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This Month:
Good partners: LTCi accessibility on the rise
LTCI premium increases: The good, the bad, and the ... reality
Yes, you can self insure your long term care
Long Term Care Insurance Industry… Guilty as Charged?
John Hancock Survey: Most Americans Prefer Planning Their Will To Preparing for Long Term Care (LTC)
Selling LTCi: It's All in the presentation
Good partners: LTCi accessibility on the rise
by Bob Vandy, CLU, ChFC, LUTCF, CLTC
Bob Vandy is Vice President of Marketing with New York & National Long Term Care Brokers, Clifton Park, N.Y. He can be reached at 800-695-8224 x105 or at bvandy@nyltcb.com.
The Deficit Reduction Act (DRA) of 2005, signed into law in February of 2006 by president Bush, had a significant and negative impact on the ability of residents to transfer or gift away assets and to then count on Medicaid as the primary payer of their ongoing long term care (LTCi) costs. For those residents counting on Medicaid to pay for their LTC costs when needed, that's the bad news.
Now, the good news. Another part of that legislation that is now making more headway has to do with "Partnership" programs in states beyond the original four states (NY, CT, CA and IN) that rolled out such plans in the early 1990s.
For the uninitiated, Partnership plans are basically a "partnership" between the resident of a particular state, that state's Medicaid program and participating insurance carriers. The Partnership programs under DRA work as follows:
Resident -- agrees to buy a Partnership-approved LTCi policy and use its benefits, as first payer, upon needing LTCi services covered by the policy.
Insurer -- agrees to issue a policy meeting certain requirements mandated by the respective states as part of their Partnership guidelines, which may vary slightly from state to state, and to comply with certain reporting requirements to the Partnership program, Medicaid, etc., among other things.
State Medicaid system -- agrees to allow the resident, typically upon exhaustion of LTCi policy benefits, to protect an amount of his/her assets equal to the amount of benefits paid out from the Partnership LTCi policy (a.k.a. "dollar for dollar" asset protection), in addition to the normal Medicaid asset guidelines set forth in that resident's state, and allow the person to enter the Medicaid system. The resident's income is still taken into consideration, as it normally would be absent the Partnership.
Byway of example, let's presume your client is age 55 today and purchases an LTCi policy with a $200 per day benefit and three year benefit period, with five percent compound inflation. The initial "pool" of policy benefits is $219,000. If she went on claim tomorrow and used the whole daily benefit each day for those three years, she will have used up her $219,000 benefit pool, assuming the pool didn't inflate. If she applied for Medicaid once the policy pool was gone, and had $300,000 in countable Medicaid assets (beyond what she could normally keep under Medicaid guidelines), she would need to "spend down" the $300,000 to the $219,000 level and could keep the rest. If she didn't have a Partnership policy and used up her policy benefits, the entire $300,000 of assets would need to be spent down.
When we consider time and inflation, the advantages become even more dramatic. If she didn't have a claim until age 84, the approximate average age for LTCi claim start, the pool of money would have doubled, then doubled again (rule of 72 -- five percent inflation -- pool doubles about every 14.5 years) to a total of $876,000. Given the example, your client could protect $876,000 of assets, in addition to the normal Medicaid asset levels allowed. That's a lot of asset protection.
You might ask: "How do I offer these policies to my clients?" The answer depends on whether the client's resident state has adopted a Partnership program and whether you have complied with that state's training or certification requirement for LTCi and, specifically, the Partnership.
To date 18 additional states have adopted programs and a number of others are in the process. If your state offers the Partnership and you are certified per that state's rules and, in some instances, carrier requirements, you can sell Partnership plans.
Bottom line? This is a great opportunity for you to approach your clients and prospects about long term care planning, the advantages of a Partnership LTCi policy and how you can help.v
LTCI premium increases: The good, the bad, and the ... reality
by Lisa McAree
Lisa McAree, CLU, LTCP, is President of The McAree Company, a Managing General Agency specializing in long term care insurance. She can be reached at lmcaree@mcaree.com or 781-380-1027.
The long term care insurance market has matured and the contracts of today reflect that experience.
