2018 Analysis Of Worksite LTCI

    The 2018 Milliman Long Term Care Insurance Survey, published in the July issue of Broker World magazine, was the 20th consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzed individual product sales and Genworth group sales, reporting sales distributions and detailed insurer and product characteristics. 

    From 2006-2009, Broker World magazine published separate group LTCI surveys, but discontinued those surveys when the availability of group LTCI policies shrank.  In 2011, Broker World magazine began annual analysis of worksite sales of individual products in August to complement the July overall market analysis.

    The worksite market (WS) consists of individual policies and group certificates (“policies” henceforth) sold with discounts and/or underwriting concessions to groups of people based on common employment.  In this eighth annual worksite report, we include group certificates for the first time.

    About the Survey
    As noted above, the survey intends to include group LTCI certificates henceforth.  Currently, Genworth is the only insurer accepting new cases on group policies.  Genworth’s group sales are included here, but new certificates on other insurers’ inforce group cases are not included (only one other insurer is issuing new certificates on inforce group cases; excluding those sales does not change our results meaningfully).  

    Genworth was the only company displaying a worksite product in the July issue.  Transamerica and LifeSecure, which ranked #1 and #2 in worksite sales in 2017, provided their total and worksite sales, but no statistical background data.  Hence their products were not displayed in the July issue.  

    MassMutual provided sales and a statistical distribution for worksite business.  Mutual of Omaha did not provide worksite sales information. 

    Besides Genworth and MassMutual, New York Life and Northwestern provided worksite statistical background data this year.  

    The July issue also included the California Public Employees Retirement System (CalPERS) program.  CalPERS eligibility is based on California public employment, but the program operates more like an affinity group than a worksite group so it was counted as affinity sales in July and is not included as a worksite product in this article.

    In this August article we compare WS sales to individual LTCI policies that are not worksite policies (NWS) and to total sales (Total). 

    We limited our analysis to U.S. sales and we excluded future purchase options and “combo” products unless specifically indicated. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity, or disability income benefits in addition to LTCI.)

    Some business owners buy individual policies and pay for them through their businesses. Some participating insurers may not report such policies as “worksite” policies. In other circumstances, businesses might sponsor general long term care/LTCI educational meetings, with employees pursuing any interest in LTCI off-site. Such sales are included in our total industry analysis but are not identified herein as worksite sales.

    Highlights from This Year’s Survey

    • In 2017, participants reported sales of 15,415 worksite policies for $25.3 million of new annualized premium.
    • Because we added Genworth group sales this year, we also added Genworth group sales to last year’s sales.  Thus 2017 saw a decrease of 26 percent in WS policies sold and a decrease of 17 percent in new annualized WS premium compared to restated 2016 results.
    • The worksite market and total market had nearly identical percentage decreases in the number of policies, but the worksite market had a lower drop in new annualized premium.

    Market Perspective
    The worksite market is comprised of three different types of programs (which may apply to different employee classes in a single case):

    • In “core” (also known as “core/buy-up”) programs, employers pay for a small amount of coverage for generally a large number of employees; the employees can buy more coverage.  “Core” programs generally have lower average ages, short benefit periods, low daily maximum benefits and few spouses insured.
    • In “carve-out” programs, employers pay for substantial coverage for generally a small number of executives and usually their spouses; usually the insureds can buy more coverage.  Carve-out programs cover more married people and more spouses, have higher age distributions, and provide much more robust coverage than “core” programs.
    • In “voluntary” programs, employers pay nothing toward the cost of coverage.  Coverage is much more robust than “core” programs, but less robust than carve-out programs.  They tend to be most weighted toward female purchasers.

    MassMutual, New York Life and Northwestern write mostly executive carve-out programs, whereas Genworth, Transamerica and LifeSecure business includes a lot of voluntary and core buy-up business as well.  With Transamerica and LifeSecure not reflected in the statistical distributions and Genworth’s group business added in, some 2017 worksite distributions look quite different than in 2016.

    Prior to gender-distinct NWS pricing, insurers offered a five percent or 10 percent worksite discount for a product that was already designed, state-approved and had illustrative and administrative support. At that time, WS sales were more heavily weighted toward males than NWS sales. More males than females were eligible for executive carve-out programs and single males were probably more likely to buy LTCI when LTCI was presented to them with their employer’s endorsement than left to their own inclinations. Broker World’s first analysis of the WS market, in 2011, found that 43 percent of NWS sales insured males but 52 percent of WS sales insured males.

