By Louis H. Brownstone
It’s sure that there will be more changes in LTC insurance for 2019 than there have been in any of the last 25 years. These changes will tax the knowledge and abilities of both long-term care insurance specialists and general agents and brokers. Let’s make a list of the changes…
The need continues to grow, especially as the almost 80 million baby-boomers enter their seventies. The need will explode in 10 years as they enter their eighties and become sick. It’s becoming more apparent that caregiving needs will stress the sandwich generation unless a long-term care plan is in place for their parents. The demographics continue to expand the need.
The Market Penetration
LTC will continue with about a 6 percent or 7 percent penetration and not much more.
There now has been an 87 percent decline in placed policies per year since 2003 when sales were robust, and we may not have as yet found the end of the decline. Premiums are up to three times more than what they were in the nineties, and the costs of care continue to rise. Prospects hate the “use it or lose it” feature at these high premiums. In addition, rate increases on older blocs continue to degrade the industry’s reputation. Premium increases above current rates are unlikely.
As a result of rising interest rates, one or two new carriers are likely to enter the traditional long-term care insurance market in 2019. Expect approval delays in California, but not in the compact states.
The California Partnership for Long-Term Care
The Partnership will become viable again in 2019. Recent legislation has enabled carriers to file plans with the daily benefit as low as $100, the benefit limit as low as $73,000, and inflation riders as low as 3 percent compound. Citizens with moderate income and assets will in essence be able to acquire lifetime long-term care protection for premiums as little as $100/month per person.
This is a game-changer. This legislation opens up a whole new market: the people with the top 10 percent to 40 percent in income and assets. Carriers will file new and innovative Partnership plans. This will create huge marketing opportunities for agents and brokers who take advantage of this sales potential. It’s time to update your Partnership training. It’s possible that, in time, almost all long-term care policies sold in California will be Partnership policies.
The decreases in traditional long-term care insurance will be more than offset by increases in other products containing long-term care solutions…hybrids, linked life, linked annuities, critical illness.
Agents and brokers sold almost as many hybrid policies alone in 2018 as traditional long-term care insurance policies. The hybrids contain true long-term care riders and are regulated by Section 7702(b) of the Internal Revenue Code. Features unique to them are true care coordination, shared care riders and tax deductibility. Most of the linked-life products contain chronic illness, terminal illness and/or critical illness riders, and are regulated by Section 101(g) of the Internal Revenue Code.
The rates are often guaranteed, and the insured always receives a benefit whether or not he or she needs long-term care. The definition of chronically ill in chronic illness riders is increasingly resembling the definition of chronically ill in long-term care riders, but the illness must be permanent in the former.
Training of Agents and Brokers
With the explosion of different long-term care solutions, agents and brokers will not be able to solely rely on their knowledge of traditional long-term care insurance. They will have to be trained on new solutions and know when it is appropriate to present them. Agents can’t effectively present any product unless they fully understand it and are comfortable presenting it. They will be most successful by restricting their inventory to a few solutions and becoming expert in selling them.
At this writing, this merger appears likely to occur in the first quarter. The industry needs a successful deal, especially because Genworth has the largest book of policyholders, many of whom have had their policies for a long time and are getting older and sicker. New market penetration in China could completely revive Genworth’s long term care insurance and make that segment of its business healthy again.
Role of the Agent
One major carrier is planning to drastically reduce renewal commissions for agents and brokers. Their commission structure will be similar to life insurance commission structure. This major carrier is planning to create call centers and stake its future on this type of internet marketing, thus reducing the importance of agents and brokers. Most agents won’t be able to make a decent living any more by just selling this carrier’s traditional long-term care insurance. They will gravitate toward other carriers with traditional long-term care commission structures and learn to sell other solutions.
Call centers specializing in long-term care insurance have been attempted before with no better than mixed results. However, a carrier may have the ability to acquire leads inexpensively and improve on the profiling of prospects. In addition, the internet technology has improved over time and has become more efficient. Telemarketers will have to be paid a salary plus incentives, and will have to be micro-managed. But, if successful, telemarketers can be far less expensive to the carrier than agents and brokers. Can this approach work? If it can, will other carriers follow suit? Or is long-term care insurance still a product which must be sold, not bought? The industry will be watching this experiment with great interest.
Catastrophic coverage is unaffordable and unrealistic except for the very rich, the top 5 percent to 10 percent in income and assets. Nursing homes are becoming less important and will only be utilized as a last resort. People are only entering nursing facilities if they are severely ill, and may be there for shorter periods of time than in the past.
For the 15 to 20 percent that need care beyond five years, they will either have to be very rich and pay for expensive care with other resources or very poor and rely on Medi-Cal.
Home healthcare and assisted living facility care are far less expensive alternatives than nursing facilities most of the time and can be covered by smaller daily and monthly benefits.
Agents and brokers are being forced to change their habits and sell partial coverage instead of catastrophic coverage. Two- or three-year benefit limits are now more commonly sold than five- or six-year benefit limits. Three percent compound inflation has replaced 5 percent compound inflation. Actuarial experience has shown that as small as two-year benefit limits can satisfactorily protect about 70 percent of people needing long-term care. Robotic and sensor technology are available now to make home health care less expensive, minimizing the need for long personal care visits of home health care aides.
Partial protection is far better than no protection, and policyholders may have access to other sources of assets and/or income to make up the difference between the long-term care insurance benefit and the cost of care. However, this may only be true for some of the top 40 percent in income and assets, and the bottom 60 percent will surely have to rely on Medi-Cal for most of their costs of care.
The Employer Market
This market may well become hugely important, but the environment is not right at this time.
Health care costs have not stabilized, and companies still cannot project the rise in their health care costs. Very few carriers are marketing seriously in this space. However, there have been some product advances, such as life insurance with an extension of benefits rider for long-term care.
This market could explode if health care costs stabilize. The current health care system is clearly unsustainable in the long run. Pressure is rising for new solutions, not necessarily single payer. Watch for how changes in our health care delivery system could affect long-term care planning.
Louis H. Brownstone, a member of the 2019 Cal Broker editorial advisory board, is Chairman of California Long Term Care Insurance Services, Inc. located in Burlingame, California. California Long Term Care is the largest independent specialist long term care insurance agency in California, and is broker for a group of high-producing long term care specialist agents. Brownstone is also very active in NAIFA, the National Association of Insurance and Financial Advisors.