Will Advisers Add Long-Term Care to Offerings?

As the U.S. population ages and long-term care becomes a greater concern in retirement, long-term care insurance may become more widespread.

Long-term care insurance companies paid nearly $7.5 billion in claim benefits to 273,000 individuals in 2013, a rise of 13%, according to a new report from the American Association for Long Term Care Insurance. According to Jesse Slome, director of the national industry group, historically low interest rates that have persisted for a long period of time drove the marketplace to its current state. Other insurance lines were also impacted, he says. “The vast majority of long-term care insurance is now sold on an individual basis,” Slome tells PLANADVISER.

Just one insurer, Genworth, is still focused on the employer-sponsored market to a significant degree, Slome says. Long Term Care Partners is the provider for some 270,000 federal government employees. CalPERS, the California Public Employees’ Retirement System, is self-insured. Transamerica Life Insurance Company is another provider in the industry.

Plan advisers are reluctant to offer the insurance to plan sponsors, according to Slome. “Because the marketplace has changed, most plan advisers are totally avoiding it,” he says. They give reasons ranging from the scarcity of insurers to the complexity of the product. “They’ll say it doesn’t exist in today’s marketplace,” Slome says.

Mark Shepherd, managing principal with Shepherd Financial Partners, says otherwise. “Unfortunately I don’t think it’s offered often enough,” Shepherd tells PLANADVISER. An LPL-affiliated adviser, Shepherd says his firm actively looks to add to the services they provide to plan participants, adding that long-term care insurance should be thought of as an employer as well as an employee benefit.

Shepherd’s firm sends out monthly education pieces to plan participants with information on investing, general financial knowledge and one in-depth topic. Last year’s focus on long-term care insurance got a lot of interest from participants, he says, who went on to approach their plan sponsors about getting the insurance as a benefit.

An Expensive Insurance

Plan sponsors can choose to participate financially in the benefit or to have no financial involvement, Shepherd points out. In the second case, the plan sponsor pays nothing toward the benefits he has placed but still benefits in that he has created the vehicle for participants to get group discounts, which tend to be very well perceived. “This is  a very expensive insurance,” Shepherd says. Premiums can range between $4,000 and $15,000 a year, depending on the health and age of the insured.

Long-term care insurance, Shepherd says, can be a way of insuring an estate plan. “You’re managing cash flow, cash resources,” he says. It can preserve the estate, because assets are not depleted through nursing home costs, which can make an extraordinary difference in quality of life to the remaining spouse or partner.

Compared with the actual costs that can be paid out, the cost of the insurance is minimal for the benefit received. Shepherd says that they offer the insurance to each new plan sponsor, and the reception is very favorable. “It’s a benefit they get to offer, and it doesn’t cost them anything,” he says. It’s under-utilized, and advisers do not seem to be offering it, since the plans they service have not previously offered it to their participants.

At the moment, long-term care insurance is not experiencing much growth, Slome says. Over the past two or three years the industry has seen a drop in employer-sponsored use, which used to account for about a third of the industry. The small and mid-size plans are likelier to offer voluntary plans or plans that are partially employer paid.

Fewer than half the employers (43%) in Aon Hewitt’s database of more than 1,700 employers offer a group purchasing arrangement for employees and spouses to obtain long-term care insurance, according to Rob Austin, director of retirement research for the benefits provider.

Growing Need

“The employer marketplace will again emerge to be of interest to insurers,” Slome predicts. He says an aging population led by the Baby Boomers is seeing the likelihood of an increased life span. In addition, this segment realizes that government programs are not going to address their needs or be an adequate solution.

The need for long-term care for older people is not going to go away, Slome feels.  Because of demographic differences, such as a rise in the percentage of older residents, other countries have already faced it. Japan and Germany, for instance, have instituted a socialized solution to long-term care problems, according to Slome.

“They had to address it because the demographics required it,” he says. “We haven’t hit that point yet. But in 10 years we’ll be looking at it very clearly unless we start letting in a lot of young people to build the next level of those paying into the system as taxpayers to pay for older people, and to provide the care for older people.

A previous report from the association projected that insurers would likely pay $15 billion in 2023, and $34 billion in long-term care benefit payments in 2033, when today’s 60-year-olds reach their 80s.

Shepherd says LPL is committed to helping sort through the pros and cons for specific participants. If someone has $200,000 saved and they’re going to be on Social Security and don’t have as much to protect, long-term care insurance probably does not make as much sense.

It’s not possible to specify the costs of care and of the insurance, Slome says, because there is a range for both. Long-term care insurance is not a universal product that everyone wants and needs. It’s more akin to buying a car. Some people want a more expensive make and model; some are willing to go with a fewer-frills vehicle, he explains.