The Long-Term Care Paradox: Many Want, Few Buy

By Cyril Tuohy

InsuranceNewsNet

Long-term care insurance (LTCi) is affected by a peculiar paradox. It’s the kind of insurance millions of Americans say they want, yet LTCi is also a product that for many is out of reach.

How has the industry arrived at this juncture, particularly when sales of LTCi seemed to be going strong 15 years ago?

For one thing, there are fewer agents selling it, according to Jeremy Pincus, principal at Forbes Consulting Group and an expert on long-term care. He estimates only between 5,000 and 10,000 LTCi agents and specialists sell the product in the U.S., and most often LTCi is part of a broader portfolio of life products available to agents and financial advisors.

“The industry has moved away from one-on-one kitchen table sales,” Pincus said in an interview with InsuranceNewsNet. Agents are moving to tele-sales and buyers are becoming more “self-directed” in using the Internet to do further research after speaking with an agent, either by phone or face to face.

“With LTCi, it’s a long sale, it’s not efficient,” Pincus said. “It’s sold by financial advisors who are doing life or disability and they don’t want to deal with it.” He estimates the total market for LTCi at about 50 million people.

Jesse Slome, executive director of the American Association for Long-Term Care Insurance, estimates the LTCi market is much smaller, at about 8 or 10 million people. Big structural changes are taking place in the LTCi market as it reverts to a specialist market after a period when it was sold more broadly, he said.

“LTCi started as a specialist market, then it expanded and everybody sold it,” Slome said. “Now it’s back to the specialist market. Google is making it a specialist market.”

What does the online search giant have to do with insuring oneself against the need for nursing assistance and other chronic needs? When an agent leaves a prospect’s house, buyers take to the Internet to search for LTCi  coverage or an alternative, Slome explained.  Consumers are buying LTCI, but just not from the agent because buyers are simply shopping around. “It’s going to get more like that,” Slome told InsuranceNewsNet.

However policy experts slice the numbers, LTCi in the end is a very small market, Slome said. “While everybody says ‘Look at all these boomers,’ the market is limited. Not everybody wants it. You have to be able to afford it. You have to be able to qualify for it. And thirdly, you have to be the right age – in the mid-50s to mid-60s.”

Costs are a major impediment to buying coverage. A 55-year-old single individual purchasing LTCi protection can expect to pay $2,065 a year for $162,000 of current benefits which will grow to roughly $330,000 of coverage by age 80, according to the 2013 LTCi Price Index released earlier this year.

Richard Frank, a noted professor of health care policy at Harvard Medical School, said more long-term care insurance could be made available to more people if employers gave workers the option to buy it along with their group health coverage.

He also said underwriters — of which there are fewer selling LTCi — could simplify the current “a la carte” approach to buying long-term coverage.

For example, instead of offering a dozen parameters in different combinations, sellers should limit buyers to choosing two per-diem levels, two inflation adjustment levels and three different durations, Frank said.

“This is what group insurers have proposed to help take-up rates. My proposals would make that be regulatory,” he said. Altering deductible levels and duration periods could also knock down premiums significantly, he said.

Issues around the affordability of long-term care have cropped up in the wake of the demise in 2011 of the Class Act, which would have established the nation’s first voluntary public long-term care insurance program.

Instead, Congress created a Commission on Long-Term Care to develop plans for a “comprehensive, coordinated and high-quality system” to protect older adults and people with disabilities.

Cyril Tuohy is a writer living in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].