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Marc Glickman

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Marc Glickman, FSA, CLTC, LTCP, is the CEO and co-founder of BuddyIns, Glickman came up with the concept of BuddyIns while working as an Actuary and Chief Sales Officer at an insurance company home office. He wondered why there was not an easier way to learn about insurance planning strategies and get connected with client-centric subject matter experts. With this vision in mind, BuddyIns was born. Glickman has a degree in Economics from Yale University. He has 15 years of experience as an Actuary with a specialty in investments. He is a licensed insurance agent in 50 states. He has served on the Board of Advisors for CLTC, a training organization for long term care insurance professionals. Besides hosting regular consumer and agent webinars, you can find Glickman on LinkedIn and Facebook. He is an influencer in the long term care insurance market and hosts video interviews and authors articles that are distributed on LinkedIn to over 30,000 financial professionals. Glickman can be reached via telephone at 818.264.5464. Email: marc@buddyins.com.

The Sudden Resurgence Of Long Term Care Insurance

(This article first appeared in the August/September 2023 issue of Aspire Magazine)

It has only been about 15 years, but long term care insurance (LTCI) is popular again. All of us in the LTCI biz knew this might be inevitable. After all, we can see the demographics “writing on the wall.” There are over 50 million family caregivers in the United States. They can only do so much until professional home care or facility care is needed. The collision of baby boomers needing care, states paying attention to the crushing need, and the impact on family caregivers has made LTCI popular again. Well, sort of.

You may have heard this story: Without long term care planning, extended care is paid out of pocket. Once income and assets are depleted, Medicaid kicks in. But what happens when Medicaid runs out of money?

The year is 2021. Washington State is ground zero with the second highest cost of home care in the nation. Leaders in the state can see a crisis on the horizon. As a result, Washington passed a law requiring a long term care payroll tax on all W2 employees who do not own private insurance. With a deadline set for six months after passage of the law, a fire sale ensues. The result was the sale of over 400,000 LTCI or hybrid policies in a single state in six months. In the prior year, less than 100,000 policies focused on long term care were purchased nationally—a generational low.

One group hybrid LTCI carrier sold nearly 200,000 policies, or $100 million of premium, representing almost half the policies in Washington. While an incredible stat, the one that may be more incredible is that this same carrier sold over $100 million in 2022, without a payroll tax looming. There was continued demand for this product.

New Long Term Care Funding Solutions
The group hybrid long term care market is growing 50 percent per year. Carriers are paying attention, and other states are as well. California and New York are slowly exploring their own payroll taxes, as are as many as 30 percent of all other states according to a recent Nationwide study. There are many more carriers entering the market with long term care riders on their group life policies.

These new options are popular not just because of the payroll taxes. They nailed a target market: Guaranteed issue underwriting, affordable price points of $500 to $1,000 per year, easy to access product offerings through education and enrollment through employers and associations.

LTCI as a starter plan through the employer helps the 97 percent of Americans who currently do not own long term care insurance. The best way to help someone get comprehensive coverage in the future may be to get them a smaller plan now.

Whether you work with individuals or groups, you will feel the impact of the demand. When your neighbors, friends, families, and clients start asking you about the insurance offered through their employer, what will you tell them? Do you think the policies are too small to make a difference?

A Closer Look at Guaranteed Issue Products
Let’s look at these long term care extension riders for the masses. You may be surprised what you can get for $1,000 per year on a guaranteed issue basis. One of the most popular products in the individual long term care market is a life insurance hybrid that not only accelerates the death benefit, but also extends long term care coverage once the death benefit is exhausted. Following in those footsteps, these features have become popular on group products too. For $1,000 per year, you not only get a $100,000 death benefit if you don’t need long term care, but should you run out of coverage over 25 months, you might get another 25 or maybe even 50 months of additional coverage—as much as $300,000 total.

Value plus ease of access is driving this renaissance in long term care planning solutions.

An Opportunity to Build Your Business
What can you do to participate in this market growth? First, realize that even if you work with individual clients, they may have links to an employer group or association that can set up a group long term care program. We see guaranteed issue carve out solutions for as few as 25 executives at price points that are affordable for employers to comfortably fund the entire group. Your individual clients may be business owners and white-collar professionals who you already help with life, annuity, or disability income planning. Funding a plan for 25 of their colleagues on a guaranteed issue basis is within reach.

As more carriers enter the market and more states take further steps to implement their own long term care payroll taxes, it is inevitable that this market will continue to surge. What are you doing to prepare yourself for the resurgence of LTC insurance?

7702(b)Or NotTo Be

Or Why 7702(b) Matters for Long Term Care Planning

No, this is not a dissertation on Hamlet Act 3 Scene 1, although considering whether a product meets the IRC section 7702(b) guidelines can seem like it.

Let’s set the scene and provide the backstory. Some states, like Washington, are considering offering a minimal long term care benefit funded by a payroll tax. California, with its 16 million strong workforce, is also considering this publicly funded benefit. Rumor has it (via the feasibility study) that the legislation may allow an exemption from the payroll tax if the employee already owns private long term care insurance. Like Hamlet, it’s important to understand what is “to be or not to be” by looking at the product types that may qualify for an exemption. In this article we explain what section 7702(b) is, how it works, how it differs from chronic illness riders (IRC 101(g)), and the advantages and disadvantages of each.

What is Section 7702(b)?
Not all long term care insurance policies and riders are created equal. Some may offer more benefits, more flexibility, and more tax advantages than others.

Section 7702(b) is a part of the Internal Revenue Code (IRC) that defines what constitutes a qualified long term care insurance contract and how it is treated for tax purposes. According to Section 7702(b), a qualified long term care insurance contract must meet certain requirements, such as:

  • It must provide only coverage of qualified long term care services.
  • It must be guaranteed renewable.
  • It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed.
  • It must provide that refunds (other than refunds on the death of the insured or complete surrender or cancellation of the contract) and dividends under the contract be used only to reduce future premiums or increase future benefits.
  • It must meet certain consumer protection standards set by the National Association of Insurance Commissioners (NAIC)

Qualified long term care services are defined as necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are:

  • Required by a chronically ill individual; and,
  • Provided pursuant to a plan of care prescribed by a licensed healthcare practitioner.

A chronically ill individual is someone who has been certified by a licensed health care practitioner as:

  • Being unable to perform at least two activities of daily living (such as eating, bathing, dressing, toileting, transferring, and continence) without substantial assistance from another individual for at least 90 days due to a loss of functional capacity; or,
  • Having a severe cognitive impairment (such as Alzheimer’s disease or dementia) that requires substantial supervision to protect his or her health and safety.

Why is Section 7702(b) Important?
Section 7702(b) is important because it provides certain tax benefits for qualified long term care insurance contracts. Specifically:

  • The premiums paid for qualified long term care insurance contracts are treated as medical expenses and may be deductible (subject to certain limits) if the taxpayer itemizes deductions on Schedule A.
  • The benefits received from qualified long term care insurance contracts are generally excluded from gross income as amounts received for personal injuries or sickness.
  • The distributions from life insurance policies or annuities that have qualified long term care insurance riders are also excluded from gross income (up to certain limits) if they are used to pay for qualified long term care services.
  • Business owners may be able to take a first-dollar tax deduction as a business expense on some or all of the qualified long term care insurance premiums for themselves or employees.
  • Individuals may be able to withdraw premiums as a qualified medical expense pre-tax from a health savings account (HSA), health reimbursement arrangement (HRA), or medical savings account (MSA) annually up to an age-based limit.
  • States considering a payroll tax to fund a minimum long term care benefit may exempt individuals from the tax if they own a long term care policy that meets the 7702(b) requirements.

These tax benefits can make qualified long term care insurance contracts more affordable and attractive for consumers who want to protect themselves from the high costs of long term care.

What are 7702(b) Qualified Riders?
Besides a 7702(b) traditional LTCI policy, a 7702(b) rider is an add-on or feature to a life insurance policy or an annuity contract that provides long term care benefits in accordance with Section 7702(b). It allows the policyholder to access some or all the death benefit or cash value of the policy or annuity while he or she is alive if he or she becomes chronically ill and needs long term care services.

A 7702(b) rider can offer several advantages over a stand-alone long term care policy, such as:

  • Providing multiple benefits in one product: Life insurance/annuity plus long term care coverage.
  • Avoiding premium increases: Once the rider is purchased, the premium is often fixed and guaranteed not to increase unless the base policy premium increases.
  • Preserving some value for heirs: If the rider benefits are not exhausted by a long term care event.

