Don’t Tell, Don’t Ask

A simple test can now tell consumers if they have an increased tendency to develop chronic diseases such as Alzheimer’s disease. For carriers, is it an opportunity in disguise or a threat to their risk pools?

The giant baby boomer bubble is rapidly moving into old age and is not prepared for the expected health costs of living longer. For aging consumers who suddenly find out they have an increased tendency to get Alzheimer’s, these tests offer an opportunity to game the system and apply for long-term care insurance without the insurer knowing the true nature of the risk.

Increases in cognitive dementia and Alzheimer’s disease are looming pitfalls both for Americans and the LTC industry because both types of dementia require lengthy periods of long-term care. According to the Society of Actuaries, 14.7% of the U.S. population age 70 or older had dementia in 2010, and the average annual cost of that disease was estimated to be $56,300 per person. Alarmingly, annual societal costs due to dementia are expected to double between 2010 and 2040.

Every day, another 10,000 Americans turn 65. A study by insurer Genworth indicates 70% of seniors older than 65 will need long-term care at some point. But will it still be available? Originally created in the 1970s, the traditional long-term care insurance products became victim to a host of factors, mainly related to incorrect pricing assumptions. That made it impossible for some carriers to make money off the product without imposing major changes or cutting their losses. Since 2010, most major carriers have left the market.

The latest body punch is the availability of a simple test originally intended to help people track their ancestry. For about $200, consumers can send a sample of their saliva to companies such as 23andMe to be matched against other samples in the firms’ database and receive more information about their ancestors. They can also receive a health panel that will show whether their sample contains certain genetic markers associated with increased risks for major diseases such as Alzheimer’s disease and Parkinson’s. Women can also find out if they are at a higher risk of breast cancer or ovarian cancer.

“The problem is there are patients who, if they find out they have the gene that increases risk of Alzheimer’s, for instance, may go out and buy lots of life insurance or long-term care insurance,” says Dr. Robert Klitzman, director of Columbia University’s masters of bioethics program. “There is an underlying ethical tension because we respect and need the insurance industry. Insurance provides a certain social good. Since no one knows when something terrible is going to happen to them, we are willing to put money into the system and not know which of us is going to be the one to get really sick or disabled. For that, we need to have an equal playing field.”

Indeed, research by Dr. Robert Green, a geneticist at Harvard University, shows consumers who know they have the gene variant associated with increased risk of Alzheimer’s are nearly six times more likely to buy long-term care insurance than those who know they do not have the variant. As these tests become more prevalent, there is concern the risk pool will be flooded with riskier insureds.

“As an insurer, our interest is to have as many insured as possible,” says Dennis Martin, OneAmerica senior vice president for product and business development. “What we want is to have it done in a fair way that is in a controlled and priceable risk pool. The ideal risk pool follows the law of large numbers. You want to have a million people who are at the very least similar and not anti-selected in. You want a mix of risk over time and no one comes in knowing they are going to get something out of the pool that is above their fair value.”

It has been 16 years since scientists sequenced the human genome. At the time, it cost an estimated $1 billion to sequence an individual’s genome. Insurers and bioethicists predict the science will continue to evolve rapidly and open more opportunities for insurers—not fewer.

Genetics: Long-Term Care? Or … ?

David Hopewell, a senior vice president and chief product officer at Transamerica, says genetics testing could tell consumers at a much younger age they will be prone to maladies associated with aging. That will give them time to prepare financially, with long-term care and life insurance a significant part of that planning.

“The impact changes over time as these tests become more common,” Hopewell says. “Initially there will be a pool of people who discover they are prone to a condition and are late discovering it, leaving them little time to avoid or prepare. They will want protection that would otherwise be unaffordable once they get sick. After a while, as the test is more common, they get tested younger and have more time to prepare. Self-interest becomes focused on prevention as well as protection, which is similar to today’s situation.”

Martin believes a diversified view and product mix can help carriers benefit from genetic advances. “We’re looking at both mortality and long-term care risk, so in a genetics context, these things that can improve mortality significantly will help us on our life insurance products,” he says. “In some ways we have an internal diversification of our products. Anti-selection is something we have to manage, but over the long term, the medical advances in genetic testing are going to help people live longer, healthier lives, which generally should be favorable for long-term care products.”

Martin also notes the current science has identified a gene that is only a predictor of Alzheimer’s, not a guarantee.

“I’m not a geneticist, I’m an insurer, but the gene indicated in the test isn’t the only predictor—it increases your probability, but folks who don’t have that gene also get Alzheimer’s,” Martin says. “But there’s some uncertainty around it, and hopefully when people become aware of some of their predispositions genetically, they act differently, they behave differently. With insurance, especially long-term care insurance, it’s like savings in that the earlier you start the better off you are. So one possibility is that you could see people purchasing long-term care insurance well in advance of when you might normally do it because they have the knowledge from the test. That makes the pricing a little bit better.”

Terri Orem, Gallagher’s area executive vice president in the Voluntary Benefits National Practice, says employers looking to buy group benefits are still interested in long-term care.

