Long-Term Care Insurance

Since the mid-1990s, the number of long-term care insurance policies sold has nearly doubled. The vast majority of policies sold (80 percent) are sold in the individual market rather than in the employer-group market. This reflects the relatively easier sell of long-term care insurance to older people than to younger, workingage people.

In 1984, sixteen insurance companies had sold 125,000 long-term care insurance policies in select states (Friedland). By 30 June 1998, 119 insurance companies were selling long-term care insurance policies nationally and over 5.8 million policies had been sold (Health Insurance Association of America, March 2000). Employers have been relatively slow to either provide or help organize the provision of long-term care insurance to their employees. Prior to June 1987, no employers offered long-term care insurance to their employees, and as of 30 June 1998, there were over 2,100 employers offering long-term care insurance to their employees, retirees, and often to the parents and in-laws of their employees.

Policies sold and policies in force are not, however, the same. People stop paying their premiums and hence the policy ceases to provide coverage. Not much is known about lapse rates, but clearly some people are opting for a new policy and, given the older ages at which these polices are purchased, some people have died. One analyst has estimated that the number of policies in force is about half the policies sold (Cohen). Even if everyone held all of the policies ever sold to those age sixty-five and older, then one could imply that about 18 percent of the elderly have some form of long-term care insurance protection. Of course the reality is far fewer have such insurance. Moreover, about 45 percent of the long-term care population is under the age of sixty-five (CRS and The Urban Institute). Therefore, if one narrows the population at risk to everyone age forty-five and older, then long-term care insurance has covered less than 7 percent of the most relevant market.

It is quite likely that the employer-sponsored market will change dramatically in the first decade of the twenty-first century. The largest employer, the federal government, is in the process of organizing the availability of long-term care insurance to their employees and their retirees, as well as dependents of employees, and even the parents of employees. There are an estimated 6.5 million federal employees and retirees. Adding spouses and parents suggests a potential market of 13 million people, not only learning more about long-term care insurance but also having the opportunity to purchase long-term care insurance on a group basis.