Like all insurance markets, the long term care insurance market continues to evolve. As a result, successful producers should stay on top of trends and changes, possessing a clear understanding of where the market is today and where it is headed. What do you know about the changing LTCI landscape -- and what don't you know? Use this primer to brush up on your knowledge and clue in clients to the shifting LTCI market.
What has changed in the world of LTCI?
o Access to Medicaid is more difficult. Thanks to the Deficit Reduction Act of 2005 (DRA), signed into law on Feb. 8, 2006, Americans are finally getting the message that Medicaid isn't free. Notable changes include changing the look-back period to 60 months for all transfers and changing the penalty period to start on the date of eligibility, not the date of transfer. Plus, the expansion of LTCI partnership policies will go a long way toward making Medicaid the last rather than the first resort. Expect states to start implementing partnership policies in 2007.
o Self-insurance is growing less popular. This is for two reasons: Clients see family members spend their savings quickly, and they see family members who need LTCI and realize that Medicaid isn't an easy bailout.
However, to really nail the objection that the client can self-insure against LTC, you must be able to explain that the true cost of LTCI is paying at future costs (using a 6 percent inflation rate) and losing the investment opportunity on the money. Illustrating the cost for around-the-clock care for wealthy clients can make a significant impact. You must also be able to explain that most long term care happens outside of a nursing home, which goes a long way to nullifying the "denial" objection that the self-insurance response often masks.
o Medicare supplement is not such a commodity. According to the AARP Public Policy Institute, only one in four people over 65 have a Medicare supplement policy, and the Medicare supplement policyholder's average annual out-of-pocket costs are about $5,100 vs. $2,500 for people with no Medicare supplement coverage. In short, people are paying more annual premiums for Medicare supplement policies than they are getting back in benefits.
o Consumer awareness is growing with help from federal and state government programs. The "Own Your Future" public awareness campaigns funded with federal dollars have happened in nine states -- New Jersey, Nevada, Idaho, Arkansas, Virginia, Maryland, Rhode Island, Kansas, and Washington -- with a letter from the governors to residents ages 50 to 70 and subsequent media efforts. The response rate of 7.7 percent has been astounding, which shows that consumers are hungry for reliable information about LTCI from reputable sources. Other states are also conducting their own consumer education campaigns and running television advertising. Producers in these states should align their communication efforts with their government-provided communication.
o Cost of care is much higher. There's so much pushback on inflation coverage while the estimated cost of long term care continues to grow. In 1999, the common cost illustrated was $100 per day. By 2003, it was $150. Now it's not unusual to see references to $200 per day. Nine daily hours of home care or care at a semi-private facility average $170 per day, and private facility care comes in at $190.
o Average premiums are higher. Most companies have introduced new products with higher premiums, largely as a result of the NAIC Model Regulation of 2000, which requires actuarial certification that rates won't go up. If they do, the resolution requires much justification. The good news is that in 2006, the "fire sales" are pretty much over, and except for California, which lags so far behind in new product approvals, the rest of the country is on an even playing field with rates.
o Underwriting is tighter. With better claims information and with Wall Street taking a hard look at the LTCI industry, underwriting has toughened up, particularly on common conditions such as diabetes and obesity. It's smart to pitch LTCI to the pre-retirement market as up to one in four people are declined at age 65, and one in three at age 75.
o Buyers are younger. In 2005, 70 percent of buyers were younger than 65, and half were under 60. Higher premiums and tighter underwriting contribute to this phenomenon, as well as the rapid growth of worksite LTCI and increased awareness among baby boomers experiencing long term care needs firsthand with family members or spouses.
o There are new ways to pay the premium. Reverse mortgages and life settlements are both intriguing ways to find the premium dollars to fund LTCI and/or pay for LTC for the uninsurable.
What has not changed in the world of LTCI?
o Market penetration. We're still in the single digits overall, and only about 15 percent of consumers age 65 and over are buying. LTCI sales just aren't keeping up with the aging population. This could change with the national consumer awareness efforts and better tax incentives. However, will there be enough LTCI-savvy financial professionals who can meet the demand?
o Inflation rate. With inflation still averaging 6 percent, 10 hours of home care (or private facility care) will cost about $375,000 a year in 30 years, which is about $1,000 a day or almost $30,000 a month.
o Consumers' main objection. "LTCI is nursing home insurance for old folks." This means that the very beginning of every pitch, seminar, or benefit manager or employee education presentation should emphasize that less than 20 percent of LTC is given in a nursing home, and almost 40 percent of people over 18 who need LTC are working-age adults ages 18-64.
o Sales formula. This should be 80 percent education and 20 percent product. As long as people don't believe they need LTCI, there's no point in talking about the product. A major buyer/non-buyer survey said the most successful producers:
o Emphasize the right issues in the right order.
o Are able to discuss the emotional issues surrounding LTC.
o Are able to effectively guide the prospect through the plan design selection.
To that end, it may work better to use a visual presentation rather than trying to sell with a product brochure.
Don't ever think you know this market inside and out. With the proliferation of conferences, designations, email newsletters, and other resources, you should always have plenty to keep you busy and up to date.
Phyllis Shelton is president of LTC Consultants, a Nashville, TN-based company that has trained over 46,000 agents via the Internet (www.ltciacademy.com) and live training courses. LTC Consultants produces sales and marketing materials for the long term care insurance industry. Shelton is also the author of "Long-Term Care: Your Financial Planning Guide." For more information, call 888-400-1118 or visit www.ltcconsultants.com.
