Long-Term Care Insurance: Helping Others by Helping Yourself
Long-term care is one of the greatest planning challenges facing working Americans. The cost of care for a person can easily exceed $100,000 per year, and most people are not covered by insurance and do not have resources to pay for their own care. With baby boomers beginning to reach age 65, long-term care will completely overwhelm government safety net programs that fund most institutional care.
Generally speaking, insurance companies, financial advisors and benefit advisors have for the most part failed to solve this problem for their clients. Planning products have existed for years, but a failure to recognize the differences between long-term care and other planning challenges have brought us to where a small fraction of the population over 50 years old own this critical insurance protection.
The death of Long-Term Care Insurance has been exaggerated…
With Prudential, MetLife and Unum leaving the long-term care insurance business, you may get the impression that the market for long-term care insurance is going the way of the dinosaur; but quite the opposite is actually true. The need for long-term care planning has never been more urgent and there are a number of carriers who remain committed to this important market.
Long-term care insurance is a challenging market for insurance carriers for several reasons. Unprecedented low interest rates over the past few years have wreaked havoc on insurance companies and long-term care has the highest reserve requirements of any insurance product. Add to that uncertainties brought about by extending life expectancies due to medical advances and the result has been some of the biggest diversified insurance carriers have simply picked up their capital and moved it to less demanding lines of business.
Luckily, we live in a capitalistic society where companies invest to provide needed products and services for a return on investment. And the need for long-term care planning has never been greater. Starting in 2011, the first wave of baby boomers began to reach retirement age at the rate of one every 10 seconds. This trend will continue for the next 20 years. Nearly 70% of these people will need some form of long-term care during their life; and most have not done planning to protect what they've managed to save.
Long-Term Care’s impact on the workplace…
Few companies realize the implications of long-term care on their bottom line. Employees providing care to a loved one have an impact on their workplace in the form increased health care costs, reduced focus, and lessened hours. These employees report having increased absences from work (33%) or working less hours (29%) to mange care needs at home. In addition, one report calculates an 8% difference in health care costs between care giving and non-care giving employees because of stress related complaints, costing U.S. employers an estimated $13.4 billion per year.
These employees also report having to make difficult career choices; such as putting professional opportunities on hold, moving to part-time status, and forsaking promotions to manage work and caregiver responsibilities. One report states that once care giving has started, about 62% caregivers say that they make some sort of workplace accommodation – such as going in late or leaving early, taking a leave of absence, or dropping back to part-time.
Employees providing eldercare were also more likely to report poorer health. For example, among female employees ages 50 and older, 17% of caregivers reported fair or poor health compared to 9% of non-caregivers. Among men ages 18 to 39 and women ages 40 to 49, the caregivers were also more likely than non-caregivers to report lower health ratings. Employees providing eldercare were significantly more likely to report feelings of isolation, depression, diabetes, hypertension, and/or pulmonary disease regardless of age, gender, education, or work type.
Caregivers were also more likely to be associated with riskier health behaviors. Smoking is reported to be higher among male caregivers – especially younger male caregivers and white-collar caregivers relative to non-caregivers. Alcohol use is higher among blue-collar caregivers. The study also found that caregivers find it more difficult to take care of their own health or participate in preventive health screenings. For example, women caregivers were less likely to get annual mammograms. Employed caregivers of all ages and both genders defer preventive health screenings and annual check ups as well.
In addition, the financial stress on caregivers is found to come in multiple forms as well. One study found 88% of caregivers said their household income was reduced by an average 34% and 60% reported a need to cut back on family expenses and significantly reduce additional savings. About 57% of caregivers had to dip into their retirement funds or savings and 29% borrowed money, took out a reverse mortgage or sold their home.
Preconceptions about Long-Term Care impede planning…
Preconceptions about long-term care on the part of business owners, employees, and professional benefit-advisors contribute to the lack of planning that can solve the problem.
If you ask a typical business owner, "what is the first thing you think of when you hear the words long-term care?", what response do you think you'll get? Try this yourself. It's actually a great way to broach the subject of long-term care with an employer. I'm willing to bet virtually everyone will say "nursing home", or "old people" or something they think has nothing to do with them. It's human nature to avoid thinking about unpleasant things, especially things perceived to be way off in the future.
