Despite a need for the product, issues of consumer affordability and insurer profitability threaten model’s viability, leading to hybrid solutions.
By Jane Adler
The long-term care insurance market continues to undergo significant changes that will impact seniors housing and care facilities. Fewer new policies are being written, and at higher prices. Premium hikes are common. Underwriting criteria are stricter than they were several years ago, and a number of insurers have exited the business.
A fairly stable, though small number of older seniors now hold the policies. But the number of policyholders could fall in the years ahead if current trends continue and relatively few baby boomers buy the insurance to offset the cost of home care or an apartment at a private pay seniors housing facility.
Insurers, however, are trying to devise ways to make long-term care insurance more affordable to more people — and still make a profit. New products are being introduced such as short-term care insurance and combination products that offer life insurance or annuities with a long-term care benefit.
“A lot of really thoughtful people are working on how to expand long-term care insurance to middle-income people,” says Marc Cohen, chief research and development officer at Waltham, Mass.-based LifePlans Inc., which conducts risk management assessments for the insurance industry. “They’re really trying to figure it out.”
The issue of how to pay for long-term care is reaching a critical point as the elderly population grows. People are living longer and with more chronic conditions that require hands-on care. The average life expectancy in the United States today is 79.1 years, up from 70.8 years in 1970.
It’s estimated that 70 percent of Americans who reach age 65 will need some form of long-term care for an average of three years, according to The Scan Foundation, a Long Beach, Calif.-based nonprofit group that focuses on long-term care funding.
The nationwide cost of long-term care totals approximately $725 billion a year. Of that amount, private insurance covers only about $7 billion. Seniors and their families provide another $63 billion, and Medicaid funds $130 billion. The remainder of funding comes from other sources such as veterans benefits, according to the Scan Foundation.
Sales of long-term care insurance peaked at about 750,000 policies a year in the early 2000s. But insurers quickly found it difficult to pay claims and still make a profit. Insurers miscalculated how long people would live and how much care they would need.
The annual median cost of a private room in a nursing home is now more than $91,000, according to long-term care insurance giant Genworth Financial Inc. based in Richmond, Va. The median annual cost for homemaker services for 44 hours a week is $44,600 and assisted living is about $43,000 a year.
A number of big companies have pulled out of the long-term care insurance market. Prudential stopped selling the policies in 2012 and MetLife called it quits in 2010. Companies that have exited the market still pay claims on the policies they’ve sold.
Annual sales of policies in 2010 were 65 percent lower than in 2000, according to LifePlans. And sales since then have remained relatively flat.
Genworth Financial reported operating earnings of 13 cents per share for the third quarter of 2015, below analysts’ estimates of 22 cents per share. The net loss for the quarter was $284 million, compared with a loss of $844 million for the same period last year.
Boomers aren’t buying insurance
“Long-term care insurance is not something everyone can buy,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, an industry trade association based in Los Angeles.
The best age for people to purchase long-term care insurance is when they are in their mid-50s, say insurers. But insurers won’t accept unhealthy applicants, and 44 percent of applicants over age 70 are declined.
The policies are also expensive. Total premiums for a couple, age 60, approach $4,000 a year. That would provide each with immediate access to $164,000 of benefits. At age 80, benefits for each would have increased to $325,000.
The potential long-term care insurance market totals about 18 million people, says Slome. About 8 million people already have some form of coverage in place. The industry paid out claims totaling $7.5 billion in 2014.
“By 2032 insurers are expected to pay $34 billion a year in benefits, a 415 percent increase,” reports Slome. “The quadrupling in benefit payments is the result of aging of policyholders, policy value increases and the continued growth of individuals purchasing protection.”
While early policies only paid for skilled nursing, new policies cover the entire spectrum of care. About 52 percent of new claims are for home care. Twenty percent are for assisted living and 28 percent are for skilled nursing.
“Individual usage shifts over time,” says Elena Edwards, president of long-term care at Genworth Financial. People generally want to receive care at home, but as their needs increase, they may move to an assisted living building or skilled care facility.
Long-term care insurance benefits make up a modest, but important payment source at seniors housing and care communities.
About 6 percent of assisted living residents pay at least part of their bills with long-term care insurance benefits, according to Alexandria, Va.-based Argentum, formerly known as the Assisted Living Federation of America, or ALFA. (The organization’s name was changed in October.)
Argentum says the number of residents using the benefits has grown from 3 percent in 2006, and operators can expect more move-ins from seniors who have the insurance.
The influx of policyholders will eventually slow, however. “Baby boomers are not buying the insurance,” says Maribeth Bersani, who was recently promoted at Argentum to chief operating officer. Baby boomers think Medicare pays for long-term care and it doesn’t, she adds. “We need to educate them.”
About 10 percent of the residents at Juniper Communities have long-term care insurance, according to company founder and CEO Lynne Katzmann. Headquartered in Bloomfield, N.J., Juniper owns and operates 20 facilities in Pennsylvania, New Jersey, Florida and Colorado.
