Insurance for Long-Term Care: The Real Reasons behind Rate Actions Reassuring Clients about Future Price Stability October 16, 2013 Americal Advanced Insurance Solutions, LLC Specializing in Long-Term Care Insurance Strategies President and Principal: Gene Tapper gtapper@americalltc.com LTC411.com / 310-441-5699
What is Long-Term Care? Long-Term Care is a range of services and supports systems you may need to meet your health or personal care needs over a long period of time. Most long-term care is not medical care, but rather assistance with the basic personal tasks of every day life, sometimes called ACTIVITIES OF DAILY LIVING (ADLs).
What is Long-Term Care? A person needs Physical Care typically anticipated for a period of 90 days or more Transferring Continence Toileting Bathing Dressing Eating OR
What is Long-Term Care? A person needs supervision due to Cognitive Impairment Dementia Alzheimer s Disease
What is Long-Term Care? LTC also includes Homemaker Services (IADLS) Assistance with Housekeeping Answering the Telephone Shopping Laundry Cooking Taking person to Doctor
TYPES AND LEVELS OF LONG-TERM CARE HOW IT ALL FITS TOGETHER The Problem is the Extra Expense Gap HOSPITAL ACUTE CARE SKILLED NURSING CARE WHO PAYS? NOT COVERED EXPENSE GAP - YOU PAY! NURSING HOME ENVIRONMENT SKILLED NURSING $133-$374/DAY $4,045-$11,376/MTH $48,540-$136,512/YR INTERMEDIATE CARE $133-$374/DAY $4,045-$11,376/MTH $48,540-$136,512/YR ASSISTED LIVING RESIDENTIAL CARE $41-$219/DAY $1,250-$6,663/MTH $15,000-$80,000/YR CUSTODIAL CARE CUSTODIAL CARE PERSONAL CARE SELF-CARE INTERMITTENT SKILLED CARE AT HOME CARE $228-$276/DAY $6,935-$8,395/DAY $83,220-$100,740/YR CUSTODIAL CARE (LIMITED HOURS)
TYPES AND LEVELS OF LONG-TERM CARE HOW IT ALL FITS TOGETHER The Solution to the Extra Expense Gap Problem HOSPITAL ACUTE CARE Comprehensive Long-Term Care Insurance Pays for Expenses Not Covered By Health Insurance, Medicare, And even Medi-Cal COVERAGE HOME & COMMUNTY CARE COVERAGE H&CC RESPITE CARE ADULT DAY CARE HOSPICE CARE NOT COVERED EXPENSE GAP - YOU PAY! NURSING HOME ENVIRONMENT SKILLED NURSING $133-$374/DAY $4,045-$11,376/MTH $48,540-$136,512/YR INTERMEDIATE CARE $133-$374/DAY $4,045-$11,376/MTH $48,540-$136,512/YR ASSISTED LIVING RESIDENTIAL CARE $41-$219/DAY $1,250-$6,663/MTH $15,000-$80,000/YR AT HOME CARE $228-$276/DAY $6,935-$8,395/DAY $83,220-$100,740/YR SKILLED NURSING CARE DOCTORS ORDER 24 HOUR CARE 7 DAYS/WEEK 8%-10% OF PATIENTS ARE SNC PATIENTS LOS - 20-28 DAYS - NOT FULL 100 DAYS LICENSED NURSES (RN, LVN) THERAPISTS (PHYSICAL, SPEECH, OCCUPATIONAL) CUSTODIAL CARE ASSIST WITH ACTIVITIES OF DAILY LIVING (ADL) TRANSFERRING CONTINENCE TOILETING BATHING DRESSING EATING 90%-92% OF PATIENTS ARE CUSTODIAL CARE PATIENTS NURSES AIDES (CNA) with RN, LVN SUPERVISION CUSTODIAL CARE CARE FOR ADLs NURSES AIDES (CNA) WITH RN, LVN SUPERVISION PERSONAL CARE 24 HOUR SUPERVISION CARE FOR ADLs MEMORY CARE NO MEDICAL CARE SELF-CARE 24 HOUR SUPERVISION INTERMITTENT SKILLED CARE DOCTOR S ORDERS WRITTEN PLAN OF CARE LICENSED NURSES (RN, LVN) THERAPISTS (PHYSICAL, SPEECH, OCCUPATIONAL) CUSTODIAL CARE CARE FOR ADLs HOMEMAKER SERVICES - HOUSEKEEPING - TELEPHONE ANSWERING - SHOPPING - LAUNDRY - COOKING - TAKING PERSON TO DOCTOR WHO PAYS? (LIMITED HOURS)
3. Do Long-Term Care Insurance Companies Pay Their Claims? The Long-Term Care Insurance Industry paid 264,000 individuals $6.6 Billion in benefits during 2012. A 79 year old lady received custodial care for 3½ years in a SNF due to a paralyzing stroke. Her stay in the nursing home was paid in full by the insurance company. In today s environment, her cost of care for 3½ years at $6,500 per month would be $270,000. An elderly lady with Dementia needing Assisted Living Facility services remains in a positive cash flow situation after receiving long-term care insurance benefits for her cost of care. She paid premium for 20 years and received all of her premium back in 8 months in the form of monthly insurance benefits. She continues to receive her insurance benefits today and they will never run out! The cost of care in an assisted living facility providing Alzheimer / Dementia care supervision can be as high as $7,000+ per month in the Los Angeles region. 5 years of care could cost $420,000 or more when considering the rising cost of medical inflation.