    Most insurers interpret Title VII of the 1964 Civil Rights Act to require that employer-involved LTCI sales use unisex pricing if the employer has had at least 15 employees for at least 20 weeks either in the current (or previous) year.  As a result, insurers must have a separate unisex-priced product in order to sell in the WS market.

    The added expense involved in separate pricing and administration for WS sales discouraged insurers from serving both the WS and NWS markets.  With the increase in LTCI prices this century, participation rates in (especially, voluntary) LTCI programs has ebbed, making insurers less confident that they would be rewarded for the effort of establishing a WS product.

    Because healthy, young, less affluent people are less likely to be willing and able to bear today’s higher cost of LTCI, insurers and enrollers are now more concerned about income levels and age distribution of potential WS clients.

    While females get a good deal in a WS program compared to NWS pricing, males pay more in the WS.  Hence, insurers fear that single male employees might buy the NWS product while single females buy the WS product, hurting WS profitability. Indeed, from 2011 to 2016, the percentage of females among WS insureds rose from 48 percent to 58 percent while the NWS percentage of sales to females dropped from 57 percent to 55 percent.  In 2017 the trend continued but, as explained later, the data is not comparable.

    As a result, WS pricing has become closer to gender-distinct female pricing.  Heterogeneous couples might pay more for a WS policy than a corresponding NWS policy if the male spouse is older and one or both spouses would qualify for a “preferred health” discount in the NWS market.  In the carve-out market, tax advantages can enable a more costly LTCI product to still produce savings on an after-tax basis.

    Some insurers have raised their minimum issue age to avoid anti-selection (few people buy below age 40) and reduce exposure to extremely long claims.  Such age restrictions can discourage carve-out programs with young executives or spouses.  

    To control risks and/or reduce premiums, some insurers have shied away from very small cases and/or have reduced the health concessions offered in the WS market. There is no “guaranteed issue” stand-alone LTCI coverage in the WS market anymore; however, some combo products offer some guaranteed issue.  In general, the industry is more careful about the gender, age and income distributions of the WS cases it accepts.

    Not surprisingly, the number of insurers in the WS market decreased not only because some insurers stopped selling stand-alone LTCI altogether but also because others stopped selling in the WS market.  However, in 2018, at least 3 insurers are rolling out new worksite products.

    With increased remote work, more employers have employees stretched across multiple jurisdictions.  But insurers are less likely than in the past to offer LTCI in jurisdictions with difficult laws, regulations or practices. Thus, occasionally it is difficult to find an insurer offering WS LTCI in all jurisdictions where employees live.  

    With products available in fewer jurisdictions, it is less likely that non-household relatives are able to get coverage in WS programs.  More significantly, to reduce underwriting effort and protect the product’s gender distribution, some insurers are tightening up on the availability of WS LTCI to non-household relatives.  Reduced availability for such relatives does not have much impact on sales, because few non-household relatives are insured in the WS market.  However, it undermines the suggestion that WS LTCI programs might reduce the negative impact of employees being caregivers.

    In the past, an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company. It is harder now to find a carrier that will offer unisex pricing under such circumstances. Thus, it is harder for some executives to benefit from the tax advantages of employer-paid coverage.

    The uncertainty and heavy workload surrounding acute medical insurance continues to make it hard for employee benefit brokers and their clients to consider WS LTCI.  In addition, some employee benefit brokers are reluctant to embrace LTCI because of certification requirements, their personal lack of expertise, and other perceived complications or risks in the LTCI market.  Increased WS sales are likely to depend upon LTCI specialists forming relationships with employee benefit brokers.

    The new tax law (Tax Cuts and Jobs Act of 2017) reduces the tax savings for C-Corporations buying LTCI for their employees and employees’ life partners.  Pass-through entities may be the more attractive market now.  Although the eligible premium is capped in a pass-through entity, a much higher marginal tax rate might apply.

    Voluntary worksite LTCI sales, which lack the tax advantages of employer-paid coverage, may, like the NWS market, gravitate toward combo products which have the added advantage of providing valuable life insurance that is viewed, by young employees with families for instance, as a more immediate potential need.