Ten years ago, at a Travelers Insurance Company advisory committee, then President Sandy Weill was quoted as saying "long term care insurance has been under-priced and we have to do something about it". The general agents sitting around that table (including myself) erupted in an only slightly more professional version of Chicken Little's famous saying: the sky is falling, the sky is falling!
Fast forward 10 years. As it turns out, Travelers did increase premiums on some of their policy contracts, as did other major companies in this market including CNA, Genworth, John Hancock (recently announced), PFL, Transamerica, UNUM and a host of others. Some companies increased rates by a higher percentage than others; a few may need to come back for more.
What happened? Did the world of long term care sales come to an end? Well no, but frankly it did have an impact on sales. Consumers and agents alike had their faith in the product shaken; resulting in declining sales for several years. Consumers did not believe that the product would actually provide protection against the future need for long term care. They worried about unaffordable premium increases in their older years. The news media fueled those fears by reporting on the worst case scenarios rather than the moderate and responsible companies. The incidental agent, characterized by two to four policies per year, dreaded the fall out from angry clients. Insurance companies, and Wall Street, worried about their bottom line.
The sky, however, has certainly not fallen. Insurance companies have responsibly raised premiums due to a changing marketplace and the need to meet their future obligations to their policyholders as well as their shareholders. Consumers have come to understand the need for the premium increases, and the majority of them retained their coverage. LTCI specialists continued to sell the product, and slowly but surely the incidental agent is coming back into the market.
It is helpful to understand why insurers needed to increase premiums. There were several reasons. First of all, policyholder persistency exceeded all expectations. Not only are more people retaining their policies, but a significant percentage of them have lived beyond expected mortality. A longer life span, while good for the American population, is riskier for insurance companies as it means more or longer claims. Interest rates have remained at unforeseen lows since 1990, helping to fuel the housing boom but a problem for long term investors such as insurance companies. New types of care, such as assisted living, were introduced. This less intensive form of long term care is more acceptable to seniors and their family members than nursing home care, thus resulting in earlier claims activity. The combination of these factors created pressure on insurance companies to increase premiums or, worse, get out of the business all together.
If you look at the premium costs 10 or 20 years ago compared to today you will find a marked difference. Buying a policy today costs much more than buying a policy a decade ago. Even when you factor in premium increases on the in-force policies, those policy contracts still cost less than a policy bought today utilizing the same set of variables.
The cost of long term care itself has increased even more. In 2007, the average annual cost in a nursing home across the United States was approximately $77,000 per year. Twenty years ago, in 1997, the average cost was $42,000; and back in 1977 it was just $8,280 per year. In Massachusetts and bordering states, the average 2008 cost has risen to $98,000 per year for a shared room in a nursing home.
Comparatively speaking, an additional 20 or 30 percent increase in premium doesn't seem that out of line.
I suspect many people think that insurance companies tried to pass on some of their need for premium increases on in-force policyholders to the new buyers. LTC actuaries and senior management have assured me this is not true. Insurance companies are not allowed to do this under law. Each policy series needs to stand on its own reserves and pricing.
What are the alternatives to increasing premiums? In my opinion, the worst case scenario would be an onerously strict interpretation of benefit qualification and benefit features. Companies could reduce expenses by cutting staff, lessening investments in technology, or other home office equivalents of shutting out the lights. None of these options are in the policyholder's interest. In addition, there are financial capital requirements that limit the carrier's utilization of riskier investments.
I do not underestimate the financial pain that premium increases cause to our policyholders, particularly our older policyholders. The insurance companies need to be as prudent as possible when considering rate increases on their in force blocks of business. Aggressive premium increases will harm new sales and invite further government oversight.
Long term care service delivery is constantly evolving as our society ages and America struggles to come to terms with the needs of our elders. An insurance policy issued before the development of assisted living facilities or technological advances in robotics cannot continue to meet the policyholder needs if asked to provide more benefit for the same cost.
