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These Insurers Are In It For The Long Haul



For years, financing long-term care has been a worry for elderly Americans. Medicaid and Medicare cover less than 40% of the $90 billion spent annually on nursing and home health care--and even the well-heeled can see their life savings wiped out by a prolonged hospital stay.

While older folks may fret over long-term care, life-insurance companies are coming to see it as a potential gold mine. Private insurance now takes care of only 2% of long-term expenses. Policies typically cover costs of care--including extended stays in hospitals and nursing homes--for people who can no longer manage for themselves. Industry analysts expect the number of policies sold to reach 820,000 this year, up 68% from just two years ago. And the premiums derived from those policies, now about $2 billion, should grow steadily at 20% annually. "It's the greatest unmet health-care need for older Americans," says Richard Garner, vice-president for long-term care at CNA Corp.

BOOMING. Conning & Co. analyst Geoffrey Schuman says well-run companies earn a 15% return on equity in the long-term-care market--well ahead of the 13% average in life insurance. Annual premiums typically run $1,200 to $1,400. It also helps that long-term care is one of the few expanding insurance markets. "In the world of insurance, this is a high-growth product," he says.

This isn't the first time the industry thought it saw gold in long-term care. When Medicare was established back in 1965, some companies began offering insurance that would cover nursing-home costs. The business was steady but not spectacular, since consumers were turned off by the policies' limited benefits and extensive restrictions on coverage.

Now, prospects for long-term-care coverage are booming. The elderly population is growing rapidly. And Congress is targeting Medicare for budget cuts and considering tax deductions for private insurance. Some aggressive new contenders are moving into the market. One example: GE Capital Services Inc. bought long-term-care leader AMEX Life Assurance Co., formerly a division of American Express Co., which had $337 million in annual premiums for long-term care in 1994.

Many insurers are using more imaginative marketing approaches. Take GE: It plans to market long-term-care coverage through its GNA Corp. subsidiary, which until now has specialized in annuities and mutual funds. Other insurance companies are selling through corporations' employee plans in an attempt to sign up younger customers. Conning says that the average age of employees buying policies through their companies is 42, well below the average of 65 for the individual customers that long-term-care insurers usually target. Younger policyholders pay lower premiums--but insurers have a lot longer to invest the money.

CONSUMER BEEFS. Travelers Inc. and other insurers are packaging long-term care with retirement plans. Long-term coverage "is marketed as a retirement account," says Travelers Vice-President Joyce Ruddock. The business is a small one at Travelers--the company sold just under 30,000 policies in 1994--but Ruddock expects that to increase 70%, to more than 50,000, in 1995.

Consumer groups are critical of some long-term-care policies, and such gripes could derail certain marketing pitches. The American Association of Retired Persons says a lack of uniformity in long-term-care packages makes it hard to compare policies. And with half of all elderly couples living on less than $25,000 a year, the AARP says many of them lack the assets to make a costly policy worthwhile.

At Consumers Union, Gail Shearer, director of health policy analysis, says that some policies are being sold to people who cannot afford the $100 a month or more in premiums. Moreover, she says, many policies lack built-in inflation protection and the option to recoup some of the premium equity if a customer cancels the policy before using all its benefits. "Consumers still need to proceed very carefully," she says. "There are lots of pitfalls."

Insurance executives reply that most major issuers now offer features such as inflation protection in their policies. And some 40 states have adopted new regulations covering sales practices and policy terms for long-term-care insurance. But even with the new rules, they are gunning for new business. With demographic forces and the new Congress on their side, insurers are confident that targeting long-term care will produce long-term profits.

Why Insurers Like Long-Term Care

HEALTH-CARE REFORM proposals have Americans worried about whether government programs will provide adequate long-term care.

THE ELDERLY are increasingly concerned about having their life savings wiped out by long-term illness.

THE VAST MARKET for long-term-care insurance has barely been tapped. Private insurance covers only about 2% of all long-term-care costs.

SLUGGISH DEMAND for other insurance makes long-term-care insurance the best bet for insurers eager to boost profits.

DATA: BUSINESS WEEK By Tim Smart in Hartford

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