3. Do Long-Term Care Insurance Companies Pay Their Claims? A middle aged person receiving personal care at home, after total knee replacement surgery, was reimbursed for her cost of care at home by her long-term care insurance company. She also received benefits from the first day she was home after her surgery because she had a zero day elimination period for home care It was one of her policy benefits. Today, the cost of personal care at home for a 12 hour shift per day, 5 days a week is $240 a day or at the rate of $5,200 per month.
4. Today s Monthly Cost of Long-Term Care Insurance Per $1,000 of Monthly Benefit AGE 3 Yr BP 5 Yr BP 10 Yr BP 40 $28 $30 $39 50 $35 $38 $50 60 $50 $55 $72 70 $97 $106 $142 79 $181 $229 $298 Premiums based on John Hancock Benefits: 90 Day Elimination Period (Service Days For Facility) Re: Every day in facility will = Calendar Days 1st Day Coverage for Home Care Married / Partner - both buying Shared Care Re: Because lifetime, unlimited periods are not available Consumer Price Index (CPI) compound inflation protection Standard Rates 100% RCF/HCC Monthly Factor =.0875 For $3,000/mth Benefit for 5 Yr BP at Age 40, -Monthly Prem = 30 x 3 = $90/mth Premium
5. Why Have Premiums Increased over the Past Few Years? Lapse rate assumptions were too high. ~ 15% in the 1980s ~ 5% in the 1990s Companies were counting on some insureds dropping policies. However, insureds retained policies longer than expected causing more claims to be filed because insureds were aging and becoming eligible for policy benefits fewer policies were dropped than anticipated. Today, lapse rates have changed to about the 1% range. Financial Market Dropped over the Past Several Years. Insurance Company Return on Investments Tanked, Causing Low Infusion of Funds into Risk Pools. Loss Ratios for Long-Term Care Insurance Market were Higher than Planning Models Anticipated. Results: Premium Increases had to be Implemented to Maintain the Integrity of the Claims Paying Process. Note: California Partnership for Long-Term Care Single Risk Pool Concept has led to NO Partnership Policy Rate Increases with the Major Insurance Companies in the Partnership program.
6. Criteria for Rate Increases Factors used in determining premium pricing includes: Expected benefit payments The number of people who allow their coverage to lapse Marketing and sales costs The costs of administrating the coverage Investment returns on the insurer s general account Mortality Morbidity The plan options sold Demographic mix assumptions Unpredictable factors: Advances in medical care and treatment Changes in consumer expectations Changes in social programs
7. Client Options When Rate Increases Occur Keep the policy as is and just pay the premium Reduce the benefit period (consider the typical length of claims) Older clients may reduce the rate of inflation (After reviewing current benefits and comparing their benefits with the cost of care) Clients in their 70s and especially 80s might consider reduction in the inflation rate Clients in their 60s should be cautious about changing inflation rates Clients in their 50s or younger should not reduce their inflation rates as the impact could be severe over a multi-decade period of time Avoid reducing the daily benefit amount if possible As a last resort, exercise the contingent nonforfeiture or nonforfeiture benefit clause of the policy, if it was included in the plan
8. The Future Optimistic Outlook for Long- Term Care Insurance Companies Rate Stability Act in California does help reduce rate increases Companies have to support their rate calculations with documented logic evidence Return on Investments looks favorable When the investment returns on a company s portfolio increases by one percent, a long-term care insurer with $10 billion in reserves will gain roughly $100 million additional revenue annually. Two of the largest long-term care insurers include: Genworth Financial, Inc. with over 1.1 million policy holders and some $9.96 billion in policy reserves. And, John Hancock owned by Canada s Manulife Financial Corporation, with over 1 million individuals insured and roughly 8.0 billion in policy reserves. As the Financial Market increases investment values, and interest rates rise, insurers will earn more which they will use to pay claims and also to meet profit objectives for their long-term care insurance product lines. Lapse rates used today are realistic.
8. The Future Optimistic Outlook for Long- Term Care Insurance Companies Regulators do not allow insurance companies to make up prior losses or increase the premiums so far that the insurance company can make a big profit going forward. Premium increases tend to merely be enough to ensure that the company remains solvent and capable of fully paying all claims for all policy holders.
9. Long-Term Care Insurance is Good!!! Although the LTCi industry has gone through some changes, your clients need to address this risk has not. With 10,000 people a day turning age 65 for the next 17 years, the topic of long-term care planning is not going away. Help your clients obtain LTCi coverage when it is appropriate. Help your clients understand the reasons for rate increases if they happen. Find ways to keep your clients policies in force. Whether you partner with a specialist or provide the solutions yourself, the industry awaits with policies to fill this gap in your client s plans.
Insurance for Long-Term Care: The Real Reasons behind Rate Actions Reassuring Clients about Future Price Stability October 16, 2013 Americal Advanced Insurance Solutions, LLC Specializing in Long-Term Care Insurance Strategies President and Principal: Gene Tapper gtapper@americalltc.com LTC411.com / 310-441-5699