Insurance penetration rates among residents vary by state. “The market for long-term care insurance is not as robust as people thought it would be,” she says. “But I’d love to see more of it.”
A resident with long-term care insurance and Social Security can usually get close to the monthly cost of assisted living, adds Katzmann. “The policies help.”
Triggering benefits
Seniors housing companies face a complex and sometimes confusing array of issues around long-term care policies. Rules differ by state and are subject to change. In Colorado and New York, for example, seniors with the insurance who exhaust their benefits can receive Medicaid assistance without spending down their assets.
“That’s a huge benefit and incentive for people to purchase the policies,” says Katzmann.
Regulations in Pennsylvania define assisted living as “personal care.” Building operators must explain to insurers that the services are one in the same in order for residents to receive benefits.
Many policies have a deductible period of 90 days. Consumers sometimes forget the policies include this provision and expect the insurance company to pay for assisted living whenever they need it.
Another hurdle is finding a way to pay for services delivered during the period before benefits become available. Benefits are triggered by the need for assistance with two activities of daily living, such as dressing and bathing, and/or some type of cognitive impairment. A doctor must certify the person needs help and will require care for more than 90 days.
Insurers typically pay claims in arrears. So, the senior needs enough assets to pay the building operator upfront.
“We see a lot of frustration from families,” says Kevin Bonello, vice president of information systems and technology at Greenfield Senior Living based in Falls Church, Va. The company operates 18 communities and owns eight of them. Bonello, who handles billing, says fewer seniors are moving in with the insurance, and those with policies often have trouble receiving benefits on a timely basis.
Genworth Financial’s customer service division, CareScout, helps policyholders find service providers. Noting that seniors housing operators and insurers share the same customers, Genworth’s Edwards encourages building operators to make sure CareScout has current property information.
“The more we know about a facility, the better we can match providers and customers,” she says.
Like many building operators, Bonello turns to other programs when funds run short. Many states now have Medicaid waiver programs that provide money for assisted living. For example, in Virginia, seniors with memory impairment can receive Medicaid funds to stay in assisted living, rather than move into a skilled facility.
In the Richmond area, Greenfield partners with PACE, a Medicare demonstration program that allows both Medicare and Medicaid funds to be used wherever the senior can receive the most appropriate care. “It’s a great program,” says Bonello. However, the number of people admitted to the program is limited, he adds.
Juniper Communities taps into the Aid & Assistance Pension from the U.S. Department of Veterans Affairs. Seniors who are veterans and have served at least one day during wartime can receive a monthly pension that can be used for home care, assisted living and nursing care. A spousal benefit is also available. “It’s a good benefit for middle-income people,” says Katzmann at Juniper.
The VA benefit typically involves a long wait for approval — up to a year. Buildings often have staffers experienced in completing the application process. But the facility may have to forgo full payment until the benefit is available. “It’s a big issue,” says Katzmann.
New products fill gap
Insurers are creating new products, such as short-term care insurance that covers policyholders for about 360 days. The American Association for Long-Term Care Insurance recently created an organization to promote short-term care insurance and in October launched a new website, shorttermcareinsurance.org.
The short-term care policies generally have simplified underwriting and no deductible period. No certification is required to show that the care must last more than 90 days.
Since many people use insurance for home care before moving into assisted living or nursing care, Katzmann wonders about the impact on the industry of short-term care policies. With the average stay in assisted living at about 23 months, seniors could quickly exhaust their benefits. “That’s problematic,” she says.
Hybrid insurance products are also growing in popularity to fill the funding gap. These policies combine long-term care benefits with either life insurance or annuities, which provide a lifetime income stream. It’s estimated that insurers sold 100,000 combination life insurance/long-term care policies in 2014, up from 16,000 in 2008.
The combination policies are complex and prices vary. The benefits can also differ, though most hybrid policies will pay for care in a facility.
While consumers typically rely on several sources to pay for care, providers are teaming up to address the affordability issue and bring attention to the need for new approaches. Public-private partnerships are emerging as one solution.
In October, Argentum and Genworth held a forum on caregiving to educate consumers about insurance products. Argentum and Genworth are also working together on plans to incentivize consumers to save for their own long-term care in return for federal tax breaks.
Bersani of Argentum envisions a fund that consumers could contribute to over the course of a lifetime to be used for care, something like 529 college savings plans that reduce taxes for families. (The Internal Revenue Service created state-sponsored 529 plans in 1996.)
But building a consensus on the best way forward could take time, say experts. In a 2013 report issued by The Commission on Long-Term Care, created by the U.S. Congress, the one area where stakeholders did not agree was on how to finance long-term care.
Additionally, a provision in the Affordable Care Act that would have required workers to contribute to a long-term care fund was dropped from the legislation.
“There’s no one answer,” says Argentum’s Bersani, “but we need to start educating people about the options.”