Policies may have been less expensive in the early years of LTCI but the benefits were less robust. Many complaints regarding long term care claims are due to limitations in coverage. In some cases the client chose not to buy enough coverage or were not offered that option. Every case will be different; but that is a reflection of the infancy of the long term care insurance market 20 years ago. Today, informed agents educate consumers as to the importance of home health care coverage, inflation protection and other features we now consider standard. The market has matured and the contracts of today reflect that experience. Most importantly for consumer awareness, personal family experiences has brought the true cost of long term care home to many of the baby boomer generation.
There is evidence that we have rounded the curve in the long term care market. LTCI sales increased last year over the prior year for the first time since the federal government's plan roll out. According to the American Association for Long Term Care Insurance, 2008 LTCi Sourcebook, there were approximately eight million LTCI policyholders at the end of 2007. The insurance companies paid out over $3 billion in claims by the end of 2007. Seventy six percent of individual policies purchased in 2007 were by people between the ages of 45 and 64.
No one likes to pay more, but everyone wants to receive fair value for their money. A well reasoned explanation goes a long way toward relieving the fears of your current and prospective policyholders. Appropriate premium increases for under-priced long term care insurance policies are necessary to continue to ensure that this valuable protection is there for us and our clients in the years to come.
Yes, you can self insure your long term care
by Brian M. Johnson, CLTC, MBA
Brian M. Johnson is certified in long term care (CLTC) and is certified with the New York State Partnership for Long Term Care. He is Director of Business Development with National Long Term Care Brokers, Ltd.,Clifton Park, N.Y. He can be reached at 518-688-8154.
If you're like most Americans, you'll think about planning for long term care as you enter your 50s and 60s; but the fact of the matter is most Americans will leave planning for long term care to chance. The majority of impaired seniors rely solely on donated care and their own savings.
There are two reasons for this. The first reason is that one year in a nursing home or 24-hour home care can cost more than $66,000 today. With costs increasing at about four percent per year, this care could cost $150,000 to $250,000 per year in 20 or 30 years. With these astounding statistics, most of us deplete our retirement portfolios and savings very quickly paying for long term care.
The other reason for relying on donated care or personal savings is that someone decided not to purchase long term care insurance when it was an affordable option. When people who decided against long term care insurance are asked why they didn't purchase it, the most common response is because they didn't think they'd ever need it; until they did need it. Most of us believe that we'll live long lives, but it's a fact, as we grow older, the chance that we'll need some form of long term care increases dramatically. In the year 2020, some 12 million older Americans are expected to need long term care, yet the percentage of those 12 million people who will have long term care insurance will be minimal. Why you might ask? Again, the most common answer, because they never thought they'd need it, until they did.
Anyone who has thought about long term care insurance knows the basics about the policies and the benefits they offer. But still, it's hard to find the value in long term care insurance if one or one's family hasn't been personally affected by a long term care event. That's why a new product has been approved in New York: a permanent life insurance contract with a long term care rider and a guaranteed return of premium. Most people recognize the value of purchasing life insurance to protect family or one's assets after death, but they must also understand the importance of protect family and assets while they're alive.
With medical advances the average life expectancy is increasing and there may come a time when you need help doing the things that you have always done for yourself. A responsible person does not want to leave that to chance or for their family to worry about. Fortunately, both needs can be addressed with a single policy. By adding a long term care rider to a permanent life insurance contract, you'll have the means to pay for assistance with activities of daily living such as bathing, dressing, eating, or if you ever need substantial supervision because of a cognitive impairment. If you ever do need assistance or supervision doing any two of the six activities of daily living, this policy's death benefit is available to help you pay for long-term care costs, keeping you in home longer while protecting your family and assets. You can use all, some or none of your death benefit to pay for those expenses. Any portion you don't use will be paid to your beneficiaries and will be income tax-favored under current law.
To make these contracts even more attractive, many insurance companies also offer a return of premium for policies funded with a single premium. Here's a hypothetical example of how this contract would work:
Mary has been saving money for a long time… for retirement, grandchildren, and now for long term care. But after going through such a costly ordeal with her own mother, she realizes that with today's medical costs even $300,000 may be gone in less than two years. Mary:
- Is 65 years old
- Is a nonsmoking female in good health
- Has $300,000 reserved for long term care
Mary transitions assets to this life insurance policy with a single payment of $100,000 and allocates the other $200,000 for other needs. Through this policy, Mary is prepared for three possibilities and all of the outcomes are fully guaranteed by the claims-paying ability of the insurance company.
