New Concept: Policies which underwrite more like policies underwritten for life insurance. The goal would be to be able to offer at least some measure of protection to almost all that apply for coverage. Life insurance underwriters and actuaries have created a variety of ways to assist rather than to impede sales. It would seem to me to be logical to adapt these ways to long term care insurance underwriting. This can include many possibilities which could really make the marketing and selling simpler and consequently drive sales upward. For instance:

The underwriting could grade the risk and offer impaired risk rate tables, more than the current number of rate tables utilized. This methodology has been frowned upon, but the information that underwriters receive now is far more complete and reliable than heretofore. If underwriters believe they can now determine the risk and price according to the risk involved, an expansion of rate tables could happen.

1) Policies could be developed that are easy to understand with dollar pools of money and minimal choices for the buyer. These would lend themselves to internet selling as well as other types of marketing. Would the agent still play a role here? Long term care insurance will still be sold and not bought, hence the need for the agent.

  • There could even be guaranteed issue policies with limited benefits, with the carrier relying primarily on MIB and RX information for underwriting, leading to quick issue. This again would be dependent on the reliability of easy-to-obtain health information.
  • There could be counter-offers, as is the case for life insurance, for applicants with health problems. The concept here would be that some sharing of the risk is better than none, that most applicants would realize that something is better than nothing, and that many would accept the counter-offer.
  • Of course, there will in all likelihood be an expansion of life insurance policies with accelerated death benefits and annuities with long term care benefits. These life policies will underwrite more like policies underwritten for life insurance, and the underwriting for annuities with long term care benefits will also be somewhat liberal.

2) Agents and brokers used to sell long term care insurance by protecting against the catastrophic risk. With today’s high rates, this is often impractical. But what about a policy with a very long elimination period? The prospect could believe that he or she could cover the first two or three hundred thousand dollars of care, but would want to transfer the risk of any further cost to an insurance company. This could create a policy with a low premium which would appeal to those with significant assets and income. This is especially true for those who have an asset such as a CD or fixed annuity which they don’t plan to use but which could cover those first two or three hundred thousand dollars of care.

3) The most exciting idea of all is the creation of a new kind of public-private partnership which would make long term care insurance marketable to the middle class. This is the goal of almost all of the stakeholders in long term care planning.

The history here has been a checkered one. Partnership policies in the original four states and more recently in about forty other states have not been a rousing success. The Class Act as a part of the Affordable Care Act turned out to be a non-starter and was repealed. More recently, expert committees have failed to agree on a plan to fund a federal program.

The need is greater than ever. What design could work? Most favor a new adaptation of a voluntary public-private program where the insurance carriers would be responsible for the initial claim, probably with a co-pay by the policyholder, and the government would be responsible for the catastrophic risk. The insurance carrier’s obligation would be a relatively small amount, say as little as $ 100,000 to start with, but with 3% compound inflation. As is the case now, the government would be on the hook the majority of long term care expenses, which would be incurred after the benefits from the private sector have been exhausted.

Such a design would be dependent on significant agreement among the stakeholders, plus major new legislation. It’s hard to envision this now, especially with the gridlock in the Congress. Such a design might even have a better chance of enactment in a state, such as California, where one political party dominates. At any rate, we all have finally realized that there has to be major change, and that we all must do our part to achieve it.   Many are working on such a solution. Wish them brilliance and good luck!

Louis H. Brownstone is the Chairman of Northstar Network Insurance Agency, Inc. and a certified in Long Term Care specialist. Louis is recognized as an industry leader, with articles appearing frequently in California Broker Magazine and other industry publications and events. Read More…