Long-Term Care Insurance: An Undiscovered Necessity

Despite the fact that financial planners see a role for long-term care insurance for most Americans, a large majority of consumers either remain unaware of the product or have given little consideration to purchasing it. As longevity continues to increase and baby boomers age, our country faces a looming crises in the coming century unless Americans start doing more to plan for their long-term care needs.

Financial Planners Support the Purchase of Long-Term Care Insurance
In November 1998, Mathew Greenwald and Associates conducted a unique survey of 321 financial planners, to assess how they view long-term care insurance. Almost all of the planners questioned (96%) agree to at least some extent that, as one piece of a balanced financial plan, long-term care insurance can be an important financial planning tool. Close to two-thirds (65%) strongly agree with this statement.

Eighty-five percent of these planners claim that they recommend long-term care insurance to their clients (Figure 2), with over seven-in-ten (72%) of these recommending it at least somewhat often. (Figure 3)

Financial Planners See Long-Term Care Insurance Playing A Role for Many Middle-Age Americans
Among this majority of planners who recommend long-term care insurance to their clients, a large majority believe that the product:

• is equally appropriate for males and females (92%). (Figure 4)
• is equally important for married and single clients (80%). (Figure 5)
• should be purchased by the time people reach their 50s (87%). (Figure 6)

Among those who recommend long-term care insurance, planners see a need for the product across a wide range of income levels. Close to seven in ten or more of those recommending the product see a role for it among clients in all income categories between $30K and $150K. (Figure 7)

Planners also see a role for long-term care insurance for clients' parents. Three quarters of the planners interviewed (75%) claim that they have recommended a long-term care policy for their clients' parents. (Figure 8)

Americans Pay Little Attention to Long-Term Care Needs, Despite Concern
Although planners see a role for long-term care insurance, Americans pay little attention to how they will deal with long-term care financing. In a June 1998 survey of 1990 Americans conducted by the Roper Organization, only 12 percent claim to have given a great deal of thought to how they will manage if they or their spouse would need long-term care. Close to six-in-ten (59%) claim to have given very little or no thought to how their long-term care needs will be provided for. (Figure 9)

Some of this lack of thought may be due to a limited understanding of how the costs of long-term care will be paid. One quarter of the American public claims to have some type of long-term care coverage, far more than we know actually have a policy today. When this 25 percent is asked how they plan to pay for their long-term care needs, 54 percent mistakenly believe that their health insurance will cover it. Only one quarter (26%) of those claiming to have long-term care coverage actually mention a long-term care or accelerated death benefit policy. (Figure 10)

In addition, forty percent of the adult American population report that they are not aware of what long-term care insurance is. (Figure 11) Combined with this plurality:

• Another third claim to be aware of the product but have not considered buying it for themselves.
• Another nine percent have considered buying but have not taken any concrete steps to do so.

Only thirteen percent have actually taken steps toward learning about specific long-term care policies, including getting information about products or actually applying for the insurance. (Figure 12)

The lack of attention paid to the product occurs despite the fact that close to six-in-ten Americans (58%) report that they are at least somewhat concerned about the possibility of someday needing nursing home coverage they won't be able to afford. (Figure 13) Americans are clearly not seeking solutions for a problem they anticipate facing some day.

Americans Are Likely to Consider Long-Term Care Insurance for Their Parents
One factor that may compete with concerns about providing for one's own long-term care needs may be concerns about dealing with the long-term care needs of the older generation.

Among the 72 percent whose parents or in-laws are still alive (Figure 14), close to six-in-ten (58%) report that they give at least some thought to the possibility that their parents or in-laws may need long-term care, with 20 percent reporting that they think about it a great deal. (Figure 15) People who have living parents ponder long-term care far more for the older generation than they do for themselves.

Among those with living parents or in-laws, 56 percent feel that they would be responsible for assisting this older generation with long-term care. (Figure 16) Close to four-in-five (78%) of those who feel responsible for their parents' or in-laws' long-term care needs express concern about the financial impact of caring for them. (Figure 17)

Long-Term Care Will Be a Rapidly Growing Need
The age 85 and older population will double as a proportion of the U.S. population by the year 2030 and double again by the year 2050. Those over age 85 are many times more likely to need long-term care insurance than those turning 65.

Long-term care insurance can help save Medicaid and consumers billions of dollars. An April 1998 ACLI study suggests that in the next 30 years:

• total nursing home expenditures paid by Medicaid are expected to increase 360% to $134 billion.
• that cost paid directly by individuals will increase from $33 billion to $158 billion, a 378 percent increase in constant 1996 dollars.

This study estimates that the purchase of long-term care insurance could save Medicaid $28 billion dollars, reducing the number of nursing home residents on Medicaid by 19 percent. Insurance could save consumers 40 percent of out of pocket costs, reducing the number of residents who spend down their assets by 44 percent.

Americans Need to be Educated About the Importance of Long-Term Care Insurance
Financial planners recognize the importance of long-term care insurance. Economic statistics suggest that this product could play a vital role in stemming the looming crisis of paying for an exploding nursing home population in the next century. However, findings here suggest that consumers remain largely unaware of the role that long-term care insurance can play in providing financial security in retirement.

Recently, there have been some signs that the public may be beginning to pay more attention to the product. While only a small percentage of the population owns long-term care insurance, companies report anecdotally that sales are increasing. A recent National Underwriter article claims that agents report their clients are becoming more knowledgeable and interested in the product. Hopefully, the President's recent proposal for a tax credit for long-term care expenses may begin to make Americans more aware of the need to deal with the issue.

Nonetheless, data reported here suggest that we have a long way to go in getting the general public to pay attention to their future long-term care needs. Much more needs to be done to educate the public regarding the role of long-term care insurance.