How do 7702(b) riders work?
A 7702(b) rider allows you to access some or all your life insurance death benefit or annuity value while you are still alive if you meet certain conditions. Typically, these conditions include:

  • Being certified by a licensed health care practitioner as a chronically ill individual. This means that you are unable to perform at least two activities of daily living (such as bathing, dressing, eating, toileting, transferring, and continence) without substantial assistance for at least 90 days; or you have a severe cognitive impairment that requires substantial supervision for your health and safety.
  • Satisfying an elimination period. This is a waiting period (usually between 0 and 180 days) before you can start receiving benefits from your rider.
  • Submitting proof of claim and receipts for eligible expenses. You need to provide evidence that you have incurred qualified long term care expenses that are covered by your rider.
  • Depending on the type and design of your rider, you may receive benefits in one of the following ways:
  • Reimbursement: You receive a monthly benefit equal to the actual amount of qualified long term care expenses that you incur up to a maximum limit.
  • Indemnity: You receive a fixed monthly benefit regardless of the actual amount of qualified long term care expenses that you incur if you meet the eligibility criteria.
  • Cash Indemnity: You receive a monthly cash payment if you meet the eligibility criteria.

The benefits from your rider will reduce your life insurance death benefit or annuity value by the same amount. If you exhaust your entire death benefit or annuity value through your rider benefits, your policy or contract will terminate, and no further benefits will be payable.

Advantages and Disadvantages of 7702(b) Riders

Advantages of 7702(b) Riders:

  • Tax advantages: The benefits from your rider are generally income tax-free if they do not exceed certain limits set by the IRS.
  • Your premiums for your rider may be deductible for income tax purposes if they meet certain requirements.
  • Certain products offer riders with an extension of long term care benefits that significantly exceed the original death benefit.
  • Certain products offer features that significantly enhance the long term care coverage like guaranteed compound inflation protection to grow the long term care benefits annually on either the base coverage, the rider, or both.
  • Flexibility: You can use your rider benefits for any qualified long term care expenses regardless of where they occur (at home, in a facility, etc.). You can also choose among different types of riders depending on your needs and preferences.
  • Protection: You can protect yourself from the rising costs of long term care services without having to buy a separate stand-alone policy. You can also preserve some assets for your beneficiaries if you do not use up all your death benefit or annuity value through your rider benefits.
  • No use-it-or-lose-it risk: Products allow the unused portion of the death benefit to remain intact and paid to the beneficiaries or will even pay a residual death benefit in addition to long term care benefits being used in full.

Disadvantages of 7702(b) Riders:

  • Cost: Adding a rider to your life insurance policy or annuity may increase your premiums or fees significantly depending on factors such as age, health status, type, and amount of coverage.
  • Qualification: Not every life insurance or annuity policy offers a long term care rider and some riders have limited health underwriting.
  • Premium payment flexibility: Several products require premiums to be paid over a shorter period of time such as a lump sum or over 10 years to get the best value for the long term care benefits.

Chronic Illness Riders: How 101(g) Riders Differ from LTC Riders
There is confusion regarding how a long term care rider differs from a chronic illness rider, a rider that does not qualify as a long term care rider under section 7702(b). A chronic illness rider is a type of rider that complies with IRC section 101(g). They can be added to a life insurance policy to help pay for permanent qualifying events. More recently, some 101(g) products allow for payments even if the chronic illness is not expected to be permanent. A chronic illness rider is like a long term care rider, where two out of six Activities of Daily Living (ADLs) or severe cognitive impairment can trigger benefits, and a licensed health care provider—such as your doctor—will have to certify this.

  • A chronic illness rider may provide some flexibility over a long term care rider, such as:
  • Less extra rider premium: The extra premium for the chronic illness rider may be minimal or already included in the base life insurance policy. However, often the result of the no extra rider premium products is a reduced death benefit.
  • Better life insurance features: Often 101(g) products offer greater death benefits, better cash value accumulation, and other features desirable for life insurance protection.
  • Speed-to-market: For carriers, the 101(g) filing process may be quicker, and agents may not have to take additional long term care continuing education to offer these products.

A chronic illness rider may have drawbacks, such as:

  • No standard benefit language: Chronic illness riders vary widely in their contractual definitions and special care must be paid to whether permanency of disability is required, the definition of chronic illness that results in claim eligibility, whether the death benefit is discounted, and many other contractual details.
  • Limited benefit amount: The 101(g) benefit amount may be capped at a percentage of the death benefit. For instance, an acceleration of two percent to five percent per month up to a total of 50 to 90 percent of the death benefit.
  • No inflation protection: The benefit amount usually does not increase with inflation and may lose purchasing power over time.
  • Not marketable as long term care insurance: Chronic illness riders are not allowed to be called long term care insurance and may be excluded for the purposes of the exemption from a potential payroll tax depending on a state definition.

Wait, what?

This is where the confusion happens. States allowing for an exemption from a payroll tax, like Washington and possibly California, may require that a product meet the 7702(b) requirements. One of the reasons for requiring a policy to comply with the 7702(b) guidelines is to make sure that it offers sufficient and suitable coverage for long term care needs, and that it matches the state’s goals for its own program. The goal being to reconcile the exemption criteria with the federal standards, and to prevent possible conflicts or confusion between state and federal tax rules.

“To Be or Not to Be…?”
Choosing between a long term care rider and a chronic illness rider depends on several factors, such as health status, financial situation, tax bracket, and personal preferences. But when considering a product that will qualify as long term care insurance, particularly for tax purposes, make sure that it is compliant with IRC section 7702(b). For that is, indeed, the relevant question.

The Sudden Resurgence Of Long Term Care Insurance

0

(This article first appeared in the August/September 2023 issue of Aspire Magazine)

It has only been about 15 years, but long term care insurance (LTCI) is popular again. All of us in the LTCI biz knew this might be inevitable. After all, we can see the demographics “writing on the wall.” There are over 50 million family caregivers in the United States. They can only do so much until professional home care or facility care is needed. The collision of baby boomers needing care, states paying attention to the crushing need, and the impact on family caregivers has made LTCI popular again. Well, sort of.

You may have heard this story: Without long term care planning, extended care is paid out of pocket. Once income and assets are depleted, Medicaid kicks in. But what happens when Medicaid runs out of money?

The year is 2021. Washington State is ground zero with the second highest cost of home care in the nation. Leaders in the state can see a crisis on the horizon. As a result, Washington passed a law requiring a long term care payroll tax on all W2 employees who do not own private insurance. With a deadline set for six months after passage of the law, a fire sale ensues. The result was the sale of over 400,000 LTCI or hybrid policies in a single state in six months. In the prior year, less than 100,000 policies focused on long term care were purchased nationally—a generational low.

One group hybrid LTCI carrier sold nearly 200,000 policies, or $100 million of premium, representing almost half the policies in Washington. While an incredible stat, the one that may be more incredible is that this same carrier sold over $100 million in 2022, without a payroll tax looming. There was continued demand for this product.

New Long Term Care Funding Solutions
The group hybrid long term care market is growing 50 percent per year. Carriers are paying attention, and other states are as well. California and New York are slowly exploring their own payroll taxes, as are as many as 30 percent of all other states according to a recent Nationwide study. There are many more carriers entering the market with long term care riders on their group life policies.

These new options are popular not just because of the payroll taxes. They nailed a target market: Guaranteed issue underwriting, affordable price points of $500 to $1,000 per year, easy to access product offerings through education and enrollment through employers and associations.

LTCI as a starter plan through the employer helps the 97 percent of Americans who currently do not own long term care insurance. The best way to help someone get comprehensive coverage in the future may be to get them a smaller plan now.

Whether you work with individuals or groups, you will feel the impact of the demand. When your neighbors, friends, families, and clients start asking you about the insurance offered through their employer, what will you tell them? Do you think the policies are too small to make a difference?

A Closer Look at Guaranteed Issue Products
Let’s look at these long term care extension riders for the masses. You may be surprised what you can get for $1,000 per year on a guaranteed issue basis. One of the most popular products in the individual long term care market is a life insurance hybrid that not only accelerates the death benefit, but also extends long term care coverage once the death benefit is exhausted. Following in those footsteps, these features have become popular on group products too. For $1,000 per year, you not only get a $100,000 death benefit if you don’t need long term care, but should you run out of coverage over 25 months, you might get another 25 or maybe even 50 months of additional coverage—as much as $300,000 total.

Value plus ease of access is driving this renaissance in long term care planning solutions.

An Opportunity to Build Your Business
What can you do to participate in this market growth? First, realize that even if you work with individual clients, they may have links to an employer group or association that can set up a group long term care program. We see guaranteed issue carve out solutions for as few as 25 executives at price points that are affordable for employers to comfortably fund the entire group. Your individual clients may be business owners and white-collar professionals who you already help with life, annuity, or disability income planning. Funding a plan for 25 of their colleagues on a guaranteed issue basis is within reach.

As more carriers enter the market and more states take further steps to implement their own long term care payroll taxes, it is inevitable that this market will continue to surge. What are you doing to prepare yourself for the resurgence of LTC insurance?

