The Long-Term Care Imperative

Significance of Market Expansion

By Bryan Langdon

Mr. Langdon is relationship manager LTC and linked benefit solutions at Ash Brokerage Corporation. He can be reached at

Late in the afternoon on Friday, October 14, 2011, the Department of Health and Human Services told everyone in the long-term care (LTC) industry what we already knew. "We won't be working further to implement the CLASS Act. We don't see a path forward to be able to do that," Assistant Health and Human Services Secretary for Aging Kathy Greenlee told reporters. With those few words, the onus of providing funding solutions for long-term term illness fell firmly back onto our shoulders. A viable private-funded LTC industry is now more important than ever.

What happened with CLASS? Well, the short answer is politics got in the way of common sense. I think most believe a practical LTC plan for all is a smart idea; however, a plan with a limited premium paying period and no limit to the number of years you could collect, that would allow individuals to pick when they would join, would be tough to create. And, as it turned out, it was.

Does this mean we can't create a plan in the future? No one knows the answer to that question, but what we do know is the private LTC industry to starting to regain the momentum it lost in 2007. Our industry has long known the combination of pricing, benefits, risk selection and anticipation of future claims is a learned science. Today we are dealing with low interest rates, a lower-than-average applicant age, better care delivery systems and many more changing dynamics, which has made it difficult for carriers to chart a consistent path to profitability, yet we continue to learn and adapt. Our sales are growing, the market gets bigger and our options to solve have never been greater.

For years we told advisors that the baby boomers were coming and their needs would be changing. Well, they have not only arrived but they are also learning firsthand the true cost, financially and emotionally, of a long-term care event. It is those experiences that are changing the buying decisions of our clients.

Recently, I met with an advisor and his clients to examine their prospective LTC insurance needs. They were looking at coverage that exceeded $8,000 a year in premium. When the big moment came, and the premium was presented, we experienced a long pause… and almost simultaneously, the couple spoke. The wife wanted to know what the next step was, while the husband wanted to know if there was anything cheaper. She turned to him and said, "We are paying $8,000 a month for mom in her facility and this is only $8,000 a year for both of us!" Ultimately, reality is a great marketing plan.

Cost is only one aspect of LTC that needs to be addressed. Often, we forget the emotional side of the equation. Without a plan in place how will we know which assets to liquidate? What level of care should our clients get? Who makes the decisions? In my experience, children are often spread out all over the United States and it seems the children living the farthest away tend to have the most to say about their parents' care. Having a proper plan in place will help reduce stress at a time when stress levels are high.

What happened with CLASS? Well, the short answer is politics got in the way of common sense.

Cash Value life insurance plans taken out years earlier may be repositioned to cover a client's revised priorities. A linked-benefit life plan funded by a 1035 exchange will provide long-term care benefits without giving up existing life insurance coverage. Some linked-benefit plans allow payments to be made over 5 or 10 years. Clients with qualified plans, who are looking for LTC insurance coverage, could withdraw a small amount each year, pay taxes on the withdrawal and 10 pay a linked-benefit plan.

Examine the true cost/benefit of a linked-benefit solution, especially if your clients have money sitting on the sideline. In today's market many clients have funds in low-interest-bearing accounts. A rate of 1 percent on $100,000 will produce $1,000/$650 after taxes. However, with a linked-benefit solution, $650 a year can create more than $450,000 of LTC insurance coverage with a benefit of $6,200 a month. Additionally, the client will have $160,000 in life insurance coverage. Yes, that is correct, a client can create a $450,000 pool of money for just $650 a year.

Our clients may have the desire for LTC insurance but may lack the funds necessary to purchase coverage. How many of you have clients with non-qualified annuities coming due and your options are limited. Have you thought of exploring the leverage you can create with linked-benefit annuity/LTC insurance? Some plans will allow partial withdrawal to fund the coverage and most will create three times the deposit for your long-term care pool. You may be able to withdraw your gain to pay for long-term care coverage on a tax-advantaged basis. We need to think differently, utilize what they have and create what they need.

Are you aware that long-term care coverage is now available with traditional life insurance? Many carriers have created riders, which can accelerate the death benefit to cover LTC needs. If you have clients over the age of 55, you may wish to show them the two available options: with and without the rider.

These are four very different ways to approach LTC planning with your client. There is no right answer but, if we don't ask, there are many wrong ones. We help our clients protect the present and save for the future; yet, when their needs change, do we stay ahead of their plan? Do we counsel them about living a long life? This market is expanding like never before. More knowledge and tools are available to us, but none will matter if we are not addressing the issue with each and every one of our clients. It is not an obligation, it is an imperative.

Our industry is learning. With an increase in the number of lives covered and added years of claim history to study, the underwriting standards are changing for the better. For example, years ago we might have been able to find a carrier for someone with diabetes. Then the industry changed and, for a while, diabetics were out – no coverage was available. Today, carriers want to know: What is their A1C score? How many units of insulin are they taking? When were they first diagnosed?

A number of individuals battle depression, often brought on by a dramatic change in their life. Again, the questions become: How long have they had the condition? What medications are they taking? Is it well controlled? Diabetes and depression are just two of the many categories we are learning about. The last 10 years have been a difficult time for our industry. As we have learned about price risk, carriers have raised rates, exited the business and reduced benefit offerings. However, we are still here and the questions from our clients continue to get louder, longer and better. They see their parents aging and outliving their assets and look to us for answers. Embrace the new solutions and get creative in solving your clients LTC problem. Often the answer is in their file, you just have to find it.