    The worksite is a great venue to reach the middle class who can benefit substantially from LTCI and the state Partnership programs (described in the Partnership section below). Unfortunately, only 27 percent of WS sales in 2017 had characteristics that would qualify for Partnership programs.  

    Regulators have “stepped up,” as more than 20 jurisdictions now embrace policies in their state Partnership programs even if maximum benefits compound by only one percent.  There is a great opportunity for insurers to add a one percent compounding option to make their product more attractive for core and voluntary WS programs.

    With increased awareness of long term care exposure coupled with attractive tax breaks for employer-paid coverage and Partnership and combo opportunities in the core and voluntary market, there appear to be significant growth opportunities in WS LTCI.

    Statistical Analysis
    In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the submarket they serve (core, voluntary or carve-out). Therefore, our results may vary significantly from year to year due to a change in participating insurers, in distribution within an insurer or in market share among insurers. 

    Sales and Market Share
    Table 1 shows historical WS sales levels and Table 2 shows WS sales as a percentage of total sales.  In each case, the restated 2016 numbers and the 2017 numbers include Genworth group business, but the earlier figures do not.  As noted earlier, CalPERS sales are not considered to be worksite sales.

    Although the WS market has lost carriers due to the move to gender-distinct pricing on the street, as well as due to insurers discontinuing LTCI sales entirely, the WS market has had more stable sales than the total market. The NWS market has been more affected by the growing popularity and flexibility of combo products. Secondly, the increase in unit premiums is less detrimental to the extent that premiums are pre-tax.  Thirdly, WS programs generate new sales from existing programs. Therefore, Table 1 shows that the WS market share has generally been trending upward.

    As shown in Table 3, the six top worksite carriers were the same in 2017 as in 2016 and WS market share among carriers is distributed very differently from the NWS market. One carrier now sells 100 percent of its LTCI business through the worksite.  Two other insurers sell about 40 percent of their business through the worksite.

    Issue Age
    In recent years, we had been reporting an increasingly similar issue age distribution for WS and NWS sales.  Table 4 shows that our 2017 WS data veered much more to younger age buyers.  We believe that the change in participants produced a higher percentage of core programs in our data.  The difference in average age increased from 5.3 years to 9.5 years (see Table 5). 

    Rating Classification
    The percentage of sales in the “best” underwriting class for WS business increased in 2017.  Core and voluntary programs generally do not offer a “preferred health” discount.  Carve-out programs may offer a “preferred” discount.  Besides the differences caused by a shift between types of programs, many insurers in the past would offer their NWS product in the WS, but without the preferred rate discount. As that product technically had a preferred class, participants reported those WS sales as being in the second-best underwriting class.  The major players last year reported negligible sales in their best class. This year’s distribution changed because a major carrier issued all of its WS in one class, which naturally it called its “best” class.  Had we moved those sales to the second-best underwriting class (on the theory that a preferred rate discount was not available), only 16.8 percent of WS sales would have been in the most favorable rating classification.

    Benefit Period
    Table 7 demonstrates a sharp reversal from 2016. Three times from 2013 through 2016, the average WS benefit period (BP) was longer than the average NWS BP. In 2017, that relationship reversed dramatically (3.11 in WS vs. 3.80 in NWS).  The large increase in two-year benefit period WS sales justifies our belief that our data this year is more influenced by core programs.  Table 8 shows historical variation in our reported average WS benefit period.

    Maximum Monthly Benefit
    Table 9 shows that the average initial monthly maximum benefit dropped by $138 in the NWS market from 2016 to 2017, but $264 in the WS, because of the large increase in WS benefits of less than $100 per day.  We attribute the change to the increase in core benefits.  Table 10 shows how our reported WS initial monthly maximum has varied over time.

    Benefit Increase Features
    As shown in Table 11, the WS market has a lot more future purchase options (FPO; 69.1 percent vs 22.5 percent in the NWS market) because of its core programs.  Correspondingly, only 18.3 percent of WS policies had automatic increases, compared with 51.1 percent of NWS policies.

    However, WS also has more level premium five percent compounding (2.2 percent vs. 1.4 percent) because of its executive carve-out programs.  The carve-out impact is further highlighted by noting that 12.8 percent of WS buyers with level premium compound increases select five percent compounding, whereas in the NWS market, only 2.9 percent of such buyers select five percent compounding. 

