The Last Mile

Today’s challenge for delivering long-term care solutions

by Henrik Larsen, MBA, CLTC

As I sit down to write this article shortly before the Holidays, I am reminded of The Last Mile concept as I watch the myriad of FedEx, UPS, US Postal Service trucks and letter carriers showing up at our office building several times a day. All those boxes flown in from massive warehouses, but they reach the final destination on a truck and are brought to our reception area by an actual person.

It reminds me of the Long-Term Care insurance industry and the bottleneck that more so than ever prevents a truly efficient delivery system. And it is ironic that while overall sales have decreased in recent years, the very part of the industry that is flourishing, the executive / employee benefits market, does not have what it needs the most: electronic self-enrollment on a national, as opposed to state-by-state, platform.

The Group Market

The executive / employee benefits market has traditionally been served by either a master, or group, policy issued to the employer from which the enrolled employee would receive a certificate; or individual policies sold with group concessions such as discounts and / or limited underwriting. This latter platform is also referred to as multi-life individual. Group policies were generally issued to larger companies with more than 200 employees and individual policies were generally issued to companies with less than 500 employees.

One key determinant in selecting a platform became a given company’s number of locations and state presences. The more locations and the more states favored the group contract for two separate reasons. First, the group platform generally allowed for electronic self-enrollment without the assistance of an enroller or agent. This was even the case when some underwriting needed to be performed. Second, since only one policy was issued – to the company – all employees’ coverage would be based on the same master policy and state differences were avoided thus creating a company-wide uniform offering. This was particularly important in the times before 2005 Deficit Reduction Act’s [DRA] Partnership provisions and the 2006 Interstate Insurance Product Regulation Commission [IIPRC].

Over a relatively short period of time, starting in the late 2000s, all the group carriers exited the business. The reasons for the exodus were many. The group marketplace had all the same issues as the individual marketplace: sustained low interest rates and [too] high lapse assumptions. But added to this was that many offerings had guaranteed issue and as participation dwindled, the carries were left with perceived alarming levels of adverse selection.

In the aftermath of the all-but-disappearance of group policies, we have had to exclusively use the multi-life individual platform. Consequently, in enrollment situations with several locations and multiple states, the exercise has resembled the proverbial square peg in a round hole.

Above, I have tried to outline the “where-we-are” and the “how-we-got-here” as simply as possible. I know I have oversimplified certain aspects, but the gist of it is that we seem to be at an impasse. What we need the most is associated with above-acceptable risk and costs, and in an industry with decelerating sales those solutions seems unpalatable to most carriers.

Group Risk

There are two risk factors generally associated with group insurance. The first is obviously the existence of true guaranteed issue previously available on many if not most cases. The second is a little bit more complicated. Since there is technically only one issued policy, it becomes close to impossible to obtain…

• a) Prospective Premium Increases
  The State in which the policy is filed and issued generally requires that any prospective premium change must result in a new policy series to be issued, but the carrier cannot do so since existing certificate holders are tied to the original policy.
• b) Retroactive Premium Increases
  The State in which the policy is filed and issued generally requires that a policy must have been “off the market” for at least two years before a retroactive premium increase can be granted. The reason being that the carrier should not continue to issue coverage at a price they know is insufficient. The problem is that the employer would, then, not be able to offer the coverage to newly hired employees during that [two-year] period of time.

The cost factor is the development cost of an online, secure self-enrollment platform. To some extent it already exists, though dormant, with many carriers such as John Hancock and MetLife. Though I don’t have exact knowledge of the cost of resurrecting the platform, I do know that if the sales potential was sufficient, the cost would be justified.

De-risking product designs

So it all boils down to risk and sales volume. Shockingly! In today’s marketplace, I believe that great strides have been made in de-risking long-term care insurance with respect to product design. Specifically, we now have products available with schedule fixed or capped variable premium increases as part of the filing. Second, guaranteed issue is not a “must” anymore. Distribution and the marketplace has finally come to the understanding that it will never be brought back, and it is generally accepted that a certain amount of underwriting will be required.

That brings us to sales volume. Allow me to digress for a second. One of my favorite movies is “Moneyball” starring Brad Pitt and Jonah Hill. It depicts the creation of statistical analysis, later to be known as Sabermetrics, as a management tool within professional baseball. Brad Pitt plays the Oakland As’ manager, Billy Beane, and Jonah Hill plays Peter Brand, a math whiz who came to revolutionize MLB. In convincing Brad Pitt, Jonah Hill explains: “There is an epidemic failure within the game to understand what is really happening… what I see is an imperfect understanding of where runs come from.”

I believe to a very large extent that is very descriptive of our industry. Where are managed sales coming from? They come from companies buying / offering long-term care insurance for / to their employees. They are coming from professional associations offering long-term care insurance. Both of these distribution channels would be so much better served with an electronic self-enrollment platform.

As a national distributor of long-term care insurance, 2015 represents our best year ever with respect to number of enrolled companies, number of enrolled lives, and enrolled premium. The demand is higher than ever, and it is not originating from legacy plans where the carrier has left and the company is looking for a new home, nor are they the result of higher individual multi-life premiums trying to find a cheaper alternative. These cases are almost exclusively brand new cases.

Our biggest obstacle is that when the cases become too large, the square peg becomes insurmountable and that is truly ironic. If we had electronic self-enrollment capabilities, we could not only entertain these larger cases, but we could also provide a fantastic platform for many of the electronic benefits exchanges that are already in existence.

The potential is enormous. Don’t get me wrong, these enrollments will need to be supported by marketing, education and strong messaging to ensure that long-term care coverage is purchased as an intricate part of an overall financial and retirement plan. Sales will not come by themselves, and electronic self-enrollment is not the panacea for our industry, but it sure would a nice start to unclog the bottleneck and get us down that last mile a little faster. Come to think of it, I just put that at the top of my Holiday wish list. ◊