Fleming & Curti, P.L.C. - Study Describes Long-Term Care Insurance Buyers and Trends

JUNE 23, 2008 VOLUME 15, NUMBER 52

Study Describes Long-Term Care Insurance Buyers and Trends

Who actually buys long-term care insurance? A 2007 study from the insurance industry group America's Health Insurance Plans (AHIP) provides some interesting analysis of that question -- and shows that the answer has changed quite a bit in the fifteen years the organization has been tracking the data. You might be able to judge whether you are a typical (or appropriate) buyer yourself, or how to market your services to potential buyers, by reviewing the data.

First, a few words about AHIP and the study design. In 1990, the study's first year of material was collected by the Health Insurance Association of America by sending questionnaires to a sampling of long-term care insurance buyers and a smaller sampling of individuals who had contacted an insurance company, collected policy information and rates, and then not purchased a policy. The process was repeated in 1995, 2000 and 2005; by that time, however, the Association had merged with another industry group (the American Association of Health Plans) to form AHIP. Meanwhile, the study's designers also conducted telephone interviews with 500 individuals over age 50 to check the data against national averages.

So what does the study reveal about long-term care insurance purchasers? A number of interesting trends emerge, including:

Buyers are younger. Today's first-time policy buyers are younger than they were in 1990. The average age for a buyer was 68 in 1990, and 61 in 2005.
Buyers are (still) predominantly women. 63% of the 1990 buyers were women. In 2005, the proportion of men had increased substantially -- but women still accounted for 57% of the purchases.
Buyers are growing wealthier. In 1990, 29% of buyers earned less than $20,000 per year, and 21% earned more than $50,000. Buyers are much wealthier today, with only 3% earning less than $20,000 and 71% earning more than $50,000. 76% of 2005 buyers were worth more than $100,000 (in addition to their homes); the comparable figure for 1990 was 42%.
More buyers are well-educated. 61% of 2005 buyers had college degrees, while only 33% were college-educated in 1990.
Today's buyers -- and non-buyers -- are more likely to think they or their families will have to pay long-term care costs than are their over-50 colleagues, and they are less likely to think that the government will pay for care. In other words, those who are inclined to believe that family money will pay for the care are more likely to look into long-term care insurance, and even more likely to actually purchase policies. Not surprising, but the numbers are interesting: 34% of the general elderly population believes that family money will have to be used, 45% of those who inquire but don't purchase policies agree, and 56% of those who end up buying policies concur.

Other trends are evident in the policy information collected. While 90% of today's policies cover both institutional care and home care, only 37% of the policies sold in 1990 were dual-purpose. Another 7% of today's policies cover only home care -- a category that was not even available in 1990. Taken together, that means that all but 3% of modern long-term care policies provide any home health benefit; it also means that an early purchaser who has been paying for coverage for fifteen years is likely to have a policy that no longer meets modern notions of minimum requirements.

Some of those changes (and others) are no doubt the result of simple economics: the cost of long-term care has risen sharply, while the wealth and income levels of seniors have also gone up, but less quickly. For instance, today's average long-term care policy provides a $136 maximum daily benefit, while 1990's average policy paid just $36. Still, a bigger trend is that the benefits provided by more modern policies are simply better. For example, 22% of modern policies provide lifetime home care benefits, as against just 12% of 1995 policies. The data for 1990 policies is simply unavailable, as the home care element of coverage was not significant in those very early policies.

How much does long-term care insurance cost, and how has that changed? Surprisingly, the much better policies of 2005 were, on average, only about twice as costly as their 1995 precursors. The average 2005 premium was $1,918/year, while the average in 1990 was $1,071. Between 2000 and 2005, the average premium increase was 14% -- about the rate of inflation for the same period.

So does the study establish that the real (inflation-adjusted) cost of long-term care insurance is going down? Yes and no. While the average cost is increasing at about the same rate as inflation, the comparison of older and newer policy costs is made much more difficult by fundamental changes in the average policy and the lowering age of purchasers. While younger buyers get significant reductions in premium costs, policies today have much higher coverage levels and much better inflation protection -- both of which add significantly to the average cost. The study suggests that if the modern policies were as weak as their earlier counterparts, the premium costs might well have decreased over time.

The AHIP study provides much more detail, and makes an interesting read for anyone who follows long-term care trends and policy. Filled with charts and tables, it gives real substance to any discussion of the significance of long-term care insurance in the mix of resources paying for home care, assisted living and nursing home stays.