LIMRA: LTC Insurance Market Sending Out Mixed Messages

The company stopped selling traditional LTC policies, which reimburse for actual LTC expenses, in favor of cash-only policies that pay set amounts for whatever LTC expenditures policyholders decide they need, within the limits of the policy's face value.

"It's easier for agents to understand, so they have embraced it," says Christopher D. Perna, president and chief operating officer of MedAmerica, a unit of Lifetime Healthcare Inc., Rochester, N.Y.

The product has been especially successful in the worksite market because it is easy to explain in the short time that's usually available for representatives to talk to employees, he says.

Terence Martin, an analyst for Conning Inc., Hartford, and author of a new Conning study of the LTC market, observes some developments augur well for the industry, but they may not make a strong impact without further innovations by carriers

"Today, long term care insurance is sold primarily by specialist agents to a niche market of affluent and risk-averse seniors," argues Martin in the study, "Long Term Care Insurance: Searching for the Value Proposition."

Thanks to educational efforts by the industry and state governments, people are now starting to see the holes in Medicare and Medicaid, he says. Yet many consumers still think the day they'll need LTC is too far off to plan for, he says.

New product developments could help change minds, he says. For instance, he sees the possible growth of policies with a preferred-provider element, similar to what is offered under PPO health care insurance. By helping to control costs of home care services or nursing homes, such policies could allow insurers to offer lower-priced policies, he says.

Martin predicts that wellness programs could become part of many policies because they could reduce claims by helping consumers postpone the need for LTC services. As with some health insurance plans, wellness programs would offer health-related services such as discounts to gyms to encourage regular exercise and incentives to assure policyholders participate in programs to monitor diseases they develop late in life, such as asthma and diabetes.

Offering lower-cost policies is critical to help the industry build sales, Martin believes.

"I think carriers will reach out to lower- income people, and I honestly think they should," he says. "If there are ways to have a lower price point, there will be more people who can afford it."

He suggests carriers could also build volume by increasing their use of combination products.

"One of the major objections people have to this insurance is, 'If I don't need it, the premiums are wasted,' " he says. That viewpoint may not make sense, he adds, but it's an objection people often have to LTC insurance. For that reason, Martin foresees growth of combination products that offer a death benefit or annuity feature.

Although not yet on the horizon, another potential development would be a policy that combines health insurance with LTC protection, Martin suggests. Congress would have to act to extend tax deductions to premiums and benefits for such a policy, he notes. "But it could be an interesting product to be explored."

In his study, Martin notes that LTC insurers have learned a great deal about selling LTC. Now they should be in a better position to avoid repeating the missteps of the early years.

"However, more than just avoiding missteps is required to bring the LTC insurance market up to its potential," he states. "LTC insurers need to be creative."