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Long Term Care Industry Snapshot

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A snapshot of the long term care and LTC insurance industry in the U.S. Part of summer internship with Genpact april-2009

A snapshot of the long term care and LTC insurance industry in the U.S. Part of summer internship with Genpact april-2009

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  • Hi Micheal,

    Thanks for your comment. ! LTCI has immense potential and could drive the way Insurance companies do business. With hybrid products emerging, its imperative that innovations pave way for better affordability and transparency
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  • This is great stuff. I am always amazed at how few people realize the importance of LTCI and how few LTCI agents understand how Reverse mortgages can help their practice immensely.
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  • Benefits need not be fixed, however, because of a policy feature called inflation protection. For example, a $310,000 lifetime benefit might cost a 48 year-old married person $2,000 during the first year of coverage. 30 years later at age 78, the lifetime benefit is now over $1,250,000 because of 5% annual compounding. The premium is still $2000 per year Currently, 83% of long term care is provided in the home or community, while only 17% is provided in a nursing home. 2 However, 40 percent of people over the age of 65 will need care in a nursing home for some period of time Long-Term care insurance can be expensive because the costs it insures against are so high. The value is in spreading out possible costs over many years instead of having potentially massive expenses occur over a short period. If ltc insurance is an appropriate choice, there are powerful reasons not to delay purchasing: 1) If accepted, you’re covered from day one; 2) Unlike health insurance premiums that increase with a person’s age, long-term care premiums are determined by the age when you first obtain insurance. Rates typically rise after the age of 30, so it’s usually not cheaper to purchase than when you’re 30 years old, and 3) the cost of waiting exceeds the money you’d save by delaying—assuming that ltc insurance is eventually purchased. For example, a $310,000 lifetime benefit might cost a 48 year-old married person $2,000 during the first year of coverage. 30 years later at age 78, the lifetime benefit is now over $1,250,000 because of 5% annual compounding. The premium is still $2000 per year (It is possible that future rate increases may be approved by the State of California, affecting everyone equally. Individual rate increases are not allowed).
  • Half of ppl above 65 are below 300% of poverty line 20% live in non urban areas 20% have a degree or higher 33% of ppl above 75 years are living alone 40% of ppl above 65 years have atleast one disablilty
  • The earliest Long-term Care Insurance product was offered in the 1970's. Of the original ten carriers, only two are still offering these products. The early products covered only Nursing Home Care. They were designed to be compatible with Medicare and included a three-day hospital wait and Medicare parallel language regarding skilled care. When Medicare payment system was restructured to Diagnostic Related Groups (DRGs) in 1983, the hospitals moved toward "sicker/quicker" discharge decisions. The next generation of LTCI policies in the mid to late 1980's recognized the need for Home Health Care compensation. Riders were attached for Home Health Care reimbursement. In the early 90's, Traveler was the first major LTCI issuer to interpret the LTCI contract into "one pool of dollars" and the first to integrate contracts, which covered the full range of benefits including Home Health Care, Adult Day Care, Assisted Living Care and Nursing Home Care. These policies were site neutral meaning that the consumer had a choice of where to use the policy benefits. Today's LTCI Options The newest generation of comprehensive LTCI policies offers care outside of America in foreign countries, coverage for family members on the same policy and policies that can be paid up after a specific number of years. All of these enhancements have continued to keep pace with the consumer's input as to what they want in an LTCI policy.
  • Long tail of LTC insurance product Bargaining power of corporate clients Any existing insurance company may launch LTC product High entry barriers High exit barriers
  • http://www.iii.org/media/facts/statsbyissue/longtermcare/
  • 2007 marked a year of growth for long-term care insurance, with nearly $ 650 million in new annualized premium sales. But growth was reversed during the second half of 2008, the record sales of just over $ 600 million for the year. The number of new buyers almost 277,000 individual LTCI, down nine per cent for the end of 2008. Limra believes that this decrease in sales is returned to where they were in the early 1990s. There were approximately 4.8 million people LTCI policies in force at the end of 2008, an increase of two percent over the end of 2007. Despite economic pressures to which the Americans, the LTCI lapse rates continue to be low, with only four percent of policies (life), brought to the end of the year. Total premiums in force at the end of 2008 was approximately $ 8.6 billion, an increase of five per cent. Consumers at workplace are less affluent and susceptible to economic variations.
  • Average age for LTCI is 58, life is 50 and universal life is 65
  • The bank does not own the home but owns a lien on the property just as with any other mortgage You continue to hold title to the property as with any other mortgage The bank has no recourse to demand payment from any family member if there is not enough equity to cover paying off the loan There is no penalty to pay off the mortgage early The proceeds from a reverse mortgage are tax-free and available as a lump sum, fixed monthly payments for as long as you live in the property, a line of credit; or a combination of these options There are no income, asset or credit (except for current bankruptcy) qualifications The borrower(s) must be at least 62 years old The property must be the borrower's primary residence The money is withdrawn tax-free, does not affect Social Security or Medicare benefits, and can be used for any purpose the homeowner wishes The money can be received as a lump sum, a line of credit, a monthly payment, or any combination of these three options There are no mandatory monthly repayments. Most programs can be repaid at any time without penalty (the interest may be deductible) The title of the home does not change The maximum loan amount is set by the lender  
  • Remove state option to increase HEAT from 50000 to 75000 More stringent norms for qualification

