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Reaching The Middle Class With LTC Insurance

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“Reaching the middle class”or “messaging” to this market, as some term itis critical for the long term care insurance industry, LTC providers and state/federal governments.

For the industry, it will help expand the market. Historically, many sales have been to affluent people, a market that may not be large enough to sustain the entire business. In more recent years, the industry has been expanding into the worksite market, where middle class messaging on LTC is critical to reaching employees and their relatives. More focused efforts will support that.

For LTC providers, messaging is equally important. They are being tightly squeezed by low government reimbursements for care. Despite significant cost-shifting to “private pay” clients, these providers cannot provide the quality of care they wish to provide. With more LTC insurance, however, fewer clients will be on Medicaid, so the providers will be more profitable.

For state and federal governments, middle class purchases of more LTC insurance will help reduce soaring Medicaid costs, cut state expenditures by reducing the number of Medicaid applications needing evaluation, and lessen the need for estate recovery efforts. Furthermore, the sales will generate government revenue through taxes paid by LTC insurers, agents and providers.

Consumers will benefit, toofrom improved care and broader selection of care-giving options (whereas Medicaid must limit choice because of its financial strains).

Many people support LTC-related tax breaks (such as above-the-line tax deductions, flexible use of IRA or related savings accounts, and/or Section 125 treatment). This would impact LTC insurance messaging significantly, and LTC insurance sales would increase substantially because: 1) LTC insurance would be more affordable; 2) financial advisors and media would speak much more favorably about LTC insurance; and 3) more people would sell LTC insurance. However, though such breaks would have a very positive effect, it is not clear they will occur soon.

Many people also support Medicaid reform. Currently, Medicaid advances money (provides loans) against LTC recipients property. However, Medicaid restricts use of those funds to nursing home care. It would be more logical to provide such loans through a financial company. Then, homeowners needing LTC would have unlimited choice of providers, including paying family members. Providers finances would improve dramatically. The state would receive many fewer Medicaid applications and higher income taxes from lenders. Such reform also would stimulate LTC insurance sales, spurring more government and provider benefits.

Other Medicaid reforms also would have value, but such reform is not imminent.

Meanwhile, two key federal non-tax efforts are proceeding with more likely success. One is a bill to remove the federal barrier to state public-private LTC insurance partnerships. A national model might develop, based on existing programs in California, Connecticut, Indiana and New York. If more states initiate partnerships with common provisions, sales will increase.

Generally, insurers and multistate general agents have not been enthusiastic supporters of partnerships. It is an expensive nuisance to train staff and agents, and to create special products, marketing materials, illustration software, administrative capability, etc. to support special sales in a few states. Expanded partnerships would justify such effort, stimulating sales in existing partnership states as well as in new partnership states. Partnerships do require unique messaging. Some people have been quite successful selling partnerships, but others, including most carriers, fear giving conflicting messages regarding Medicaid when promoting partnerships. In my view, the latter is an easily solved messaging issue.

The second federal non-tax effort is the governments “Own Your Future” messaging program, now being tested in 5 states. It is based on the belief that people want to retain control of decision-making regarding care and dont want to burden their families. Financial advisors would be wise to adopt this programs approach of encouraging LTC planning, rather than “pushing” LTC insurancebecause after people plan, they have a greater appreciation for the value of LTC insurance.

In a recent survey I conducted of home office and field insurance professionals, middle class messaging on LTC ranked 8.9 out of 10 in importance for the industry. But current message effectiveness ranked only 5.4 out of 10. So, ample room exists for improved LTC messaging. That will likely come as the industry does more LTC messaging research. Findings from my own survey suggest that improved messaging should conservatively generate 16% more profit for the industry.

is president of Thau Inc., Overland Park, Kan. His e-mail address is [email protected]

Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.