    The WS market  has a higher percentage of the richest benefit increases and also a higher percentage of the skimpiest benefit increases, underscoring the varied nature of different segments of the WS market and why distributions in the WS market can change dramatically depending on the percentage of core vs. voluntary vs. carve-out business in the data.

    Future Protection
    Based on a $22/hour cost for non-professional personal care at home ($22 is the median cost according to Genworth’s 2017 study—https://www.genworth.com/aging-and-you/finances/cost-of-care.html), the average WS initial maximum daily benefit of $134 would cover 6.1 hours of care per day at issue, whereas the typical NWS initial daily maximum of $160 would cover 7.3 hours of care per day.

    To determine coverage at age 80, we project, based on the distribution of benefit increase provisions, the above $134 and $160 maximums from the average issue age (48 for WS and 58 for NWS) to age 80, using the methodology reported in the July article.  The WS projected age 80 daily benefit is $299, whereas the NWS projected benefit is only $264.  The WS projected benefit came out higher because it had 10 more years of compounding to age 80 (as the average WS buyer was 10 years younger) and because a large percentage of the WS had fixed FPOs which we presumed were exercised 34.7 percent of the time with five percent compounding, while the NWS had a large percentage of policies with no benefit increase feature.  The average compound increase was 2.5 percent for WS and 2.3 percent for NWS.  (Note: the overall projected age 80 value in the July survey was understated by $6.)

    As shown in Table 12, we project the cost of care at age 80 using various inflation rates (two percent to six percent) to determine how many hours of home care would be covered at age 80. The average WS policy covers, at issue, 6.1 hours of daily nonprofessional home care. If inflation is only two percent, 7.2 hours of daily care could be covered at age 80.  However, if inflation exceeds 2.5 percent the average WS purchasing power decreases over time.  If home care costs inflate at six percent, the average WS policy would cover only 2.1 hours of non-professional home care per day; many policies would provide fewer hours.  Despite having a lower age 80 daily benefit, the average NWS policy would provide between 0.5 and 1.2  more hours per day of non-professional home care at age 80 if the home care inflation rate is between two percent and six percent, because age 80 occurs 10 years earlier for the ten-years-older at issue NWS buyer, hence home care costs have not inflated to the level they will reach when the younger WS buyer reaches age 80. 

    It is important to remember:

    • Results vary significantly based on an insured’s issue age, initial maximum daily benefit, and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.
    • Buyers should consider purchasing power at age 80 because long term care is most likely to be needed around age 80 or later.
    • Table 12 does not reflect the cost of professional home care or a facility. According to the 2017 Genworth study, the average nursing home private room cost is $267/day, which is comparable to 12.1 hours of nonprofessional home care. If the relative cost of home care vs. a private room in a nursing home remain the same as today, a policy that would cover 3.6 hours of home care (see Table 12, assuming four percent inflation in LTC costs and the average WS age 80 coverage) would cover about 30 percent of the costs of a private room in a nursing home.

    Table 12 could be distorted by simplifications in our calculations. For example, we assumed that the FPO election rate does not vary by age, size of policy or market and that everyone buys a home care benefit equal to the facility benefit.

    Partnership Programs and Qualification Rates
    When someone applies to Medicaid for long term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Partnership sales were reported in 44 jurisdictions in 2017, all but Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist.  Massachusetts has a somewhat similar program (MassHealth).

    The benefit increase requirement to qualify under the state Partnership programs varies by age. Generally a level premium with a permanent annual three percent or higher compound increase or an otherwise similar consumer price index (CPI) increase is required for ages 60 or less. For ages 61 to 75, five percent simple increases also qualify, and for ages 76 or older policies qualify without regard to the benefit increase feature. We presumed that age-adjusted compound policies would also qualify. As noted above, many states now confer Partnership status with compounding as low as one percent, but few insurers offer one percent compounding yet.

    Table 13 identifies the percentage of policies that would have qualified for Partnership if Partnership programs existed with those rules in all states. However, if Partnership programs were available in all states (with the rules cited in this paragraph) and particularly if one percent compounding qualifies, the percentage of Partnership policies would exceed the percentages shown in Table 13, because Partnership programs could cause the distribution of sales to change, particularly in those states that don’t currently have Partnership programs.

    The WS market provides an opportunity to serve less-affluent people efficiently, employees and relatives who would most benefit from Partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet Partnership qualifications fell to a new low of 17.4 percent in 2017. Historical data is shown in Table 14. Our July survey article identified several ways to improve these percentages. 