Long Term Care Coverage
If Mary needs long term care, she'll get up to $83,203 each year for six years to reimburse monthly long term care costs (that's a maximum of $6,934 per month). She'll receive these benefits up to a total of $499,218, income tax-free. That's nearly 500 percent of her original premium payment.
Money Back Guarantee
If Mary decides she wants her money back, she only needs to notify the insurance company in writing, and they'll mail her a check for her original payment, no questions asked. The amount received is adjusted for loans and withdrawals and a portion of the money returned may have tax implications.
Income Tax-Free Death Benefit
If Mary never needs long term care, her policy will provide her loved ones with a $166,406 income tax-free death benefit. If she uses only a portion of the death benefit for long term care, her policy passes the remaining portion income tax-free to her beneficiaries (less any loans or withdrawals she's taken).
How your clients prepare for the possibility of long term care directly impacts the security of an entire portfolio and can pose a potential challenge to their retirement income. Even if they are still saving for retirement, they should consider future long term care needs.
Long Term Care Insurance Industry… Guilty as Charged?
By Carroll Harper
Carroll E. Harper is president of Carroll Harper & Associates, Inc., Long Term Care Insurance Brokerage Agency located in Southwest Harbor, Me. He can be reached at: 207-244-5133 or carroll@harperltc.com.
I read with fervent emotions the recent New York Times article (Aged, Frail and Denied Care by Their Insurers By Charles Duhigg March 26, 2007). portraying the Long Term Care Industry as "caveat emptor." From the perspective of someone who has personally serviced millions and millions of dollars of Long Term Care Insurance claim benefits I have witnessed first hand the compassion of LTCI Carriers claim departments and how for the most part, they go above and beyond in the time of need. While I realize only a few carriers were named, the entire LTCI industry is marred for such a biased and troubling piece of negative journalism.
On the other hand, for the past ten years I have made it known through numerous articles, newsletters, CE courses and as a CE instructor that with the advent of HIPAA and Tax Qualified LTCI policies our industry would be dealing with class action litigation. I believe we are just seeing the beginning of this trend. Today's LTCI contracts scream for due diligence in every sales situation.
Sadly, due diligence in LTCI sales for the most part is non-existent. Most LTCI consumers are never told about the IADL (Instrumental Activities of Daily Living) issue, in that they may incur an unknown period of time where they have to self insure the IADL loss, before they progress to the point of TQ eligibility, thus only telling enough of the story to make the sale. To better understand the issue, let me share with you some factual cases that have evolved over the past decade.
Several years ago, I was asked to speak at a LUTC LTCI training class. After a brief introduction I asked each student what carriers they represented and there were five students from one particular LTCI carrier. Knowing their product, I asked each one of them five questions regarding their product, i.e. was their product a reimbursement or indemnity, was their product TQ or NTQ, was their EP service day or calendar day, etc. Not one of these five producers could answer the questions correctly.
Shortly thereafter, I was assisting a couple of our producers in setting up a booth at a Senior Ed Fair and I noticed another booth offering LTCI from a major life insurance carrier, so I thought I would drop by their booth and question their knowledge. I approached the booth and began to show an interest in the classy brochures on display, when an attractive, well-dressed young lady asked if she could be of service? I informed her I was just looking, but asked if these policies were tax deductible? I explained to her I was a sole proprietor. She quickly pointed out that they were and that if I was a business owner I could deduct 100% of the premiums. She further explained that it was just like an IRA. I then asked her what was meant by the 90-day certification and she explained it was the same as the deductible, or like a waiting period. I then asked her if the policy was available in NTQ as well. She thought for a minute and by her look I realized she had no idea what I was talking about and then she quickly came back and told me NTQ was not allowed in the State of Maine.
