Advisers find LTC products are falling short of market needs
Here are some interesting tidbits about long-term care in the U.S.:
· The average American will need nearly $175,000 on average to cover their long-term care expenses;
· the chances are fifty-fifty that to cover those costs an individual will need some kind of LTC insurance;
· more women outlive their benefits then men (16% vs. 9%);
· Connecticut tops the list of most expensive states for LTC at $244,000;
· Nebraska is the least expensive at $130,000.
Those fun-filled facts and others come from a new report on Americans long-term care prospects courtesy of PwC. The report sheds light on LTC coverage gaps that could be eased with the help of more thoughtful public policy.
At $50,000 to $100,000 per, “There needs to be some way of encouraging savings for the majority of claims or insurance to cover them, explains Larry Rubin, a principal with PwC who specializes in LTC.
For the report, PwC analyzed the claims data of more than 200,000 users of LTC services. Rubin says it’s the first time such a study used hard data from an insured population that wasn’t restricted by a government program on where its members can obtain their care.
Current market conditions mean millions of American seniors will turn to government for LTC benefits that sap money from federal and state tax coffers that could be used for education, infrastructure and other programs, cautions Jesse Slome, executive director of the American Association for Long-Term Care Insurance.
“America continues to kick the can down the road and bury or hide reports like this under the rug,” Slome says. “But just like climate change will raise ocean levels and impact cities located along the coasts, the tsunami of unprepared seniors will impact Medicare, American families and healthcare.”
Various solutions have been bandied about. For example, Slome notes that some states have considered adding more LTC coverage to Medicare.
Rubin’s suggested fix is a change to the regulatory framework that would allow employees and others to self-fund their LTC benefits through a health savings account, an insurance hybrid or an annuity. In short, he says, “There’s a need for product designs that better match the risk.”
He describes one such product—a whole life insurance-LTC hybrid plan. But with premiums that are significantly higher than a conventional LTC policy, Rubin admits that such a policy is limited to those who can afford to self-fund.
And there’s another limitation, he adds: “Hybrids only provide four years of benefits and catastrophic claims can go much longer than four years.”
While he agrees the need for LTC insurance exists, Slome fears that too many insurers are abandoning this product line, which exacerbates the problem and squelches interest from brokers and advisers. “We don’t currently have insurance companies that are looking favorably at this marketplace,” he says, “and if you don’t have product, there isn’t much brokers can really do.”
However, he suggests that the brokerage community take a closer look at the executive carve-out market for LTC insurance, which “is still extremely viable and beneficial.” Relative to the amount of legwork needed to sell policies to average working Americans, Slome says broker commissions on LTC benefits for executives are much higher and less labor intensive.
“If you do a carve-out for 10 executives, they’re all completing their applications and the company is writing a check, and the whole thing is done in the span of three hours, I know agents and brokers would take one of those every day of the week over large groups,” he says.