    Elimination Period
    About 90 percent of the NWS market buys 90-day elimination periods (EPs). For that reason, most WS programs offer only a 90-day EP and 98.4 percent of 2017 WS sales had a 90-day EP, as shown in Table 15. 

    Because of a shift in sales distribution between insurers, a zero-day home care (HC) elimination period (in conjunction with a longer facility EP) was much less common in WS sales in 2017 than in 2016, but the percentage of WS policies with calendar-day EP definitions varied little.

    Sales to Couples and Gender Distribution
    Since 2015, our data has shown a higher percentage of sales to females in the WS market than the NWS market. Tables 16 and 17 show that the gap widened substantially for our data in 2017, because of changes in participants.  

    For insurers selling mostly executive carve-out programs, the percentage of females averaged 54.5 percent, which is almost exactly the same as the NWS market (54.4 percent), but the core and voluntary programs were heavily female.

    Twenty-one percent of the insured females were single in the NWS market (20.8 percent) as well as for WS insurers selling primarily carve-out programs (20.7 percent).  

    Reflecting insurers’ fears, more than three-quarters of single WS buyers were female. However, the overall female distribution is a lot lower due to couples.

    Other marital data was not meaningful (“NM”) because some insurers can’t identify if a buyer has a spouse or not.

    When WS marketing is directed toward securing spouse applications, the percentage of both spouses buying should be higher than for the NWS market because there should be fewer declines, as at least one spouse/partner is employed and the age distribution may be younger.

    Table 17 shows the impact of gender-distinct NWS pricing and unisex WS pricing.

    Type of Home Care Coverage
    Table 18 summarizes the distribution of sales by type of home care coverage. Historically, the WS market sold fewer policies with a home care maximum equal to the facility maximum. But with increasing emphasis on home care and simplicity, policies with the same maximum for home care and facility care are now almost always sold and are more common in the WS market than the NWS market. 

    A change in participants drastically reduced the percentage of WS policies that include monthly determinations in 2017.  In the NWS market, the percentage increased.

    Other Features
    Return of Premium (ROP) dropped from 54.7 percent of WS policies in 2015 to 37.2 percent in 2016 to 14.8 percent in 2017 (different participants).  In the WS, 86.4 percent of the ROP benefits were embedded automatically, down from 94.3 percent in 2016. In the WS market, 80 percent of the embedded ROP sales had death benefits that expire (such as expiring at age 67). ROP with expiring death benefits can provide an inexpensive way to encourage more young people to buy coverage. 

    Limited Pay
    Table 19 shows that no limited pay policies were reported in the WS market in 2017.   One insurer started selling them but did not report sales of limited pay.

    We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Alex Geanous of Milliman for managing the data expertly.

    We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate.

    If you have suggestions for improving this survey, please contact one of the authors.

    Claude Thau is president of Thau Inc., and works to help build a sound long term care insurance industry. Thau wholesales long term care-related products for brokers nationwide as National Brokerage Director of USA-BGA. In addition to his duties at USA-BGA, Thau consults for insurers, consulting firms, regulators, etc., creates unique software to help advisors educate clients, and does LTCI and long term care pro bono work, as LTCI’s value relies on quality long term care being available.

    He also sells a little LTCI himself, as current sales experience is important to be a good wholesaler and consultant.

    Thau’s LTCI experience is unusually broad and deep. After a career as an actuary, he led a major insurer’s LTCI division, which then grew five times as fast as the rest of the LTCI industry for each of three consecutive years. Since setting up Thau, Inc. in 2000, he has consulted for the Federal government’s LTCI program, chaired the Center for Long-Term Care Financing, and, since 2005, led the Milliman LTCI Survey, published annually in the July and August issues of Broker World.

    A former inner-city public school teacher, Thau enjoys mentoring brokers individually to help them grow their business.

    Thau can be reached by telephone at 913-707-8863. Email: claude.thau@gmail.com.

    Allen Schmitz, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc.

    He can be reached at 17335 Golf Parkway, Suite 100 Brookfield, WI 53045. Telephone: 262-796-3477. Email: allen.schmitz@milliman.com.

    Chris Giese, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc.

    He can be reached at 17335 Golf Parkway, Suite 100 Brookfield, WI 53045. Telephone: 262-796-3407. Email: chris.giese@milliman.com.