Long term care continues to be an area of concern for clients. It is no surprise considering 70% of people turning age 65 will use long term care services of some type during their lifetime – and this likelihood only increases with age! (LongTermCare.gov). Additionally, the cost of care continues to increase with the national median cost of in-home care at $3,861/month and $7,698/month for a private nursing home room (Genworth.com). Solving this high-likelihood, high-cost risk has proven to be a challenge for the insurance industry.
This article will prepare you with some of the more common long term care strategies available so you can better educate your clients and align them with an excellent solution. At Insurance Agency Marketing Services, we are committed to providing the service and expertise you need to keep you in the field, focus your time with your clients, and solving your client’s financial needs.
Medicare: looks like long term care, isn’t long term care
Some clients may never have a conversation about long term care and will miss this vital piece of planning because they mistakenly believe they are already covered by Medicare or their health insurance plan. The confusion is understandable and seems to come from clients hearing certain terms and mistakenly believing they include long term care services.
Medicare and many health insurance plans provide benefits for hospital stays and “skilled nursing care.” Clients may believe these are the same things as long term care and assume no further planning needs to be done for a potential long term care event. Agents need to understand what characterizes long term care services and how that is different from what Medicare and health insurance cover.
Long Term Care services cover chronic illness – illnesses that are generally long-lasting and where treatment is focused more on quality of life and independence, over therapy and recovery. Neither Medicare nor most health insurance plans provide chronic illness care. Instead, they focus on providing skilled nursing care for acute illness – a temporary condition that, with treatment, is expected to provide some form of recovery.
Clients who expect Medicare or their health insurance plan to provide long term care benefits need to be educated on what benefits these programs do provide, and understand they are not viable long term care strategies.
Medicaid: Long Term Care for Everyone, but at a Cost
Medicaid is a government-provided benefit that potentially offers long term care to most Americans. But a government program covering so many people must have qualification requirements to remain sustainable. Medicaid is generally designed to help low income individuals or families pay for certain medical and long term care costs. Therefore, to qualify for Medicaid benefits, clients must spend down most of their assets to the appropriate qualification level.
For example, if a client needs long term care services but has assets in excess of the Medicaid qualification level, the client would have to spend down those assets on their care first, and only then could they qualify for Medicaid. Once qualified, however, clients may reasonably expect to have access to nursing home facilities and other benefits provided by the government.
Medicaid is something that could cover any of us. But many clients do not like the idea of having to spend down their assets to qualify – potentially leaving little to pass on to loved ones. Because of this, it is important to have these conversations early so either a strategy to avoid reliance on Medicaid can be developed or a plan created to prepare and position assets appropriately to qualify for Medicaid.
Traditional Long Term Care Insurance
In the past, as long term care services and facilities increased, insurance companies saw an opportunity for a specifically-tailored insurance product: Long Term Care Insurance (LTCi). Traditional LTCi policies generally cover all types of long term care services including in-home, alternate living care, and nursing home facilities. Traditional policies became popular as they would allow clients to leverage premium dollars into potentially much larger long term care benefits.
With traditional LTCi, clients may choose lifetime or limited-pay premiums and the policies would pay daily, weekly, or monthly benefits to help offset the cost of care. When carriers originally priced these policies, they were often designed to rely on certain market conditions to remain affordable. In recent years, insurance carriers and clients have found it difficult to maintain traditional LTCi.
From the carrier standpoint, a continuous low interest rate environment coupled with low policy lapse rate and high policy utilization have forced many carriers to either increase premiums on new and existing policies, or even completely exit the LTCi marketplace! Clients who purchased a policy at one rate may find it difficult or impossible to absorb premium increases but also realize reducing or eliminating their policy leaves them unprotected. Additionally, traditional LTCi is often associated with “use-it-or-lose-it” status, meaning that if a client owns a LTCi policy but never has a long term care event, their policy will go unused and all premiums paid will remain with the carrier. While these policies can provide tremendous financial protection (and in some cases are still excellent strategies), the market is clearly moving away from them due to their high maintenance cost and single-use nature.
Hybrid Long Term Care Insurance
“Hybrid” long term care has come to mean a number of different things, but generally refers to contracts that combine LTCi with another type of insurance product – usually a life or annuity contract. These policies are a good answer to client concerns over “use-it-or-lose-it” status and, because they are built on a life or annuity contract, carriers are often able to offer guaranteed premiums. This helps both the carrier and the client over concerns of ongoing and potentially increasing premiums.
These policies generally operate by accepting a limited or lifetime premium payment from clients. They also guarantee clients will receive benefits one way or the other: either by access to the life insurance death benefit or annuity income dollars in the case where a long term care event never occurs or, should a long term care need arise, the benefits may be redirected to offset the cost of care. The challenge that often arises with these policies is the premium cost. While carriers can offer guaranteed premium amounts by combining LTCi with a life or annuity contract, they also know they absolutely will pay out benefits in one form or another. Therefore carriers must price these policies in a way that will create sustainability, which can create a barrier of entry to clients who cannot fund the higher associated costs.
Long Term Care Coverage through Policy Riders
Clients may not want to commit their premium dollars to a long term care-specific strategy. At the same time, they may see the risk and would like to have a strategy in place should a need arise. Carriers have responded by adding certain riders to life or annuity contracts. An example of this is an “accelerated death benefit”. Clients purchasing a permanent life insurance policy may have a rider available that would allow some or all of the death benefit to be paid out during their lifetime in the event of a long term care claim. Since the carrier knows they will pay a death benefit someday, with usually a minimal additional cost, the carrier is also able to make the death benefit available early.
Due to the flexibility of use in these policies and the generally low-cost nature of long term care riders, these policies are a popular alternative to traditional and hybrid long term care, but clients need to understand these policies are not generally designed to cover a significant long term care event.
Taking this Knowledge into the Field
While this article describes the most common types of long term care strategies available, it is not an exhaustive list of all the many ways a client can prepare for a potential long term care need. Your team at Insurance Agency Marketing Solutions is committed to staying current with available long term care solutions. We’re a partner you can trust to understand what you need to be competitive and successful in the marketplace, while aligning your client with a strategy that will provide the protection and peace of mind they need.
Feel free to contact me with questions about long term care or Advanced Market opportunities! Mike Schudel at 800-255-5055.