Gaining Traction For LTC Insurance

Heralded as the magic potion of the 1990s, long term care insurance offered as a voluntary employee benefit saw its heyday come to a grinding halt as carrier after carrier dropped their plans. The reasons for its failure in the marketplace are many, and its history one for the actuarial lesson books.

Even before market testing, each carrier tried to outdo each other with features and riders that surpassed those policies found in the individual marketplace. Those leading the way were offering guaranteed issue and lower prices. The corporate marketplace embraced LTC with much fervor, and consultants racked up large fees in conducting studies and writing requests for proposals. Before a company offered LTC insurance to their employees, vendors planned extravagant rollouts, videos and group meetings to the last detail. Enrollments were conducted and expected participation was estimated to be in the high 20% range.

The results? The average was 3%. Group policy offerings, it turned out, had only a narrow appeal.

The carriers went back to the drawing board and tweaked their offerings. Marketing materials were revamped to target a younger audience. The results, however, were about the same: 3% on average. Worse, claims were higher than expected and the pricing of the products, based on expectations of much higher penetration and thus higher revenues, caused a collapse of the offerings altogether. Those carriers that could not sell their losing blocks of business were forced to retreat, absorbing their losses.

So what happened? What went so wrong with group voluntary LTC insurance? The debate still lingers, but suffice it to say that employees simply voted “no” by withholding their premium dollars. For the young, the premiums were quite affordable, but they didn’t see the need. For the older crowd, the premiums were unaffordable. Two main themes ran through the sales challenge: LTC is a complicated sale, and it may never be needed. Prospective buyers either assumed that death would precede the need, or else the morbid nature of thinking about dying slowly in a nursing home was unpalatable to them at best. Talking about LTC did not have much appeal.

It was hoped that would change when many states, knowing the potential burden LTC would have on Medicaid, developed Partnership programs with the insurance companies that offered individual LTC policies. Even that did not take off as anticipated, however. As of 2005, the individual fully underwritten policy providers had just about the whole market. New tax breaks also did not have much of an impact. Families were faced with the task of either caring for their own ailing elders or allowing the draw-down on assets to occur so they might initiate Medicaid coverage for their relatives. Reverse mortgages also were viewed as a solution.

Despite the failures, the interest and need for LTC has not waned. Market research reveals significant interest among human resources professionals in offering LTC as an additional benefit option.