We have blogged before about the future of long-term care (LTC). A recent article in Employee Benefit Adviser picks up the conversation. Here is an excerpt:
[S]tandalone LTC insurance sales have been in a funk lately. According to LIMRA, “Significant declines in individual LTCI sales continued through the third quarter of 2009, with 28% fewer buyers when compared with the first nine months of 2008 and a 29% decline in new premium.” Indeed, 2005, 2006 and 2008 were also down years, while 2007 was flat.Why have sales of individual LTC insurance been slowing? Many observers cite the “use it or lose it” aspect of LTC policies; consumers might pay premiums for years – even decades – and never file a claim. Some potential buyers may be put off by the idea of “wasting” the money spent on LTC insurance premiums, says Carl Friedrich, a consulting actuary and principal in the Lake Forest, Ill., office of Milliman.
LIMRA puts the average annual premium at about $2,160. Even with some discounts, a married couple might be looking at an outlay of around $4,000 per year to buy coverage. Many individuals and couples probably tell themselves that they have other alternatives (sell a house, tap a portfolio, rely on a relative) to spending so much money to protect against a financial drain that might never occur.
Hence the appeal of combo products. If clients need coverage for long-term care, they have it. If their need for custodial care is modest or nonexistent, the money they spent on life insurance or annuity premiums will provide a payoff for them or their beneficiaries.
For more on Carl Friedrich’s perspective on combo products, read this article.
Long Term Care
Carl Friedrich, Long Term Care
The Chicago Tribune poses, and answers, this question:
Q. My wife and I are 84 and considering a retirement home. I read about a provision in the Pension Protection Act that would allow long-term care costs to be paid tax-free through an annuity. We have an annuity with a surrender value of more than $300,000. What part of this could help us pay our monthly bill?– R.M.
A. First, you need to evaluate whether you would owe taxes on annuity withdrawals, said Montgomery Taylor, an accountant and financial planner in Santa Rosa, Calif.
If the value of your contract is down to basically what you put into it (all too common these days), you could owe no tax, and thus have no need for a tax break, Taylor said.
That said, the Pension Protection Act of 2006 did create a tax break for annuity owners that began this year. While you don’t get a break on direct long-term care costs, you can qualify for tax-free annuity withdrawals that are used to pay for long-term care insurance premiums. If you end up needing the insurance, your coverage could equal two to three times the value of the annuity policy, experts said.
Some hybrid annuity/long-term care products have been available in recent years, though several insurers are developing new products to take advantage of the provision, said Carl Friedrich, a principal with Milliman, an insurance industry consulting firm.
Long Term Care
Carl Friedrich
A new article in National Underwriter called “Is this the end for LTC?” looks to the future of long-term care (LTC). Here is an excerpt:
Group long-term care insurance is in a slump, and it is unclear when, if ever, the slump will end. The latest bad news for the market is that the percentage of organizations that offer the benefit either as a true group plan or voluntary benefit fell to 31% last year, from 46% in 2006, according to the Society for Human Resources Management, Alexandria, Va…
There is one sector of LTC that could provide some relief, however: group LTC. Although it has a history of low sales, it can still be a growth market for some producers, says Amy Pahl, principal and consulting actuary in the Minneapolis office of Milliman Inc.
One reason for her confidence is that as Americans age, they are becoming increasingly aware that there is a need to protect their assets at some point in their lives.
Read more…
Long Term Care
Amy Pahl, Group Insurance
A recent Investment News article looks at why long-term care (LTC) insurance can be a difficult sell. Among other things the article considers how health reform and specifically the CLASS Act may counter that trend and build awareness around long-term care:
Insurers are looking for ways to cash in on the Community Living Assistance Services and Supports Act, a part of the health care reform that creates a taxpayer-subsidized federal long-term-care program. The bare-bones benefit is to pay $50 per day. Companies may come out with a supplemental product to add to the federal benefit, but that product probably won’t be available for a couple of years, Mr. Schmitz noted.
The key to the ultimate success of the market depends on awareness on the part of clients and their advisers, Mr. Schmitz added.
“They have to be aware of LTC and have to want to plan for that risk,” he said. “It’s really a matter of education, getting more people to sell it and having the right public policy with respect to long-term care. There aren’t any simple answers.”
Long Term Care
Al Schmitz, CLASS Act
One piece of the healthcare reform bill, the CLASS Act, has attracted a lot of attention, though there’s already significant change afoot in long-term care (LTC) as an employee benefit. Employee Benefits News picks up on the story:
Before the Community Living Assistance Services and Supports Act folded into landmark health care reform legislation raised public consciousness of long-term care insurance, LTC got a shot in the arm with provisions of the Pension Protection Act (PPA) that took effect this year.
So-called combo long-term care products, which blend LTC with annuities and life insurance, could be popularized under changes to the PPA because of clearer pricing. Carl Friedrich, a consulting actuary and principal for Milliman, also has noted that the LTC portion of a combo plan often costs 35% to 50% of standalone coverage.
Long Term Care
Carl Friedrich, LTC
The Healthcare Economist has a new article out on the CLASS Act, the much-discussed long-term care (LTC) program established as part of the healthcare reform law. Here is an excerpt:
Milliman notes that currently, the CLASS act would be voluntary and would include guarantee issue (meaning that no one could be denied coverage). Separately, each of these provisions could allow for a sustainable long term care insurance product. The private sector currently uses the voluntary insurance model with underwriting. On the other hand, a guaranteed issue policy could work if purchasing LTC insurance was mandatory.
