Where have we been? Where are we now? Where do we go from here?
By Robert M. Vandy, CLU, ChFC, LUTCF, CLTC
Mr.. Vandy is vice president, marketing at National Long Term Care Brokers. He can be reached at bvandy@nyltcb.com
“May you live in interesting times…”
– Chinese Proverb (or curse!)
It’s true. We do live in interesting times. We live in interesting times as they relate to the overall economy, the worldwide political environment and, yes, the long-term care planning (LTC) environment.
And when we look at the LTCi environment, a few questions come to mind: “Where have we been?,” “Where are we now?” and “Where are we going?”
It’s clear to most industry and many non-industry observers that the LTCi market is not what it once was. Have rates increased? Yes. Has underwriting become more restrictive? Yes. Have commissions, in some instances, been reduced? Yes. Have some carriers exited the market? Yes.
However, it is vitally import to identify what hasnt changed – THE NEED!
As such, we owe it to ourselves and to our clients to do two things:
- Continue to be diligent in sharing with our agency and carrier partners the experiences we are having when we bring up the topic of LTC planning & LTC Insurance so we can improve our product solutions whenever possible and
- Keep pointing out to our clients & prospects that, in spite of some of the aforementioned industry and product challenges, LTC Insurance remains the BEST solution to the planning problem!
To drive this point home, consider the recent demise of the CLASS Act (Community Living Assistive Services & Supports) under our health care reform legislation. As many of you know, the CLASS Act was to be a voluntary LTC insurance program administered by the federal government and paid for by individual employees via payroll deduction. It would have provided a very limited benefit ($50-75 per day) and was ostensibly intended to ‘keep people home as long as possible.’ Clearly, CLASS was never intended to be a primary funding source for facility-based care.
What took the two main industry actuarial associations about a month of study to figure out took the Department of Health & Human Services about a year and a half; namely, that CLASS wouldn’t work, not as drafted. So the Secretary of HHS announced recently that they were suspending any further work on the project.
The CLASS Act demise is one of the best illustrations of the vital nature of LTC Insurance, regardless of some of the challenges we mentioned. As much as we may want to criticize the product, vilify the underwriting and just get generally angry about the less than attractive changes that have occurred, we must realize that LTCi remains the most comprehensive and cost effective solution for many of your prospects & clients.
Consider these factors that contributed, in part, to the demise of CLASS:
- It was a ‘guaranteed issue’ (take all comers) program – What would likely have happened is that the younger, healthier workers would have ‘opted out’ of the program and purchased private LTCi, as they may have been able to purchase a similarly comprehensive policy at more favorable rates. As those younger, healthier workers opted out, it would have left only the older, sicker workers (who likely would not have been able to purchase private LTCi), which would have led to a ‘death spiral’ from a pricing standpoint.
- Final pricing -we never did reach a point where we knew exactly what the premium and benefit levels were for CLASS. There was talk of a $50-75 per day benefit, and premiums of $150 – $200 per month (on average), but in the end the actuaries pricing the program realized that (in part because of the previous bullet) they couldn’t make it work for anywhere near those premiums.
- 5-year vesting period – had the program rolled out, a participant would not have been able to make a claim until they were in the program for at least 5 years. Can you imagine a private insurance LTCi carrier trying to get away with that?
While this is just an overview, it underlines the fact that there are no other programs available.
Maybe you think Medicare or Medicaid will step in? Medicare, as most of us know, does not pay for true LTC costs (beyond some limited skilled coverage over 100 days at best). And, Medicaid, although it is certainly a hefty payer of LTC costs, requires a level of impoverishment to qualify.
Yes, one can retain the services of a skilled elder law attorney to help navigate the system as much as possible. But, the fact remains that when one goes on Medicaid, it means being a ward of the state.
So, for all the saber rattling going on, private LTCi is still the best solution for those who have a reasonable level of assets and/or income, can qualify medically, and want to retain the decision making power over their care (through their wishes or expressed through a loved one) when they need it most.
There is good news.
LTCi Products
For all of its shortfalls, carriers have responded in recent years with more flexible products than ever seen before. In addition to the traditional products that have dominated the landscape over the last 20+ years, newer generation products have emerged as possible alternative solutions.
‘Linked Benefit’ products (those that combine, for example, life insurance or annuities with an LTC benefit) are more available than ever before.
These products can often be purchased with a single lump sum or a periodic (i.e. annual) premium payment or may be in the form of an ‘acceleration’ of the life insurance policy’s death benefit. These products offer benefits to the client if they need LTC services before death, or benefits payable to their loved ones if they die without ever having used the policy for an LTC need. This is especially useful in situations where clients have resisted the purchase of traditional LTCi.
Medicaid
How many of our readers think Medicaid benefits for LTC services will become more available, rather than more limited, in the future? There is continuing pressure on these public programs to limit eligibility, increases premiums, co-pays, etc. and make the programs even more ‘means tested’ than before. What this clearly means is that our clients will not be able to rely on increased (or, arguably, similar) funding of their LTC costs and planning from public sources.
Demographics
Perhaps most important of all the indicators of where we may be going as an industry is the increasing force and importance of the baby boomer generation and its impact on the financing and care alternatives for our future LTC needs. Studies have shown that the boomers, more than any other past generation, have a strong preference to define their own retirement and maintain control over their care should the need arise. Given the strength of that preference, and the economic reality of care providers needing to generate revenue wherever possible, the future need for private financing alternatives remains bright. Medicaid, as we know, reimburses for care provided at a much lower rate than a private payer might pay for those same services. As such, those private payers will take on increased standing in the pecking order in a ‘first come, first served’ fashion when the boomers begin to require care in increasing numbers.
Conclusion
Despite some recent negative press reports, negative sentiment among some financial professionals and a general societal desire for a ‘quick fix,’ LTC Insurance will remain the most viable financing alternative for those who have the ability to ‘read the tea leaves’ and who are prepared to plan ahead.
The question for the advisopr to present to their clients is simple: if not LTCi, then what?
Take heart, fellow financial professionals. Long-term care insurance isn’t going anywhere.
