critical safety net that deserves another look.
Many experts suggest individuals should buy LTCI when they’re in their 50s. Clearly, the cost of insurance will be higher with age, and buying coverage early enough is important to keep the cost down. Unfortunately, because the market is still small, insurers have in many cases raised their rates for policyholders, making a once-affordable policy more expensive than anticipated. Confronting the issue of policy cost, and understanding who is buying LTCI and why is critical for a successful sale.
Today, many of those buying individual LTCI policies are looking at hybrids that combine life insurance and long-term care or long-term care and an annuity. Qualifying for these policies is easier, and in relative terms the price can be better. These policies also appeal to consumers because they offer a guaranteed payout to the individual or heirs regardless of whether the long-term care benefit is used.
When marketing long-term care insurance as a voluntary benefit, it’s important to understand the concerns and needs of potential employer customers and their employees. The fact that more consumers are turning to combined products suggests two important issues: first, cost is clearly important, and LTCI policies can be expensive. Lower-cost options with lower benefits levels should be explored. Second, the value of the stand-alone LTCI product is still not understood, and so employees and employers need to be educated, as discussed earlier. Consumers have come to see the value in life insurance, but still don’t understand how catastrophically expensive long-term care can be for themselves and their loved ones.
The audience for voluntary benefits in general is another key point that agents should review. Today, many small and medium-sized companies are increasingly looking to voluntary benefits as they struggle to provide paid health benefits to their employees. A study by Colonial Life suggests that small businesses represent the best new market for voluntary products, with 43 percent of those surveyed expressing an interest in voluntary programs.
4) The impact of health reform
The Community Living Assistance Services and Support Act, or CLASS Act, was enacted as part of the ACA in 2010. Lawmakers drafted the CLASS Act to provide a voluntary LTCI program workers could pay for through payroll deductions. As part of the initiative, the U.S. Department of Health and Human Services was required to conduct an assessment of the program to determine if it would be financially sustainable. After this review, the department declared the CLASS Act unworkable, and ended the program before it was implemented.
While the end of the CLASS Act means private insurers will not face a government-sponsored competitor at this time, it also suggests that voluntary LTCI faces financial challenges in the private sphere as well. In addition, had the CLASS Act lived on, agents could use the government program as an illustration of the importance of long-term care, and could compare their offerings to the government’s program.
Ultimately, the demise of the government’s voluntary long-term care insurance program should be a clarion call for agents and brokers to step up promotion of their own voluntary offerings in order to fill the void. Some awareness of and interest in voluntary LTCI is out there, and building more of it should be a priority. In addition, because the PPACA has led to higher health insurance costs for some employers, a voluntary product for long-term care could be a welcome addition to the benefits menu.
5) Making it happen
Long-term care insurance is certainly a product that falls outside of the comfort zone—for many agents selling it, and for prospective buyers. With higher price points, rates that can be subject to increases, and a longer sales time, LTCI presents a challenge for agents and brokers. For prospective buyers, thinking about the possibility of a chronic illness or injury can be unpleasant, and easy to put off until later.
Placing the issue on the front burner requires a concerted education and awareness effort. By targeting small employers and mid-sized companies searching for new voluntary benefit offerings, agents can make the case for LTCI. Emphasizing the many available statistics regarding the cost of long-term care and the relative likelihood of needing it’s critical. Once an employer begins offering the voluntary insurance product, outreach to employees is equally critical.
Since smaller organizations are a growing target for voluntary programs, and since these organizations often lack an internal HR department, it will be up to the agent to push the communications envelope – through e-mail, notices and employee meetings. As mentioned, PEOs often carry out this exact function, serving as the outsourced HR department for companies of all sizes.
Agents pursuing voluntary LTCI clearly face a challenge, but by looking at the larger picture and future trends, the potential rewards come into focus.
By Jay Starkman and Dorthy Miraglia from the November 2012 issue of Benefits Selling Magazine • Jay Starkman is the founder and CEO of Engage PEO. Dorothy Miraglia is the vice president of Engage Insurance Agency.