Helping Clients Understand The Cost Of Long Term Care In 2022

(Reprinted from the CLTC Digest in cooperation with Certification for Long-Term Care, LLC, www.ltc-cltc.com. Email Amber Pate at apate@ltc-cltc.com for a more than 20 percent discount on CLTC training for Broker World subscribers—just mention code BWMAG.)

Long term care can no longer be avoided as an important part of our financial plans. The concept of the coming extended care wave is being discussed in legislative sessions and among healthcare organizations. Financial advisors and insurance agents are in a unique position to push the conversation forward with consumers in a positive way.

There is no way to stop the aging process—at least not yet. But when it comes to long term care planning, many people take a wait-and-see approach. They don’t want to think about the possibility of needing extended care or how they plan to pay for that care. Some assume they can’t afford an insurance plan so just leave it to chance or their children. Many Americans believe that Medicare will pay for it—a costly and incorrect assumption. Once people face the reality, it is often too late to plan due to health issues or financial resources.

Even those who plan for retirement have not planned for a long term care need. And that’s something that could literally wipe out the retirement savings Americans have worked so hard to build. Helping clients plan before they need care is a wise approach. A good place to start is having a conversation about what to expect when it comes to overall long term care costs.

The Human Toll
Before we address the direct costs associated with long term care, it’s important to understand that there are other considerations. It is also about the human cost in managing stress, lost wages, and job insecurity due to working caregivers having to take off or go to work late or leave early. Some family members wind up leaving the workforce, even though their income is needed for household expenses. And the impact of COVID on long term care is still not fully understood.

The stress of a family member caring for a loved one has been shown to impact a person’s immune system for up to three years after their caregiving ends. This increases their chances of developing a chronic illness themselves.

Other significant points from a recent survey on caregiving in the United States:1

  • Although the average caregiving time is 4.5 years, one out of three caregivers reports providing care longer than five years.
  • One in five caregivers provide 41 or more hours of care per week (full-time job).
  • 36 percent report emotional strain/stress.
  • 61 percent report impact on work.

Cost of Care Survey
According to the Genworth Cost of Care Survey, below are the current median monthly cost estimates and projected costs after 25 years. Keep in mind that costs vary widely by state and even by city. (Note: “Median” means half cost more and half cost less. These numbers do not reflect upscale assisted living and nursing facilities.)

Projected Total Cost
The average duration for care is 2.5 years, but for people who need care for longer than a year, the average is 4.4 years (men average 3.8 years and women average 4.7 years). This includes home care, assisted living facilities, and nursing homes. Studies indicate that people aged 65 and older survive an average of four to eight years after a diagnosis of Alzheimer’s, yet some live as long as 20 years.

Since care is typically blended between care locations, e.g., some at home and some in a facility, let’s use the cost of an upscale assisted living facility to project future costs for both types of averages. The cost of the upscale assisted living facility can be derived by adding $1,500 per month to the median cost of $4,500 per month. This amount of $6,000 should also provide for a significant amount of home care, perhaps 7-8 hours per day.

Questions for Your Clients to Consider
There are specific questions that you can ask clients that will help them dive a little deeper into their planning process. These will also highlight areas of concern where it’s clear that they need to start considering putting a plan in place. Once this is achieved, partner with a long term care specialist to help clients work through a comprehensive long term care plan.

Where do you plan to retire?
Are you planning to move out of state? Will you have any family nearby who might be able to assist with your care? Cost of care can vary dramatically by state.

What impact will needing extended chronic care have on your income?
What will happen to your income should you or your spouse require extended care while one or both of you are still working? Relying on Medicaid to pay for long term care means that you and your spouse will be subject to asset thresholds that can wipe out most of your retirement savings.

What impact will needing extended chronic care have on your assets?
Retirees typically use assets for income. What would spending a significant amount of your assets on long term care do to your income?

What type of care do you prefer?
Do you want the option for home health care? Would you want to be able to use less costly informal caregivers? Do you want the option for a high-end assisted living facility, sometimes referred to as a “country club” assisted living facility?

What can you comfortably afford over the long term?
If you’re considering long term care insurance, meaningful coverage can have many benefits. Make sure that whatever plan you choose, you can afford it for the long term. A nice feature of many plans is that the premium is waived when you start receiving benefits. Some plans have guaranteed premium, so you never have to worry about a rate increase.

For the full report, Understanding the Cost of Care in 2022, go to www.buddyins.com and search the Learning Center.

Reference:
1. Caregiving in the United States; National Alliance for Caregiving in collaboration with AARP. May 2020 Caregiving in the US 2020 | The National Alliance for Caregiving

Marc would like to thank Phyllis Shelton for her invaluable contribution to this article. Shelton is the president of Got LTCi, part of a long term care insurance outreach that she founded in 1991. She is widely considered to be a leading long term care insurance sales trainer in the country. As a BuddyIns partner, Shelton leads a highly successful team of long term care specialists.
Shelton can be reached through her website at https://gotltci.com/contact-us/.

I Survived The Washington Fire Sale

(Reprinted from the CLTC Digest in cooperation with
Certification for Long-Term Care, LLC, www.ltc-cltc.com.
Email Amber Pate at apate@ltc-cltc.com for a more than 20 percent
discount on CLTC training for Broker World subscribers—just
mention code BWMAG.)

What follows is my first-hand account of the 2021 Washington Cares Fund initial rollout and my reflections on the impact of the law. At BuddyIns, we built our community to help insurance agencies, referral partners, and long term care insurance specialists educate Americans about long term care planning and best-value insurance solutions. As our community has embraced new technologies, this naturally puts us in a position to help during the turbulent Washington market during the summer of 2021.

We made the decision early in the process to maintain our overall mission despite the fast-paced environment in Washington. We focused on education and the value of the insurance coverage itself, even if clients were also pursuing an opt out to the state’s payroll tax.

This article was originally written as of late September 2021 as our teams continued to work closely with clients to navigate the state rules and carrier changes that are still in development. Even as of early December 2021, there is still legislative talk of delaying implementation.

I hope this story can benefit consumers and insurance specialists across the country who may face similar decisions from actions that their states may take to address long term care expenses.

March 2019—A New Long Term Care Payroll Tax Passes in Washington
The Washington Trust Act first passed in 2019. This law seemed different from the Federal Class Act program a decade earlier that was a part of the Affordable Care Act. The Class Act did not succeed once it was deemed not to be actuarially sustainable. The Trust Act was different in the fact that it required mandatory participation for every W-2 employee and that it would be funded through a payroll tax. It won’t be until 2022 that the payroll tax is planned to be implemented while allowing an opt out exemption through the purchase of private long term care insurance.

In 2019, the insurance companies took a wait and see approach as the state had not engaged as much with the private insurance community as the law was being developed.

February/March 2021—Awareness of the Law Expands
Something changed in early 2021. The Washington legislature worked feverishly to amend the law that was about to be implemented. The biggest issues in the legislative negotiations seemed to revolve around the private insurance opt out and deadlines. What types of insurance products qualified for the payroll tax exemption? When must an employee purchase a policy to opt out? Growing concern in the December 2020 actuarial report suggested that if too many taxpayers opted out, the trust would be underfunded to pay out future benefits. The amended law vacillated between different deadlines for the private insurance opt out until a final negotiated date was set to require purchase prior to November 1, 2021.

Suddenly, there was much less time to plan for private insurance as an alternative to the payroll tax. This got the attention of many employers. The insurance companies and agents began to notice a rapid increase in demand.

At BuddyIns, we co-hosted an educational webinar for the Washington clients of a large employer benefits firm. To our amazement, over 700 registered, including the CEOs, CFOs, and HR directors of many employers in the Pacific Northwest.

April 2021—Employers and Carriers React
In a matter of weeks we received requests from over 200 Washington employers to begin immediate LTCI enrollments. We realized we were going to need a bigger boat.

We surveyed nearly 30 long term care insurance companies that spanned the spectrum of standalone, hybrid, and worksite products to gauge their interest in offering products in Washington. The worksite and standalone carriers experienced the heaviest inquiries. There was an even greater rush since the largest standalone worksite company had already announced their exit from the entire LTCI market. The other worksite and standalone LTCI carriers began to ration the availability of their products in Washington. Adding more uncertainty, it was not entirely clear whether the life/long term care hybrid worksite products would qualify for the exemption because the Washington state definition of long term care insurance was fairly broad.

Reactions of the carriers with individual standalone and hybrid LTCI products ran the gamut from extreme caution about offering their products to aggressively promoting their products even in the face of uncertainty on the state rules.

At BuddyIns, we prepared for both worksite and customized individual solutions. We launched a new website to handle the volume, developed a system to manage enrollment emails, and automated reporting to track employer and employee relationships. We prepared ongoing live educational webinars throughout the summer to educate thousands of employees. We also quickly began building a large team of experienced account managers and LTCI specialists for one-on-one long term care planning consultations.

