The number of short-term care insurance (STCi) policies sold in 2015 rose 19.6 percent compared to 2014, and premium growth rose 14 percent over same period, the National Advisory Center for Short-Term Care Information said Wednesday.
The increases are a sign that buyers are looking for help to cover gaps in Medicare coverage and that buyers want a cheaper alternative to long-term care insurance (LTCi) coverage, said Jesse Slome, director of the National Advisory Center for Short-Term Care Information.
“Insurance agents are selling more short-term care insurance to seniors to fill gaps in Medicare and as a long-term care planning alternative when cost, age or health is an issue,” he said.
The average yearly cost for individuals purchasing STCi last year was $1,043, a 5.3 percent increase over 2014, the National Advisory Center said.
The National Advisory Center didn’t release exact policy counts or raw premium growth numbers, but the research was based on data collected from more than 37,000 policies bought in 2015.
With Medicare looking to control future cost increases, some patients aren’t sure if they are going to be covered to the extent that they have been in the past and short-term insurance coverage will guarantee that they have some protection where the gaps leave them uncovered.
STCi typically covers a policyholder for a 360-day period or less, but many agents don’t see the value in selling short-term coverage when a long-term care policy, which can be bought for only a few dollars more in monthly premium, will last for many years.
LTCi Not an Elastic Market
With LTCi price increases, however, pricing dynamics between long and short-term insurance coverage may be starting to change.
“With traditional long-term care insurance, it’s clearly understandable why prices are increasing but it’s not an elastic market,” said Slome, who also serves as director of the American Association for Long-Term Care in Westlake Village, Calif.
“This is a discretionary purchase and the higher the cost, the lower the number of people willing to purchase a discretionary product,” Slome added. “So STCi becomes a very viable alternative for people who are price conscious and there are a lot of them out there who are price conscious.”
LTCi carriers have sought and received from regulators double-digit rate increases over the past few years as they look to recoup losses from having sold millions of LTCi policies with lifetime benefit riders too cheaply.
The LTCi segment was further punished when several big underwriters withdrew, leaving fewer carriers to compete and keep a lid of price hikes.
The 2014-15 statistics collected by the National Advisory Center represent the first efforts to track insurance sales of short-term care coverage and the data will serve as a baseline from which to measure future industry growth.
“I walked in with zero percepts or expectations,” Slome said. “Everybody wanted to learn about the industry. There was a lot of anecdotal data about ages of buyers and premiums but there wasn’t anything that went across all the different insurers.”
Slome, who has designed insurance products and insurance sales strategies for more than 30 years, said sales of STCi is poised for growth over the next two or three years and that more insurance carriers are preparing to enter the market soon.
Wednesday’s release of the benchmark data represents a “significant milestone” for tracking STCi sales, he said.
Agents Push Back Against STCi
Insurance agents have their heads “stuck in the sand” by not realizing the value of selling STCi, Slome said.
“They are not willing to understand that consumers want to address long-term care but will not spend what a traditional long-term care policy cost,” Slome said. “Agents are stuck with their paradigm and that’s why traditional long-term care is declining: for very simple reason that people in their 50s and 60s are not willing or able to spend $3,000 to $4,000 a year.”
Other agents who champion STCi say the industry needs to educate consumers about the value of STCi and that once insurance agents hear from consumers, STCi will find a more receptive market.
But why take out a 360-day policy if you qualify for a LTCi policy that pays out over a longer period for only a few dollars more?
“To be frank, I don't see the point in buying an insurance policy that has a policy limit of $36,000,” long-term care insurance specialist Scott A. Olson said earlier this year. “For that to be of interest to someone, it's likely that person could qualify for Medicaid pretty easily.”
STCi also lacks the same protections against rate increases embedded in today’s LTCi policies, said Olson, co-founder of the website www.ltcshop.com in Yucaipa, Calif. STCi policies are poised for big rate increases because of outdated pricing models, he said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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