What's the next generation of LTC products going to look like? It's going to take creativity to come up with ideas that can make policies more flexible and affordable.
That was one of the questions considered by members of the Society of Actuaries in a call for papers incorporating the state of LTC financing. You can find all the papers here. Although academic in nature, there is some really interesting findings.
Here's are three of the ideas that people came up with::
1) Consider mandated coverage. In his paper, Doug Andrews looks to Germany as a possible solution for U.S. LTC needs. In Germany, people are required to carrier LTC coverage. The premiums are paid through a combination of employer and employee cost sharing. People without children pay more so there is flexibility in pricing. For those with annual income above $50,000 they can opt for coverage thorugh a private insurer. Of course, since everyone has coverage premiums are lower and no health underwriting is required.
2) Use money from 401(k)'s to help finance long-term care. Author Karl Polzer recommends that people with substantial 401(k) and other defined contribution (DC) balances be allowed to set aside a portion of their balance than be used to pay for LTCI premiums or used in a longevity annuity. Existing minimum distribution rules often require money be taken out of plan accounts that could be set aside for LTC needs.
3) Let the client choose the investment strategy for their LTC plan. Current LTC policies require that the insured rely on the conservative investment strategy that the carrier uses. With long-term interest rates low this has been a problem! However, authors Shang, Su, and Lin suggest that you could make LTC more affordable if the clients could elect to have more aggresive investments of their reserves. Here is a comparison showing current policies with what they propose:
Of course, a lot of this depends on regulation that can help make creative ideas like this happen. Some current products are using aspects of this. The John Hancock Benefit Builder plan does give additional policy credit for better than expected interest rate returns.
Any other ideas that should be considered?