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A Maturing Business Sector

By Mark Green

Long-term healthcare insurance is growing, matching the growth of the population segment mostly likely to need it, and the cost of a long-term care [LTC] policy is also growing. With the large “baby boomer” generation entering retirement age, healthcare and services are facing a challenge in accommodating them.
Some 39.6 million people [nearly 13 percent of the population] in the United States were 65 or older in 2009, according to the federal Department of Health and Human Services. The estimate for 2030 is for that number to nearly double to about 72.1 million people.

Stateline, the Pew Center on the States’ news service, reports the 2010 census shows the nation’s median age has risen to 37.2, up from 35.3 a decade ago. Kentucky’s median age is even higher, at 40.7 years.

The AARP, in a presentation to the Senate Finance Committee regarding healthcare for older Americans, urged Congress to find ways to hold down costs and avoid making cuts to Medicare and Medicaid. The latter, the AARP statement said, is the nation’s largest payer for long-term care. Nearly a third of those turning age 65 will have long-term care costs that exceed their ability to pay and will need Medicaid assistance to help with LTC.

“The client mostly likely to benefit from a LTC policy is someone with between $150,000 and $2.5 million in assets,” said Ken Patterson, owner of Richmond, Va.-based Long-Term Care Planning Group Inc. His company is a strategic partner for Keystone Insurance, which partners with agencies in many states, including Kentucky. “People below that level probably can’t afford it.”

Therein lies the rub. LTC policies can be quite pricey, especially if the policy-holder doesn’t buy one until later in life. And they are going to continue to cost more. But, the cost of long-term care has gone up substantially too in recent years. “To give an example, a major carrier just came out with a new rate structure and product,” said Patterson. “The new pricing went up nine to 10 percent. But typically a company will wait four or five years before a price change on a product for a new policy holders.”

“We’re seeing a lot of rate increases; substantial rate increases,” said Ronald Burkhart, contract actuary for the Kentucky Department of Insurance. “Insurance companies priced them inadequately in the beginning. There was no long-term past experience with this type of policy. There were assumptions for mortality, but people are living longer. And there were also assumptions that people would let the policies lapse, but that didn’t really happen.”

Insurance companies can apply for a rate increase to the state every six months, but normally those providing LTC policies do so every couple of years, Burkhart said.
“It wouldn’t be looked upon favorably if they came back to us every six months. If we determine an increase is justified, they’ll typically get some increase. We’re looking out for the consumer, but if a company providing these policies goes insolvent, that’s not going to help either group.”

Patterson said potential LTC policy clients need to take everything into perspective.

“A policy that would cover $5,000 in costs a month five years ago, now will have to cover roughly $6,000 in monthly costs in a nursing home. And, the client would five years older, so the premium would be higher.

“If a client understands what they are protecting, and the value of what they’re protecting, then it’s not expensive,” he said. “If a person doesn’t have assets to protect and can’t afford a policy, then an agent shouldn’t sell them one.”
John Funkhouser, owner of Johnson & Pohlmann Insurance in Danville, said delivering the news of a rate increase is never pleasant.

“Many of our LTC policyholders are already retired. Their income isn’t going up, and their investment income isn’t going up. Some companies have raised their rates 10 percent and a few carriers as much as 25 to 30 percent over the past couple of years. When that happens, it’s not pretty. By the same token, health insurance increases are all over the place too.”

A number of factors are bringing LTC policies into their own. Among them are a growing awareness of what lies ahead with many baby boomers dealing with their own aging parents; insecurity about the stability of Social Security, Medicare and Medicaid; and a marketing push by both agencies and state governments.
“There’s definitely been an increase in awareness and sales of long-term care policies,” said Patterson. “Around 2003 or 2004, some of the carriers changed how they marketed it, and it dropped off, but we’re definitely seeing increases again.”

One major impetus is that Kentucky is now one of the 37 states that participate in partnership policies. That type of policy raises the threshold of the insured’s spend-down before Medicaid kicks in. The standard is that a person can retain $2,000 in assets and then Medicaid will start paying for long-term care. The partnership policies allow that threshold to be raised dollar for dollar by what is paid by a long-term care policy, thereby preserving assets for the insured’s heirs.
“This allows you to retain more of your assets, and it also lessens the burden on the state,” said Stephanie McGaughey, Health Policy Specialist II with the Kentucky Department of Insurance.

“Twenty years ago, only four states participated when the government first made it available,” Patterson said. “The government then closed the loophole, but a few years ago, recognized the value of it and opened it up again. Kentucky started participating just last year. That spurred sales dramatically.”

“Kentucky’s Partnership Program was effective June 5, 2009,” said McGaughey. “Currently, 12 companies are approved to market partnership policies – although one of those, MetLife, recently withdrew from the long-term care market.”

While there are no statistics available yet with the new program, “I get quite a few calls from consumers asking about the partnership, how it works and what companies are offering the policies,” she said. “The department doesn’t endorse any type of product – we just provide information.”

Dr. Rangaraj Gopalraj, an assistant professor at the University of Louisville’s Department of Geriatrics and medical director at the Episcopalian Church Home, said paying for long-term care is difficult.

“The average for nursing home care is between $7,000 and $8,000 a month now,” he said. “Dealing with patients on any health insurance issue is difficult and a real struggle when they don’t have it.

“Buying a policy is almost like a game of chicken,” he said. “You can get much lower premiums if you start paying for a policy in your 30s, but most people wait until their 50s. I’m in my 30s and have thought about it, but I know I’ll definitely have it by the time I’m in my 50s.”