LTC Bullet: LTCI and Innovative Financial Planning

Friday, March 3, 2023

Seattle—

LTC Comment: “Adapt or die,” capitalism demands. Consider how long-term care insurance evolves and survives after the ***news.***

*** ILTCI CONFERENCE themed “Take the Lead” convenes in Denver March 12-15, only days away. Register here. Find lodging here. Click here for the conference app and how to reach the hotel from the airport. This is the big one, folks. Be there if you can. If you can’t, watch for our virtual visit to the conference, summarizing its highlights, shortly after it ends. In the meantime, check out our “History of LTC Insurance Conferences (2021). It has narrative and pictures covering twenty years of LTCI professional meetings. What a gauntlet we’ve run! ***

*** CERTIFICATION FOR LONG TERM CARE will be in Denver for the ILTCIconf offering a new Product Insider class that provides “an impartial deep dive” into all the LTCi product types on the market, who offers them, their pros and cons and client applications. CLTC reports: “Because we are excited about our new class and want your participation in our roll out event in Denver on March 12^th, 8:00 – 2:00, we have a very special (and limited) offer. ILTCI Price: Only $500 (current street rate: $899); CLTC Training Pre-Requisite: Waived.” Register here. ***

*** CLTCR APPEAL. Every so often, we need to appeal for your support of the Center for Long-Term Care Reform. This is one of those times. Please review our “Membership Levels and Benefits Schedule.” It explains all the ways individuals, companies and organizations can work together with us to improve long-term care financing policy. We are on the verge of an opportunity for statutory LTC policy reform the likes of which we have not seen in decades. I know because I’ve been in the thick of the fight for 40 years, as my bio recounts. The Paragon Health Institute recently published my assessment of what’s wrong with long-term care in America: “Long-Term Care: The Problem.” Watch for our radical proposal to fix LTC policy coming in the fall titled Long-Term Care: The Solution. Center members can follow our progress and contribute their own ideas and recommendations by reading our biweekly LTC Bullets, our weekly LTC E-Alerts, and our daily LTC Clippings (for premium members). Join our campaign! ***

LTC BULLET: LTCI AND FINANCIAL PLANNING INNOVATION

LTC Comment: Financing long-term care is a critical part of ensuring that all Americans have access to quality extended care when they need it. But so is preventing and delaying the need for paid long-term care by promoting wellness and well-being. Assured Allies is a company dedicated to combining data science, personalized technology, and human touch to unlock the benefits of healthy aging for individuals, families, and insurers. It should come as no surprise that when they succeed in that mission it benefits the people they help and their LTC insurers. The Center for Long-Term Care Reform is proud to count Assured Allies among our corporate members.

I was so impressed with Assured Allies’ creative strategy to integrate wellness, retirement planning, and long-term care financing that I asked the company to prepare a “Guest Bullet” sharing their approach. The result follows in a piece authored by the company’s Chief Growth Officer, Larry Nisenson. He has committed to share more about Assured Allies’ mission and approach in the future. In the meantime, he suggests this video. But for now, here’s …

“The Role of Long-Term Care Insurance and Innovation in Financial Planning”
by
Larry Nisenson

Retirement financing in America was revolutionized when Congress passed the Revenue Act of 1978, which allowed employees to set aside a portion of their salary in a tax-deferred retirement account or 401K. As the defined benefit plans of our parents’ generation shrank, the modern world of retirement investing flourished. Today, almost 50 years later, Americans have socked away over five trillion dollars in these retirement juggernauts. In reaction to this sea change, a new retirement planning industry boomed to help individuals save and invest enough for their futures. The industry focused on three main areas of retirement planning: accumulation of assets, income generation and wealth transfer.

While these phases are critical to retirement planning, there is a key risk that is often overlooked by even the most astute financial planners: the impact of a long-term care event. According to an ASPE Research Brief presented to the HHS in August of 2020, over 50 percent of people over age 65 will require long-term care at some point, making this a huge oversight for half the population. Long-term care may be brief for some, but the average statistics—a length of three years, and a cost of over $120,000—are sobering indeed.