May 2021—Warning Signs Ahead
In late April, the amended law passed as expected, but notably without a formal definition of the products that qualified for exemption aside from the general Washington definition. One Friday in mid-May, an update appeared on the state’s website to include new language defining qualifying long term care insurance in a stricter fashion. This could potentially disqualify many products including options for employer enrollments beginning the following week.

Just as concerning, we started to notice a consistent theme in our conversations with employers and employees. The questions include: How long do our employees need to keep the policies? When can we terminate the payroll deduction? The state is not going to check next year that everyone still has the policy, are they?

Unfortunately, there did not seem to be a mechanism anticipated in the law that would recertify coverage. Nor was it clear that the state had been provided resources for ongoing review of the payroll tax exemptions after the initial opt out period.

At this point, BuddyIns faced a crossroads. Our mission is to do what is best for our clients and to fairly recommend the coverage as it is intended to be offered by the insurance companies. Despite the pressure to move forward with the planned worksite enrollments, we decided that it would not be in the clients’ or carriers’ best interest for the majority of the enrollments.

We still had the capacity and expertise to provide individual solutions offered one-on-one by LTCI specialists. If the vast majority of our enrollments would be individual consultations, we were going to need an even larger specialist team.

June 2021—Growing to Meet Demand
Our platform gave us the flexibility to quickly bring in highly qualified and vetted LTCI specialists. However, we never expected to have to do it this quickly and at this scale.

We began onboarding an additional five to 10 LTCI specialists each week over the next two months. Soon, we had grown the team to nearly 70 specialists. Our new specialist team had to quickly learn the rules in Washington, our technology platform, how to have quicker planning meetings, and to navigate all of the insurance company changes.

Long term care planning is a consultative process that typically takes months. This was the most difficult transition the team had to embrace. How do we abbreviate the process to meet the state deadlines? We developed an approach to offer at least minimum, meaningful coverage for clients who intended to keep the policy for long term care planning purposes. Additional coverage as a supplement could be offered once the clients had more time to plan beyond the November 1, 2021, deadline.

July 2021–Carrier Changes Ahead
Once we substituted most of the worksite enrollments for individual custom consultations, we were off and running. As you might expect, the most challenging conversation was with a typically younger employer just looking to opt out and with no particular interest to learn about the coverage or long term care planning. While we firmly believed it was in everyone’s best interest to offer the products the way they were designed, there was still significant pushback from employers, employees, and consultants. Their frustration was not directed towards us, but rather at Washington state for having mandated such a short time period to make this important planning decision.

Of course, many LTCI agencies and agents in the market were taking different approaches. Some agents were getting licensed for LTCI in Washington for the very first time and many were succumbing to the temptation to figure out how to sell the lowest priced product possible to “beat the tax.”

As a result, one of the largest standalone carriers in the market announced they were exiting in Washington in late June. This put pressure and greater demand on the other carriers. Soon carriers began imposing minimum coverage requirements. Behind the scenes, carriers began to contemplate their exit from Washington as it was clear they could not satisfy the demand in such a short time frame.

August 2021 – Supply Leaves the Market
Early August represented a collapse in the supply of individual LTCI and hybrid products in Washington. As the carriers announced major product changes weekly, it only served to stimulate more demand. The carriers had no choice but to shut down as they simply could not keep up with the demand. One of the largest carriers in the market shared with us that at the peak, they were receiving about 1,000 individual applications per hour, which might normally be the number of applications they received in a month across the entire country. They simply did not have the systems or employees to satisfy the demand.

Our BuddyIns team did its best to pivot to the remaining solutions, but so did the rest of the market. We were fortunate to have access to a broad portfolio of product and specialists with expertise in a variety of different options. Nonetheless, by the end of August, the only products that remained had limited distribution and therefore more supply constraints. BuddyIns continued to offer clients excellent options for those interested in meaningful long term care benefits, but for younger clients looking for individual solutions, there simply were not many options available.

The worksite options continued to be offered in the market despite the challenges of not knowing for sure whether the products would qualify for opt out and if clients would keep the coverage.

Time was running out anyway for clients to submit their applications.

September 2021—Reflections on the Washington Fire Sale
I’m proud of what our team accomplished in a short period of time and in a challenging environment. While we couldn’t offer an insurance solution to everyone who sought our help, we helped many individuals learn about long term care planning and developed many relationships. These relationships will continue to be important as we help clients and referral partners navigate the long term care insurance market for years to come.

Washington became the first state in the country to move toward a path of providing a minimum level of long term care coverage funded by their workers. This is the litmus test in a social experiment whose implications we do not yet fully understand.

There are elements of the Washington program that were well designed, like requiring the program to be actuarially sound, which meant mandatory participation. The state was tasked with creating a long term care planning education and awareness campaign that has the potential to help families in a variety of ways. The state also emphasized providing more home health care benefits, which will take some of the burden off of the WA Medicaid program which had begun to absorb much of these costs.

However, there may have been missteps that can serve as a learning experience for other states. For instance, Washington may have been better served by engaging with the private insurance companies early on to coordinate benefits, ensure supply, and give people a realistic way to purchase their own private plan. The state and private markets ended up competing against one another with mixed messages that created an environment of distrust and uncertainty with the consumer instead of embracing the other side. Consumers that were the right candidates for private long term care insurance did not have enough time to plan and lost many private insurance options while deciding what to do. Others still don’t know there is a payroll tax yet. Ironically, both the public and private markets need each other to solve the long term care financing issue.

With the wave of baby boomers entering extended care years, and with the effects of COVID placing additional strain on long term care costs, we are beginning to hear about a wave of new states exploring a payroll tax to fund a minimum amount of long term care. They can use the Washington experience as a guide to create better outcomes and coordination. Washington state is continuing to explore positive changes. Now that the ability to purchase private insurance for opt out may be over, Washington is embracing the private market to supplement the far greater risk that faces their millions of residents beyond the $36,500 with nominal increases that the payroll tax is intended to provide.

At BuddyIns, we will continue to monitor the activities in Washington and other states considering similar legislation. We intend to continue to be a trusted resource for long term care planning.

The Washington Trust Act—Should I Stay Or Should I Go?

(Reprinted from the CLTC Digest in cooperation with Certification for Long-Term Care, LLC, www.ltc-cltc.com. Email Amber Pate at apate@ltc-cltc.com for a more than 20 percent discount on CLTC training for Broker World subscribers—just mention code BWMAG.)

If you’re a Washington resident, suddenly everyone is talking about long term care insurance. Back in 2019 the state passed a law to fund a public long term care program through a mandatory payroll tax on every W-2 employee. The only exception is to opt out by purchasing private long term care insurance. Things were relatively quiet until the state amended the law in April 2021 to shorten the time available to purchase private LTCI. Now, one must purchase a policy prior to November 1, 2021, to opt out of the payroll tax.

It seems like all of a sudden everyone in Washington is rushing to find a long term care insurance agent.

Why Washington?
Washington has one of the highest costs for long term care services in the country.1 One of the reasons may be that it also has one of the most generous Medicaid waiver programs for home health care. Supply meets demand. Owing to a shortage of home health care workers across the country, the cost of care has risen much higher in recent years. Last year, due to the effects of COVID-19, the increases were magnified further. Medicaid programs are strained in states around the country, but especially in Washington.

If you’re not in Washington and think this doesn’t affect you, think again. There are at least five other states discussing the same program and one of the most populous states in the country may be pricing out a payroll tax of its own.

Landmines to Avoid while Opting Out

1. Finding an LTCi product that works.

If you’re considering private LTCI for the purpose of opting out of the payroll tax, your first instinct might be to look for a guaranteed issue LTCI plan through your employer and self-enroll for the minimum possible coverage.

Not so fast. When this began, there were two simplified issue worksite LTCI options. Even before the law was signed, one of the carriers had already announced they were exiting the market due to unrelated reasons, and the other has already decided to limit the number of enrollments.

What about life insurance with long term care or chronic illness riders? There has been a proliferation of these products that have emerged over the past decade including a few guaranteed issue options for employees. Do these products qualify for opting out? It depends on the Trust Act’s definition of long term care. At the time of this article, most signs indicate to this being the code in RCW 48.83.020,2 but recent guidance on the official WA Cares website cited additional definitions related to dedicated long term care riders (7702B) and then those definitions mysteriously disappeared.

The safest route is probably to purchase either an individually underwritten traditional LTCI or a true hybrid product designed primarily for long term care planning. For these products, you will want to find an LTCI specialist who can shop the market for the best value, and more importantly, find a product for which you can health qualify. The good news is that 85 percent or more of working employees may be able to obtain coverage from one of a dozen different insurance products in the marketplace based on health.

