Insurance Update: Is It Really a CLASS Act?

While approximately eight million people currently carry LTC insurance, Slome says that the potential market for it is probably around 15 million. "People wrongly assume that everyone will buy" LTC insurance, he says. But among those in the "identifiable limited market," awareness is up–where AALTCI used to get one consumer call a month inquiring about the details of coverage, he says now it receives two to three per day. Combination products, such as annuities with a LTC rider, have a "significant potential" and sales have been up–"up compared to the down years," Slome adds.

And there have been changes in how people perceive LTC coverage, which Slome attributes to four major factors. First, because premiums are so directly tied to interest rates, new policy premiums have been increasing, making coverage more expensive than it used to be. Second, this is an economy in which consumers realize that they have a limited number of discretionary dollars to spend on coverage. Third, there's a growing awareness among both consumers and agents that shorter-term policies are a more affordable option–"Something is better than nothing is not a bad philosophy," says Slome. And fourth, some insurers have stopped offering an unlimited benefit.

So people are buying coverage differently, perhaps opting for a three-year policy instead of a ten-year unlimited policy, and adding in a shared care option that can bring coverage back up to six years. They might also take advantage of a consumer price index (CPI) inflation rider or even a future purchase option, says Slome, instead of the compound inflation rider that used to be standard but "can double or even triple the base price of the policy"–and by doing so, they've dramatically reduced the cost of coverage.

Public vs. Private

Heightened awareness about LTC insurance is sure to increase once the CLASS Act gets onto everyone's radar screen–for one thing, Slome says that the government plans to sink $15 million into a consumer awareness program about it through HHS.

Not only that, but he says that this is "still the first generation of LTC policyholders, more or less." He explains, "Right now the industry pays out $6 billion [in benefits]; that impacts not just beneficiaries, but also their children [who inherit family assets that otherwise would go to pay for their parents' long-term care]. They talk to each other, and to friends and relatives and family. And when an agent has the ability to say, 'I've been selling for 15 years and don't have a lot of policies, but last year my first client started getting [benefits] and this is their story–' all that will add to building the marketplace. The agent now understands and has a story to tell, and the client relates it to real life."

While the CLASS ACT is a voluntary program, and people will have to opt out of it, it will have an effect on the market. And the market will have an affect on it in turn–because buyers of private coverage are now approaching policies with a something-is-better-than-nothing outlook, many may look more favorably on the limited options to be provided by the CLASS Act, or may choose to pay into the CLASS Act coverage and buy a less expensive private policy as well. Much will depend, too, on how many people sign up for it, and how old they are. If enough people opt in, or enough healthy people buy in to help subsidize those who cannot qualify for private insurance, coverage may be affordable; if not, premiums will rise quickly or, says Slome, "everyone will go to Medicaid."

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Marlene Y. Satter, a freelance business writer who can be reached at [email protected].