People Still Need a Way to Pay for Long-Term Care: Idea File

Most life insurers are now scared to death of writing stand-alone long-term care insurance.

Millions of aging, non-poor, cash-strapped Americans are getting older.

Vince Bodnar, the chair of the Long Term Care Think Tank at the Society of Actuaries, has this idea: Someone ought to figure out more ways insurers can help people protect themselves against long-term care (LTC) risk.

(Related: Actuaries Choose New LTC Future Shapers)

Life insurers are selling annuities and life insurance policies with features that can help people pay LTC bills. But some have argued that people still need arrangements that do more to maximize the amount of resources available for people who end up need LTC services for many years.

Bodnar said in an interview that the SOA Long Term Care Think Tank has helped to develop two LTC finance concepts that appear to have broad appeal.

One is the “life stage” concept. A life stage product would term life coverage when an insured was young, then provide long-term care coverage when the insured was older.

The second is the 401(k) LTC benefits concept. Advocates of this proposal would let workers use some of the assets in a 401(k) plan, or a similar plan, to pay for LTC coverage.

Here are seven things to know about the concepts.

1. Young (and Not So Young) Invincibles

The life stage and 401(k) LTC concepts could overcome two major obstacles for stand-alone LTCI issuers: Consumers’ need to pay bills now, and those consumers’ resistance to thinking about long-term care.

“They can’t envision themselves needing it” Bodnar said.

One solution might be to attach LTC benefits to some other product that consumers already like, Bodnar said.

If the arrangement could pay cash to the heirs of people who get through life without ever needing LTC services, that would be even better, Bodnar said.

In that scenario, “you wouldn’t have the use-it-or-use-it characteristic,” Bodnar said.

2. Actuarial Analysis

Actuaries assumed, as a given, that consumers would have to go through underwriting to buy the life stage or 401(k) LTC product, and that the consumers would have to pay for the products themselves.

Even under those assumptions, actuarial analysis suggested that both the life stage approach and the 401(k) LTC benefits approach could lead to viable products, Bodnar said.

“They both have quite a bit of appeal,” Bodnar said.

Having the government cover most or all of the costs for all could decrease the per-person cost, by putting healthier people in the risk pool.

3. Timing

An insurer could probably create a life stage plan today and get it into the field in about two years, Bodnar said.