2. Buying minimum meaningful coverage and avoiding the temptation to drop the policy after opting out.

The natural instinct is to try to purchase an insurance policy that costs less than the payroll tax. Unfortunately, you may be hard pressed to find it. Carriers are beginning to limit the capacity of such products or establishing their own minimums. You may also end up with a policy that provides such limited long term care benefits that you are tempted to drop the policy the moment after you receive your opt out approval.

There are several potential risks to the buy and drop strategy:

  • If too many people are dropping policies, Washington may decide to recertify coverage at a later date or when the client changes employers. The WA Cares Fund administrators are given latitude in the law to audit coverage, could impose minimums, or even ask on the opt out form: “Do you intend to keep your coverage?”
  • You may drop your policy and soon thereafter need long term care services. It is not as uncommon as it sounds for clients to require care after being in a severe car accident, suffering illness (COVID-19), or a disease like cancer.
  • Agents may be unwilling to offer you a solution. High policy lapse rates are a red flag for insurance companies that may result in an agent losing their ability to sell the insurance company’s products or being accused of churning their clients. LTCI specialists licensed in WA will be in high demand until November.

Your best bet for your plan, and also from the perspective of state regulators, carriers, and agents alike, is to buy at least minimum meaningful coverage. You’ll even want to consider more robust coverage when the insurance value is particularly good. It turns out using LTCI the way that it is intended may be your best strategy.

Does it Make Sense to Opt Out?
The ideal employee for opting out of the WA Cares Fund is actually the same person that might want to consider LTCI in the first place for planning purposes.

Higher earners with more income and assets to protect are going to see the best value from opting out because the payroll tax is uncapped. The tax also includes all wages including income, bonuses, vacation time, and the value of annual stock grants. It is quite possible for a higher earner to pay more into the payroll tax than they could even get out of the WA Cares Fund.

The math is pretty straightforward. Take your annual wages and multiply by 0.58 percent. Consider how much your wages will grow each year in the future until retirement. Add together each year to get your total payroll tax.

For example, a 40-year-old employee is making $200,000 per year and expects her wages to grow three percent per year. If she retires at age 65, she will have put in a projected $42,293 over 25 years. A lifetime maximum of only $36,500 with nominal increases can be received from the WA Cares Fund.

Other individuals that may want to consider opting out:

  • Those that will not likely pay into the payroll tax for at least 10 years without a break of five consecutive years (unless the individual needs care and is applying for benefits, in which case it is three out of the last six years). Many individuals will not meet this vesting criteria and may be better off considering private insurance.
  • The WA Cares Fund only provides benefits to residents of Washington. So, those who plan to move out of state for five or more years may forfeit payroll tax premiums and benefits.

Insurance Strategies to Consider

  • Buying minimum meaningful coverage of at least $100/day, a two-year benefit period, and three percent inflation. This would cost between $40 to $160 per month depending on age and gender, but total benefits compounded at three percent inflation may far exceed the Trust Act benefits at older ages when you are most likely to need care.
  • Buying robust coverage with longer benefit periods can increase the insurance leverage.
  • Including your spouse for additional discounts, especially if your spouse is also a W-2 employee.
  • Purchasing dedicated long term care riders or traditional plans with return of premium options that have the flexibility to cash out the policy and receive back 80-100 percent of the premiums paid. This option is priced by the insurance carrier to allow flexibility by design.
  • Leveraging tax incentives, such as the ability to pay LTCI premiums pre-tax with your Health Savings Account (HSA) up to an annual limit, or paying through your business for tax deductibility along with tax-free benefits.

Here are estimates of what the value of LTCI might be for a relatively healthy 40-year-old making $200,000/year with projected LTCI benefits at age 80 compared to the Trust Act benefits.

Example 1: Minimum meaningful coverage; Individual Age 40

*100/day, 2 year benefit period, 3% compound inflation, 90 day elimination period.

Example 2: More robust coverage; Couple Age 40

*100/day, 5 year benefit period, shared care rider (third pool), 3 percent compound inflation, 90 day elimination period.

It is worth noting that certain hybrid plans offering return of premium can also get significant insurance leverage. These plans typically require higher up-front costs to receive the best value plan designs. However, pre-paying LTCI policies that you’re planning to keep also has its perks. With a 10-pay, you have the ability to get a paid up plan before retirement, guaranteed premiums on traditional policies, and the potential to front-load tax deductions.

Is the payroll tax a good deal?
The biggest limitation of the payroll tax is the lifetime maximum of only $36,500 with limited growth potential.

  • The likelihood of needing care at some point in your life may be greater than 50 percent.
  • For an extended care need, the average length of claim for individuals that need care for at least 90 days may be about three years.
  • The median cost of care in Washington state in 40 years may be close to $350,000 per year.
  • This makes the average risk of long term care costs in 40 years about $1,000,000 per person for those that have an extended need.3

Buying in the private LTCI market can allow families to take a much bigger amount of the risk off the table, so those who engage a specialist in an exercise of true long term care planning will have the most to gain prior to November 1.

One final suggestion—if you know you want to purchase LTCI, don’t wait. It is important to educate yourself about your options before making a decision. However, start planning early if you are considering purchasing private LTCI. There are a limited number of insurance products and LTCI specialist agents in Washington state. During normal times, it typically takes about 30-60 days to educate yourself, apply for, and get approved for coverage. Given the increased volume because of this new payroll tax, we anticipate wait times could significantly increase, and that puts at risk your ability to opt out of the tax.

Good luck in the planning process and let us know how we can be of assistance. Our LTCI specialist community is here to help. We are also taking vetting LTCI specialists from across the country to plug them into Washington state opportunities and leverage our platform. You can contact me (or your BGA) directly for more information. Long term care planning may be one of the most meaningful things you can do for your family to protect them from becoming unintended caregivers.


References:

  1. https://www.genworth.com/aging-and-you/finances/cost-of-care/cost-of-care-trends-and-insights.html
  2. https://app.leg.wa.gov/rcw/default.aspx?cite=48.83.020
  3. https://www.genworth.com/aging-and-you/finances/cost-of-care.html

Dear Actuary,

I’m trying to grow my long term care practice. I find myself worrying that, as it grows, I’m going to drown in the amount of task-oriented work that insurance naturally presents. How can I expand my business without sacrificing every free second I have?

Sincerely,
Hectic in Houston

Dear Hectic,

I’ll start by saying that you’re certainly not alone. Insurance professionals have a lot to track throughout the client awareness, education, and sales process. Repeat the cycle over and over again for hundreds of clients and your book of business can start to look like an overflowing closet.

There are so many tools out there for process efficiency that it would be impossible to try to name them all. It seems like, nowadays, there’s a tool for any pain point you may encounter in your practice. For example, at BuddyIns we use over 25 different software tools that are integrated together to help our agent and agency partners with their long term care marketing and insurance sales.

So, while there’s no catch-all for managing your business, the first step is figuring out where your pain points and bottlenecks are. What tasks are most repetitive and take the most time? The answer to this question will help you find the tools that will be most beneficial to your bottom line.

In this article I’m going to outline three common pain points for insurance agents and recommend specific software programs that we’ve personally used to save us our most important asset—our time. These tools are leaders in their respective categories, but there are many great alternatives as well. The reason I’ve chosen to highlight these programs is because they are effective, easy to use, and they all have a free version. So what have you got to lose?

Meeting with your Team and Clients—Zoom
Chances are, if your practice wasn’t at least partly remote before this year, COVID-19 forced your hand. Though Zoom has been around for many years, the software certainly had its number called this year. Millions of people have become aware of its power to bring us together. Your kids may even be in class on Zoom right now as you read this!

It’s no stroke of luck that Zoom is having its moment in the spotlight. The ability to have virtual meetings with your team, clients, and prospects can save you time. Back in March of 2020, the biggest objection I would hear from agents about using Zoom was that being on camera might make their clients uncomfortable. A few weeks later Zoom entered the mainstream and hasn’t looked back. You can see your clients, host group meetings via teleconference, and share illustrations on your screen. It’s the closest thing to a face-to-face meeting without being in the same room.

There are many similar software programs out there. One of the reasons that Zoom is popular is reliability and pricing. Zoom is currently free for one-on-one meetings with clients or team members. For group meetings, Zoom currently limits meetings to 40 minutes with an upgrade that costs about $15 per month.

Even beyond COVID-19, having a tool like Zoom in your back pocket is just one of many ways that you can give your clients and prospects more options to interface and do business with you.

Zoom’s Use Case: It’s hard to imagine my team having as much success without Zoom. We work with partners all over the country, so what we do would be quite difficult without it.

We also host a lot of educational webinars and video interviews. We can put on a Zoom webinar, record it, edit it, and use it for content on multiple platforms. In a world that’s becoming more virtual by the minute, we’re glad to have Zoom as a sidekick.

Appointment Booking—Calendly
Calendly is a tool that allows clients and prospects to self-schedule a meeting with you. Think of it as your virtual scheduling assistant. You can send people a link to your Calendly page or embed Calendly into your website.

