Changes in benefit design and financing options for long-term care insurance products would help stimulate demand for the slow-selling insurance line, according to a new report.
The report, published by the National Association of Insurance Commissioners, offers dozens of ideas to boost LTCi sales using everything from tax incentives to linking products to health insurance to a cash-out option for policyholders.
“It is expected the overwhelming majority of elderly Americans will require long-term care at some point in their lives,” write analyst Dimitris Karapiperis and Eric C. Nordman, director of the NAIC’s Center for Insurance Policy and Research.
Long-term care expenditures exceed the retirement income and savings of a large portion of middle-class retirees and that jeopardizes their living standards and quality of life, Karapiperis and Nordman write in introductory remarks to “The State of Long-Term Care Insurance: The Market, Challenges and Future Innovations.”
“The recognition that over time the high cost of LTC could potentially exhaust the assets of even the more affluent senior households makes the need for insurance against this risk extremely critical,” the researchers write in the 181-page report published last month.
Products, Financing Strategies Outlined
Among the product changes outlined in the report, experts propose the development of shorter-term LTCi products, pricing LTCi products on more of a “term-basis” like life insurance, and allowing for penalty-free withdrawals from retirement plans to buy LTCi. Also, creating state-based reinsurance pools, designing a product combining aspects of LTCi and life insurance, and developing several high-deductible catastrophic LTCi plans are discussed.
Changes to the financing side include expanding the support between state Medicaid programs without having to spend down assets if and when LTCi benefits are exhausted. Also, providing tax credits for long-term care expenses, indexing premiums and benefits to minimize inflation and incorporating LTC services within Medicare or Medicaid supplemental insurance plans are options.
In addition to the report, the NAIC formed the Long-Term Care Innovation Subgroup to study the future of financing long-term care and the kinds of products that are most viable in the marketplace.
In the 30 years that LTCi has been sold, long-term care expenditures have ballooned from less than $20 billion a year to more than $239 billion in 2014, much of it borne by taxpayers through Medicare and Medicaid, the report said.
The NAIC report consists of suggestions by about 30 experts representing different aspects of the industry: insurance company executives, regulators, academics, policy experts, consultants and financing specialists.
Public policy experts say that stimulating the private market for LTCi will help control public spending on LTC, but despite brisk sales early on, consumers are no longer buying LTCi at previous levels. Hybrid LTCi products are still selling well.
Individual LTCi policies sold in 2014 dropped to 129,000 from a high of 754,000 in 2002, according to the report. Meanwhile, the cost of LTC at a private facility is easily in the tens of thousands of dollars a year, and rising every year.
In 2014, there were 7.2 million people in the U.S. covered by private LTCi and insurance companies were earning an estimated $11.5 billion in premium on those policies.
Market Profile in Transition
While the experts say there’s still room for growth in the LTCi market, the market has changed dramatically since the products were first developed in the late 1980s, according the report.
On the supply side, insurers abandoned the market after they found the line unprofitable. As LTC companies exited, a contraction in the number of selling agents followed, according to Vincent Bodnar, chief actuary of the consulting firm LTCG in Eden Prairie, Minn.
Decreasing interest rates and higher new business premium rates — only to be followed later by higher premiums on in-force policies — made LTCi more difficult for agents to sell and less appealing to consumers to buy.
On the demand side, baby boomers who made up a progressively larger slice of LTCi buyers and who expected more immediate benefits from an insurance policy, lost confidence in a product that doesn’t offer any “cash out” options or more tangible benefits, Bodnar said.
The World War II generation was satisfied with protecting assets for the sake of transferring them to subsequent generations, but baby boomers are less interested in that goal, he wrote in the study’s chapter on the lack of private insurance penetration.
“At end of the day, the numbers are decreasing for traditional LTCi but the linked-benefit products are up,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance in Westlake Village, Calif.
The market for stand-alone LTCi policies “is smaller than anyone believes,” Slome said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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