Facing the long-term care explosion — With Genworth’s Tom McInerney

As more and more of the 70 million baby boomers require long-term care, the dearth of insurance providers and the shrinking number of care workers are shaping up to create a major challenge, says Genworth President and CEO Tom McInerney.

As one of the handful of long-term care insurance providers, Genworth is working to provide products to address the LTC need. Even so, McInerney says, with the tiny percentage of Americans who have LTC coverage, private-public partnerships such as the pioneering WA Cares program in Washington state may be needed to help assure adequate coverage.

McInerney said working to overcome the past reputation of the LTC industry, which had failed to adequately deal with the drastically rising costs of care, requires a clear-eyed view of how to ensure a solid foundation for the future. Genworth’s subsidiary CareScout Insurance will offer what he calls “stand-alone long-term care insurance. … The premiums go entirely toward paying the LTC claims in the future.” And future offerings include hybrid plans that may incorporate life or annuity components.

Prior to joining Genworth in 2013, McInerney served as a senior advisor to the Boston Consulting Group, providing advisory services to leading insurance and financial services firms. He had also previously served as a member of ING Groep’s Management Board for Insurance, where he was the chief operating officer of ING’s insurance and investment management business worldwide, and served in many leadership positions with Aetna, where he began his career as an insurance underwriter in June 1978.

In this interview with InsuranceNewsNet Publisher Paul Feldman, McInerney describes what it will take to provide successful long-term care insurance, what the explosive need will be in the next few years, and why public plans may be a vital component.   

Paul Feldman: Tom, you’ve had a very successful career. How did you get started in the industry?

Tom McInerney: I started in insurance in 1978, out of college. I spent more than 20 years with Aetna, in all lines of business around the world. I was running the financial division of Aetna when that was sold to ING, a big Dutch financial service company. I spent 11 or 12 years there, and then ultimately came to Genworth 12 years ago.

Feldman: Genworth is a leader in long-term care insurance, and it has been an interesting marketplace. Tell us about the challenges you faced, and where you see it going.

McInerney: I would say that I think it’s very unfortunate that when the business started 40 years ago, the regulators and the insurance companies, and probably the policyholders, all believed that the way to run the business was to start with original pricing assumptions and try not to adjust premiums until it became very obvious that there were issues. I think because of that, the history and the legacy, which has not been good as everyone knows, resulted because the product was generally approached as, a level premium. Although there was always the right to raise premiums as needed, that took way too long to happen. 

Going forward, I believe the private individual LTCi business could be a strong business as long as you start with conservative assumptions for things like interest rates, lapses, and the incidence and the severity of claims. But then look at the original pricing assumptions — and reality every year — and to the extent that they differ, make appropriate adjustments in the premium levels, just like on most other lines of insurance. That wasn’t done. We are in the process of filing a new long-term care insurance product under the CareScout brand. The essence of that will be that we’re starting with conservative assumptions, but we’ll review those annually. To the extent that the assumptions prove to not reflect reality over the next 40 years, we’ll make assumptions along the way. If we need to change, we will do that.

Today, there are fewer than 10 companies that still write business, including us going forward with the CareScout brand. But we have interest rates more aligned with where the market is today, and we assume the annual lapse rate will be less than 1%. We’ve paid 370,000 claims over the last 40 years — about $30 billion worth of claims. We now have a very significant set of claim data on incidents and severity. So, we think pricing today reflects what the historical experience has been.  I think that will be much better going forward.

Feldman: Tell us a little bit about CareScout.

McInerney: Genworth Financial acquired CareScout in 2008, and, historically, CareScout has been a very important subsidiary for us in the long-term care industry. Primarily it has run the Cost of Care survey process, as well as doing all the assessments. When our policyholders file a claim, CareScout has done all of the assessments of the claim. Going forward, in addition to continuing with the survey, continuing doing the assessments, there are two other new businesses that CareScout is launching. One is already in place, and that’s called CareScout Services. 

So, you would come to us, whether you’re a policyholder or a consumer without any insurance, and we would use CareScout to assess the claim, come up with a care plan, and then we’d recommend a CareScout Quality Network provider to you. And if you chose that provider, then you would be able to receive preferred rates that are generally about 20% below what that same provider would normally charge. So that’s one of the new businesses of CareScout. And then we’re launching our first new long-term care insurance product next year, with another subsidiary called CareScout Insurance. This product will have not only better, more conservative assumptions that reflect the current reality, but also an understanding with regulators and with our policyholders going forward. If those price score assumptions differ from what reality is, we’ll change the premiums to reflect that.

Feldman: So there are only 10 carriers offering long-term care insurance today. It seems like a lot of the market has gone toward life insurance as a rider, or an annuity as a rider. 

