Why the future of long-term care may be hybrid 

If you’ve worked as a consultant or broker for any length of time, you’ve sensed this conversation coming for a while now: The discussion around long-term care. Demographic, legislative and economic factors have placed long-term care front-and-center, forcing new conversations among clients and brokers.

The increasing costs of long-term care in conjunction with the increased likelihood that people will need long-term care is putting clients and employees in some pretty tough spots. In fact, it’s led many states (most notably the state of Washington) to consider legislative action to address this issue head-on.

How did we arrive at what many are calling a “care crisis?” 

Historically, if you looked at our U.S. population by age, it would appear to be a pyramid. More young people at the bottom and fewer older people at the top. However, times have changed. Today, it’s the older generation that’s much larger—and that will continue in the years ahead. 

What contributed to this change?

Baby boomers (born between 1946 and 1964) are entering their senior years. Meanwhile, younger people aren’t having as many kids. Families, on average, had 2.44 children in 1965. By 2020, that number had fallen to just 1.93, according to Statista.

And medical advances have helped extend life expectancies. In 1960, the average life expectancy was just under 70 years old. In 2022, it’s 77 years.

Those are all significant shifts—and they’re playing a large role in this emerging care crisis.

Why standalone long-term care plans are presenting challenges

For years, insurance companies selling individual LTC policies relied on a number of assumptions that did not come to pass. For instance, cancellation rates were much lower than expected, medical costs escalated, mortality decreased and people have been able to live longer with more severe disease and illness than was the case a couple of decades ago.   

Consequently, insurance companies underestimated how many policyholders would make claims and how long they would need care, so investment returns have been as much as half of what was projected This is now leading insurance companies to ask state regulators for support. In some cases, they’re winning large premium increases. 

Finally, some states are contemplating legislation to address the issue of care for citizens who end up on Medicaid – a significant and growing cost for state budgets. The Washington Cares Act was first and it provides a blueprint; however, pending legislation in other states could be different, leaving employers and their employees to solve the challenge. Not ideal by any stretch.

Could a hybrid solution be the future?

As you can see, standalone long-term care coverage has had many challenges and is not a viable solution for most people. It’s often positioned as a “use it or lose it” proposition, which can incentivize lower voluntary lapse rates and higher utilization. On the flip side, hybrid products can have lower long-term care incidence. 

At their core, hybrid products combine life insurance and long-term care benefits. Employees can purchase life insurance coverage that includes the ability to advance part of the death benefit for care needs. For many employees, this can be helpful and practical on many levels.

First, it ensures the use of the benefits. You’ll either end up using it for long-term care, a terminal illness or a death benefit.

It’s also attractive for younger employees, because he younger you purchase coverage in this model, the lower your premiums and the greater the life and LTC coverage you can afford

And finally, these hybrid products may include benefits for family caregiving as well as professional care—a huge perk for many employees who may end up needing or wanting care  at home.

Hybrid policies, by design, are also quite different from current standalone products. For example, the benefits can be structured as a fixed indemnity and pay out a specific amount, regardless of the expenses incurred by the policyholder. This means employers don’t have to worry about the increasing costs of long-term care services. 

How should brokers counsel clients?

Your clients are most likely facing two huge issues in this changing long-term care landscape:

For starters, employees and loved ones receiving care face growing financial stress due to the increased costs of care, lingering health issues if they can’t afford proper care, and increased distractions due to managing bills and changes at home. 

And then there are the caregivers. These employees face emotional stress in addition to the time and energy that providing care requires. Many of your clients may not see this, but the people providing care are often employees, which means they are often missing time at work, and in some cases, leaving the workforce entirely. 

Tools do exist that can help. Retirement savings/401(k), HSA accounts and standalone long-term care insurance can all help employees finance their own care, and employee assistance programs can help, too. Clients can point employees to care planning tools and strategies or access to tools that can help them manage complex aspects of care.

The bottom line is there are no easy answers here; there is no one-size-fits-all solution. But the time is right to explore options, including hybrid plans that combine life insurance with long-term care benefits. The “care-crisis” is real and it is not going away. Employers and employees alike must be educated and presented with solutions that can help address this very real risk – one that will impact the majority of American families.

Frank Morang is a regional sales manager at Trustmark Voluntary Benefits.