Long Term Care Insurance: Is It Dead, or Just Waking Up?

By Matthew Capell

Every time I tell a group of people there are over 7.3 million “traditional” long term care insurance policies outstanding but that only 3% have been opened, I hear a gasp from the crowd.

Their shock is understandable.  Media coverage of the long term care insurance (LTCi) market would lead you to believe these policies are becoming extinct. But those policies written in the ‘80s and ‘90s not only exist, they are showing up at senior care providers in the hands of aging Baby Boomers.

An Evolving Industry

There have indeed been changes in the LTCi market.  Some carriers exited the market, others sold their books of business, and most stopped selling “traditional” LTCi products.  Traditional LTCi policies became problematic for insurers because their actuaries underestimated life expectancies, care costs and utilization rates. Simultaneously, low interest rates dampened returns.

Jesse Slome is the executive director of the American Association for Long Term Care Insurance (AALTCI)—the national trade group that reports annual claims data.  Mr. Slome explains:

“The changes are partly due to the recession and partly due to fewer companies selling traditional LTC insurance and more companies selling linked-benefit products.”

However, the LTCi market has been reinvigorated thanks to more attractive pricing and the introduction of innovative hybrid and linked-benefit products. “Ultimately, sales of traditional products will increase slowly and sales of linked-benefit products will increase dramatically,” states Slome.  In fact, the AALTCI reports that of the ten major insurance companies actively selling LTCi policies, seven reported year-over-year sales increases through Q3 of 2015.

Adds Slome, “Ten years from now there will be an enormous source of revenue available to pay for in-home care services.”

The Tidal Wave is Coming

“Approximately eight million Americans currently own some form of LTC insurance including non-traditional products,” explains Slome.  Yet only about 244,000 traditional policies were “on claim” and being used at the end of 2014.

According to the AALTCI, total benefit payments and the number of policies on claim are both increasing. “Total benefit payments increased by nearly 4% to $8.15 Billion1 2 and the number of LTCi policyholders on claim grew by roughly 10,000 from 2014 to 2015,” reports Slome.

“By 2032, insurers are expected to pay $34 Billion in annual benefits,” Slome reports.  The massive increase “is the result of aging policyholders, policy value increases and continued growth of individuals purchasing protection,” Slome explains. “Billions more in yearly long term care benefits will be paid to the growing number of people who are purchasing hybrid products,” Slome adds.

Government-Supported LTCi Coverage

Meanwhile, several states are launching experimental programs to ensure their aging residents have benefits available to fund long term care.

One state leading the way is Minnesota, whose Long-Term Care Partnership is a public-private collaboration between LTCi carriers and the state’s Medicaid program. It enables Minnesotans with certain LTCi policies to protect more assets if they ultimately need Medicaid assistance.  For example, an individual who purchases a $100,000 policy can protect an additional $100,000 of assets. The program encourages people to take greater control over how they finance care, and may reduce pressure on the publicly-funded system. 3

In Hawaii, legislators introduced a bill to create the country’s first universal long-term care insurance program. The program would work like private LTCi coverage with triggers for activities of daily living, cognitive impairment thresholds and daily benefit maximums.4

“These experimental programs are the perfect example of the continually-evolving solutions to support the aging U.S. population,” states Slome. “Medicare and Medicaid simply cannot afford to pick up the growing costs. Private LTC insurance will play an increasingly important role by providing individuals with choices and options not available elsewhere.”

The LTCi Revenue Opportunity

LTCi clients represent an attractive revenue opportunity for private duty agencies because:

  • 52% of LTCi policies are first used in a home care setting
  • Clients with LTCi policies typically receive 35% more hours
  • The average LTCi client receives 3.5 home care visits per week
  • Average length of claim is 2.85 years1
  • 75% of policies have a daily benefit between $100 – $2002

Cutting the Red Tape

The revenue opportunity with LTCi clients is enormous. So why don’t more agencies embrace it? There are three main reasons:

  1. ‘I let the client handle it’ or ‘I am all private pay.’
  2. Policies are complicated and agencies lack the necessary expertise.
  3. The claims process is messy.

Some agencies push the burden onto consumers, ignoring the “financial care” of the client.  Others are overwhelmed by the complexity, which is understandable. In fact, state insurance commissioners nationwide receive over 5,000 complaints annually of payment refusals by LTCi carriers. A 2008 report found approximately 25% of all claims go unpaid because carriers insist policyholders be so impaired that almost no one qualifies.5

Stories from the Front Line

Our front-line team at FHS is our pre-certification team—“pre-cert” for short. They act as advocates for the client, their caregiver(s) and the home care agency. It is their responsibility to study each client’s policy and ensure the carrier is interpreting its esoteric clauses fairly, so that the client can begin care.

In FHS’ experience, some carriers are easier to work with than others.  Some will make you jump through hoops to obtain approval.

“One carrier may send you a list of forms they need completed.  We help clients gather the information and we submit it on their behalf, which starts a 10-day review period by the carrier.  Even after we verify there is no additional information required, on the ninth day the carrier will say, ‘Now we need medical records from the last year.’ In contrast, if you send a ‘better’ carrier all the right information, they may start paying within ten days.”

Just how complex are LTCi policies? There are rules and regulations, elimination periods, inflation riders, hidden clauses, and endless qualifying factors and documentation you must provide: medical records, caregiver activity logs, cognitive impairment tests, nurse assessments, discharge papers, provider licensing documents, and so on.

Since LTCi policies can contain countless pitfalls, the pre-cert team distills a client’s policy into a Benefit Analysis that acts as a guide for the client and provider. “We translate all the complexity into layman’s terms and educate seniors so that they can actually use their benefits,” stated a pre-cert member.  It provides the client with peace of mind and ultimately expedites their care start.

The ongoing claims submission process is also very challenging, with myriad claim formats, backup requirements, denials, and payment delays.  Unfortunately, the burden falls on those least equipped to handle it.

“Some families try to do it on their own, but most realize how hard it is and ask us to help,” explains one pre-cert member. “The burden often falls on the adult children who are caring for their aging parents and their own kids,” said another member. “And this quickly turns into another full-time job for them.”

Conclusion

The revenue opportunity with LTCi clients grows every year as LTCi products evolve, the market expands, and more policyholders reach the age when they need care. If your agency can learn how to service these clients now, you’ll be well-positioned for success.