McInerney: This new policy I just described for CareScout Insurance is what I’d call a stand-alone long-term care insurance because there’s no life insurance associated with it. The premiums go entirely toward paying the LTC claims in the future. So therefore, there’s generally more coverage on those policies for long-term care than there is in a hybrid. But the complaint about traditional long-term care historically has been, “Well, if I pay these premiums but I never use the policy, I’ve received no value.” So hybrids were introduced many years ago for that need. If you have an long-term care need, the hybrid policy covers that, but if you don’t have care needs, ultimately there’s an annuity or a life insurance benefit. 

Our first product, CareScout Insurance, is a traditional long-term care insurance product, but we will go forward with a whole set of new hybrid policies that will combine hybrid features, life, and annuity, including variable annuities, with LTC benefits.

Feldman: Interesting. What is your distribution strategy with the new products?

McInerney: We will rely on the current distribution that’s available, which is the traditional: brokerage general agents, independent agents, financial planners, financial advisors. We also will offer these new products to the employer. We’ll offer both intermediary distribution and employer distribution. Then going forward, we’re also looking to build the CareScout brand, and ultimately go direct to consumers without an intermediary agent. But that’s probably several years down the road.

Feldman: What would you tell somebody who isn’t selling long-term care insurance right now? I see long-term care insurance as one of the most important things to anyone’s financial plan, and it seems to be missing from most people’s plans.

McInerney: I think that’s right. I think there are many reasons for that. I think, in general, American consumers believe that Medicare covers long-term care, which it doesn’t. So we — and I think the Medicare planners — need to be better at educating the public on that. The second is that it is expensive, but that’s because the care is expensive.  I would say to most individual Americans, as well as distributors who sell insurance, that half of the 70 million baby boomers — who in 2025 will be 61 to 79 years old —  will need long-term care at some point in their life. 

And if you don’t insure against that with private insurance, then you’re going to have to come up with the amount to cover that care out of your own savings. And the average claim that we’ve seen over time has been about $250,000. And some claims, particularly Alzheimer’s disease or dementia claims, can be well over a million dollars, depending on how long the claim lasts.

And with Medicare, you still pay premiums to Medicare, and Medicare does have deductibles, and so on.  I think people underestimate the amount of money they’ll spend on long-term care. 

Feldman: Who do you think is the ideal customer right now for a long-term care policy? What does their demographic look like? Where’s the big opportunity here?

McInerney: I think the broad age category is 40 to 70, and I think the narrower range is 50 to 60;  most people buy in their mid-50s. I think there are probably the top 20% of Americans, by income and wealth, who can self-fund if they want, but they may regret not buying some insurance, because self-funding turns out to be more expensive.

Most people, in my view, should buy insurance to cover at least some portion of what they may need for long-term care. And again, based on claims today, the average claim is in the $250,000 range.

Feldman: What is the age when claims usually begin?  

McInerney: Usually, it’s early to mid-80s. Again, at 40 to 70, 50 to 60, you’re in the prime buying age. I think you want to plan, and either set aside money to pay potential claims, or buy long-term care insurance, whether it’s a stand-alone or a hybrid. And again, I think you can cover some, or all, of what you think you’ll need in the future.

Feldman: So one of the trends I see is home health care. Do you think that changes the game, or do you think that’s in line with all the other claims?

McInerney: If you look at those 370,000 claims that we’ve paid over the last 40 years, two-thirds of them start in the home. I think more people will want to start receiving care in their home if they need care. So I think that will continue to be the case going forward. But I think people underestimate how much in-home care costs. In our 2023 Cost of Care survey, the average cost per year for in-home care — and that was based on around 40 hours of care per week — was about $75,000 a year. Whereas for a single private room in a nursing home, which is the most expensive, and that’s usually 24/7 care, the average there is about $110,000 a year. So home care is less expensive because people don’t usually have 24/7 type coverage in the home, but it’s still very expensive.

If you have a severe dementia or Alzheimer’s disability that causes the need for care, then it becomes a 24/7, 365-day need, and that’s when most people go into an assisted living community or nursing home or hospice care. But I would say with most claims that we’re seeing, when they start to need the care, they can’t do two of the six activities of daily living. Usually, they start in the home. If their disability worsens, many times they will move from in-home care to a facility, and that’s when the hours of care increase dramatically.

Feldman: It’s such an underinsured marketplace.

McInerney: About 90%-plus — probably closer to 95% than 90% — of the baby boomers don’t have long-term care insurance. The younger ones who will be 61 to 70 next year, they can still probably buy. It’s more expensive than if they bought in their 50s, but they can still probably buy. But for the other half of the boomers that are 70 and older, they probably wouldn’t qualify today.

And for them, they’re going to be on their own, paying out of pocket, or relying on unpaid family care. Ultimately, the government program, which is the payer of last resort, is Medicaid. But in order to qualify for Medicaid to pay for long-term care, you have to qualify under the income standards, which are pretty low.  Medicaid reimbursement rates are not sufficient to pay the actual cost of the care.

Feldman: Where do you see long-term care going in the future?