Together, however, these provisions may be problematic. “The voluntary aspect of the program allows low-risk individuals to never sign up for the program while the guaranteed issues enables some of the highest-risk individuals to join the program. This is a formula that is virtually certain to create financial instability in any insurance program unless there are other important provisions to control risk.”
The CLASS act does have some additional risk control provisions. To qualify for these benefits, one must pay into the plan for 5 years. Employers can decide to offer this LTC as a benefit and employers who choose to this option will have employees automatically enrolled with the premium deducted from each paycheck. Individuals would have to specifically ask to be removed from the program. Also, individuals who opt-out of the program will have to pay a higher premium if they decide to opt back in. The purpose of the vesting and opt-out penalties is to minimize adverse selection.
Long Term Care
Al Schmitz, CLASS Act, Long Term Care
Long-term care (LTC), which has rarely been front and center during the healthcare reform debate, is an important part of the new reform law. The specific provision, known as the CLASS Act, sets up a federal LTC program. NPR’s Julie Rovner examines the CLASS Act on today’s “Morning Edition.” Here is an excerpt:
The Department of Health and Human Services will determine the exact amount of premiums and benefits, and benefits will vary depending on the level of each person’s disability. But benefits will be cash amounts that will be no less than $50 per day.
While that won’t pay for a nursing home stay, which averaged more than $76,000 a year in 2008, “the benefit itself is not insignificant,” says Al Schmitz, a principal and consulting actuary with the health care consulting firm Milliman. “Somebody getting $1,500 a month, that can still help with getting some home care, getting community assistance,” he says.
But what does worry Schmitz is the possibility that the program might not live up to its promise of paying for itself. One worry is what actuaries like him call adverse selection.
“If the final premiums … end up being too high, I think that has the potential to scare away healthy individuals and really only attract less healthy,” he says. That would mean that there wouldn’t be enough healthy people to help spread the risk, and premiums would get even higher still.
You can listen to the full story here.
Long Term Care
Al Schmitz, CLASS Act
We’ve blogged before about the attempts to legislate increased adoption of long-term care (LTC). One idea that can also help increase adoption is the “combo product”—an idea that brings together LTC and annuity products. A new article in Financial Planning looks at this dynamic. Here is an excerpt:
Why have sales of individual LTC insurance been slowing? Many observers cite the “use it or lose it” aspect of LTC policies; consumers might pay premiums for years-even decades-and never file a claim. Some potential buyers may be put off by the idea of “wasting” the money spent on LTC insurance premiums, says Carl Friedrich, a consulting actuary and principal in the Lake Forest, Ill., office of Milliman.
LIMRA puts the average annual premium at about $2,160. Even with some discounts, a married couple might be looking at an outlay of around $4,000 per year to buy coverage. Many individuals and couples probably tell themselves that they have other alternatives (sell a house, tap a portfolio, rely on a relative) to spending so much money to protect against a financial drain that might never occur.
Hence the appeal of combo products. If clients need coverage for long-term care, they have it. If their need for custodial care is modest or nonexistent, the money they spent on life insurance or annuity premiums will provide a payoff for them or their beneficiaries.
This appeal has resulted in significant business already. For 2008, first-year premium on combination plans was estimated at $650 million (primarily single premium), Friedrich says. That exceeded first-year standalone LTC insurance premiums (primarily annual premium) of roughly $600 million.
Long Term Care
Carl Friedrich, Long Term Care
A new article in Investment News looks at long-term care premium increases. Here’s an excerpt:
The magnitude of the coming rate hikes will vary according to the type of coverage and the client’s experience in the pool, said Allen Schmitz, principal and consulting actuary at Milliman Inc.
Holders of richer LTC policies offering inflation protection or lifetime benefits could face higher rate hikes because more of them than expected are holding on to their policies and beginning to make claims, he said.
Read the full article here.
Cost, Long Term Care
Al Schmitz, LTC
A new AP article looks at the CLASS Act, the proposed voluntary federal long-term care program included in the healthcare reform bills. The CLASS Act is notable for borrowing automatic enrollment mechanisms that were installed into 401(k) plans as part of the Pension Protection Act (PPA).
But the CLASS Act could face adverse selection risk. Here is an excerpt from the AP article:
The program is meant to be self-supporting, without government subsidies. But some worry too few healthy people would enroll, leaving a group of enrollees at higher risk for needing long-term care _ and not enough money in the program to care for them.
“If premiums are $2,000 a year, some people are going to look at that and say, ‘Boy, that’s pretty steep. … I’ll worry about that risk some other time,’” says Allen Schmitz, an actuary with the independent consulting firm Milliman Inc.
Schmitz says automatic enrollment might help increase sign-ups, but Medicare’s chief actuary has predicted enrollment as low as 2 percent. That could require raising premiums, which would mean even fewer people would participate.
Given that, Schmitz says he sees “significant risk” that the program will fail. Rate increases will be more likely with the government program than in the private market, he says.
Read the full AP article here. Read Al Schmitz’s paper on the CLASS Act here.
Long Term Care, Reform
Al Schmitz, auto-enrollment, CLASS Act
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