The LTC benefit battle
Leading insurance carriers have withdrawn from the group long-term care insurance market, prompting employers to think twice about implementing new programs — are we witnessing the death throes of worksite LTC?
Reflecting on this concern in a presentation at the Intercompany LTCI conference in March, Frank J. Fimmano, SVP, elective benefits practice for Aon Hewitt, agreed with other industry insiders that group LTC is not about to dry up and blow away; in fact, it may be preparing for vigorous new growth.
The LTC industry is undergoing fundamental change prompted by economic evolution and the metamorphosis of many 21st century businesses. A key part of the change appears to be a slugfest between two forms of worksite LTC: “true group” and “multi-life.”
It’s not a fight to the finish, but a struggle for dominance between the two forms. True group and multi-life will both survive, most likely; but only one is likely to prevail, becoming the clear choice in most workplaces.
True group vs. multi-life
With true group long-term care insurance there is a master policy issued to the employer or sponsor; there is a group premium structure, and typically a guarantee of issue for active employees.
With multi-life LTC insurance, there is no master policy; individual policies are issued to each insured member; and there is generally greater flexibility in policy design. In these ways, there is no difference between an individual and a multi-life policy. The multi-life advantage comes through discounted standard rates and simplified underwriting for active employees.
Both types of coverage are portable, meeting the needs of today’s more mobile employees. Carriers typically drive solicitation and enrollment in true group plans, whereas LTC agents or brokers typically drive solicitation and enrollment in multi-life programs.
True group benefit programs are typically implemented in larger organizations, whereas multi-life programs are suitable for organizations of all sizes.
In the slugfest between true group and multi-life, the latter enjoys a special edge. To see why, let’s look more closely at what’s going on in the industry, and causal factors.
Workplace LTC in transition
Aon Hewitt’s Fimmano points out that a majority of group LTC carriers have ceased or suspended new business writing. “Now only two group carriers are left: Genworth and Prudential,” he says.
This troubling development is a key part of the picture, but there’s more. Nearly all carriers are fleeing true group. Insurance companies that have backed off from the group LTC market include major players such as Aetna, MetLife and Unum. Only two true group insurers remain. However, they appear quite committed to the business. In fact, they may be doubling down on true group, presumably seeking to fill the vacuum created by exiting competitors. For example:
• Genworth Financial continues to promote its true group as well as individual and multi-life plans.
• Prudential Group Insurance, a business of Prudential Financial, Inc., announced in March of 2012 that it would discontinue the sale of individual long-term care products (including multi-life plans for employee groups) and focus solely on group (true group) long-term care insurance.
Meanwhile, several carriers promote multi-life plans. The following companies, among others, appear to be betting on multi-life as the up-and-coming LTC benefit choice for most organizations:
• MedAmerica Insurance Company
• LifeSecure Insurance Company
• United of Omaha Life Insurance Company
• Mutual of Omaha Insurance Company
• Transamerica Life Insurance Company (U.S.A.) and Transamerica Financial Life Insurance Company (NY)
• American General
Genworth, offering multi-life as well as true group, may be hedging its bets, planning to prosper no matter which form proves more popular.
The true group form may indeed be withering, though adjustment and resurgence should not be counted out. Meanwhile, the multi-life form appears alive and well, and may proliferate in millions of organizations during the next few decades.
Multi-life carriers appear bullish
Bill Jones, president of MedAmerica, believes the industry is experiencing “a quantum shift from one type of LTC employee benefit to another,” he says. “The traditional group plan is being outpaced by multi-life LTC insurance, which is more flexible and fine-tuned for modern organizations.”
To capitalize on the trend, Med-America has introduced a new suite of products called LTC Complete Worksite Solutions. Employees may choose a very low-cost starter plan that may be expanded later or used to supplement other coverage.
For LifeSecure, the company’s first year in multi-life sales “was ramp-up time,” says Brian Vestergaard, VP, product & marketing. “Now, after the second year, multi-life accounts for 75% of our placed premium.”
LifeSecure’s individual/consumer business, which continues to grow, now accounts for just 25% of the company’s LTC sales. “We see this as a real trend,” Vestergaard adds. “With multi-life, we’ve barely started to tap the market opportunity within small and mid-sized businesses.”
Some carriers that have withdrawn from the market may be re-evaluating business trends, waiting for a viable re-entry point. For example, Transamerica, which once walked away from LTC, is already back with a competitive multi-life offering. John Hancock remains strong in the individual market and continues in the association business on a fully underwritten basis. It would not be a surprise if they, like Transamerica, get back into multi-life at some point.
