Wellness for LTC Insurance Policyholders
By Bob Yee
Long-Term Care News, December 2024
In the past few years, a number of long-term care (LTC) insurance carriers have been experimenting with wellness programs for new and in-force LTC policyholders. This article explores reasons why this may benefit both carriers and policyholders.
Policyholders’ Conundrum
The history of LTC insurance is characterized by regulations and price competition. The minimum 60% lifetime loss ratio requirement enabled carriers to set initial premiums with few constraints. As a result, competition for market share exerted downward pressure on prices. This has been detrimental to policyholders in the long run, as large premium rate increases are needed.
The average time to claim typically exceeds 10 years for LTC insurance. When experience data become credible, a significant number of policies are no longer in force. Consequently, to maintain the lifetime loss ratio, premiums must increase for the remaining policyholders. Moreover, rate increases tend to drive out healthy policyholders and exacerbate the need for rate increases for the remaining pool of less healthy policyholders. The lifetime loss ratio regulation, price competition and long-tailed LTC insurance risk all contribute to premium increases that are often many times greater than the original premiums.
The majority of buyers lack a clear understanding of the ultimate costs of their coverage, including premium rate increases. Such increases are not a major focus during a face-to-face sale; before 2000, rate increase disclosure was not even required.
The perceived value of financial protection provided by insurance rises as policyholders’ health deteriorates by age. At the time of a rate increase, LTC policyholders face a difficult choice of paying higher premiums or reducing their benefits. There is also no guarantee that rate increases will end.
Another concern is the possibility of an insurance company’s insolvency, which could occur if the company fails to receive approval on its requested rate increases. Several companies with sizable LTC blocks are already insolvent, resulting in significant reductions in coverage for many of their policyholders.
Wellness Programs
A recent development may work in LTC policyholders’ favor. A number of carriers have implemented pilot wellness programs specifically designed for either new or in-force policyholders. The impetus is to demonstrate claim savings. These programs target the segment of policyholders with a relatively high risk of claiming benefits. Participation is voluntary, and any provided support and assistance are included with no additional charge.
Wellness is of particular interest to seniors as the risk of major diseases increases with advanced age. Wellness includes not just physical well-being, but also a variety of age-related factors that contributes to a sense of overall satisfaction and quality of life. Conceptually, a wellness program aimed at seniors holistically encompasses the following five dimensions:[1]
- Physical wellness. For less healthy seniors, managing chronic diseases or conditions is a major focus. For healthier seniors who want to prolong their healthspan (lifetime free of disease), diet, exercise, sleep and risk avoidance are the primary areas for improvement.[2] Encouraged by the increase in aging research,[3] supplement intake and lifestyle changes to promote longevity are rapidly gaining popularity among seniors.
- Psychological wellness. This pertains to positive mental state and self-perception, including the practice of gerotranscendence, a psychosocial theory of a mind shift toward greater fulfillment in later life.[4] A key to psychological wellness is the ability to change habits, which enables further improvements in the other dimensions of wellness.
- Spiritual wellness. Spiritual and religious practices often include the exploration of the meaning and purpose of life, connectedness, contentment, inner peace, belonging and end-of-life resolution.
- Social wellness. Support from and interaction with family members and friends are vital to a senior’s attitude toward aging. Volunteerism and community participation provide a sense of self-worth.[5]
- Environmental wellness. Housing and community are important amenity considerations. Seniors are also concerned with financial security and estate planning in later life.
Spanning these dimensions, a sound wellness program would offer three types of assistance to its participants: preventive, interventional and transformational. Examples of preventive assistance are health screenings and recommendations on physical activities and diet. Preventive assistance is most prevalent in the younger senior group whose members are relatively healthy. Clinical studies suggest that the younger the participants, the greater the potential to extend healthspan.[6]
Interventional assistance is provided for a specific health risk such as a fall, chronic disease or hearing loss. Interventional assistance typically applies to seniors who are in their 70s and early 80s, when health issues are beginning to manifest. Most wellness programs currently focus on this type of assistance.
Transformational assistance attempts to promote psychological and spiritual wellness. Such assistance is mostly in the form of information and referral. Transformational assistance is infrequently offered as there is little or no direct financial impact.