McInerney: I think there is an increasing realization in the states of the situation, because I think they’re seeing the significant rise in Medicaid costs that the states are paying because of the rising long-term care costs as Americans age. And in 2025, the oldest boomer will be 79, which is still below the peak claim year, so it’s only going to get worse. Washington state is probably the furthest along. They now have a program called WA Cares, which is state-funded. It’s a mandatory system, so all employees in the state of Washington pay a payroll tax. It’s 0.58% of their pay that goes into a long-term care fund.

That’s a pretty low tax rate. And they are entitled to care — after paying into the program for at least 10 years — from the Washington state plan, but the amount that’s covered is limited to $37,000, which doesn’t cover a lot. But at least Washington is there. A number of other states are looking at that program. And there’s a Senior Aging Committee of the Senate, and there’s a group in the House that focuses on a federal long-term care system. Nothing has been implemented. There is a federal legislative proposal labeled the WISH Act. It doesn’t have a lot of sponsors yet. The way that would work, depending on your income, is that you pay the cost of care for a certain number of months, or years, and then past that, the federal government, under this act, if it passed, would step in and pay the amount over that.

And I actually like that program. I like it because it does require individuals to put aside some money or buy a policy to cover some cost of care, but not necessarily enough to cover the very expensive diseases. I don’t see that being enacted at the federal level anytime soon, but I think there are more and more people in Congress who are focused on the need. And then the states are experimenting. While Washington is the furthest along, I know California and several other states are looking at similar kinds of programs.

I think ultimately, based on my 12 years of being at Genworth and CareScout and focusing on this industry, the best solution is a private-public partnership, where you have to have either private insurance or private savings to cover some amount based on your income. So the lower the income, the more the government steps in earlier, and then beyond a certain amount, particularly for the severe dementia-type diseases, there’d be a government catastrophic coverage paid by a broad-based payroll tax that would cover the higher level of claims beyond the amount that needs to be covered privately. I think that’s ultimately the right solution. I do think it’s very difficult politically because it’s a long-term problem, and Congress tends to have enough challenges.

So I do think we’re getting close, because the oldest boomers are only a few years away now from their peak claim years. There needs to be much more focus on how we’re going to cover those 95% of boomers who don’t have long-term care insurance. Some, maybe the top 20%, have enough in savings, but for the rest, I think it will be a significant challenge for them.

Feldman: How do you see the nature of caregiving changing? We see a lot of skilled nursing facilities are closing. They can’t afford to keep their doors open. People can’t depend on family members to take care of them because people have smaller families, and they’re scattered. Where do you see the future of the actual caregiving itself going?

McInerney: I think that’s a major challenge going forward. The first thing I’ll say, there are 70 million baby boomers who are 61 to 79, and in 2026, those born in 1946, which is the first year, will be turning 80; then it’ll be a little under 10,000, but close to 10,000 every day for 20 years, and that creates a significant demand for caregiving. And then the supply of caregivers, as you said, is decreasing. It’s very hard work, and generally very low pay. I think we already have a significant shortage and that’s only going to increase as the baby boomers age. I think that the public sector and the private sector have a lot of work to do to figure this out, because this is supply-demand.

And then it’s economics 101. Demand will go up dramatically as the 70 million baby boomers age. The number of people 85 years and older will triple over the next 20 years as those baby boomers age. But the supply is not tripling to cover that; it’s actually shrinking. So it’s a huge challenge, and I think the ultimate solution for that is very complex. We will need to train more people to give care, and we will have to pay them better. That also increases the cost of care, but we must do those things. And I think without a significant increase in paid caregiving to meet the demand of the baby boomers as they age, the care will fall to their family members, their kids.

So I’m right in the middle of the baby boomers; I’m 68. I have three daughters; they’re 35 to 40. Fortunately, I have coverage, but I think that a lot of the children of the baby boomers are going to increasingly become members of the squeeze generation where they have their own kids. I have three granddaughters, and they’re five or younger; so my daughters are taking care of them. And if I didn’t have insurance, my daughters would have to potentially also take care of me. But 95% or so of boomers don’t have insurance, and so they’re either going to rely on their savings or have to ultimately rely on their children or family members to provide non-paid care. That will be a big challenge. I wish I had an easy answer. I think it’s very complex.

It will take both the public and private sector working together to try to figure that out. Maybe some of these new pharmaceuticals for Alzheimer’s and other diseases can help reduce the demand side, but I think there needs to be a dramatic increase in the supply of caregivers, for sure.

Paul Feldman started the website InsuranceNewsNet in 1999, followed by InsuranceNewsNet Magazine in 2008. Paul was a third-generation insurance agent before venturing into the media business. Paul won the 2012 Integrated Marketing Award (IMA) for Lead Gen Initiative for his Truth about Agent Recruiting video and was the runner-up for IMA's Marketer of the Year, a competition that includes consumer and B2B publishing companies. Find out more about Paul at www.paulfeldman.com.