MetLife, America’s biggest insurance seller, left the door open a crack when announcing they would no longer accept new group LTC or individual LTC business (including multi-life). Their Nov. 11, 2010, news release included this provocative statement:
“Many Americans remain at risk for needing long-term care services at some point in their lives. MetLife is committed to exploring potential solutions, including combining LTCI with other products, which the company believes can effectively address the long-term care financing needs of the public as well as its business goals.”
Indeed, LTC combinations, such as LTC riders on life insurance or annuities, have already been made available from a number of insurance providers.
Allen J. Schmitz, principal and consulting actuary for Milliman, points out that some large employers are drawn to true group because of its guaranteed issue offering. “It’s a concept they’re familiar with, and they wouldn’t want to exclude anybody,” he says.
On the other hand, Schmitz adds, “Multi-life products, using the individual chassis, allow more flexibility; and I think that may become more popular in the future.”
Indeed, Mark Goldberg, president of ACSIA Long Term Care, Inc., a managing general agency that works closely with the leading long-term care insurance carriers, sees true group as “a challenged model.”
“We’ve had more success with multi-life,” he says. “We’ve written very little true group; it’s ‘elephant hunting’ and takes a long time. I think it will quickly go away and be replaced with an individually underwritten product.”
Eric Cantrell, president & CEO of Collateral Benefits Group, predicts that “if long-term care insurance is available at the workplace, it will be one of a menu of products that are voluntary benefits,” he says. “In the next 10 to 20 years, everything will be voluntary; at least that’s how we’re building our business.”
Also expressing the view that multi-life may have an edge over true group, James M. Glickman, president and CEO of LifeCare, doubts about the market potential of true group. LifeCare develops, administers, and reinsures long-term care insurance joint ventures. “True group implies that the employer is paying all or most of the expense,” he says. “In the short term, I don’t think most employers will see enough opportunity for a return on the cost.”
Multi-life, as a voluntary benefit, may have a better shot, but, “my impression is that underwriting concessions from carriers may be going away, and multi-life sales depend on setting up individual appointments after some kind of general discussion,” adds Glickman.
Peter Goldstein, EVP, business development at Univita Health, gives two key reasons why the multi-life policy will take more and more market share. “First, the multi-life policy fits better with smaller employers. There are only 500 companies in the Fortune 500, and hundreds of thousands of companies with 5-to-50 or 100 employees. The true group policy doesn’t have the flexibility and it’s typically not sold by the smaller broker,” says Goldstein. “The multi-life policy, on the other hand, is really an individual policy chassis with some features that are found in the group market, like payroll deduction, group billing capabilities, abbreviated underwriting, and typically discounted commissions.”
The second key reason multi-life is likely to prevail, says Goldstein, is that it’s consistent with industry trends. “We have to look at what’s happening in health care and where the winds of the insurance market are blowing. There’s going to be somewhat of a dismantling of the paradigm where the employer is the purchaser of the insurance. With multi-life, the purchaser is the employee. We see employees becoming more accountable for what they buy and what they pay. The whole dynamic is changing, and the multi-life product fits into that.”
Because traditional group plans tend to be one-size-fits-all, says Cameron Truesdell, CEO of LTC Financial Partners, LLC, a national agency specializing in long-term care insurance, “This has the virtue of easy implementation, but gives employees little choice of benefit features or premium cost.”
LTC Financial Partners offers multi-life plans from several carriers and has chosen to forego the true group market.
Why multi-life may dominate
The first group long-term care insurance contract was written in 1987 before the rise of the commercial Internet. Companies were more paternalistic then, procedures were more manual, and benefit menus more limited. Multi-life, emerging more recently and being fine-tuned now, resonates with modern business and employment. Multi-life has the advantages of greater flexibility and personalization, thanks to emerging technology.
True group LTC plans tend to be cookie-cutter instances of the employer’s master policy. Many large employers like the simplicity, but there is little, if any, room for employee choice of plan features or premium cost. With multi-life, on the other hand, each employee’s plan may be individually crafted; features and premium costs can vary all over the lot.
This can involve great complexity, but appears blissfully simple to both employer and employee. Benefit brokers and LTC insurance specialists, aided by electronic systems, come in and take care of everything.
Employees get individual attention with little impact on company support personnel. Plans can be a breeze to set up. You just need a handful of participating employees and a benefits consultant or LTC agent (with multi-life training) to get the ball rolling. Even in organizations with thousands of employees, multi-life programs can be implemented with just as much ease as true group programs (from the employer’s viewpoint), but with much greater personalization.
Higher participation rates
In true group programs, fewer than 1-in-10 eligible employees typically choose to participate. In multi-life programs, participation tends to be greater — in the double digits — according to early reports. “We’re finding adoption rates between 10% and 20%,” says Truesdell, whose organization manages education and enrollment in multi-life programs.
