We viewed this as a traditional market analysis. Anyone can enter a market and lose money – the base CLASS plan would be a poster child for this obvious point. We wanted to understand whether there were any opportunities to turn a profit in the LTCI market. We also wanted to understand why, if there are profits to be had, private insurers had not already exploited these opportunities? (emphasis added)
What we found was a rather strange market. There are lots of LTCI sellers, mostly crossovers from the life insurance market. This makes sense, because the main purpose of LTCI is to help enrollees preserve their retirement savings. The same customer who buys life insurance to make sure their next of kin are well taken care of would therefore also want to buy LTCI. These customers trust life insurers, most of whom have been around for a century or longer and can be counted on to pay out future benefits. At the same time, LTCI products are remarkably (perhaps unnecessarily, and likely strategically) complex, so customers rely on their insurance brokers to explain their options. These features helped mute competition among LTCI insurers and possibly pose entry barriers to new sellers.
Some interesting examples of ideas that were considered in their market analysis, and a fundamental question.
Putting on our strategy hats, we wondered if DHHS could come up with new product features, thereby attracting a broader base of enrollees. Exchanging ideas with DHHS economists, we came up with quite a few suggestions: tontines (where enrollees enjoy rebates of premiums if they don’t end up needing LTC), extended vesting periods before coverage began, “short term” LTCI and others. We laid out the advantages and disadvantages of each feature and we asked a critical strategy question: If these features are so promising, why aren’t private LTCI insurers offering them? (emphasis added)
There is really no evidence to suggest that private, voluntary insurance can play a key role in insuring LTC. Private insurance could potentially be the insurance vehicle used, but the biggest need in LTC is to plan ahead and pool risk. This will only happen with some sort of policy intervention such as social insurance, a mandate of some sort, or at least a strong nudge.