As claim payouts rise, long-term care insurers are grappling with how to set premiums.
Recently released research from the American Association of Long-Term Care Insurance (AALTCI) reveals that a couple in their 60s buying a long-term care (LTC) insurance policy for the first time will pay an annual premium of $3,490 in 2018, down from $3,790 in 2017. Nevertheless, the organization’s director, Jesse Slome, noted in a statement that the decrease in average premiums indicates that fewer insurers are underwriting traditional LTC policies.
Slome added that “some of the higher priced insurers sell so few policies that we excluded them from this year’s study as they really were not representative of the market conditions.” He explained that while some individuals and couples may pay slightly less for a new policy, overall costs inched up in comparison to last year.
LTC Insurance Claims Rise
AALTCI also reports that the cost of claims paid out by LTC insurers rose significantly last year. In 2017, LTC insurance companies reimbursed 295,000 individuals for a total of $9.2 billion, an increase from the $8.65 billion administered to 280,000 policyholders in 2016. Claims typically cover expenses related to nursing home and assisted-living facility care as well as home-based healthcare — costs that aren’t covered by Medicare.
Those rising claim have affected the bottom lines of some LTC insurers in recent years. In mid-January, GE Capital announced that it was taking a $6.2 billion charge stemming from some 300,000 LTC long-term care policies it kept on its books after it sold most of its financial services operations following the 2008 financial crisis.
Analysts from Evercore concluded that GE could have “a deficiency of 20% or more” in its long-term-care reserves, resulting in a charge of at least $2.5 billion. Another large player in LTC insurance, Genworth Financial, Inc., has registered $2.5 billion in losses from older LTC contracts since 2006, according to the Wall Street Journal.
Late last year, two long-term care insurance units of Pennsylvania-based Penn Treaty American Corp. were ordered to be liquidated by a state court judge after the insurers reported their liabilities outstripped assets by $3.4 billion. The Wall Street Journal reported that the judge admonished state regulators for refusing to approve rate increases by Penn Treaty prior to the liquidation order.
Are Rates on the Rise?
The Penn Treaty case underscores the fiscal crunch that LTC insurers now face. As the Wall Street Journal details, insurers may have miscalculated a surge in claim payments as people lived longer and held onto the policies they bought in the 1980s and 1990s. As payouts soared, insurers saw their investment returns dwindle as interest rates plunged, leaving them with fewer dollars to pay claims.
Genworth’s President and CEO Thomas McInerney told the Wall Street Journal that insurers will probably ditch the “level premium” policies of the past, adding that policyholders can now expect modest rate increases each year.
Despite a rise in premiums, LTC insurance makes sense for many older Americans. Fidelity Investments projects a couple who retired in 2016 at age 65 will need roughly $260,000 to pay for medical bills in retirement. In addition, the National Association of Insurance Commissioners and the Center for Insurance Policy and Research estimate that Americans older than 65 will require an average of two years of intensive long-term healthcare during their lifetimes. A long-term care policy protects a couple’s retirement income by insuring that expense.
Insurance agents play a vital role in helping their senior clients find an affordable policy that provides robust coverage. Agents can also explore hybrid policies such as universal life insurance and annuities with a long-term care rider.
Given the current uncertainty in the LTC marketplace, agents should research all policy types with their clients. “Each insurer establishes their own prices and available discounts and the cost for virtually identical coverage can vary,” AALTCI’s Slome explained. “[Your client] generally only buy[s] long term care insurance once, so it’s important to do it correctly the first time.”