Current wellness programs are implemented in various ways: single purpose, such as a fall prevention campaign; targeting of a specific group such as policyholders near claim; or a more universal approach that aims to enroll all interested policyholders. Participation in a comprehensive wellness program may start with an initial assessment to identify the participant’s needs. An action plan is developed, and the participant’s planned activities are monitored. The action plan may include goals for physical activities, nutrition, disease management and learning. The participant is reassessed periodically, and the action plan is modified accordingly. Along the way, both leading and lagging indicators of progress are measured. Some programs may offer incentives for continuous participation. For example, the participant receives additional insurance policy benefits upon satisfactory completion of an action plan.
The following two hypothetical case studies illustrate how wellness programs may benefit the participants.
Case Study 1
An 85-year-old female participant living alone was becoming frail. The program arranged to have a home safety inspection, which led to an area rug being removed and a grab bar being installed in the bathroom. The policyholder reported that she felt safer and was able to perform daily tasks with greater confidence.
Case Study 2
A 70-year-old male participant was diagnosed with prediabetes. The program assisted him in improving his exercise and diet routines, and his prediabetic condition abated. This achievement propelled him to other areas such as sleep management and meditation. He reported being invigorated and became an avid hiker. He died in a car accident several years later.
Both participants improved their quality of life. In the first case study, the participant might have avoided a serious fall, and the carrier might have saved a claim. The second case study suggests that a wellness program can be a catalyst for healthier living. In this instance, the carrier received no claim savings. Had the participant not been involved in the car accident, the carrier might have saved claim dollars in the long run due to his improved health status. In any case, both participants benefited from their programs. Since approximately half of LTC policyholders are not expected to claim benefits, these programs can be perceived as more valuable to policyholders as a whole than to carriers.
These case studies highlight the mutual potential benefit of wellness programs to both carriers and participants, as well as the challenge in measuring quantitative outcomes. For carriers, the costs of programs precede the realization of claim savings. It may take years to complete a cost-to-benefit analysis.
The value to participants is even more difficult to assess. How much is being healthier and happier worth to a person?[7] For seniors whose time is limited, the impact of the assistance and support may well be immense and life-changing.
A Proposal
Regulators may consider mandating or strongly encouraging wellness programs for all LTC policyholders.[8] Why does this proposal make sense?
- A wellness program enhances the value proposition of the LTC insurance policy. All policyholders who elect to participate stand to benefit, irrespective of whether they eventually claim benefits. Wellness programs could offset some of the stigma of past premium rate increases. For those policyholders who have exercised the reduced benefit option, a wellness program could be perceived as more valuable than their reduced benefits.
- The current pilot programs have no long-term commitment. Regulatory involvement could ensure that these programs will be increasingly beneficial, as many healthy policyholders today will eventually become high-risk participants.
- Regulatory mandate or encouragement may heighten policyholders’ awareness of wellness programs and consequently increase program participation and new sales. Greater participation can result in better wellness, fewer claims and less need for future premium rate increases.
- Wellness programs contribute to corporate sustainability under the environmental, social and governance (ESG) assessment framework. For policyholders as a whole, the need for—and associated costs of—LTC services are reduced. These programs serve the senior community by improving their well-being on multiple fronts. In turn, the LTC insurance industry enhances its reputation by adding a valuable benefit to LTC policies.
- The costs of wellness programs are relatively modest. The average present value of future policy benefits is estimated to be approximately $70,000 per in-force policy. A rough estimate of the present value of the costs of a wellness program is $5,000 per in-force policy, or 7% of the future benefit obligation.[9] This is a considerably lower proportion than the historical underestimations of future benefit obligations that prompted many premium rate increases. Note that this comparison does not account for the likelihood that the claim savings resulting from wellness programs can reduce program costs or result in a net gain.
Conclusion
In LTC insurance, the only beneficiaries are those who are eligible to claim. With wellness programs, every policyholder who participates in them can benefit. The inclusion of a wellness program transforms the LTC policy from a purely financial protection instrument (“You claim, we pay”) to a valuable conduit for successful aging (“As you age, we’re here to help”).
After all the turmoil LTC policyholders have faced, adding value to their insurance policies is the least the LTC insurance industry can do.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
Bob Yee is a senior actuary with Assured Allies. Bob can be reached at bob.yee@assuredallies.com.