Long Term Care Insurance – A Changing Landscape

September 4th, 2012 by

The post below is a guest blog from CAI’s employee benefits partner, HCW Employee Benefit Services.

For people who are unable to fully perform activities of daily living due to chronic or disabling conditions, long term care provides the range of care and support services needed over an extended period of time.

One way to protect an individual’s ability to pay for these services is through the purchase of a long term care (LTC) insurance policy.  These policies, which have historically been purchased individually or provided through an employer, can help offset the expenses associated with nursing home care, home healthcare, personal and adult daycare.

The projected need for long term care is staggering.  In 1994, 7.3 million Americans needed LTC at an average cost of nearly $43,800 per year.  In 2000, the numbers increased to 9 million Americans with need at a cost of $55,750 per year. By 2030, estimates show that more than 23 million Americans will need long term care at a cost of nearly $300,000 per year!

The recent healthcare reform legislation attempted to address this escalating need through a provision called the Community Living Assistance Services and Support Act (CLASS).  After performing a deeper actuarial review of the numbers, the United States government pulled the plug on the CLASS Act due to an unsustainable funding model.

Unrelated to the reform attempts to address LTC, there is a lot of turmoil in the private LTC insurance marketplace today.  Due to a low return on investment caused by low interest rates and the unknown future cost of medical care for those with LTC plans, many insurance carriers have recently left the marketplace:

  • Unum and John Hancock have exited the group market
  • Guardian and MetLife have left the LTC market completely
  • Prudential exited the individual market

This financial uncertainty and lack of providers has left many employers unsure about whether they want to offer group LTC insurance at all. At a minimum, they are wondering if they should wait until they improve their comfort level with the product and the market turmoil subsides.

HCW Viewpoint

From an individual’s point of view, there is little doubt a great need for long term care insurance still exists.  In fact, about 70 percent of individuals will need some type of long term care assistance after turning age 65. However, only 10 percent of seniors have LTC policies, and only 15 percent of all employers currently offer a long term care insurance plan.

But, just because there is an “individual” need for long term care insurance, that doesn’t mean that employers should jump into the waters headfirst and integrate LTC coverage into their benefit offering.  As with other benefits provided, it’s important to determine what you are trying to accomplish by offering group LTC coverage and how this fits into your overall benefit strategy.

Some helpful questions to ask may include:

  • Are your employees asking your organization to provide LTC coverage?
  • Are your competitors offering coverage?
  • If you elect to provide LTC insurance, how will you position it to increase its perceived value with employees?
  • Can you determine the right product and coverage mix of group and individual LTC coverage to sustain the associated costs over the long haul?

The unknown financial risk in this market, coupled with low returns on investment, have led insurance carriers to modify their plan designs away from generous, unlimited-benefit duration plans to plans with maximum-year payouts.  Additionally, insurance carriers are moving to simplified underwriting (where several medical questions are asked) in order to better manage their risk.  These trends lead to a more conservative approach and should help stabilize the LTC market.

Also, with a timely purchase of LTC insurance, individuals may find the right combination of coverage and premium with the right carrier.  It is important to understand how LTC insurance fits into their overall retirement planning.  This is true whether employees are seeking an individual policy or supplementing an employer-sponsored base plan with additional coverage.

Even as several carriers are no longer offering LTC coverage, there are a few carriers that have been more optimistic in their approach.    If interest rates rise and the economy rises with them, we may see more competition with more carriers willing to enter (or re-enter) the LTC marketplace.  It’s key to seek advice specific to your organization’s goals to ensure that you have the most up-to-date information in the ever-changing landscape of LTC insurance.

Photo Source: Muffett

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