Despite the urgent need for long-term care insurance (LTCI) to cover this potential liability, the industry has sold only about 7 million LTCI policies in the last 40+ years, an incredible decline from the 2003 peak, when sales exceeded $2 billion in premium. In 2020, according to Milliman, the industry only sold $150 million of stand-alone LTCI, over a 90 percent drop from its high two decades ago. Hybrid products have picked up some of that slack, but consumers are hardly rushing to purchase any of those choices in droves. Why not?

There are several reasons for the gap in coverage, including fewer carriers who write LTCI, lack of consumer awareness of the risk, and negative agent and consumer sentiments due to rising premiums and a general misunderstanding of health care insurance. Many consumers believe that Medicare will cover long-term services and support (LTSS), but in most cases, that isn’t accurate. Since the vast majority of LTC claims are non-medical in nature, Medicare isn’t the answer.

The aging demographics of the U.S. today render this problem even more dire. According to the U.S. Census Bureau, there will be over 80 million Americans over the age of 65 by 2030 as the last of the Baby Boomers head into retirement. With so many of them financially unprepared, it becomes even more critical that the retirement industry steps up to provide products that meet people’s needs and show them a workable path toward financial security in retirement.

To accomplish this, the industry must continue to embrace change and innovation from every angle. The participants need to include incumbent carriers, agents and distributors and, of course, regulators. Innovation can happen on many fronts, but I’d like to focus on three areas: annuities, underwriting and wellness incentives.

First, let’s look at annuities. The fixed index annuity space is a familiar one for many agents and consumers and, according to LIMRA, is experiencing a recent boom—2022 was a record sales year with almost $80 billion in sales. Deferred annuities have been used by consumers during all three phases of their retirement planning, but to date have not been considered as a long-term care solution, as evidenced by the somewhat anemic sales of less than $500 million in 2021. In addition to the overlooked potential of deferred annuities, the Pension Protection Act (PPA) has opened the door to incredibly powerful new annuity hybrid product opportunities in the LTCI space.

The PPA was enacted by Congress in 2006 and generally allows consumers to enjoy both tax-deferred growth of their annuity contract and tax-free distributions for qualified long-term care expenses. This only applies to non-qualified annuities with true LTC benefits, not acceleration riders attached to the policy. There are other rules of course, but this incredibly efficient tax policy should be on every consumer's mind and in every advisor’s playbook. Even so, demand for hybrid LTC annuities probably won’t accelerate without innovations on the consumer front. Underwriting continues to be a friction point for consumers. Given the advancements in electronic medical records (EMRs), data science and clinical understanding of morbidity drivers, there's no reason we can’t offer a more streamlined experience.

At my company, Assured Allies, we’ve developed and brought to market an all-digital underwriting experience that takes less than 30 minutes and provides objective underwriting decisions that achieve as good if not better risk assessment than traditional morbidity underwriting. A single 30-minute video assessment allows us to assess the physical and cognitive abilities of the applicant and then feed the scores into an algorithm that determines which class is appropriate for the applicant. Our approach is much more in line with the immediacy that consumers expect and reflects the trend lines of other companies in today’s underwriting space as well.

The final innovation I’d like to address is wellness incentives. Wellness programs offer opportunities to enhance LTC products for both the consumer and the carrier. John Hancock’s Vitality program has done a wonderful job of incentivizing policyholders to participate in healthy living, but to date, this type of innovation has been missing on the annuity side. Assured Allies introduced the NeverStop wellness program on Bridge, our first annuity product, launched in partnership with EquiTrust in Q4 of 2022. Policyholders who participate in NeverStop wellness take an active role in their aging journey and can earn additional long-term care dollars if they need to access their benefits.

There are many other examples of innovation that are surfacing for consumers in the caregiving space, the voluntary benefit world and the insurance product world. Assured Allies is proud to be part of this wave of innovation; we must continue to push these efforts forward to make successful aging accessible to all. An important consideration for all these enhancements is the regulatory front and the push by the NAIC for more innovation. The task force has done a great job of advancing their thinking and being open to new ideas, and we need to see more states embracing these innovations. This is key to private enterprises’ ability to meet consumers where they are with modern solutions that answer their needs.

Larry Nisenson is Chief Growth Officer for Assured Allies. Reach him at 908-500-0770 or larry.nisenson@assuredallies.com