Transcript

  • 1. LTCI Industry Snapshot Date: 05-June-2009 Location: Genpact-Genworth COE
  • 2. Agenda
    • Need for LTC Insurance
    • Evolution of LTC Insurance
    • Porters five forces analysis of the LTC insurance Industry
    • Current and potential market for LTC products
    • Recent trends in LTC Insurance Industry
    Client Logo
  • 3. Need for LTC Insurance
    • Growing costs of long term care
    • Baby boomers(77 million)- Increased Longevity
    • Shrinking role of Medicaid in long term care
    MetLife Market Survey of Nursing Home and Home Care Costs, 2006.  http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P2801,00.html Web source: What is really needed to unleash the long term care market – Stephen A. Moses, president, Center for Long-Term Care Reform, Inc Published Selected Indicators of Retirement Resources Among People Aged 55–64-Federal Interagency Forum on Aging-Related Statistics 2008 $1,633,152 2037 $630,561 2027 $243,000 2017 $94,000 2007 One Year of Care Year IF COSTS GROW 10% ANNUALLY
  • 4. Self Insure Vs LTC insurance Source: Long-Term Care: Taking Care of the Future Sí, Money! Vol. 2, No. 3 June 2008 By Michael Grodsky Long term care expenses are beyond the reach of many individuals. LTC is the best option looking forward
  • 5. Diversity in population The older population is financially and socially diverse Source: AARP-Across the states profiles of long term care and independent living – By ari houser, 2009
  • 6. Evolution of LTC
    • 1970’s
      • Nursing homes only (Medicare)
    • 1980’s
      • Home healthcare compensation
    • 1990’s
      • Home Health Care, Adult Day Care, Assisted Living Care and Nursing Home Care
    • Now
      • Individual/group LTC products
      • Combination products
    Source: The Basics Of LTC Insurance SOA Spring Health Meeting Panel Discussion # 45 May 25, 2006 Jon Stinson, FSA, MAAA – Genworth Financial Michael Fang, FSA, MAAA – Genworth Financial Andrew Herman, FSA, MAAA – AH Insurance Services, Inc.
  • 7. Penetration of LTCI Source: The current state of LTC insurance in the U.S – Milliman consultants - 2004
  • 8. Porters’ Five forces model LTC industry is an industry of intense competition High Low High High Image source: Michael.E.Porter, Harvard business review, January 2009
  • 9. Bargaining power of Customers
    • Include direct and intermediary customers
    • LTC players are diverse and well differentiated in terms of service
    • Growing clout of corporate customers
    • Choice of MedicAid
    • Array of options including combination/hybrid products
    Bargaining power of customers in LTCI is high
  • 10. Threat of substitutes
    • Self Insurance – Not viable
    • MedicAid – Not sustainable in long run
    Threat of substitutes is LOW in LTCI industry
  • 11. Bargaining power of Suppliers
    • Suppliers include agents, the Government, technology, nursing homes and caregivers
    • Increase in beds in nursing homes not keeping up with the increasing aging population
    • Dominance of Informal LTC
    • State specific laws
    Bargaining power of suppliers is HIGH
  • 12. Threat of New entrants
    • Existing life insurance carriers foraying into LTCI
    • Growing popularity of combination products
    • Any company that has a good credit rating and actuarial expertise in insurance could foray into LTCI
    Threat of new entrants is HIGH
  • 13. Current share of private LTC Insurance 35% of Long term care is privately financed Source: Long term care – an essential element in health care reform- The scan foundation- Dec 2008
  • 14. Current size of Individual LTCI
    • Total lives covered as of 2008 – 4.8 mn, an increase of 2% over 2007
    • Total premium in force - $8.6 bn, a 5% increase over 2007
    • New business in 2008 contributed $603 mn, a decrease of 9% over 2007
    • Tax qualified plans contributed 99% of policies sold in 2008
    • The average premium for tax qualified plan increased by 2% over 2007
    Source: Individual LTCI annual review 2008- LIMRA
  • 15. Current size of Group LTCI
    • Total In force participants as of 2008 – 2.2 mn, a 5% increase over 2007
    • Total employer groups as of 2008 are 10100, an increase of 10%
    • Total premiums in force is $1.7 bn
    • Number of new participants grew at 19% over 2007
    • CAGR of In force premiums is 16% for a 10 year period