One strength of Calendly is in its integrations. Calendly syncs with the major email calendar providers such as Gmail, Outlook, and iCloud to make sure your availability is viewable to clients and you don’t get double booked. It can also integrate automatically with Zoom to set up your meeting room ahead of the appointment.

One of the key differentiators of Calendly is that once a client books, we have found no-show rates come down close to zero. Calendly automatically adds the meeting to your guests’ calendars and sends out reminders for you. You can also set buffers to make sure meetings aren’t scheduled too close together for your comfort.

Calendly is free for a basic version and currently about $10 per month for an upgrade to include integrations and reminders.

Calendly doesn’t entirely replace the important touch point of calling clients to schedule. It just makes it easier to book appointments by giving your clients options and allowing them to reschedule without the back-and-forth usually needed to negotiate a time and date.

Calendly’s Use Case: If your team is still calling every prospect and negotiating a meeting time manually, you can stand to free up a lot of time using this tool. I use Calendly to schedule meetings not only with partners and prospects, but also with my team. I fill up my schedule easily with almost no sweat.

Forms and Information Gathering—Jotform
One of the most common complaints I get about working in insurance from industry professionals is that gathering information from clients can be an unpleasant experience.

Scanning or sending pdf fact-finders to clients who you hope have the capability to fill out, scan, email, fax, or hand-deliver them back to you can be frustrating. Clients are busy and can easily get bogged down by the simple process of sharing information that you need to do your job. It doesn’t need to be that way.

Jotform allows you to create shareable web-based forms that clients can fill out quickly and easily. The information comes back to you in a format that is satisfying and immediately usable.

Beyond that, you can also create a form on your website that works as a funnel. If prospects are interested, they can fill out the form with their contact information. Once submitted, Jotform can then trigger all sorts of events, such as saving their information into your contact management system, sending the prospect a welcome email, and offering them access to your Calendly to book a meeting. In this scenario, you can see where Jotform begins to nurture the relationship with your prospect!

If gathering health information for pre-underwriting is cumbersome, Jotform also has a HIPAA-compliant version for an added cost.

Jotform’s Use Case: Jotform will be most valuable to those who don’t already have a good system in place for gathering information from clients and prospects.

If you’ve read this far, you’ve probably noticed a few commonalities about the tools I’ve shared:

  • They’re intuitive and easy to use.
  • They’re free to start using and advanced features are inexpensive as well.
  • They contain automations and integrations that take laborious tasks off of your plate.
  • They reduce the friction involved in working with your clients and work hand-in-hand with your personal touch and branding.
  • As a result, they’re low risk and high impact, which means a big boost to your business.

I hope these recommendations have helped you discover a few new tools as you continue to grow and manage your business. The more you’re able to integrate technology into your practice while still maintaining a personal touch, the more you’ll be able to spend time with clients. All the while, things you used to stress about will just hum along in the background.

Willy Wonka And The LTCI Factory

Dear Actuary,
What types of long term care insurance products are you finding to be most popular amongst LTC specialist agents today? —Inquisitive in Iowa

Dear Inquisitive,
“Come with me…and you’ll be…in a World of pure imagination…”—Willy Wonka

I have worked closely over the last several years with agents whose primary business is long term care insurance. Many of them are very successful at offering traditional long term care. Often these LTCI specialists have expanded their offerings to solve a wider range of client needs using a suite of different insurance tools.

I attended an LTCI conference last year featuring the latest product designs from a variety of insurance companies. A walk through the aisles was much like a walk through Willy Wonka’s chocolate factory. It turns out there is more to a chocolate bar than just sugar and chocolate; likewise, there is more to LTCI policy designs than just a limited, cookie-cutter approach. Clients have options. Multitudes of them.

The actuaries in the insurance company home offices have continued to cook up new recipes while still updating the classics. Broadly speaking, the three main ingredients that go into plan designs are health underwriting, pricing, and benefits. The top insurance products can typically excel at offering two of these three ingredients:

  1. Good pricing and benefits, but tighter underwriting.
  2. Easier underwriting and good pricing, but plans with limited benefits.
  3. Easier underwriting with richer benefits, but premiums at a higher price point.

Long term care specialists often start the conversation with a detailed health assessment after understanding why the client is interested in long term care planning. This allows them to focus on the best options for the client based on their health. The primary objective is to maximize insurance leverage or protection, which is the maximum long term care benefits at point-of-claim for the premium dollar. This allows the client to spend the least, but receive the most insurance benefits. For clients with significant health issues, long term care specialists are continuing to think out-of-the-box and offer alternative solutions.

Once health is assessed, long term care specialists evaluate the clients’ financial situation. What assets are they looking to protect? How are the clients funding the plan? And last, but not least, what are they comfortable spending in the first place? This consultative approach will not only engage the clients in the buying process and answer their questions, but will often clearly point to the flavor of product that will suit them best. Along the way, funding strategies can emerge to provide additional tax savings or benefits. This adds the cherry to the top of the plan.

In Part One, I discuss an overview of the major types of LTCI solutions on the market today in order from the most insurance leverage to the least. In Part Two, I discuss planning strategies and tax-advantaged funding sources. It is best to plan early to keep all of the options on the table, but even for someone already needing services, it is never too late to put a long term care plan together.

Part One: LTCI Product Flavors
“We’ll begin with a spin…”
Traditional, or Stand-Alone LTCI: This is the original option. These policies are treated like health insurance by regulators and the IRS. The strength of these products lies in their affordability, insurance leverage, funding flexibility, and tax advantages. Like term life insurance, auto, or homeowners insurance, they provide the maximum coverage if you need the benefits, while hoping never to have to activate the policy. The number of insurance companies offering new traditional LTCI products has consolidated to a few core carriers. Yet, there are still a wide range of offerings and plan designs. Older LTCI policies that were underpriced have required rate increases. Newer policies are more conservatively priced, yet still offer an outstanding value proposition from the best products. LTCI has a higher likelihood of price stability moving forward largely due to more careful health underwriting and plan designs.

Hybrid Life Insurance with Extension of LTCI Benefits: These life products are designed to minimize the cost of the life insurance component and maximize the LTCI benefits. Many of the popular plans offer long term care protection beyond the life insurance death benefit and also compound inflation increases on the benefits. The premiums are often guaranteed and the life insurance death benefit is paid even if long term care is not needed. More products have emerged with funding flexibility and creative benefit designs. There are also products that pay cash indemnity benefits and more robust international coverage. Like traditional LTCI, hybrid plans are often more careful with health underwriting.

Most long term care specialists offer both traditional LTCI and hybrid life extension products for their healthier clients. In this marketplace, about half of clients choose traditional and half choose hybrids.

Life Insurance with LTCI or Chronic Illness Benefits: These products focus mostly on the life insurance component, but offer flexibility to provide LTCI benefits up to the death benefit. The point-of-claim LTCI benefits tend to be more limited and the benefits generally do not increase with inflation. However, this allows the companies to provide richer life insurance features and in some cases the life insurance underwriting can be more favorable for the customer. While there are more policies sold in this category than the traditional or hybrids combined, most insurance plans are based on the life insurance features of the policy, and not necessarily because the primary need is the long term care benefits.

Annuities with LTCI Benefits: These products use the annuity account value to offer tax-free long term care benefits. Several products provide a multiplier on the account value when the client qualifies for the long term care benefits. These annuities may be liberally underwritten and may also be designed to maximize a guaranteed income stream in the future. These products are typically funded as a large single premium, so long term care specialists often use them with clients that have accumulated significant assets and who might have significant health issues.

Short Term Care (STC) Insurance: STC is a health insurance product where insurance companies have been offering shorter term care funding solutions. These products can provide up to one year of coverage often without an elimination period deductible for either facility care, home care, or both. The products have been approved by regulators in over 40 states, but are not approved at this time in CA, NY, CT, FL, MA, MN, NH, and VT. STC offers features, premium structures, and future rate stability that can vary by product or by state. The popularity of STC amongst long term care specialists has been as an alternative to long term care for individuals that have significant health issues, but are looking for more affordable premiums. Even limited benefits can help a family during a stressful time and allow them more flexibility to address the longer-term needs. They offer a reasonable pay-as-you-go price point, but as a product with less actuarial experience, may be subject to future rate increases depending on future claims data.

Medicaid Planning Products: Often families find themselves in situations where a parent or spouse is incurring significant out of pocket nursing home costs. The care provided might qualify under Medicaid services, but the individual is ineligible unless spending down most of the estate. Long term care specialists can partner with a Medicaid planning attorney with programs designed to spend down the remaining assets in the estate with strategies such as using Medicaid compliant annuities.