Last year, I was asked to participate at a family meeting with my aunt's doctor who was preparing the family for her grave prognosis. They told the doctor that my aunt had a Long Term Care Insurance policy and asked if he would assist them in filing for home health care benefits. His reply was that he would be glad to, but cautioned them that most of the policies he had seen weren't worth the paper they were written on. Stunned at the doctor's response, I quickly reassured my family that despite the doctor's remark I would see that the claim was honored. My aunt only lasted 3 months, but the family saw the value of the Long Term Care Insurance policy and was more than satisfied with the benefit payments.
Recently, while working at a booth at a Senior Ed Fair, a gerontological nurse practitioner approached and began to browse the glossy material on display. I politely asked if I could assist her with any questions and she quickly remarked, Long Term Care Insurance, my husband and I looked into this, but we decided against it, because the companies just don't pay the claims anymore. She said that the policies require you to be too sick to collect benefits. I knew exactly what she was referring to and I quickly educated her as to the IADL's not triggering benefits under the newer TQ (tax qualified) contracts and explained the requirements set forth under the HIPAA act of 1996. She agreed that indeed this was the problem she was experiencing and I proceeded to tell her that NTQ (non-tax qualified) policies were still available.
I recall attending the first Long Term Care Insurance Producers conference in Ohio in 1996 and expressed my concern and disappointment over the removal of medical necessity from the TQ policies and what it would mean to those later filing for benefits under the more restrictive eligibility requirements. The response to me was this is about Long Term Care, not Short Term Care. If one could only speak to the family of the individual who spent over $100,000 for her 3 years in a Residential Care Facility, because she was unable to remain home alone, or if they could explain to the family whose mother was diagnosed with pancreatic cancer and during her two year battle was unable to meet the rigid eligibility requirements until 2 weeks prior to her death and even then with a 30 day EP she was unable to meet the policy requirements for benefits to be paid, they might think twice before making such an egocentric remark.
I recently did LTCI training for a bank that now employs producers who previously worked for large insurance companies and who only offered TQ policies. One of the producers remarked to me that he never even knew there was such a policy as NTQ.
Once again, the DRA (Deficit Reduction Act) is breathing new life into LTCI sales. We, as an industry must work together to do a better job. The onus is on every one involved in this industry to be certain that due diligence is performed in each and every sales situation. It is imperative that every producer understands the difference between IADL's and ADL's and can explain to the client how each differs at claim time.
Together, we can and we must rise above the public's perception of a tainted industry and restore trust in a product, that because of its inherent complexity pleads for us to take the time to tell the rest of the story.
Until such time we can expect little defense to the verdict… guilty as charged.
John Hancock Survey: Most Americans Prefer Planning Their Will To Preparing for Long Term Care (LTC)
Concerns Around Needing LTC Makes Respondents Reluctant To Begin Planning John Hancock Executive: Solid Financial Plan Increases Odds Of Meeting Hopes and Promises For The Future
If given the choice between sitting down to plan their will or sitting down to discuss possible long term care needs, more than half (55 percent) of respondents in a survey conducted for John Hancock Life Insurance Company (John Hancock) said they'd opt for the will. A similar percentage (53 percent) said that going to a nursing home is worse than becoming bankrupt and half said they consider it worse than dying.
"While most Americans recognize the importance of planning for their possible long term care needs, the emotions that surround the thought of losing their independence, as well as the misconceptions they have about care options, make it uncomfortable for them to begin putting a plan in place," said Laura Moore, senior vice president of John Hancock's Long Term Care Insurance Department.
"We have found that once people understand the facts about long term care, planning for the possibility of needing it becomes much less daunting. For example, long term care does not necessarily have to mean nursing home care. In fact, most care today is received in a home setting. Long term care insurance can give individuals more choices about the kind of care they receive and where they receive it."
Long term care is the assistance needed by someone who can no longer independently perform daily activities such as eating, bathing, or dressing. This care can be received at home or in an assisted living facility, adult day care center, or a nursing home.
John Hancock's survey of 1,000 people ages 21 to 75, conducted by Greenwald & Associates for John Hancock, examined consumer attitudes about LTC. John Hancock conducted similar surveys in 1996, 1997, and 1998.