    Source: Group LTCI annual review 2008- LIMRA
  • 16. Potential market for LTC Insurance Source: U.S census department
    • The population of 65+ is expected to grow at a rate of 36.3% from 2010 to 2020 and more than double between 2000 and 2030
    • Attributed to the baby boomers born between 1947 and 1967
  • 17. Potential market for LTC Insurance- contd Source: AARP-Across the states profiles of long term care and independent living – By ari houser, 2009
  • 18. Potential market for LTC Insurance Source: AARP-Across the states profiles of long term care and independent living – By ari houser, 2009 Family caregiving is the main source for LTC in all U.S states. The economic value of family caregiving is higher than Medicaid LTC in all states
  • 19. Recent trends in LTCI Industry
    • Impact of recession on LTC sales
    • Consumer outlook
    • Emergence of hybrid products
    • Reverse mortgaging as a source of LTC funding
    • Shift from Medicaid to private LTC carriers
    • LTC initiatives proposed by the congress
  • 20. Impact of recession on LTC sales Consumers at workplace are less affluent and susceptible to economic variations Source: Looking at the impact of recession on Insurance industry- October 2008 – Limra.com Individual LTCI sales
  • 21. Consumer outlook on Economy Consumer opinion on the economy is slowly turning favorable – As per LIMRA
  • 22. Consumer outlook on Insurance companies Consumer opinion on the Insurance industry is not very favorable now– As per LIMRA
  • 23. Emergence of Hybrid products
    • Similarity of demographics between life, annuity and LTC fuels this shift
    • Integrated policy design and optional rider design(15% election of riders by buyers)
    Source: Combination products – Insurance market 2008 – jennifer douglas- limra.com
  • 24. Reverse Mortgaging
    • HECM contracts
      • H ome E quity C onversion M ortgage
    • The American Homeownership and Economic Opportunity Act of 2000 signed into law on December 27, 2000, supports the use of reverse mortgage proceeds for both long term care and long-term care insurance
    • The Future in Reverse
      • $3 trillion is the home equity with seniors (after correcting to current home prices)*
      • Home appreciation and the LTC policy benefits maintain parallel growth
      • Reverse mortgage debt increases, but at the same time the house value appreciates and LTCI benefit increases.
    Reverse mortgage could be a major source for LTC funding in the days to come Source: http://www.longtermcarelink.net/eldercare/using_reverse_mortgage.htm *What is really needed to unleash the long term care market – Stephen A. Moses, president, Center for Long-Term Care Reform, Inc Published 2009
  • 25. Shift from Medicaid to private LTC carriers The shift is from Medicaid funded LTC to private LTC insurance as government makes Medicaid LTC more stringent Source: The kaiser commission on the uninsured feb 2008
  • 26. Major LTC initiatives proposed
    • The Empowered at Home Act
      • Caregiver tax credit of up to $3,000
      • Revise the income eligibility level for home and community-based services for elderly and disabled individuals
    • The Long Term Care Affordability and Security Act
      • Offer LTC insurance under cafeteria benefit plans
    • The Comprehensive Long Term Care Support Act
      • Allow LTC insurance to be offered as a benefit under tax-qualified cafeteria plans
    • The Tax Relief for Long Term Care Act
    • The Independence at Home Act
      • 3-year Medicare demonstration project
    Source: Major LTC Initiatives Could Emerge From Congress In 2009 TREVOR THOMAS – www.nationalunderwriter.com
  • 27. Major Elder care initiatives proposed
    • The Fairness in Nursing Home Arbitration Act
    • The Nursing Home Transparency and Quality of Care Improvement Act
    • The Elder Justice Act
    • The Patient Safety and Abuse Prevention Act
    • The Community Choice Act The Community Choice Act
    • The Caring for an Aging America Act
    • The Geriatric Assessment And Chronic Coordination Act
    Source: Major LTC Initiatives Could Emerge From Congress In 2009 TREVOR THOMAS – www.nationalunderwriter.com
  • 28. Contact Information Salar Bijili [email_address] +91-96544-49412 www.genpact.com Thank You Confidential. All trademarks appearing herein belong to their respective owners.