My Comments: This is again one of the most difficult topics facing any of us who hold ourselves out as financial professional. But with the baby boomers aging, and medical science keeping us alive longer and longer, it’s a topic that will not go away. There is a statistical reality that is impossible to ignore.
We’ve already seen companies stop selling new contracts. We’ve seen companies raise their premiums significantly to offset what are underpriced products sold in years past. We’ve seen hybrid products come on the market that offer dynamic and interesting benefits for those who can afford them. And more changes are on the way.
If you are considering Long Term Care insurance for yourself or a loved one, here is an overview of what we are likely to see in 2014.
Stephen Forman | Bellevue, WA
As we look ahead to the New Year and ponder what changes lie in store for our beloved (?) long-term care insurance industry, this author finds it easiest to place into five categories the major influences which impact whether 2014 will be sweet or sour.
THE ECONOMY: When I look at our production from year to year, it seems as if the economy plays an outsize role in our sales metrics — exasperating since we exert no control over it. Although academics tell us the recession ended in 2009 — and many economic indicators have either returned to normal or surpassed their 2008 lows — a malaise continues to dog the American psyche. Influential author and researcher Harry Dent agrees that “the everday consumer never came out of the last recession.”
Turning his attention to demographics, Dent adds that “an aging US will cause deflation that will weaken the economy from 2014 – 2019.” With the Fed telegraphing an indeterminate end to punishing interest rates, we can say, “So goes the economy, so goes LTCI.”
THE GOVERNMENT: There’s no greater impediment to LTCI sales than government’s “free inheritance insurance for prosperous heirs,” as Steve Moses describes Medicaid. 2014 will see 9 years since the Deficit Reduction Act was passed — the last real attempt to curb Medicaid abuse — and time for renewed attention. Next year’s elections will prove if sentiment toward the Tea Party ethos materializes into Congressional seats, and whether any resultant power is wielded to reign in entitlement spending.
While the Patient Protection and Affordable Care Act (PPACA) is here to stay — including its devil’s-bargain Medicaid expansion — ACA has had a negligible impact on Long Term Services and Supports. Instead, we enter 2014 with talk of repetitous studies by well-meaning public servants, whose results will be quickly forgotten. Those who hope for better tax breaks for the purchase of LTCI will be disappointed again.
THE CARRIERS: During the last few years several insurers took overt steps to moderate sales, whose successful implementation led some pundits to misinterpret ours as an industry on its heels. Such is the outsize power of the ratings industry, which also used its indirect might to encourage carriers to de-risk certain benefits or withdraw them entirely. In 2014 we expect many carriers will ask for and accept as much business as producers can give.
Unprecedented in 2013 were the excessive spikes in volume caused not just by so-called “fire sale” business — at junctures where new products replace old series — but because several carriers’ fire sales coincided with the introduction of gender-distinct pricing.
Although new products are expected from several leading carriers in 2014 (and some remaining state rollouts from others), we don’t anticipate nearly the spikes (or the delays in cycle-times that ensue), since the upcoming transitions will rarely involve a change from gender-neutral to gender-distinct pricing.
How many carriers will offer LTCI at the end of 2014? The correct number.
THE PRODUCTS: As LTCI evolves, continue to expect more variety in the lever which sits at the axis of price, interest-rate sensitivity, and Partnership — inflation protection. One inflation innovation which may see wider adoption by the industry is so-called “step-rating,” since it lessens the rate increase risk inherent in level premiums; two respected studies last year independently recommended this strategy.
We also anticipate the return of cost-sharing in an attempt to reduce over-utilization. Although carriers have flirted with “skin in the game” products for years, such co-insurance plans are price-conscious and will piggy-back on the wide publicity generated over the “metal” plans introduced by PPACA (eg 70%, 80%, etc.).
In 2014, not only will we not see a renaissance of multi-life (aka “worksite”), but the author expects a further tightening of such programs. For one thing, many carriers must now see the reward behind filing and carrying both a gender-neutral product for the worksite and a gender-distinct product for the lay public. Second, producers have “killed the goose that laid the golden egg.” Worksite has been marred by enabled anti-selection, and carriers complained years ago that they wouldn’t return without pre-conditions, none of which have been met. Don’t expect a return next year.
DEMOGRAPHICS: The average age of the LTCI buyer has held steady at around 58/59 for several years now — we don’t foresee this dropping next year. In the past, working age buyers of large worksite cases skewed this number downard — no more. Tugging in the opposite direction, we’ve now learned the average buying cycle (between first awareness and purchase) is roughly 7 years. Coupled with the statistic that nearly half of adults are of the “sandwich generation” — pre-occupied with immediate concerns beyond far-off retirement planning — if anything, the age of purchase could increase. Linked-benefit products have given new life to older clients for whom the price of LTCI had passed them by.
With the introduction of gender-distinct pricing, one might wonder whether we’ll start to see a decline in the number of female applicants. In spite of relatively higher pricing, we’ve so far seen little evidence of this. If anything, 2013’s intensified messaging has only emphasized the importance of LTCI coverage for women: We expect to see more women than men purchasing in 2014 and a continuation of the theme, “LTCI is a Women’s Issue.”