“We have an aging workforce, and a lot of employees are caring for their parents or grandparents and are experiencing the financial impact of their parents’ aging as they require long-term care,” Orem says.

“Voluntary benefits like long-term care and permanent life insurance that has long-term care riders are becoming more popular. As a broker, we are having the conversation with employers more frequently about how they can better meet their employees’ needs, and long-term care is part of that.”

Orem also believes there is an opportunity to sell LTC to younger consumers.

“Long-term care insurance isn’t just for when you are older,” she says. “A lot of companies will tell you that many of their claims are for younger people who may have had some other event, such as being hurt in an auto accident, or have some kind of medical issue that places them in long-term care.”

Hopewell says Transamerica wants to target the group LTC market and has updated its approach to underwriting. “We have increased focus on underwriting and are assessing what non-genetic techniques provide balance to genetic information,” he says, adding that the company will make greater use of recently available “fast data” and analytics to gain better insight into both medical and lifestyle drivers of mortality.

Transamerica has also created a research team that will assess the information advantage coming from genetic testing as well as the potential for genetically targeted interventions.

“We also increasingly focus our long-term care business in the workplace, where the smaller policies, younger ages and law of large numbers reduce the potential for a few insureds to increase costs beyond what we’ve priced for,” Hopewell says.

Orem says that focus would be welcome in the group sector. “The trend with voluntary benefits is more toward guaranteed issue type products, which doesn’t have any underwriting.” With a strong employee education and engagement campaign, permanent life insurance with long-term care riders is usually offered on a guaranteed issue basis, so there are no questions. But with individual long-term care policies offered through the worksite, there are typically some level of medical questions and a participation requirement for simplified underwriting.

“The challenge with long-term care type benefits is that employers want to offer something that will have broad appeal and not anti-select against people who have conditions,” Orem says. “Ten years from now genetic testing as it becomes more reliable I suppose could be incorporated, but I’m not sure in a workplace type benefit it would be accepted in the same way that it might be for an individual life insurance type coverage where you are willing to give your blood.”

While no one knows what scientific breakthroughs are next in genetics, the aging baby boomers will likely play a major role. The statistics tell a grim story. About 11% of adults age 65 and older had long-term care insurance coverage in 2014, according to the American Council of Life Insurers. Overall, about 8.1 million Americans are covered. That’s just a drop in the bucket compared to what’s coming as baby boomers age.

A 2014 study by the Society of Actuaries showed the creation of Medicare in 1965 has resulted in an increase in life expectancy. But Americans don’t just live longer; they are spending more years with a disability. The Society of Actuaries study found that life expectancy for 65-year-old Americans is currently 17.6 years and 25.8% of these years are spent in a disabled state.

For 75-year-olds, the study says, about 40% of their remaining lifetime will incorporate disability, and for those age 85, more than 60% of remaining years will include disability.

Other key numbers show that from age 65, men will be chronically disabled for an average of 20% of their future life expectancy, at an average expected lifetime cost of $29,000 (in 2000 dollars); for females, these figures increase to 30% and $82,000.

Eighteen percent of all seniors will require more than one year in a nursing home facility. Nursing home residents use about three times more services than those not in nursing homes (mostly due to their more severe disability status).

Interpreting Genetic Data

Klitzman says every person has gene mutations and most are not serious and will not affect them.

“Most genes are going to be predictive information that is iffy and based on probabilities, making it hard to interpret,” he says. “It will be somewhat like predicting the weather. You would think the weather in New York City would be whatever the weather was yesterday in Philadelphia. But in fact, usually the weather report is not 100% one way or another. It’s usually a 20% chance or a 30% chance. The kind of knowledge that most genetics is going to give us is going to be that probabilistic information.”

Klitzman expects genetics to reveal much about the human condition, but he cautions that the science is in its infancy.

“An analogy would be if someone asked Christopher Columbus in 1500, ‘What did you discover?’ He’d say, ‘Well, I discovered some islands off the coast of India.’ And 300 years later Lewis and Clark are still walking around the parts of America that are uncharted trying to figure out what’s there. It took 300 years to figure out what’s in this land mass that Columbus thought were islands off the coast of India and turned out to be two continents with dozens of languages and dozens of cultures. I’m not saying it’s going to take hundreds of years with genetics—it’s not. But if you look at what we thought 20 years ago or 10 years ago or even five years ago, we’re learning how much we don’t know.”

Margaret McLean, director of bioethics at the Markkula Center for Applied Ethics at Santa Clara University, says society also needs to determine how to ensure a person’s genetics information remains private.

“Genetics is nothing but information,” McLean says. “It’s very special information, but it’s information. So if I get that information, where else does that information go? And who does what with it? I think we’re just beginning to think about those things.

“This is high stakes because what we are teasing apart is us. People want to know and understand where they’ve come from. They want to know and understand what health might look like for them or what their future disease burden might be. Genetic testing is giving us unprecedented windows into all of that, and we’re kind of beginning to look through those windows and see what the implications are.”