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Voluntary LTCI Market Keeps Moving

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Turning North America into a big source of profits took about 300 years.

Sometimes, it seems as if getting significant income from long-term care insurance (LTCI) employee benefits programs will take about as long.

Tom Riekse Jr., a managing general principal in the Lake Forest, Ill., office of LTCI Partners Inc., said in an interview that he continues to see steadily growing employer interest in helping workers with long-term care planning, and plenty of insurance organizations have survey data supporting that assessment.

But Rich Reda, an executive vice president at Lockton Companies L.L.C., Kansas City, Mo., an insurance broker, said he is having trouble finding many carriers that can offer the kinds of underwriting strategies and stable prices that employers are looking for.

A few years ago, Reda said, he could give employers a choice of as many as 10 major voluntary LTCI carriers. Now, he says, he often has only 2 or 3 names to offer.

An employer can provide LTCI benefits by offering a true group LTCI policy, paid in whole or in part by the employer; bringing in sellers of worksite LTCI policies, or individual LTCI policies designed for sale at the worksite; or arranging for employees to make contact with sellers of true individual LTCI policies.

Traditionally, employers have tended to focus on offering voluntary, employee-paid, worksite LTCI programs. Those programs hold the employer’s costs down, by requiring the employees to pay all premiums; give the insurers at least some ability to decide which employees can and cannot qualify for coverage; and often give the employees access to coverage that is cheaper and somewhat easier to qualify for than if they simply applied for true individual LTCI coverage on their own.

The Federal Long Term Care Insurance Program, for example, offers coverage to federal employees who are actively at work. Federal employees’ relatives can apply for coverage, too, if they go through a medical underwriting process.

About 45,000 “members of the federal family” signed up for new LTCI coverage through an open-enrollment period that ended in June 2011, and total enrollment in the LTCI program increased 20%, to 270,000, according to the U.S. Office of Personnel Management.

LIMRA, Windsor, Conn., found that total U.S. long-term care insurance sales through the voluntary market were 20% higher during the first 3 quarters of 2011 than they were during the comparable period in 2010.

Sales of voluntary LTCI performed better over that period than sales of any other voluntary products that LIMRA tracked other than long-term disability insurance and critical illness insurance.

Employers have been slower to add voluntary LTCI benefits options than many other types of voluntary benefits products.

When Prudential Financial Inc., Newark, N.J. (NYSE:PRU), commissioned a recent employer survey, it found that only 33% of the large employers that participated said they offer a voluntary LTCI program, compared with 35% that offer critical illness insurance and 52% that offer dental insurance.

“Life and disability remain the core of the voluntary package at most employers,” said Gil Lowerre, president of Eastbridge Consulting Group Inc., Avon, Conn.

Selling LTCI through the voluntary market is less common, in part because of the complexity of pricing voluntary LTCI policies and evaluating the riskiness of the workers who apply for voluntary LTCI coverage, Lowerre said.

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Sellers of any voluntary market, including voluntary LTCI, must worry about the possibility that the employees who are motivated enough to sign up for a voluntary product with narrow appeal are employees who already know they are highly likely to file claims.

But Riekse noted that the most powerful source of employer and worker interest in LTC planning is a personal experience with helping a loved one handle end-of-life issues.

Most of the parents of the older baby boomers are already in the “old old” stage of life, and the boomers are rapidly getting consumer LTC awareness training from the Honorable Institute of the School of Hard LTC Knocks.

One reason for employers and their advisors to act on the matter quickly is that the days when boomer employees — and even the workers in Generation X — can easily qualify for medically underwritten LTCI are passing rapidly. If workers wait until they themselves have serious health problems to shop for LTCI coverage, then they will be unable to find coverage in a market in which carriers apply even the loosest of eligibility requirements.

MetLife Inc., New York (NYSE:MET), has pulled back from the LTCI market in recent years, but, when it asked benefits brokers and consultants about which voluntary products they expect to rise in importance, 65% named voluntary LTCI. LTCI was almost as popular of an answer as voluntary disability insurance, which was cited by 67% of the brokers and consultants, and voluntary life insurance, which was cited by 66%. Voluntary LTCI came in slightly ahead of voluntary dental insurance, according to Dr. Ronald Leopold, a vice president at MetLife.

Market watchers say workers seem to show little interest in LTCI benefits.

But when Hartford Financial Services Group Inc., Hartford (NYSE:HIG), polled about 1,000 U.S. workers with a minimum household income of $25,000 in late 2011, it found that the workers were about as likely to express some interesting in buying LTCI through a voluntary benefits program as they were to express an interest in buying voluntary short-term disability or voluntary long-term disability products.

About 25% of the Hartford survey participants said they would like to be able to buy LTCI coverage through the worksite.

The Hartford survey participants were far less likely to rank LTCI as one of the top two products they want to buy through the worksite, but that might be partly because they are much less likely to feel that they understand LTCI than other voluntary products.

The percentage of survey participants who said they felt as if they “completely understood” a product was 39% for life insurance, 25% for disability insurance and just 20% for LTCI.

How can advisors help employers that have caught the LTC planning bug at a time when the LTCI industry has the flu?

Hartford has tried to fill the LTC planning void by developing life and annuity products that come with LTC funding features. In the long run, maybe the majority of voluntary life products could be life-LTC hybrid products.

In the short run, Reda said he advises employers interested in helping employees with LTCI planning to consider match workers with providers of true individual LTCI products if acceptable group or worksite LTCI programs are not available.

Some other possible solutions:

  • Employers could at least give workers estimates of how much extra the workers must contribute to 401(k) plans or other retirement savings arrangements to prepare for the possibility of needing LTC.
  • As difficult as providing completely, stably priced LTCI programs is, maybe providing an imperfect something is better than providing nothing. Maybe larger employers, and employer associations, could develop voluntary, self-funded LTCI programs, along with prominent warnings that the ultimate performance of the programs could be difficult to project.
  • Groups of employers and insurers could join to form LTCI cooperatives, through which employees could earn credits for getting care from cooperative members and cooperative service providers by providing care for other cooperative members.