Long term care market potential grows
Proposed legislation would stimulate consumer interest
In June of this year, Senators Charles Grassley (R-IA) and Bob Graham (D-FL) introduced legislation in Congress that would help individuals needing long term care assistance now and in the future. The measure, “The Long-Term Care and Retirement Security Act of 2003,” provides for an “above-the-line” tax deduction for long term care insurance premiums, and a $3,000 tax care credit for individuals with current long term care needs or their caregivers. The measure would also permit the inclusion of long term care policies in employer-sponsored cafeteria plans and flexible spending accounts.
The bill is a companion to a long term care measure (H.R. 2096) previously introduced in the House by Rep. Nancy Johnson (R-CT) and Earl Pomeroy (D-ND).
This federal action came on the heels of the federal government’s rollout of its own long term care insurance program for government employees, the military and eligible relatives, earlier this year. Moreover, some 23 states have either passed or are considering legislation offering tax relief to individuals and/or employers who purchase long term care insurance.
It’s small wonder that legislators, both at the state and federal levels, are focusing on long term care as a major concern. In the opinion of experts, long term care represents the largest unfunded liability in America today. And, long term care represents an opportunity for insurance companies and their agents who are looking for new premium dollars. However, long term care is also a complex issue that requires strong expertise in terms of the nation’s needs that must be met and the products being offered. In short, although it could represent a money maker for the insurance industry, no amateurs need apply.
And the needs are certainly there. Commenting on the proposed Congressional legislation, Frank Keating, president and CEO of the American Council of Life Insurance (ACLI), said: “Now, more than ever, Americans need to prepare for their future. Tax incentives that encourage the purchase of long term care insurance will help protect families against the financial devastation of paying for long term care.”
Until recently, the emphasis on the part of financial planners has been on saving for retirement years. But saving for retirement is only half the story. Now, the emphasis includes protecting those retirement savings from the escalating costs of long term care.
According to the ACLI, the annual cost of long term care for an individual is projected to escalate to more than $200,000 by the year 2030. Medicaid’s annual nursing home expenditures could reach $134 billion by that year, an increase of 360%. Eighty to 90 million Americans will be 65 or older, according to U.S. Census estimates. Says the ACLI: “Unless people are encouraged to pay for their future needs, soaring costs and rising demand for long term care services could deplete personal savings and exhaust government entitlement programs. Long term care insurance is the best way to address this emerging crisis in America, helping to protect individuals and families from catastrophic financial risks when they or loved ones need long term care.”
An ACLI survey shows that 67% of Americans are concerned that paying for long term care will wipe out their savings. Only 11% of fulltime employees in medium and large businesses are offered long term care insurance on a voluntary basis.
It’s clear, then, that insurance companies and their agents should recognize long term care as a viable, potential market. But it’s not an easy sell and possibly it’s because of “myths” that surround the product. Many people believe that Medicare and Medicaid will cover all of a person’s long term care needs. According to the ACLI, this is wrong. “Medicare provides only short-term, skilled nursing home care following hospitalization, and limits its coverage of help at home to those who need skilled nursing care and rehabilitative therapy,” says the ACLI. “Medicaid is the federal-state health insurance program for the poor. To be eligible, for this program, one must meet strict rules regarding income and assets. Most middle-income families must deplete their life savings to receive nursing home and home health care under Medicaid.”
Long term care is also perceived as being too expensive a product. Says the ACLI: “In comparison to the cost of paying out-of-pocket expenses for long term care services, the cost of a long term care insurance policy can be quite affordable for most people. The average monthly base price for assisted living facilities in 2001 was $2,159. For assistance beyond the basic level of care, facilities typically charge $18 to $25 an hour or an additional monthly fee. A 45-year-old woman today could pay about $460 per year or about $38 per month for a comprehensive policy that pays long term care benefits for two years. By age 85, if she enters a nursing home, she will have paid about $18,400 in premiums for her long term care insurance policy-far less than the nearly $400,000 that two years of nursing home services likely will cost in 30 years.”
Another myth is that people should consider long term care insurance only at retirement age. However, according to the ACLI, more Americans are buying long term care insurance before age 65. In the individual market, one-third of current owners bought their policy younger than age 65. The ACLI says that the average age of people who bought long term care insurance in the workplace was 43 in 1999.