Part Two: LTCI Planning Strategy Toppings
“If you want to view paradise, simply look around and view it…”
With all of the different insurance product options, the age of imaginative product designs has commenced. There are high-end products aimed at affluent buyers and also affordable products with LTC Partnership protection for the middle market. There are tax deductible LTCI strategies for business owners and executives, and LTCI worksite programs that can be funded with health savings account (HSA) dollars. There are strategies that can be funded from qualified IRA accounts or as a tax-free 1035 exchange of existing non-qualified life insurance or annuity products. You can even mix and match funding strategies and combine multiple products together!

With all of these additional planning ideas, many long term care specialists are beginning to feel like a kid in a candy store. Those agents that are not LTCI experts can be left, well, in a bit of a sugar coma. Never fear, this article will help you identify a planning solution to fit your client.

Lifetime Benefits and Shared Care: Innovation in LTCI product design has brought about the availability of lifetime benefits and shared care. Lifetime benefits provide an unlimited duration of coverage. Shared care can allow couples to also extend their own benefits at an affordable cost by sharing benefit pools or creating an additional pool of benefits.

LTC Partnership Program: Traditional LTCI can often be designed as LTC Partnership qualified in most states, which means that an LTCI product can protect the family in Medicaid spend-down situations. Traditional long term care insurance can pay the initial benefits for care when it is needed. In an extended long term care scenario, the insured may still qualify for Medicaid services while still keeping assets equal to the amount that the insurance policy paid. The decision to use this benefit will likely depend on the types of services that each state’s Medicaid program offers in the future. Nonetheless this feature provides more financial flexibility, and in most states does not cost extra, besides selecting a policy with a minimum level of inflation protection. The four original LTC Partnership states of CA, NY, CT, and IN have unique programs and all have proposed redesigns to make them more accessible to the masses.

“What we’ll see will defy explanation…”

Tax Deductions for Business Owners and Executives: Traditional LTCI and certain hybrids allow most business owners and their spouses to deduct LTCI premiums from business income as a business expense. The amount of the deduction may vary based on the tax structure of the business, the long term care portion of the premium in the case of hybrids, and the age of the insureds. The long term care benefits received from the policy are generally tax-free, so there is little downside to funding the premium with the business checkbook. Plans can be carved out for the business owners exclusively or for any group of employees based on criteria that the owner chooses. This allows for tax-deductible executive benefit programs and incentivizes employer funding of long term care plans in the worksite.

LTCI Worksite Marketplace: Rising like the Phoenix from the ashes is a sudden proliferation of LTCI solutions in the worksite. There are both traditional LTCI and hybrid solutions that are now available. There are fully underwritten unisex-priced plans with robust benefits or quasi-simplified issue plans for larger groups. Voluntary plans are often enrolled by long term care specialist firms or agents using one or several different products. However, tax deductible employer funding, even in small amounts, can encourage high participation rates. You may use a 401(k)-like approach where you define an LTCI contribution amount, and have the employer offer a matching contribution. You are limited only by your imagination.

Funding LTCI from Health Savings Accounts (HSAs): With the Affordable Care Act and increased popularity of high deductible health plans, there is suddenly more money accumulating in HSAs. In 2008, there was approximately $5 billion in HSAs. In 2019, this is expected to top $60 billion.* HSAs can be used pre-tax to pay LTCI premiums or the LTCI portion of certain hybrid product premiums, up to the annual age-based IRS limit. Either spouse’s HSA may be used to fund both spouses’ LTCI plans.

1035 Exchange: The Pension Protection Act allowed another significantly tax-advantaged sales opportunity for both traditional LTCI and hybrid policies. For individuals who own a non-qualified annuity, they can take both the principal and tax-deferred gains and move the money over through a 1035 tax-free exchange to pay the premiums for traditional LTCI or an annuity with a long term care rider. Non-qualified life insurance can also be exchanged tax-free into traditional LTCI or life with a long term care rider. Long term care benefits can still be received tax-free.

The Bottom Line
“Wanna change the world? There’s nothing to it…”
There are many different LTCI planning solutions available to serve the over 100 million individuals in the U.S. who are planning for or have reached retirement. Additionally, many of those in the sandwich generation are currently dealing with the burden of paying for long term health care costs for one of their relatives. The majority of them do not realize that looming long term care costs can be solved with an array of insurance solutions already available in the market.

Going forward, I expect to see continued innovation addressing many of these market segments with carriers gravitating toward the most popular solutions. The government has also been receptive over the past few years to supporting private alternatives and increasing existing tax incentives since the majority of the long term care burden eventually falls on state and federal budgets through Medicaid. Luckily, this looming crisis can still be prevented from becoming a catastrophe. The cost of insuring against this future risk is accessible to many Americans, especially if they plan in advance, while they are still healthy enough to qualify for all of their options.

Reference:
*https://www.devenir.com/health-savings-accounts-hold-over-61-billion-for-future-medical-expenses/.

Do you have any LTCI questions for the Actuary?
Please email Marc Glickman, FSA, CLTC at marc@buddyins.com.

(This article first appeared in the Broker World July 2016 edition. It has been revised to reflect updates in the long term care insurance marketplace.)

(Reprinted from the CLTC Digest in cooperation with Certification for Long-Term Care, LLC, www.ltc-cltc.com. Email Amber Pate at apate@ltc-cltc.com for a more than 20 percent discount on CLTC training for Broker World subscribers—just mention code BWMAG.)

Dear Actuary,

I see the need for my clients to plan for long term care, but I haven’t had too much success in offering solutions. What suggestions do you have for someone like me looking to build their long term care practice?

Sincerely,
Specialist in South Carolina

Dear Specialist,
Long term care insurance can be both a rewarding and frustrating business. On the one hand, there are few professions more fulfilling than helping families secure peace of mind with a long term care plan. On the other hand, it can be devastating watching a family member or client wait just a little too long to get a plan. Worst case scenario is that they are unprepared when they actually need care. However, it can also be devastating when clients wait until they can no longer qualify for their preferred insurance plans.

I have worked with many of the top long term care agents and agencies in my career. The recipe to their success contains two key ingredients. First, they have a robust pipeline of leads, prospects, or referrals. Second, they have the long term care expertise to help the majority of their qualified prospects move forward using a consultative sales approach.

In the first of this two part series, I will outline five tips that agents or advisors can take to harness the power of today’s technologies to expand their marketing pipeline. In the second part, I will discuss tips for developing a consultative LTCI sales approach. Along the way, I will share personal anecdotes about launching my own long term care insurance marketing company to help agents serve their clients.

Tip #1—Use Inexpensive Technology to Save Time
“Roads? Where we are going, we don’t need roads.”—Doc Brown, Back to the Future

Technology allows the savvy advisor to save time. The challenge is that there is no roadmap that defines which technologies to use.

My first tip is to break down your marketing process into steps. Begin by analyzing repetitive marketing tasks that you do the most. Replace those tasks with time saving tech solutions. Spend a lot of time educating clients? Produce short videos or webinars. Having trouble following up? Use email templates and automated sequences.

Insurance marketing fundamentals are still the same as they’ve always been. To help an insurance client you need to prospect, build trust, educate, consistently follow up, and deliver a compelling value proposition. The technology allows you to execute these steps quicker and easier than ever before.

Tip #2—ABC means “Always Be Connecting”
The old slogan of Always Be Closing has been replaced by a new mantra. The hard sell is dead. Use a consultative approach and continuously educate your prospects. To get there, you need to build a robust prospect list and stay top of mind. With the internet you can be connecting with more clients without geographical limitations. You can also stay in front of them 24/7.

In my business we partner with agents and agencies to help them with their long term care digital marketing without changing their contracts. For this business-to-business world, there is no better platform than LinkedIn.

Years ago I began networking on LinkedIn by connecting to centers of influence. I realized that every financial professional is impacted by long term care. I built my direct network to 30,000 LinkedIn connections, which is the maximum that LinkedIn allows. Now many top advisors find me to be their center of influence in the realm of long term care planning.

You can achieve the same results by digitally networking wherever your prospects spend their time online. LinkedIn, Facebook, email groups, online forums, the list is endless. The key is to proactively outreach, connect, share thought leadership, and stay engaged in the community. The process is similar to networking in person.

Tip #3—Digitize Your Relationship Management
Once you connect with prospects or clients, make sure to create and maintain a customer relationship management (CRM) database. Sound complicated? Well, it’s not too difficult. All you need is an Excel spreadsheet with their first name, last name, email address, and phone number.

Your CRM is the foundation for your marketing outreach. You can use it to send personal emails, broadcast emails, invitations to webinars, identify who has visited your website, and much more. Not to mention you can reach out to your prospects at exactly the right time when they are engaged with your content.

Tip #4—Mission-Driven Messaging and a Servant Mentality
Your online persona should match your real personality. The biggest mistake I see from agents in their marketing is trying to overtly sell their services before getting to know their connections. Would you walk up to someone on the street, hand them your card, and blurt out, “Call me if you need insurance?” Why would you do it online? Similarly, you want to be positive in your messaging, easy to approach, and take away the fear for someone to reach out to you.