The apparent greater popularity of multi-life may be explained in part by its greater flexibility; employees have a better chance of getting what they want. Also, individual attention from LTC specialists makes it more likely that all employee questions will be answered.
Larger potential market
The appeal of true group plans tends to be limited to larger organizations. For them, it may be practical to set up a master policy and work directly with an insurance carrier. And carriers, which usually administer true group programs, prefer dealing with larger organizations; they’re not set up to hand-hold millions of mom-and-pop outfits. The potential true group market may therefore be relatively small — though significant. In contrast, the multi-life market looms quite large. Why?
• First, more employees work for smaller organizations than for larger ones. According to the Bureau of Labor Statistics, 46% of American employees, about 50 million, work for companies with 500 or more employees, while 54%, about 59 million, work for companies with fewer than 500 employees.
• Second, larger organizations may opt for multi-life programs. The opposite is much less likely; smaller organizations aren’t good candidates for true group programs even if carriers would consider them. For this reason, the multi-life market potential looks even better.
• Third, differing participation rates magnify the divide. If early reports of double-digit multi-life participation rates hold up over time, we should multiply total participation by a factor of two or more. Multi-life could end up being the benefit choice for 70% to 80% or more of American employees who opt for LTC.
The future of the LTC benefit
The overall market potential of multi-life LTC sales could dwarf that of true group. In addition, in coming years a greater percentage of organizations may opt for an LTC benefit — whether true group or multi-life — for these reasons:
• Aging of the American workforce. A greater proportion of senior employees means more demand for LTC protection. “As the baby-boomer generation moves into their 60’s their parents are moving into their 80’s, which is when most LTC claims happen,” says Goldstein. “Suddenly, everybody you know is being a caregiver of some sort to an aging parent.” So, more and more, “long-term care insurance falls into the conversation.” Truesdell adds, “With an aging and increasingly professional workforce, we’re very bullish about the multi-life benefit.”
Jones qualifies the importance of aging. “An event with terrible consequences requiring long-term care can happen at any age,” he says. “The chances simply increase with age.”
• Longer “work spans.” The workforce is not only aging; workers are living longer, too. According to the U.S. Census Bureau, by 2050 the average American life expectancy at birth is projected to reach 83.1 years — up about five years from today’s 78.3. Other estimates forecast life expectancies of 90 or more by 2050.
Those who not only live longer but also remain healthy longer may be expected to contribute longer; and a greater proportion of life may be devoted to peak production, significantly expanding lifetime incomes. In many key professions — including science, engineering, and finance, marketing, sales and senior management — the 65 “retirement” age is likely to creep toward 70 or more. This will create even more demand for a worksite LTC benefit.
• Bottom-line needs of employers. Absenteeism can be reduced and productivity preserved when an employee’s family is protected by LTC insurance; without it, the employee is likely to worry about loved ones needing care, or to care for them personally. “Being a caregiver is a huge time commitment, as anyone knows who has done it,” says Goldstein, “and it’s becoming a big issue in the workplace.” When there’s no LTC insurance to pay for professional care for a parent or spouse, “employees leave their jobs, they refuse promotions, they’re on the phone with caregiving problems. It’s a big issue that employers are going to have to grapple with over the next five to 10 years.”
Today, “most people don’t recognize the risk,” says Glickman. If LTC is to have a significant place in the workplace, “Employers need to see that LTC insurance would be valued enough by employees to be valuable for retention or attracting new employees.”
The value of the LTC benefit for recruiting and retention may zoom with high-tech advances. As automation assumes more and more human tasks, the employees that many companies rely upon most will be those who are very creative, experienced, technically proficient, or effective as managers. These prized people will often tend to be older and higher-paid. LTCI will be part of a complete benefit package needed to attract or keep them. LTCI also safeguards key employees’ financial benefits. Uncovered LTC expenses can quickly devour 401(k) retirement funds. With older, high-paid employees, this prospect becomes increasingly apparent and concerning. “With an older, more skilled and critical workforce,” Truesdell observes, “the impact of care costs will be on everyone’s radar.”
• Government assists. One potentially supportive force is the sidelining of the CLASS Act. “Without CLASS,” says Goldstein, “there will be more impetus to look at other types of public policy solutions that will enhance the attractiveness of long-term care insurance — some type of tax deduction or pre-tax opportunity for LTC in the workplace, like health insurance works today.”
Goldberg has a different view. “In Washington, they’re embarrassed by the CLASS Act,” he says. “They knew it couldn’t sustain itself, and had to be withdrawn, so the topic is taboo right now.” In time, though, LTC may re-enter the conversation, because “the underlying problem still needs to be solved.”