“Additionally, the age at which a person buys a policy determines the policy’s cost,” says the Council. “The younger the policyholder is, the less the policy will cost. A 45-year-old pays about half of what a 60-year-old pays for long term care insurance. Once a policy is purchased, premiums cannot be raised because of age or health status.”
So much for myths about long term care insurance, but can insurance agents really benefit from selling the product? Is it a money maker? According to LIMRA, long term care insurance is a burgeoning market.
“Unprecedented sales in the employer-sponsored long term care market led total group LTCI sales to 149% growth in new premiums in 2002,” according to LIMRA. “Employer-sponsored group sales alone more than tripled, raising the compound annual growth rate for the five-year period since 1998 to 48%. The number of new employer-sponsored groups increased 11% in 2002, compared with the previous year, while the corresponding number of new participants grew 77%.”
Less dramatic but still significant, the individual long term care insurance industry experienced a 4% growth in new policies in 2002, according to LIMRA. Annualized new premium increased 5%, 1% less than the compound growth rate of 6% during the five-year period from 1998 to 2002.
So, the potential is there, but that comes as no news to Peter S. Gelbwaks, president of Gelbwaks Insurance Services, Inc., based in Plantation, Florida. Today, long term care insurance represents about 98% of his agency’s business.
A graduate of the University of Miami, Gelbwaks holds a degree in sociology. He entered the insurance business directly after graduation and has spent his entire 35-year career in South Florida. He is considered a leading expert on long term care insurance and lectures and teaches at various business meetings and educational institutions. Gelbwaks is also chairman of the National LTC Network, a facility that gives retail agents access to wholesalers, and a current Agents Advisory Council member for five major LTC insurance carriers.
His involvement in the long term care industry came as the result of a personal experience, which he calls a “rude awakening.” Years ago, Gelbwaks mother became seriously ill and was in need of long term care. In fact, his mother lived in poor health, needing special care for roughly 32 years, during which time she was in hospitals, a hospice and finally, in the last three years of her life, a nursing home which cost roughly $4,000 per month. She didn’t qualify for Medicare or Medicaid. Gelbwaks spent about a quarter of a million dollars out of his own personal finances during those years, and the importance of long term care insurance hit home.
“I began a campaign to educate the public and insurance companies about the need for long term care insurance in 1985,” says Gelbwaks. “I also attracted the interest of third-party influences, such as CPAs, financial planners, bankers-anybody and everybody that might have a financial interest in selling long term care insurance. By 1996, some dramatic changes began to take place in the long term care insurance industry. HIPAA was passed and that law addressed the issue of long term care. Then, the Kennedy-Kasselbaum law was passed, which provided for tax deductions for people who purchased the coverage. You still had to jump through hoops to qualify, but it was a start. Some insurers began to see the benefits of selling long term care insurance.
“But the LTC market is still far from saturated,” continues Gelbwaks. “Today, only about 6% of insurance companies offer LTCI, with 94% of companies still unwilling to write it. The top two companies writing the coverage today have about 40% of the market.”
Gelbwaks admits that, in the early years, some insurance companies did not think things through when approaching the long term care insurance market. “Some became victims of adverse selection, marketing primarily to older prospects. When claims began coming in, some companies pulled back from writing new business. So, they had the claims and no new premium dollars to offset the claims they were incurring. But today, insurers have a better handle on how to write the coverage. They are going after a younger market-people in their 40s, 50s and 60s, instead of those in their 70s and 80s. They are now rolling out policies that make more sense.”
Gelbwaks has some very specific advice for agents who might be thinking of taking advantage of the growing LTCI insurance market. “First of all, any agent who tries to sell long term care insurance as an add-on to existing coverages will be doomed to failure. Either become a student of LTCI-live it, breathe it-or partner with someone who is knowledgeable about the subject. There are too many people out there trying to sell long term care insurance who are not trained or who do not keep up with changes taking place. LTCI is an ongoing process. An agency that wants to get into LTCI should hire a specialist or join forces with another agency that has the expertise. That’s why the National LTC Network was set up, to assist agents who need the expertise to sell and service the product properly.
“Then,” continues Gelbwaks, “look for the best company and the best product. Look for a company that will be around to pay claims 30 years from now. When choosing a company, brand is important, [as are] ratings and longevity in the LTC business. And, agents should buy the product for themselves. You can’t sell something if you’re not an owner. The state-of-the-art products are here right now. It’s time to hear the wakeup call.”
Copyright Rough Notes Co., Inc. Sep 2003
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