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.

What has diminished is the number of carriers that offer workplace LTC insurance coverage. To some extent, the individual marketplace has filled the gaps, but the problem of cost plagues the growth prospects of the industry. When you need LTC, it is too expensive, and when it is inexpensive, you are too young and seemingly decades away from needing it.

The best news of the last few years has been in the coupling of group life insurance with LTC. With these products, a life insurance death benefit can be used either for LTC or death, whichever comes first. This mixture of mortality and morbidity provides a cost savings and ensures that one will receive a benefit from either coverage.

Worksite permanent life insurance has been around for decades, often paid with payroll deductions. Now many such products have added LTC riders to their offerings.

One such carrier, for instance, has developed a rider that provides 4% of the death benefit each month for qualified LTC expenses for up to 25 months, or 100% of the death benefit. Policies offering coverage for up to 50 months have also become available. The cost of the rider is quite modest, and the coverage can be used for any form of LTC, be it nursing home, home care or assisted daily care. Any amounts not used for LTC remain as a death benefit.

The base underlying policy is guaranteed level premium term insurance to age 120. Full portability provides lifetime coverage.

Because the employee is able to receive either a death benefit or long term care, or both, this solution is far more palatable and easier to communicate than is a stand-alone LTC policy. It offers rewards for the employer and the employee alike. Add to the mix possible guaranteed issue and selection of coverage amounts and the past problems of selling LTC in the workplace may finally be answered.

William (Tinker) Kelly is the president and chief executive officer of Voluntary Employee Benefit Advisors, Nashville ([email protected]), and David A. Bardes is president and CEO of Bardes Consulting LLC, Burlington, N.C. ([email protected])