The issue isn’t going away and will remain important regardless of the fate of PPACA.
Another motivator of governmental support for LTC is the need limit expenditures. “Medicaid is the biggest element of state budgets,” says Goldberg, “and we’re looking at enormous pressures to cut those costs. Everybody is still trying to transfer assets out of their name to qualify for Medicaid. The states just can’t afford this anymore. I think they’re going to tighten the loopholes so that only the truly indigent will qualify for any kind of government support. This will force people to look for other solutions.”
In addition to sticks we can expect carrots: new federal and state incentives for people to provide for their own long-term care, directly or through their employers.
• National awareness campaign. A non-profit educational program has the potential to shed more light on the need for an LTC workplace benefit. It’s the “3 in 4 Need More” campaign, run by the 3in4 Association, which seeks to alert the public to the need for some form of long-term care planning to address longer-lasting illnesses and disabilities not covered by regular insurance or Medicare. The “3 in 4” slogan is based on a survey conducted by Prudential Financial Inc., which found that 74% of consumers aged 55 to 65 said they are concerned about needing some kind of long-term care.
“Think of the implications in the workplace,” says Jonas Roeser, 3in4 Association president. “Of those 55 or older, three in four are concerned. That’s three in four employees, three in four managers, three in four HR and benefits specialists.”
The campaign, still in its infancy, is now running its second celebrity bus tour, gaining national media coverage, and has developed a 25-minute informational seminar suitable for worksites and other venues. Led by LTC specialists, the seminar is now available in all states.
“Our aim,” says Roeser, “is to spread the word to every company, every non-profit employer, every association, and every community group in America.”
Federal and state officials have taken note of the campaign, and an infusion of government funding could move the program into high gear.
Large market potential
According to the Department of Health and Human Services, only about 3% of adults have a private LTC policy. Of course, LTC insurance is not necessarily every adult’s solution for financing long-term care. So let’s assume that of those who could benefit from LTC, about 10% have it — a generous estimate, especially since HHS also estimates that almost 70% of Americans over 65 will need some long-term care at some point in their lives.
The lion’s share of potential industry income is left on the table. The American Association for Long Term Care Insurance reports that total earned premium for the LTC industry in 2010 was about $11.7 billion. Over the next decade, that amounts to $117 billion, not including inflation and the coming baby boomer surge.
Multiply that by 10 (based on the estimate of 10% market penetration), and we end up with over a trillion dollars in potential revenue, more than $3 trillion over 30 years.
This revenue would be divided between individual policies, multi-life policies (using the individual chassis), and true group policies. There is reason to speculate that the bulk of the revenue might be for the multi-life form. Multi-life is likely to win in the workplace, for reasons already cited, and worksite sales could possibly trump individual sales. Why? For the same reason health insurance does so well in the workplace: larger units of sale and group discounts. However, multi-life has yet to prove itself as a high-volume business, Goldberg cautions.
A key stumbling block to reaching the market potential is the current ignorance of the risk and need for a solution, pointed out by Glickman. Goldberg observes, “Employers are not sitting around and saying, ‘Boy, I wish we had another benefit to offer.’ And employees aren’t saying, ‘Boy I wish I could have more money taken out of my paycheck.’”
“The biggest thing we need to do is education,” says Jones. “There’s work that has to be done to get people to understand the necessity of having this product and the many options available to them.”
Who is ready and able to educate tens of millions of American employees? “We’ve been trying to get benefit brokers, who focus on health, to take on this responsibility,” says Jones, “but most are busy and LTCI is a complex product. In the near term, we need to rely on specialists to go in to the employer — either with or without a benefit broker by their side — to really do that educational work. It’s a form of outsourcing.”
Large national agencies such as LTC Financial Partners and ACSIA Long Term Care, representing multiple carriers, are rising to the challenge. They may be expected to attack the worksite market, alongside the individual market, aggressively in the decades ahead. “Because of our national sales force,” says Goldberg, “carriers often refer agencies specializing in worksite to us for enrollment assistance. They don’t have enough feet on the street.”
Adds Truesdell, “Our multi-life business is starting to take off.” Last year the company established a worksite division and launched the Worksite Academy to recruit and train multi-life education and implementation specialists.
The future of long-term care insurance as an employee benefit appears bright in spite of marketplace volatility. The true group form will continue to be preferred in many large organizations, while multi-life is expected to dominate in the broad market. Hybrid forms, such as LTC combined with life insurance or annuities, will also find their place on benefits menus. EBA
Samson is director of the EraNova Institute and director of the Long Term Care Insurance Guild (LTCguild.com). He can be reached at email@example.com or (973) 335-3699.