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Is this the End for LTC?

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Group long-term care insurance is in a slump, and it is unclear when, if ever, the slump will end. The latest bad news for the market is that the percentage of organizations that offer the benefit either as a true group plan or voluntary benefit fell to 31% last year, from 46% in 2006, according to the Society for Human Resources Management, Alexandria, Va.

Of those now offering the benefit, 5% planned to eliminate LTC insurance as a benefit in the next year, SHRM reports.

A study by LIMRA, Windsor, Conn., yielded similarly dismal data. New premium for group coverage reported by LTC carriers in 2009 totaled $123 million, a 25% decline from the year before.

Sales to new participants of existing group plans declined over 30%, while sales to new employer groups posted a decline of 3% for the year, according to LIMRA.

One problem for group sales is that many employees are too young to be pondering a future need for a product the main purpose of which is to protect retirement income.

“The majority [of employees] are not in an age group who would pay much attention to long-term care,” says Bonnie Brazzell, vice president of Eastbridge Consulting Group Inc., Avon, Conn. “They see it as an old person’s product.”

A Bright Spot

There is one sector of LTC that could provide some relief, however: group LTC. Although it has a history of low sales, it can still be a growth market for some producers, says Amy Pahl, principal and consulting actuary in the Minneapolis office of Milliman Inc.

One reason for her confidence is that as Americans age, they are becoming increasingly aware that there is a need to protect their assets at some point in their lives.

Helping to nurture this interest is the recent passage of the Community Living Assistance Services and Supports Act, known as CLASS, enacted as part of health care reform this year.

The CLASS Act created a government LTC insurance program available as a voluntary worksite benefit. CLASS will provide a lifetime cash benefit to people who need assistance with activities of daily living, to help them remain in their homes and communities, and payments can also be applied toward the costs of a nursing home or assisted-living facility. Initial estimates are that this benefit would be $75 a day.

Premiums for LTC insurance offered under CLASS will be paid through payroll deductions for participating employees, if their employers agree to offer it.

Pahl believes CLASS could be a double-edged sword. On the one hand, it may encourage individuals to buy private LTC coverage to complement their daily benefit under CLASS. However, it may cause some covered employees to believe they are sheltered adequately, when in reality CLASS benefits would cover only a fraction of LTC costs.

On the other hand, it could also help convince many others to recognize they have a need for this type of insurance, she says.

“The economy is a factor as to employers’ participation,” Pahl says. “Most group LTC is still employee-paid. You have to sell the employer sponsor to get access to employees, but you are still selling the employees because they are funding it themselves.”

The voluntary side of the group market for LTC insurance is likely to grow, Pahl says. True group LTC insurance, however, is a tougher sale, because it is guaranteed issue. That makes it appealing to older workers as well as those who may otherwise have trouble being underwritten in the individual LTC market. But for younger, healthier employees, true group can mean they would pay higher premiums than they could get in the individual market.

Eventually, Pahl sees growth for true group LTC coverage, but for now, employers are scrambling to figure out what health care reform means for their health care benefits, and LTC is a lower priority.

Jennifer Douglas, an associate research director for LIMRA, believes the government will find it difficult to continue to offer low-cost group LTC insurance under the CLASS Act because of antiselection–where employees least likely to need such coverage will opt out, leaving higher-cost participants in.

Nevertheless, group sales might still have huge potential, since LTC carriers and producers have barely grazed the market.

At the end of 2009, there were around 10,500 employers sponsoring group LTC insurance benefits in the U.S, according to LIMRA. Yet there are almost 6 million businesses in the U.S., data from the U.S. Census Bureau show, suggesting that worksite brokers and agents could turn up quite a bit more business.

All that remains now is whether that business will actually materialize, or if the LTC market will continue its downward spiral.


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