Long term care: An untapped market

Rough Notes, Sep 2000 by Zinkewicz, Phil

Due to the rising costs of long term care services, the need for private long term care insurance is essential

With merger fever dominating the property and casualty insurance arena- resulting in dwindling markets for independent agents-and with new competition expected from banks and securities firms, producers are finding it difficult these days to keep cash flowing into their coffers. Those who have not already branched out into the life and health fields are perhaps looking more diligently in that direction for additional revenues.

However, even in the life and health field there is tremendous competition, with the possible exception of one area-long term care. It is ironic that while independent agents bemoan the prolonged property and casualty soft market with lower commission income, they have not pursued the sale of long term care products, especially with the entire Baby Boom generation as a potential market. Perhaps they believe that long term care is too complex. Or, perhaps they wrongfully believe that long term care is the province of government programs.

In point of fact, there is strong evidence that the government may not be able to meet the needs of Baby Boomers in the coming years. A new study recently released by the American Council of Life Insurers (ACLI) shows that most Baby Boomers don't realize that there is a high chance they will spend the end of their lives in a nursing home. "Middle income Baby Boomers will find that to successfully age `in place--that is, in their homes or in the home-like setting of an assisted living facilitythey will have to use their retirement savings to pay for increasingly expensive long term care services," says Barbara Stucki, primary author of the ACLI study "Can Aging Baby Boomers Avoid The Nursing Home?" "Without private long term care insurance, many will face potentially catastrophic costs that could lead to impoverishment and the need to use Medicaid-funded nursing home care."

The study projects that the costs of long term care services will more than quadruple by 2030. At the bottom end of the scale, adult day care, which currently costs an average of $50 per day, will increase to $220 per day. On the next rung, assistance by a home health aide, which now costs $61 per visit, will cost $260 per visit. Staying in an assisted living facility, which currently averages $25,000 per year, will cost $109,100 per year. Nursing home care, which currently averages $44,100 per year, will cost $190,600 per year according to the study.

The ACLI study also projects that by 2030, total national expenditures for home- and community-based long term care will leap from $41 billion today to $193 billion. "These findings illustrate the importance of taking personal responsibility for your financial future and for your future long term care needs," says Stucki. "We found that about half of long term care policyholders currently receiving benefits report they would have had to move into a nursing home without their insurance benefits. And more than 70% report that their long term care insurance policy pays all of the costs of the services they need. And that goes a long way toward reducing the financial and emotional burden on family caregivers," she says.

The study also points out that Baby Boomers typically have fewer children, so there is less family available to provide assistance when they reach retirement. The high rate of divorce is likely to take a toll as well because divorced parents are less likely to receive caregiving assistance from their children than are widowed parents. Says Stucki: "Because government programs are biased towards nursing home care, if you rely on government help, the nursing home is where you're likely to end up. That's ironic, given that one government study says that half of the people in nursing homes don't need that kind of intensive care and could have maintained their independence if they received long term care services at home." However, unless one is very wealthy, it is almost impossible to afford that kind of care without long term care insurance.

The Seattle-based Center For Long Term Care Financing agrees with the ACLI study's findings and has been on a mission to convince legislators to revamp long term care using private insurance as a base. "The 1970s should have been the golden age of long term care in America," says the Center in a special report. "The gerontological wedge pushed into American demographics during that decade could have opened an era of unprecedented entrepreneurial problem-solving. By now we would have a market-driven continuum of care seamlessly covering everything from chore services to assisted living to sub-acute care. We would also have an infrastructure of long term care insurance and home equity conversion to finance it. Public welfare might still have a role to play in long term care, but that role would not be the tragedy of perverse incentives and unsatisfactory outcomes it is today.

"Instead," continues the Center, "with every benevolent intent, Medicaid co-opted long term care by the late 1960s. It impeded the private market for low-cost senior services and housing and discouraged the development of private long term care insurance by providing free or subsidized nursing home care. It created a Frankenstein's monster of institutional care by targeting only nursing homes."