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5 Ways to Handle a Falling Sky

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Consumers might know a little more about the value of long-term care (LTC) planning and long-term care insurance (LTCI) – and that isn’t helping all that much.

The problem: even many of the sorts of responsible consumers who vote regularly, buy a respectable amount of automobile insurance and know they ought to prepare for the future are preoccupied with thoughts about short-term survival.

Two LTCI carriers – Bankers Life and Casualty Company, a Chicago, a unit of CNO Financial Group Inc., Carmel, Ind. (NYSE:CNO), and John Hancock Financial, Boston, a unit of Manulife Financial Corp., Toronto (NYSE:MFC) – talk about consumers’ ideas about LTCI in two new survey reports.

Analysts at the Center for a Secure Retirement, a unit of Bankers Life, recently commissioned a survey of 800 U.S. adults that was conducted in September 2011.

An independent research firm called people ages 47 to 75 who had annual household incomes of $25,000 to $75,000. The sample included 400 boomers who were not yet eligible for Medicare and 400 middle-income adults, ages 65 to 75, who are boomers or members of the Silent Generation and are eligible for Medicare.

Bankers Life found plenty of evidence of continuing consumer ignorance about Medicare and LTCI.

Medicare does provide some coverage for skilled nursing care in the home and at facilities for patients who are recovering from acute illnesses, but it does not cover true LTC, or the types of services, such as round-the-clock supervision, homemaker services and personal care services, that candidates for LTC typically need.

Only 37% of the Bankers Life survey participants understood that Medicare provides no coverage for home-based LTC, and just 34% understood that traditional Medicare provides no coverage for facility-based LTC.

John Hancock commissioned a separate survey of 1,000 U.S. residents ages 21 to 75.

John Hancock found that, however ignorant many consumers might be about LTC planning, general awareness has increased since 2006.

A majority of the participants in the latest survey could answer 7 out of 10 basic LTC questions. In 2006, a majority could answer just 4 questions correctly.

About 82% of the participants in the new survey agreed with the statement that it is irresponsible not to plan for the cost of LTC.

But the Chicken headpercentage of consumers who said they have dared to calculate what they’ll need for retirement has fallen to 66%, from 72% in 2006, before the economy went to heck.

The percentage of participants who said they’ve made plans for financing LTC has fallen to 22%, from 31%.

“Most consumers appear to be making long-term care plans by default, thinking they’ll rely on government programs, which already are showing signs of strain,” Marianne Harrison, president of John Hancock LTC Insurance, says in a statement about the results.

Many consumers say they have no choice but to depend on the kindness of strangers in Washington who happened to have piled up trillions of dollars in debt.

The percentage of consumers who said they cannot afford to pay for LTCI has increased to 80%, from 66%, and 32% said the state of the economy has reduced their ability to pay for LTCI.

So, what can the agents and brokers who are supposed to be selling LTCI do about the effects of depressing headlines and emptier wallets?

Here are some ideas about ways to firm up the firmament:

1. Ponder the history of skies. The sky has fallen on Adam and Eve, the folks who chose not to go boating with Noah, the Greek empire, the Roman empire, plenty of other empires, the Edsel, Montgomery Ward, and even (apparently) on Martha Stewart’s main TV show. But you’re here and the consumers you’re trying to serve are still here, even if you’re nervous. It’s better to get busy working to be a nimble survivor than to think too much about whether the clouds are getting closer.

2. Find consumers who are still doing OK. Plenty of prospects are still doing fine,Tall Chicken and, given how low the LTCI penetration rate is, plenty of them have little awareness of the existence of LTCI, let alone experience with an agent actively pressing them to buy LTCI. The current state of the economy might even help motivate affluent consumers to buy LTCI. Life insurance companies can have, problems, too, but the life insurance industry has done a much better job of paying benefits since 2005 than mutual funds have done at making assets grow. Buying LTCI is a good way for consumers who are doing well today is a way to lock in their prosperity and protect themselves against the possibility that they might someday be broke at the worst possible time.

3. Think of the children. Even if some older, still-prosperous consumers prefer not to think of the possibility when retirement might mean something other than playing golf in Spain, their children might like the idea of getting an inheritance that consists of something more than family photos, and they might like the protection that something might go wrong with their parents’ mutual fund-based income planning efforts.

4. Talk to providers. LTCI carriers have a huge incentive to pay claims smoothly and promptly. The best LTCI marketers may be facility managers and home health care agencies that have good results with LTCI claims. Whenever an adult son or daughter talks to a LTC provider manager, and the manager says, “I wish your parent had LTCI,” that son or daughter becomes a fine LTCI prospect.

5. Tailor the products to suit the times. Most agents would prefer to sell a policy that provides lifetime benefits, but maybe having a limited plan, to get the patient started with LTC on the right foot, is better than nothing. In the long run, maybe LTCI carriers need to emulate the health savings account (HSA) model. Instead of taking on huge amounts of moral hazard risk by covering home health care and facility care on a roughly even footing, maybe the carriers need to work with the government to set up an LTC HSA program. Consumers could use the LTC HSAs to pay for a great deal of home health care, then use their LTCI policies for facility care and prolonged home health care needs. That might make the products more affordable and more profitable, by reducing the likelihood that insureds who could fend for themselves will draw on LTCI benefits.