Can private long-term care insurance really do much to help the United States pay the baby boomers' home care, adult day care and nursing home bills?
The debate has been cooling and flaring since 1989 and 1990, when the Pepper Commission was looking into the possibility of creating a universal Medicare long-term care benefits program.
Advocates of a universal public long-term care program see private insurance as an option that could, at best, pull a small number of the richest, healthiest boomers away from depending on government help, and could, at worst, hurt efforts to set up a stable public long-term care program.
Related: LTCI: Is It the Answer?
Today, now that private long-term care insurance issuers are suffering from a combination of low interest rates and inaccurate underwriting assumptions, the longtime critics of the private insurers are dismissing the possibility that the private insurers can make enough of a comeback to do much good.
Some long-term care services analysts say, for example, that many ordinary Americans are just too sick for private plans to cover them with affordable, profitable long-term care insurance coverage.
But Thomas McInerney, the president of Richmond, Virginia-based Genworth Financial, a major long-term care insurance writer, says private insurers can return to health and play a major role in helping the United States cope with the aging of the boomers.
McInerney argued last month in San Diego, at a session of the National Association of Insurance Commissioners' Long Term Care Innovation Subgroup, that state insurance regulators, federal policymakers and others must work with companies like his to maximize the role private insurance plays.
"Current and future government entitlement liabilities are not sustainable," McInerney told members of the Kansas City, Missouri-based NAIC.
Federal entitlement programs alone have about $100 trillion to $120 trillion in unfunded liabilities, and only half of baby boomers have more than $100,000 in retirement savings, McInerney said.
Individual taxpayers now generate only about $3 trillion to $4 trillion in tax revenue per year, and there is no realistic way for those taxpayers to cover the cost of the debt, the unfunded liabilities and new long-term care benefits programs, he said.
For a look at how McInerney said policymakers could help get the private long-term care insurance market back in shape to fill in the long-term care funding gap, based on the text of his NAIC meeting remarks, read on:
Thomas McInerney (Photo: Genworth)
1. Think big
Only about 8 percent of U.S. adults now have private long-term care insurance. McInerney said the percentage should be 20 percent to 30 percent.
Even if 60 percent of older Americans still needed government help to pay long-term care bills, "increasing the number of private policies by a factor of three to four would dramatically reduce required government funding," McInerney said.
Related: How do we fix private LTCI?
McInerney would like to see Genworth competing against many more carriers. (Photo: Thinkstock)
2. Get more runners on the track
Genworth is one of about 14 carriers still writing stand-alone long-term care insurance in the United States.
McInerney said regulators should loosen up the rules to get more than 100 carriers back selling stand-alone long-term care insurance policies, hybrids that combine other types of products with long-term care benefits, or both stand-alone products and hybrids.
McInerney says the market for a product that costs $1,500 per year is much bigger than the market for more expensive products. (Photo: Thinkstock)
3. Nurture entry-level products
Genworth said he believes that the market for new policies that start with a cost of about $1,500 per year, or $125 per month, is much bigger than the market for more expensive policies, McInerney said
Some consumer advocates have argued that limited-benefit long-term care insurance policies may be a waste of the purchasers' limited resources. McInerney says the focus should be on expanding the number of people with private coverage.
Consumers must be able to buy long-term care insurance online, McInerney says. (Image: Thinkstock)
4. Make LTCI products Web-friendly
Insurers and regulators need to work together to ensure that some individual long-term care insurance products are suitable for sale through call centers, insurer websites, and public and private insurance exchange systems, McInerney said.
McInerney says expecting insurers to hold rates steady for 25 to 30 years is unrealistic. (Photo: Thinkstock)
5. Switch to an annual re-rating model for prices
In the 1990s, consumer advocates argued that long-term care insurance premiums had to be stable in order for the products to be suitable for seniors living on fixed incomes.
Insurance regulators wrote the current long-term care insurance pricing regulations with that philosophy in mind.
McInerney said in San Diego that long-term care insurance risk and investment returns are still too hard to forecast for an insurer to hold long-term care insurance premiums steady for the 25 to 30 years that an long-term care insurance policy might stay in effect.
Today, rigid rate stability rules often lead to giant premium increases every 10 years or so, McInerney said.
If insurers could adjust rates every year, they could hold typical increases under 5 percent, and they might even be able to cut premiums in some years, McInerney said.
Simply allowing annual re-rating would probably lead to a dramatic increase in the number of carriers actively writing long-term care insurance policies, McInerney said.
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