The Growing Need for Long Term Care Insurance

Americans are becoming more sophisticated about long-term care insurance. As the knowledge of this financial product has broadened, the insurance carriers have designed additional options and riders for the more savvy customers. These additional options include accelerated pay riders, indemnity payments, enhanced daily benefit maximums, waiver of home health care elimination periods, multiple inflation protection choices, enhanced survivorship benefits, greater elimination period choices and expanded home health care benefits. Unfortunately, despite an overall knowledge of long-term care, too many Americans remain reticent to make decisions on whether they will purchase a policy. Far too often, people remark that their uncertainty is based on a perception that they “may” never use the benefits. This perception, while true in many cases, is completely irresponsible when evaluating one’s financial planning.

As Americans continue to live longer and longer, long-term care insurance will become even more critical than it is today. Despite the fact that many Americans still believe that they will never require long-term care services, the statistics show otherwise. Today, the chance of requiring long-term care services is roughly 50 times the chance of sustaining a major loss from an automobile accident. Most consumers would never dream of driving an automobile without owning automobile insurance, but yet they have not planned accordingly for the time when they will require long-term care services.

According to the Society of Actuaries, for every 1,000 people, nearly 600 will require some form of long-term care (LTC). Many people are relying on a flawed belief that Medicare or Medicaid will provide the care at the time of need, thereby eliminating the need for private LTC insurance. This misconception is extremely naïve, and quite dangerous when considering the numbers of people who truly believe that LTC insurance is a luxury. Actually, Medicare only covers six percent of long-term care costs nationally, and Medicaid provides benefits only to those people who have depleted enough assets to qualify for the aid, as reported in The Western Journal of Medicine, January 1994. This gross miscalculation will only worsen in the future, as Medicare becomes more exclusive to medical-related services, with lesser coverage for custodial care. As more facilities sell a larger percentage of their space to private-pay patients, these facilities will terminate existing relationships with federal and state programs. Ultimately, this will leave Medicaid patients with fewer options than they have today. In fact, the last nine months have already brought about significant restrictions for Medicaid eligibility in many states.

Additionally, more consumers are becoming more adamant about receiving assisted living and home-based care, which is evidenced by the fact that, for every person living in a nursing home, there are four others receiving care in the home, according to a 1998 report, “Group Long Term Care – Flexibility, Innovation, Experience.” Unfortunately, neither Medicare nor Medicaid pay for any assisted living facility and home-based health care. Perhaps more important is the fact that the federal government has made it clear that long-term care is not the responsibility of the government, so private insurance will be the only definitive assurance that benefits will be available in the future. These people, who are waiting on the “sidelines” for the government to step-in and provide coverage, will be left with few options. As the baby boomer generation will soon be retiring, the passive planning in this country is paving the way for a crisis of nightmarish proportions.

The statistics from the May 2003 Roper Study are even more alarming. According to the report, approximately 75 percent of those surveyed were families currently aware of the major long-term care options in the marketplace. Of those who were surveyed, 71 percent believed that is was very important to have some type of private or government coverage for LTC services, but only 17 percent stated that they currently have LTC insurance to cover these costs. Despite what the remaining 54 percent may believe, most of them will not be eligible for Medicaid, and few will have the assets to fully pay for these necessary services. Astonishingly, nearly 67 percent of those surveyed stated that choosing the long-term care facility for themselves or someone close to them was very important. Under Medicaid, only the government decides where the patient will receive care. Even more shocking was the fact that 46 percent of those who currently have health insurance believed that their health insurance would cover most of the costs associated with long-term care. Finally, 30 percent of the respondents were unaware that Medicaid was provided only to applicants who had depleted nearly all of their financial resources.
For many consumers, the hesitance is partly due to ignorance about the private insurance options available to them. The plethora of options in the market can be extremely overwhelming to someone who is unfamiliar with the terminology associated with LTC insurance. As people continue to evaluate long-term care solutions provided by private insurance carriers, it is essential to make benefit selections based on the following variables:

• How long do you want to pay premiums?
• What type of care do you want?
• How much will the care cost?
• How long will you need care?
• Do you want to submit claims for reimbursement?
• What type of inflation protection do you want?
• Do you want your spouse paying premiums if you die?
• Do you want your premium returned if you die before receiving the benefits?

Despite the obvious ignorance that exists today, a more positive future is visible, as baby boomers deal directly with their parents, while personally experiencing the malfunctioning state facilities and skyrocketing costs associated with facility-based care. Even more optimistic is that fact that nearly half of all Americans 45 and older have discussed the possible need for long-term care with their adult children. Furthermore, perpetuating the “awakening” in the U.S., 22 states are currently offering long-term care insurance to their employees, and one-third of large companies are offering LTC insurance as an employee benefit. However, an additional enlightenment must occur in order to reverse the affects that ignorance and resistance have had on this American LTC dilemma.
A misconception associated with selecting long-term care insurance is the “one plan fits all” philosophy. Plans should be tailored for each individual, because there are numerous variables that dictate the policy that should be recommended for a specific individual or couple. The following are just some of the variables that will impact LTC insurance selections:

• States have different product and carrier availability.
• Some consumers want total home care that pays benefits for care provided by friends and family.
• Some people have medical conditions that are difficult to insure adequately.
• States have different average costs, with most states averaging $175 per day for semi-private facility care, although certain markets have much higher average, according to a July 2003 survey by Harris, Rothenberg International. (Juneau, Alaska – $500 per day, Metro NY City – $345 per day, Washington, D.C. – $270 per day, Hartford, Conn. – $250 per day).

Although a lot of responsibility rests with the consumer during the evaluation of insurance carriers and their products, the greatest burden falls on the long-term care advisor or agent. As many options as there are available in today’s marketplace, many of them may not be available to a specific client. It is absolutely essential that any individual with known medical conditions be reviewed pursuant to each individual carrier’s underwriting guidelines. Although this may be laborious, it is the most effective and efficient way to offer accurate recommendations, while reducing the possibility of an embarrassing declination from the carrier. Consumers need to trust their advisor/agent, and understand that by disclosing as much medical information as possible, the insured will ultimately receive the most accurately priced options. Withholding information can lead to unexpected declinations, or the issuance of an inferior product at substandard rates.

In addition to providing sound advice on plans and associated premiums, it is also essential that the LTC advisor communicate other important information about the carrier and product that is being recommended. It is their fiduciary duty to disclose relevant information about the carrier, which may impact the client’s policy in the future. The following are some of the points that should be discussed with the client when reviewing his or her options:

• Financial rating of the insurance company.
• Duration that the carrier has been actively marketing LTC insurance.
• In-force policy premiums for all long-term care business.
• Policy nuances, which can vary by state.

As Americans begin to see the long-term care reality more clearly, the products will earn more respect and ultimately more credibility. Insurance professionals have not always operated with the ethics necessary to market financial products. It will be up to those professionals who consistently practice with the client’s needs as top priority to market the product as a necessity that all Americans should actively pursue for their financial planning portfolio.

David Comer is the founder of Benefit Resources Group (BRG), which has been providing employee benefits and individual
insurance brokerage services since 1999. He has been in the insurance brokerage business for over 10 years. For more information, contact (800) 471-6588, or e-mail dcomer@brg-ca.com.