Business owners and workers are not the only ones with preconceptions that prevent planning for long-term care. The financial and benefit advisor community traditionally deals with products and problems that are well understood and are analytical in nature. Take health, dental, vision, and/or disability insurance for example; who doesn't understand what these are? What drives business in these markets? While service and relationships are always important, clients know they need these products and request information. And even if an advisor raised the topic, prospects generally understand these products because sales are driven by premium – it would be quite natural for an advisor to begin the sales process for long-term care by bringing a proposal.
Advising clients on an issue people don't understand and don't want to think about requires a different approach. Whether you’re working with business owners and executives or individuals, people must be engaged with questions that get them emotionally involved and that allow them to discover the issues related to long-term care on their own.
Education drives success of Long-Term Care insurance programs…
Education drives success with long-term care, and advisors need to change from analytical sales techniques that work for their other lines of business to techniques that engage prospects emotionally. Rather than selling, you are guiding companies through an issue that can profoundly impact them and the people responsible for their business success. A concerted effort is required, and it will differentiate advisors that learn to do it well.
The most common mistake advisors make with long-term care is delivering a proposal before a prospect understands the issue and connects emotionally. Rare is an executive level meeting where there isn't a participant who has experienced long-term care personally and has a story to share. Employer presentations must engage prospects to talk about their own experiences, how they feel about their employees, and the reasons for offering the benefits in their compensation package.
Asking questions is the key as employers share their business philosophy about recruiting, rewarding, and retaining their top people. Providing education on the limitations of traditional health insurance, Medicare, and disability insurance after talking about their own benefit package helps employers connect the dots to see the gap in the safety net for their employees.
A critical gap in coverage for employees…
Most employers offer their employees health insurance and a sponsored savings program. Many also offer dental, disability, life and other insurance packages. Some of these may be offered on a voluntary basis and some are paid or subsidized.
Many employers will match an employees’ contribution to the sponsored savings program – which encourages them to save and helps employees accumulate money for retirement on a tax advantaged basis. Some organizations provide very generous matches.
So what is the impact to employees when there is a generous benefit package without a long-term care insurance benefit? Obviously, employees will not be able to purchase long-term care insurance through work, but there is another very important cost that is not so obvious. To understand, lets review the three primary benefits for employees when an employer offers a sponsored long-term care insurance benefit; education, premium discounts, and an underwriting concession.
Education at work may be the most important advantage for employees because it provides and understanding of the problem before they would have learned about it on their own, in some cases 10, 20, or even 30 years before they would have thought about. Unknown to most people, the biggest challenge for a long-term care insurance advisor is actually getting people through the medical underwriting process. Fully, 30% of people who apply for insurance protection outside of an employer-sponsored program with underwriting concessions are declined due to preexisting medical conditions.
To underscore the importance of education at work, most people with common health issues like high blood pressure, arthritis, or even diabetes could be approved for coverage if they apply when they are young. As everyone knows these common conditions deteriorate over time and when people finally learn about long-term care and apply for coverage it is often times too late.
The underwriting concession will either be guaranteed issue or simplified underwriting depending on the size of the employer and the type of plan offered. As its name implies, guaranteed issue means employees working a specified number of hours will automatically be issued a policy without any underwriting. Simplified underwriting policies will be issued based on a limited number of health questions and many people will be approved for coverage that would otherwise have been unavailable.
Employers and advisors have an opportunity…
Of the approximately 5 million U.S. companies with employees, all but about 10,000 have one thousand employees or less. In fact, all but about 100,000 U.S. businesses have fewer that 100 employees. By far, small businesses employ the most people. In the challenging new economy where big business has never been more profitable, small businesses may want to use a play out of the big business playbook. About 35% of all employers with over 5,000 employees are currently offering long-term care insurance. Conversely, fewer than 2% of all other employees are educating their employees and offering discounted insurance with underwriting concessions.
Offering long-term care insurance is a unique way for employers to find financial success while simultaneously helping the country solve one of its most pressing planning challenges. There are tax advantages available for owners and executives, and it can also be offered on a voluntary basis without cost to employers. Broaching the topic of long-term care is an opportunity for benefit advisors to make a life changing difference for many of the employees of their client companies and organizations.
About The Author
Doug Ross is Present of EM-Power Services. Since 1996 EM-Power Services, Inc. has helped benefit advisors and employers throughout the country implement long-term care insurance benefit programs. The firm works with major underwriters and offers both individual and group long-term care insurance solutions. EM-Power Services is located in Oxford, MA. (800) 483-1115. You can find EM-Power on the web at http://www.longtermcarefacts.com