In fact, a better way to engage with your audience is actually to reach out to them first. Every time I post on LinkedIn, I think about how I can serve my network of connections. This approach builds trust even if I have never actually met or spoken with them before. This leads to a fascinating marketing phenomenon. When I finally outreach to my connections, it’s like we’ve been good friends for years. They appreciate the value that I have provided to them. That’s the power of digital marketing.

Tip #5—Have Fun with Your Marketing
If you don’t enjoy the process of marketing, your audience won’t enjoy watching it either. Choose the type of marketing that suits your personality.

I’m an educator by nature. I didn’t start off as a natural presenter, but I enjoy the thrill of sharing new ideas with large audiences.

I chose to get out of my comfort zone and launch a long term care webinars series for agents and their clients. It’s not that much different than the live lunch or dinner seminar. However, the audience can be much larger, the cost is lower, and you can record and send a replay to anyone who comes through the door. Clients share the videos with their friends and family. As a result, I have presented on hundreds of webinars and reached tens of thousands of agents.

I also enjoyed speaking with agents and listening as they share their insurance strategies and client stories. So, I launched a video series called The Insurance Experts. I interview agents online for five to 10 minute awareness videos. It is low cost to produce and provides me with endless content to share, new relationships to build, and a personal education from the best in the industry. If I enjoy producing these videos, then I know my audience will enjoy watching them.

How to Build Your Long Term Care Marketing
My top five tips are to use technology, always be connecting, digitally track your prospects, have a servant mentality, and have fun with your marketing.

Give away your knowledge and you will find that you can build more lasting client relationships than you could ever imagine.

(Reprinted from the CLTC Digest in cooperation with Certification for Long-Term Care, LLC, www.ltc-cltc.com. Email Amber Pate at apate@ltc-cltc.com for a more than 20 percent discount on CLTC training for Broker World subscribers—just mention code BWMAG.)

Dear Actuary,

0

I have a lot of people asking me about LTCI solutions, but they tell me it sounds too expensive. What can I do to help them get a plan that meets both their needs and their budget? —Affordable in Arkansas

Dear Affordable,
Most long term care agents will answer this way: “If you think LTCI is too expensive, you should see the cost of not having LTCI!” Then the agent will show the prospect the cost of care in their area, and the costs might be truly scary. In fact, so scary that the prospect runs away without a plan!

This is the traditional needs analysis. Needs analysis is an important part of long term care planning, but it may not always be best to discuss at the beginning of the conversation. Admittedly, this can work for skilled agents with certain prospects who see LTCI as a luxury. However, far too often, it results in the prospect deciding not to purchase a LTCI plan once they see the price tag.

Closely related to needs analysis is the defined benefits approach. Agents commonly select pre-determined benefits and ask for one-size-fits-all quotes. This approach also frequently results in clients passing up coverage altogether.

Many agents tell me they despise it when their prospects demand quotes early on in the conversation before they have assessed needs and considered benefits. Here is an alternative approach. Agree with your prospect and embrace these questions! These questions can be a door opener to show how affordable LTCI can be, to ask about funding sources, and allow you to share insurance tax advantages.

This conversation often leads to funding analysis. The idea is to first help your client identify which assets or income are ideal for them to use to pay for insurance protection. This can establish an initial target price point, payment period option (single pay, multi-pay, or lifetime-pay), and can be useful to identify funding sources with tax advantages. Funding analysis can be effective as evidenced by life insurance plans with long term care riders that commonly use an asset-based funding source to great success. You can use funding analysis for any insurance plan.

The funding analysis may be so effective that later in the conversation, when cost of care is discussed, you will find your client asking to buy more coverage. At this stage they better understand the value proposition of the insurance plan.

Closely related to funding analysis is the defined contribution or target premium approach. This is a method where you determine how much money will be put into the plan and choose the plan that maximizes benefits based on a price target.

An example of this strategy is to start with a percentage of income that will be used to fund the insurance plan. This is similar to the approach used in the 401(k) market to identify a percentage of income to take out of the paycheck for a defined contribution plan.

Many agents and websites employ a “good, better, best” methodology to allow the prospect to choose the right starting price for them. This is a combination of the defined benefits approach with three pricing options. Many prospects will choose the middle option. Often this will result in a price that most clients choose on average.

The Target Premium and Funding Approach in Practice
The importance of the funding approach hit home recently. I was having brunch with a good friend, Steve. He is a very successful 62-year-old business executive. As a life-long bachelor, he is winding down his career and contemplating his travel plans in retirement. We got to talking about my long term care business. I told him that everyone needs a long term care plan whether or not insurance is used as the solution.

Marc—“What’s your long term care plan?”

Steve—“I’ll self-insure. I’m really healthy and can’t picture needing it. The insurance companies are trying to make money off of me, and if they don’t they’ll just raise my rates.”

Did I mention that Steve is not a fan of insurance?

Marc—“You might consider buying a really small policy. There are core high-end features built into even small plans, and, when you consider the costs involved, the insurance company won’t be making much money. There are plans today where you can prepay the premiums and limit the risk of rate increases.”

Steve—“Tell me more.”

Steve’s an analytical type, so I drew up a plan to demonstrate the LTCI value proposition (Chart 1). We discussed both traditional and Hybrid alternatives. The plan he preferred most looked like this:

The plan cost only $1,822 per year and would be paid up in 10 years! At that point no more premiums would be due and the insurance company couldn’t raise his rates or reduce his benefits.

At age 85, this plan could provide just under $200,000 of benefits paid out at about $100/day should he need long term care services for several years. Not a high-end plan, but he could self-fund the rest as he planned to do anyway. This is a good foundational plan for the care he might need in the future.

The value proposition is that the insurance plan might provide a maximum of 10.5 times tax-free benefits compared to the total premiums paid, which significantly exceeded the multiple he could get from self-funding over the same horizon.

I could see the wheels turning as Steve began to assess the financial tradeoffs.

The Triple Tax Advantage of HSAs for LTCI
Steve spent most of his career as one of the country’s foremost tax experts in his field. So, we began to dig a little deeper.

Marc—“Let’s discuss some funding options for this plan. Do you own an HSA?”

Many tax experts aren’t aware that you can fund LTCI premiums using an HSA up to an annual limit. HSAs have soared in popularity because of the ACA and growth of high deductible health care plans. HSAs have grown 10-fold since 2008 with about $51 billion of assets as of 2018.1

Steve—“In fact I do have an HSA that is accumulating a lot of money.”

It can make a lot of sense to fund LTCI from an HSA. HSAs can be left to a spouse at death but otherwise generally get taxed if the remaining amount is left to the estate.

Steve was able to take his original tax-deductible contribution into the HSA, which had grown tax free, and then withdraw the money, tax free, to pay for his LTCI premiums. This so called “triple tax advantage” could be parlayed into significantly more LTCI benefits that would also be received tax free.

We discussed the cost of care in his area today and the potential cost of care in the future. For home health care the average cost might be three times higher than this plan, and facility care costs are even higher.

Chart 2 shows the plan that Steve finalized:

Steve decided to more than double the LTCI premium initially quoted to maximize his HSA withdrawals. He will most likely continue to fund the premiums out of his HSA over the next nine years and have a greater amount of protection than his self-funded plan alone.
If you have married clients, not only can they benefit from joint policies and spousal discounts, but they may also be able to use one spouse’s HSA to fund both of their LTCI plans!

Inside the Numbers
I researched the average stand-alone LTCI purchase price based on data from annual industry surveys. Looking at the period starting in 2004 through 2018, I realized something extraordinary. The average purchase premium hasn’t really changed in the last 15 years.2 Average industry premiums have nearly tracked inflation:

  • For stand-alone LTCI, the average new policy price is about $2,500 per person.
  • For life insurance hybrid plans that include long term care or chronic illness riders, the average is about $6,400 per person as a recurring premium and $91,000 as a single premium.

The Bottom Line
Many people will use LTCI solutions to partially or fully fund plans once they are convinced that it is affordable and offers value. Addressing funding and price early in the conversation can reduce fear for your client. They know what to expect and it builds more trust.

You may feel like you are helping your prospect by showing the cost of care early in the conversation, but it could be a disservice if they were to walk away without any plan at all. Once funding and price are on the table, it further helps improve the agent-client relationship. Your prospect knows that you have their best interest at heart because of a mutual objective: To help provide them the most beneficial plan possible for their budget.

Reference:

  • https://www.morningstar.com/blog/2018/11/12/top-hsa-providers.html
  • If this sounds counterintuitive, consider that the most common benefit purchased today is a three year benefit period with three percent compound inflation protection. 15 years ago, the most common benefit was lifetime coverage with five percent compound inflation.