As we approach the second anniversary of the financial crisis, it’s apparent that the ripple effect has moved well beyond housing and reached almost every aspect of the economy.
Significant areas that have been affected have been long term care planning and long term care insurance (LTCI). For example, although the major long term care carriers were able to survive the crisis, the investment returns on their insurance reserves are under pressure, which affects both in-force and new premiums.
However, that is nothing compared with the stress put on the largest long term care payer, Medicaid, as health care reform and the economy adds more and more people to the Medicaid rolls. Aging boomers mean demands will skyrocket, resulting in difficult choices of how to fund care. The Deloitte Center for Health Solutions has published a study titled “Medicaid Long-Term Care: The Ticking Time Bomb,” which explains the issues involved. In addition, many view the CLASS Act, a new voluntary government long term care plan, with skepticism.
What is a potential LTCI buyer to do if they’re averse to risk? We know that consumers have dramatically changed their behavior in the last couple of years. They have soured on the promise of stock market returns, have been sitting on cash, and are seeking to protect what they have.
With this continued uncertainty, how do insurance advisors best coach their clients on the least risky way to plan for LTC?
Here are some tips that may help.
1. Explore guaranteed premium insurance options
Although actuaries design LTCI premiums to remain level, past experience with in-force premium adjustments means consumers are wary of claims with stable premiums. However, there are options for clients who want more certainty. Certain carriers offer single-premium long term care plans, which can be funded by either cash savings or through a Section 1035 exchange. Additionally, some plans offer 10-pay and 20-pay premiums with guarantees. Finally, many life/LTC combination plans offer such guarantees as return of premium deposit or guaranteed insurance rider charges.
2. It’s OK to own more than one policy
Although it would seem strange to own two major medical insurance policies, this is not the case with LTCI. Many people supplement existing coverage with a new plan, or owned both a traditional and linked-benefit long term care product. Since LTC policies provide a pool of money that can be used to pay for care in a variety of settings, it may make sense to diversify policies and decrease the risk that any one carrier may sustain problems.
3. Be realistic about the promise of partnership policies
The concept of partnership plans, now available in most states, is still valid. Those who show initiative and responsibility in purchasing long term care coverage will have their estate size increased by the paid out policy benefits, which can be disregarded in case they need to apply for Medicaid. That being said, the long term care benefits of Medicaid and rules required to qualify can frequently change and vary by state.
When planning for LTC, your clients should carefully explore and consider all funding options, along with the sustainability of those options. While guarantees are hard to come by, it’s best to keep a realistic and skeptical eye on the market.
Tom Riekse Jr. is managing principal at LTCI Partners, a brokerage general agency specializing in long term care insurance. He can be reached at [email protected]