With the little attention that has been paid to long term care in the past, why has this suddenly become a hot issue? Demographics is at the heart of the answer.
By Phil Zinkewicz
With the little attention that has been paid to long term care in the past, why has this suddenly become a hot issue? Demographics is at the heart of the answer.
Independent insurance agents are always looking for new markets to tap, markets from which they can generate new sources of income while at the same time providing value-added service to their existing clients. This is not always easy to achieve; however, it is not impossible. All it requires is that the agent recognize a market need and then be willing to learn about that market and the products that are available to satisfy the need. One example is the long term care insurance industry. Any agent who sells health insurance products or does estate planning should be boning up on long term care issues and what insurance companies in the marketplace are doing in the area.
Considering the potential market that exists in long term care, it is one that has received relatively little attention among insurance companies and agents. The reasons are myriad. Insurance companies have tended to be comfortable with the products that are already acceptable and long term care does require a new selling approach, especially among young people who can't conceive of someday being disabled to the point where they will be unable to take care of themselves. Agents have been resistant because in order to sell a long term care product, they themselves would have to learn about issues that relate to long term care, itself. In addition, problems exist at the legislative level. Right now, Citizens for Long-term Care, an unprecedented coalition of long term care providers, consumers, insurers and workers is attempting to put together, with the help of Congress, a reform of the nation's long term care financing system.
With the little attention that has been paid to long term care in the past, why has this suddenly become a hot issue? Demographics is at the heart of the answer. Consider that, as recently as 15 years ago, one of the major issues being discussed at political debates and business forums was child care. Remember that, a decade earlier, women, as part of the baby boom generation, had entered the workforce with abandon. During that time, women and their spouses in their 20s or early 30s chose to put off starting families until they firmed up their career paths. But in the mid-'80s, that began to change. With their careers already established, baby boomers began to turn their attention to starting families. The result was a growing need for child care facilities--so that parents could continue on with their careers uninterrupted.
There is a shift occurring now, however. Those same baby boomers are approaching their 50s and the emphasis has shifted from child care to older care, for good reasons. First, they are in a sort of sandwich situation, a kind of double decker sandwich. On the one hand they have to be concerned about taking care of their children who are in their teens, with the prospect of college and its costs looming. On the other hand, they have their parents to worry about, parents who may very soon be in need of long term care. Those responsibilities represent a tremendous financial strain. Second, they themselves are at a point where they have to be thinking about long term care for their own later years.
One company has recognized this scenario and has announced a bold move to enter the long term care market aggressively. The MassMutual Financial Group has teamed up with the United States Chamber of Commerce to make long term care insurance available to thousands of small business owners, their employees and families across the nation at a discounted premium. Under the two-year program, Massachusetts Mutual Life Insurance Co. (MassMutual) will be the exclusive provider of discounted long term care insurance to the Chamber's 130,000 member companies. The policy, known as SignatureCare, will be tax qualified and discounts can range up to 15%--one of the largest premium reductions available in the industry.
According to Pam Delaney, second vice president for long term care for MassMutual, the policy being offered to U.S. Chamber of Commerce members is guaranteed renewable and noncancellable, albeit with no fixed rate--so prices could increase during the term of the policy. There are two inflation options available, one at 5% simple and the other at 5% compounded. Riders also are available; in fact, they are required by law with tax qualified policies, which provide that if an insured lapses his/her policy (usually because it has become unaffordable), that insured will get a lump sum payment equal to the premiums already paid.
That last element of the total picture is extremely important. What happens, for example, if a person purchases a long term care policy at age 50 and then finds at age 65 or 70 that he/she can no long afford it? If that person is forced to let the policy lapse, at least the money put into it to date will be returned. Still, that would mean that the insured would be left without the protection originally desired, with the time approaching when it would be most needed.
MassMutual has addressed that situation as well, according to Delaney. When purchasing the policy, buyers have the option of making the payments on a 10- or 20-year plan for, of course, a higher premium. At the end of the time period chosen, the policy would be completely paid up. No further payments will be required later in life and that person will have the security of knowing that the long term coverage will always be there. The benefits here are obvious. During an insured's working years, it is more likely that he/she can afford to pay a higher premium. However, in retirement years when some people are forced to live on a fixed income--perhaps only Social Security--it is likely that payments will be less affordable.
MassMutual and the Chamber of Commerce believe that there is a market out there for this type of coverage. For example, the U.S. Chamber of Commerce conducted a study of 300 of its member companies, which showed that 76% of respondents have not planned for the expense of long term care in their current financial planning. Only one in five has included the cost of long term care in his/her financial planning. One in eight respondents (13%) currently owns long term care insurance. Nearly twice as many respondents 60 years or older currently own a long term care insurance policy (21%) compared to those younger than 60 (11%), according to the survey.
Other findings include: two out of three respondents (66%) know someone who requires assistance with daily living needs; four out of ten respondents (42%) have taken time off during the workweek to attend to the daily living needs of a relative or friend; and four out of ten respondents (39%) regard long term care as "very much a concern" and an additional 24% see the cost as "a significant concern."
"As the survey results clearly demonstrate, long term care is already taking its toll on the productivity of the American workforce," says Delaney. "The impact on U.S. companies will only increase as baby boomers continue to age and life expectancies increase."
Adds Robert J. O'Connell, chairman, president and chief executive officer of MassMutual: "When small business owners or employees are faced with the need to provide long term care, the last thing they want to worry about is how to pay for it. By offering our SignatureCare at a discounted rate, MassMutual helps bring peace of mind to small business owners and their families."
Clearly, then MassMutual has identified what it perceives as a potentially profitable market and has demonstrated its willingness to devise a product that can satisfy that market. While it is true that the program being offered will be marketed only via MassMutual agents, independent producers should realize that there are other long term care products out there and that there is a need for more of those products. "Agents who are doing financial planning for their clients are leaving an awful hole if they don't include long term health care as an important element," says Delaney.
Legislators are catching up to the long term care issue as well. At a recent briefing on Capitol Hill, Sen. David Durenberger (R-MN), who chairs the Citizens For Long-term Care Coalition, said: "As a critical component of our national economic security system, we cannot continue to ignore the importance of long term care financial reform. To do so, threatens the financial and retirement security of every American." He said that the absence of a national long term care financing policy leaves a "gaping hole" in the nation's safety net. "Only a small number of Americans have private long term care insurance, while the rest must pay out of pocket, often impoverishing themselves before gaining access to Medicaid."
The template being offered to Congress by the coalition includes a mix of private and social insurance solutions, including a reformed role for Medicare in meeting the needs of those with chronic illness or disability. "There needs to be a strong emphasis on the purchase of private long term care insurance, especially by younger workers, and employers need to be encouraged to play a bigger role in educating employees and offering it as a benefit.
"In addition," Durenberger said, "there must be a uniform, national system of assessment that will help consumers not only learn about long term care, but understand what their needs are and how to arrange for finding the help they need when they need it."
Therefore, from a market standpoint and from a value-added standpoint, opportunities appear ripe for insurance companies and agents to become involved now. *