Ms. Moore noted that John Hancock has found that the purchase of long term care insurance can dramatically change the quality of care for those needing care and the quality of life for their families when a care situation arises.
She said long term care insurance today is much easier to understand, quite affordable and should be considered a vital component of any comprehensive financial plan.
"When people move forward with long term care planning, they are making a promise for the future to themselves and to the people they care about most," Ms. Moore said. "They are taking an important step to help preserve their savings and protect their family members from the burden of caregiving. It's a decision they can feel good about both for themselves and for their loved ones."
Selling LTCi: It's All in the presentation
by Jace Rosenbluth
Jace Rosenbluth is President of CPS/Merit Insurance Services, Inc., an independent brokerage firm specializing in long term care insurance, life insurance and annuities. He can be reached at 800-477-8546 or 860-233-3626 or email jace@meritins.com
I frequently wonder why there are so many LTCi specialists writing articles about how sales were down on a national level in '04, '05 and '06. According to these articles, the number one objection agents face is that consumers find the cost of long term care insurance too high and the number one reason why agents don't sell more is because the product is too expensive. I believe the reason that sales may be down is that agents don't know how to present long term care insurance.
A major insurance industry publication conducted a "Long Term Care Market Study" in 2006. They found that 86 percent of agents quoted a minimum of a four year benefit plan and 55 percent of agents quoted daily benefits equaling the current nursing home rates in their area.
This same study determined that 82 percent of clients perceived that LTCi was too expensive. Is this a surprise? If agents are showing folks in their 60s and 70s benefit periods of four or more years and matching 100 percent of the cost of nursing home care, of course it is going to be expensive. Again, every article and every survey indicates that cost is the number one objection.
I question if the people writing these articles have ever sold long term care insurance. They seem to be so focused on how to handle the objections that perhaps they have never learned how to introduce the product, anticipate the objections and present alternatives. After 18 years of marketing LTCi and making joint calls with agents, I have found that the majority of agents, quite simply, don't know how and are, therefore, not comfortable with, selling LTCi. This results in a lost sale. Today, LTCi products and rates are so close when comparing top companies that it's not the product but the presentation that will make the sale.
Over the years I have seen the good, the bad and the ugly in sales presentations. There are many good agents who know and can sell a ton of life insurance. However, LTCi is a different type of product and it's not as simple as saying to the client, "You don't want a six year plan? How about a three year plan, it should reduce your cost by half." Today, most agents presenting LTCi show a five year minimum period because of government changes in the look-back period. However, there is nothing that says an agent must offer a five year minimum benefit period just because the government regulation changed. It is more important for an agent to spend more time getting to know their clients so that they can present the plan that is affordable and provides adequate care to meet the client's needs.
Cost will always be an issue if the agent does not qualify their client. With LTCi it is absolutely essential to ask some qualifying questions before you quote. Some of these questions are:
What is your income?
What are your assets?
Why are you looking at purchasing long term care insurance?
Do you have any health issues?
Once these questions have been answered, then a recommendation can be made. Think about it, how can a recommendation for a product with multiple benefit options be made if you don't know what the client's financial situation is and what the client's needs are? An agent can be one step closer to the sale by finding out what is motivating the client to look at LTCi. For example, have they had a family member wipe out their life savings to provide care or perhaps the client doesn't want to be a burden to their children. When an agent quotes life insurance or disability insurance, it's important to ask some health questions to determine if the client is a "Preferred" or "Standard" rate class. The same is true for LTCi. With so many people in their 60's and 70's buying this product, agents have to ask the tough questions to determine if there are any health conditions that may prevent them from getting LTCi, or at least to determine the proper product and rate class to present.
One added bonus question to ask is "Are you Self-employed or do you own your own company?" If yes, the tax deductibility issue is huge and a great motivating factor to get clients of all ages, particularly the younger ages, to buy LTCi. The government gives business owners a deduction to buy long term care insurance and in some cases 100 percent of the premium can be deducted. Agents must be educated on how the deductibility works and it needs to be an integral part of their presentation. Many agents never bring up this key point when speaking to their clients... why? Because, they don't know it.