The LTC crisis has officially arrived – and the tough choices are just beginning
By Tom Riekse Jr.
The LTC crisis affects five groups — government, insurers, employers, advisers and families. Let's look at the options they have for handling the LTC crisis.
An aging boomer population with expectations of generous health and retirement benefits has created challenges throughout the world. For years, an expanding economy and increasing population has meant that tough choices, such as whether to raise retirement ages or cut the growth in Medicare, could be put off.
However, as predicted for several years, the costs are rising rapidly beyond the promised benefits. Let’s look at five affected groups — government, insurers, employers, advisers and families — to see the options they have for handling the LTC crisis.
On March 17, the House Energy and Commerce Subcommittee met to discuss the Community Living Assistance Services and Supports Act, or CLASS Act. Much of the discussion focused on the sustainability of the program, but a lot of focus was also on how to take care of those who need care in general. Right now the plan offers “guaranteed issue” long term care coverage on a voluntary basis — something that group LTC actuaries find is hard to pull off and subject to adverse selection.
What will the designers of the CLASS plan do to avoid this problem?
During the last 12 months, insurers have had to make some difficult choices about long term care insurance. Because of worse than anticipated experiences around lapses, claims and investment returns, some companies have suspended new sales, increased in force premiums or exited the market altogether.
However, other carriers have seen opportunities in re-entering the LTC market, looking at linked benefit plans or adjusted policy features. Although there is risk involved in being in the LTC market as an insurer, the choice to not participate may mean being left out of a business line that experienced double-digit growth last year, despite the difficulties.
Employers have had the opportunity to review and strategize over the PPACA health care bill for over a year now. They still have much to learn about the impact the health care bill has on their business and employees, but they are also turning their attention to the impact of an aging population as well as the prevalence the sandwich generation has on their workforce. The above mentioned CLASS Act will make a major effort to encourage employers to sign up for auto-enrollment of employees, similar to 401(k) plans. Will employers do that? Or will they look at private LTC coverage as a primary benefit, either by purchasing a base plan or sponsoring a voluntary program?
Many advisers may feel they’ve had a bad experience offering long term care insurance to their clients. The list of problems cited is long: clients declined for health reasons, complex products, companies leaving the market, dealing with unforeseen rate increases and a difficult subject to discuss with their clients.
It is tempting to leave the issue up to the client, but the knowledge that a significant long term care plan could have a huge impact on the family keeps advisers interested in continuing the conversation. It’s been shown that the biggest reason consumers buy long term care insurance is their adviser recommended it to them.
Finally, we get to the group most impacted by the LTC crisis — families. We’re constantly seeing the need for long term care; take for example the 15 million people now caring for those with Alzheimer’s.
People are often shocked when they realize Medicare or health insurance doesn’t pay LTC costs, and the calculation of the cost of care is eye-opening to the entire family. Not only that, but the experience of their parents shows boomers that the nursing home in its current, institutional form and financed by Medicaid is not where they want to be receiving their care.
The cost of not planning for LTC is clear. However, even those who embark on the planning path face some difficult choices. If they decide to self-insure, which assets do they liquidate first in order to pay for care? If they buy long term care insurance, how do they know how the plan will perform in 20 to 30 years? Who will help give them guidance on planning?
Everyone needs help and empathy
The long term care funding crisis is upon us, and every group above played a part in getting into the fine fix we are in. However, each group will also play a role in developing the long term care system of the future. That system will require planning for the financial and emotional cost — and no one is in a better position to help with that than advisers.