For the majority of readers, you first become eligible for Medicare during the seven month enrollment period that begins three months before your 65th birthday. This period includes the month you turn 65, and extends for three months beyond. This is a natural milestone in many of our lives when our thoughts turn seriously to retirement.
As I wrote in “The Advisor’s Guide to Long-Term Care 2nd Edition”, long-term care solutions and alternatives should be part of every retirement planning discussion. This sentiment was echoed by the landmark study “Land This Plane”, wherein 67 percent of respondents agreed that the “long-term care problem should be a mainstream financial planning requirement.” Hear hear!
Although the news regales us with reports of uncertainty around retirement, when we actually look at the data we find that folks are retiring right on schedule. The further it recedes into the future, the harder it is to pin down, so people answer surveys saying they intend to work later, or to retire earlier. This is natural when you stop and think about it. But once the date nears, everyone’s retirement date huddles around the same number: the median age at which workers expect to retire is 65 “and has remained stable at that age for most of the history of the Retirement Confidence Survey”. Meanwhile, the median age at which workers actually retire is a constant 62.
The RCS has found through the years that while nearly one out of two workers has retired earlier than they expected, just 1 out of 20 have retired later than they had planned. (This survey is an interesting reminder that life never works out how we imagine, and that polls about what we plan on doing should be taken with a grain of salt. – If I had a nickel for every great thing I planned on doing…) So, are these positive or negative reasons that cause individuals to retire early? Typically, when people leave the workforce sooner than planned, it’s not generally good news — two-thirds of the time it’s due to poor health. Only a quarter of the time is it because they could afford to.
Don’t call us, we’ll call you!
Among the benefits of being a field marketing organization are the many visits we receive from our carrier partners. Any time a new product is launched, we can count on one of our marketers coming to town to share its virtues. Allow me to let you in on a little secret — when the conversation turns to pricing this is what we usually hear, “Our product is most competitive among couples, and for those in their early 50s.” This is neither a knock against any one carrier, nor should it be seen as a real scoop. Insurers price their products most aggressively for the business they hope to attract.
But what does this say about those applicants in their mid-to-late 60s? Are they the forgotten clients, the desaparecidos of LTCI?
To a certain extent, applicants between ages 65 and 75 (today’s upper age limit for an increasing number of carriers) face a wary discrimination. It goes like this, “Long-term care insurance is not new. It’s been around for close to 40 years. You’ve had a long time to think about it. So, all of a sudden today you’re interested? Yeah, right.” The carriers should be mindful, since there’s statistical evidence that adverse selection rises at older ages. According to one un-named carrier, declination rates rise precipitously by age (One might make the counterargument that rising declination rates at older ages are not necessarily evidence of adverse selection, but evidence of underwriting paying more scrutiny to older applicants who are less healthy at older ages.):
|55 to 59
|60 to 64
|65 to 69
|70 to 74
|75 to 79
So, to make inroads among the “Medicare Generation”, it’s incumbent upon us to either reach those who are not already adversely seeking us, or to overcome what is sure to be an affordability objection. After all, one insurer does report that nearly 30 percent of its applicants are over the age of 65. Let’s see what approaches we might take.
It would be wonderfully original if I could avoid making the same set of recommendations I made when recently discussing the Gen X market – namely consider your inflation protection options, make targeted use of combination products, among other things. But we’re going to find that impossible.
First, let’s address the elephant in the room.
One of the reasons combination products are increasingly popular among this age group (average age of purchase being 67) has to do with a phenomenon we described earlier. If you’ve not purchased long-term care insurance by your mid-sixties, it could be said to have “passed you by” both in terms of price and health (One Consumer Study of buyer trends reports the average buyer is a “married female Caucasian age 55 – 64”). Husbands in particular — who are more concerned about insuring their wives — may find themselves uninsured in their late 60s.
These men who’ve lived with the attitude that they’d never need insurance may be swayed by the guarantees of a combination product. As one carrier puts it, “Their care is covered. Their life is covered. Their decision is covered.” — it’s as close to a sure thing as you can get.
Gaining increasing attention this year thanks to favorable IRS rules are longevity annuities, a term we use to include both QLAC’s and DIA’s. Although not strictly a long-term care planning tool, longevity annuities can be exceedingly useful for those nearing retirement who are concerned about outliving their money. The most common example suggests purchasing a DIA at 65 which will annuitize at age 85.
We should add — not all combo products are necessarily easier to qualify for than traditional long-term care insurance. With the exception of annuity-based products, most life-based products’ underwriting guidelines will suggest that if your client cannot qualify for long-term care insurance, you should probably not submit him or her.
Next in our arsenal are all the changes we can make to the benefit design of a policy in order to create a policy a Medicare Generation client would find attractive. But let’s not paint with a brush that says, “Because the individual sitting across from me is 65, I will therefore always recommend XYZ.” Is that suitable? Hardly.
