How to close the LTC insurance gap

• Key Insight: Discover how hybrid life and annuity-linked products are closing long-term care gaps.
• What's at Stake: Rising care needs could destabilize employer benefits and retirement planning.
• Expert Quote: Consumers confuse LTC, Medicare and Medicaid, creating an educational imperative, says Karen Terry, LIMRA.
• Source: Bullets generated by AI with editorial review

An impending crisis is looming over the employee benefits landscape, marked by an aging population and a 45% spike in unpaid family caregivers over the past decade to about 63 million Americans.

Each day, more than 11,000 Americans turn 65, more than half of whom will need some level of long-term care (LTC) services within their lifetime, projects the Department of Health and Human Services. 

Yet just 3% of Americans over age 50 have any LTC insurance protection, according to LIMRA, leaving most of them on the financial hook to cover these expenses on their own. One major driver is that these standalone policies are costly — a once buoyant market with more than 100 carriers that has dwindled to about a dozen players.

However, there's hope on the horizon in the form of affordable and creative options beyond the traditional insurance space that benefit brokers and advisers can suggest to their employer clients. It all starts with the need for better education.

Read more: Why long-term care should be included in financial planning

More carriers are now offering hybrid life insurance policies with an LTC rider to help make coverage more accessible, as well as extending premium payment periods, which reduces the annual premium and helps consumers who may not have a lump sum to roll into a traditional, standalone or single-pay hybrid product.

Another option is a "true" hybrid or "linked" benefit product that starts by accelerating the death benefit. Once a specified limit is reached, an extension-of-benefits rider will extend the LTC benefits two or three times the death benefit amount.

There's also the use of annuities. Unlike typical annuity riders, which boost income when care is needed but do not deliver tax-benefits for non-qualified tax deferred funds, "true LTC annuities" provide special tax advantages under the Pension Protection Act for qualified LTC expenses, explains Roger Aucoin, LIMRA's senior research analyst. Essentially, these products multiply a policyholder's premium — often by two or three times — to create LTC coverage for eligible costs in settings such as home care or assisted living.

If LTC benefits are never used, then typically the annuity still earns a credited interest rate and functions like a standard annuity, including a death benefit. It's not a use-it-or-lost-it benefit unlike standard insurance protection.

Educational challenges

The trouble is that some people may mistakenly believe they have LTC coverage because "consumers don't necessarily understand the difference between long-term care insurance coverage, Medicare, Medicaid or any other type of benefits like that," explains Karen Terry, corporate vice president and director of LIMRA Insurance Research.

She says this represents both an educational challenge and opportunity for the industry to help prevent terrible surprises when someone actually needs coverage and then realizes they're not covered.

"Advisers could help educate employers in terms of the need for these products by providing materials and encouraging them to have touch points throughout the year," she says, suggesting lunch-and-learn programs and off-cycle enrollments to capture greater attention in the shadow of group medical insurance, dental and other benefits. This echoes why HR leaders need to become experts on long-term care benefits to guide those decisions early. 

Read more: Why HR leaders need to become experts on long-term care benefits

For one adviser specializing in the voluntary benefits space, a full appreciation of the innovative LTC solutions she long supported followed two family dramas. Meet Charlotte Santa Cruz, CEO of the Santa Cruz Insurance Group, a Foundation Risk Partners Company.

The first was when she faced a freak accident post-Hurricane Katrina that temporarily left her unable to walk or use her right hand. Managing daily activities, running a business and caring for three children became insurmountable challenges without adequate support.

More recently, she helped transition her remarkably active mother from a life of independence to LTC support when at age 84 she suddenly had a sharp cognitive decline that followed patterns of memory loss.

"Those experiences underscored the importance of being prepared for unexpected challenges, reinforcing the value of having long-term care coverage that provides security in uncertain times," she says. "My passion for this offering has driven it to become our top-selling product, enjoying tremendous success nationwide."

Terry is encouraged by how much interest there is in developing workplace products, including the use of hybrid life insurance coverage and annuities, to fill the nation's enormous LTC insurance gap. LIMRA research shows that as many as 54% of employers expect their workforce to be very interested in LTC benefits — a number that swells to 75% at larger organizations.

The strategic value of alternative approaches to making LTC coverage more affordable cannot be understated. "It is an important part of financial wellness," she notes, "because a long-term care need could blow up the best-laid plans in the world in terms of retirement planning, college savings and everything else," much like insights shared in how long-term care insurance helps address financial challenges of aging.