Benefits Products & Services

Finding a place for long term care

A forward-thinking addition to the benefits lineup

By Thomas A. McCoy, CLU

HR directors are focused on relentless health insurance rate increases, the impact of health care reform, and tighter internal budgets. Is this any time to talk to them about an addition to their benefits menu? What if the proposed addition is a complex and relatively expensive coverage—long term care insurance? Why would they consider it?

One answer, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), is "tax deductibility." A primary reason for "an uptick" in long term care sales, Slome says, is a rise in group purchases of the product by small businesses.

"At a certain size of small business, the premium for long term care insurance can be totally federal tax deductible. That's where we're seeing incredible growth in the business."

Slome continues, "You can decide which employees to include and not include, and whether you want spouses to be included. Long term care insurance
can be a complex product, but for property/casualty agencies that serve businesses with three or more employees, you don't have to become a long term care insurance expert. You can partner with one."

Slome notes that a group long term care plan is almost never switched to another provider because those covered under it are rated on an attained age basis. "And for those individuals covered under the group LTC policy, their coverage is portable. They can take it with them if they leave their employer," he adds.

November is the AALTCI's traditional Long Term Care Awareness month, and the association has ramped up its marketing thrust by producing a long term care planning guide that is running as an eight-page insert in the November issue of Kiplinger's Personal Finance magazine (see graphic at right). LTC insurers John Hancock, MetLife, Mutual of Omaha and Prudential are sponsoring the insert, which will reach at least 2 million individuals.

Slome sees evidence of growing public acceptance of long term care insurance, not only in sales figures but also in the way the discussion of the product has moved to a more advanced level. He compares LTC with 401(k) plans, which came into the market as an unproven retirement vehicle; they had to be thoroughly explained to a wary public. "Now people are comfortable reading about how to analyze their returns, diversify their portfolios, and structure their investments according to their age and risk appetite," he remarks.

"With long term care insurance, it's the same thing. People get that they have to do some long term care planning. What's being talked about now is 'when do you start it?' Since it's a product that is needed in retirement, people originally thought it should be purchased at retirement. Now people realize they may not be able qualify for it at retirement because of their health. That starts to drive the market down to people in their 50s."

Which is good news for agents and brokers who offer LTC as part of employee benefits plans.

A Prudential study published earlier this year points out that over the next 20 years the number of Americans age 65 and older will more than double; those who reach that age can expect to live an average of 20 more years; and roughly 70% of these Baby Boomers will need some form of long term care.

In other words, it's likely that close to 50 million seniors will either be glad they have long term care insurance or sorry they didn't buy it. The number of policies in force today is small by comparison. There are just over 10 million long term care policies on individuals of all ages in the U.S.—20% of the estimated number of Boomers alone who will need the coverage.

The Prudential study found that one factor that is likely to motivate purchase of the product is knowing someone who has required long term care—a parent, grandparent or friend. For those who have had this experience, 78% express either a high degree or moderate degree of concern about needing LTC insurance in the future—20 percentage points higher than those who did not know a person who needed long term care.

Perhaps this means that the generation immediately following the Boomers will be highly motivated buyers of LTC insurance, having learned from the prior generation.

Slome says another key to boosting long term care sales is for the industry to do a better job of overcoming the main objection, which can best be summarized as: "What
if I buy it and I don't need it?" Although it's tempting just to dismiss that question by pointing to the numbers above (there's only a 30% chance of a Baby Boomer not needing to pay for some form of long term care), Slome suggests that what is really needed is for buyers to think differently about the premiums for long term care insurance.

"People generally don't complain when they don't have losses under their homeowners and auto policies—they are grateful," Slome says. "Why should they feel different about long term care? The industry hasn't educated people about looking at long term care insurance this way. We've stigmatized the product as a financial product, rather than a health product."

One answer to the "what if I can't collect" objection has come in the form of new products that combine LTC policies with annuities or life insurance products. The buyer receives a return regardless of whether the policy pays a long term care claim. "A few more insurers are entering this marketplace each year, and sales in this area are growing, but they are growing slowly," Slome says.

"They are primarily sold by insurance and financial professionals. Premiums can be in the range of $75,000 to $125,000. It is definitely a component of the market that will continue to draw interest for the affluent. But it will be dominated by investment professionals."

In the traditional LTC market, it is quality of life, rather than investment return, that will continue to be the primary focus of agents and insurers. And quality of life often centers on choice. LTC policies can pay for care in nursing homes, assisted living facilities or in the home. An AALTCI study shows that in 2009, in-home care accounted for 49% of benefit dollars paid for new group LTC policy claimants, compared to 30% for nursing home care.

Other long term care choices are looming for employers and employees. Under the new federal health care reform act, the government's own long term care plan, known as CLASS (Community Living Assistance Services and Supports Act), is scheduled to go into effect in 2013. Benefits under that program are expected to be narrower than what is provided under traditional LTC plans, and employers will have to choose whether they wish to participate by offering to enroll their workers.

The first of the Baby Boomers are entering retirement, and their experience will no doubt shape the financial decisions of the huge wave of their fellow Boomers to come. And the entire generation of Boomers will shape the decisions of the next generation. How will their 401(k) plan assets hold up as a primary funding vehicle for retirement? How will the preparations made, or not made, for long term care affect their quality of life in retirement?

We'll know more in the next five to 10 years. But it seems logical to assume that private long term care insurance, delivered through the tax-favored mechanism of group plans, is on a threshold of opportunity.