Instead, like any client sitting across from you (even those seated 2,000 miles across from you), you’ll ask good questions and listen. (As I was reminded recently, we’ve got one mouth and two ears for a reason!) Since we’re having a retirement conversation — where does your client plan on retiring? Will there be family nearby? What kind of infrastructure of support does she expect?
Worth discussing – not just with your clients, but among our colleagues as well – are a number of points which might be raised as a result of her answers:
- When there’s little informal support expected, might your client suffice with a plan that reimburses home care at just 50 percent or 75 percent of her total facility benefit? What about 0 percent home care (i.e., nursing home care only)? Clearly, everyone wants to stay at home — and most LTC claims are now paid for care received at home. But the vast — and I do mean vast — amount of home care in this country is provided by family, even in the presence of paid, formal care.
When you’re faced with a client who will have no family present to supplement three to four days per week of care, your client may find herself more suitably cared for in a facility. Meanwhile, cost of care surveys have consistently supported that assisted living runs no more than 50 to 75 percent the rate of nursing facility care — this is another place to cut costs.
- What’s the correct inflation protection choice for someone in her mid-sixties? According to the Social Security Actuarial Life Table, men and women reaching age 65 can expect to live to 82 to 85 years of age on average. Of course, the longer you live, the longer you can expect to live — that’s how we end up with some lucky outliers making it to 115. A fun fact known as the “compression of morbidity” also means that the older you live the more likely all these chronic diseases are to pile up on you right in the final years of your life. There is always that to look forward to.
But are we better off choosing an inflation choice with a 20-year cap, or perhaps a 5 percent compound two-times or three times cap? The average age of claim in long-term care insurance varies between ages 79 and 82 – at which point premiums typically go on waiver, but benefits generally continue increasing. Most agents who’ve toggled the various inflation options on illustration software are aware how steeply the inflation rider influences the final price.
Is it worth taking the money one might save on a rider and instead “overbuying” the daily benefit right from Day One? Possibly. This is the sort of cost-benefit analysis you simply have to perform and share with your client.
- Too many agents are still saving money by choosing a 90 day elimination period. How many? According to the American Association for Long-Term Care Insurance (AALTCI), it’s being sold on over 90 percent of policies (2012 Sales by Elimination Period, “90 – 100 Days = 92.3%”.) If I could wave a magic wand and make one thing disappear in all of LTC insurance, it would be this stupid idea. Even for a 65 year old who buys a $200 per day benefit that increases by 3 percent per year, in 20 years if she goes on claim, she would incur a deductible of $31,560.
I ran a quote with one particular carrier, comparing a 90/0 day option against a 0/0 day option (one in which days of HHC offset the 90-day elimination period — a very common option nowadays) and by taking the longer elimination period the client saves $769 each year. Sounds like a lot, doesn’t it? But to recoup these savings after shelling out the first $31,560 on her claim, she’d first have to pay premiums for 41 years… to age 106. Are you starting see why I dislike elimination periods? Offsets only work if a claimant uses Home Health Care before transitioning to Nursing Home Care. Statistically, transition events are rare: 80 percent of claimants never make a transition at all.
I ran a quote with another carrier comparing 90/90 versus 0/0, which saves our client a wholesome $955 each year. This time, our 65-year-old would recoup her deductible in just 33 years, at the ripe age of 98.
Of course, these are just numbers and cents. It misses the larger point, one which only dawns on those of us who’ve taken the real calls from family at claim time or who’ve read the vicious reviews of real-life claims in the newspapers or the reasons why our industry’s claims practices have fallen under scrutiny: we brought it on ourselves.
You see, everyone wants to save a nickel the day they take out their policy. But the day the children file a claim, no one wants to wait even ten minutes — let alone three months (!) — for their money. The children have no idea why their Mom or Dad took out such a long elimination period and angry policyholders take to the forums to decry insurance companies who will “do anything to wriggle out of paying a claim”.
Meanwhile, studies of our claims-paying practices have shown that long-term care insurance has a great claims-paying record — one to be proud of. Instead, our problem is one of miscommunication. Most claimants either don’t understand their triggers or their elimination period, according to both the U.S. Department of Health & Human Services (HHS) Clinical Audit (April 2010) and a professional claims facilitator. Funny thing is, every agent I talk to says, “It’s not me!” I guess it’s always the other guy.
In any event, if you believe first-day coverage is right for your clients, get it while you can. Like other “de-risking” behavior taken by long-term care insurance carriers of late such as capping benefit periods and implementing maximum ages, first-dollar coverage is not long for this world, I predict, since it induces people to claim sooner and it’s sold almost negligibly. There has been talk of eliminating some first-dollar benefits under MediGap Plans to hold down costs as well.