Is This The End of Long Term Care Insurance?
According to the American Association for Long-Term Care Insurance, more than eight million Americans have purchased insurance to protect them in the event that they need long-term health care in a nursing home, assisted living facility, or in their own home.
Historically, this insurance has been a good idea for people who could afford the premiums because 70% of all Americans 65 years and older will need some form of long-term care over the rest of their lives (AARP). When a long-term care event does occur, the average length of time care is required is 3 years, and the average yearly cost of a private room in a nursing home is almost $100,000 per year (Genworth). This means that the cost of long-term care can easily surpass $300,000, which can put a big dent in a family's retirement savings.
Recently, however, according to the Wall Street Journal, millions of Americans who have purchased Long Term Care Insurance are experiencing extremely large premium increases. While your policy premiums are not allowed to increase because of your health condition once you purchase the insurance, the insurers can negotiate with state insurance regulators to raise premiums if they can show that the increases are required from an actuarial standpoint. Many insurers in recent years have requested premium increases in excess of 300% of the original premium cost, and state regulators are trying to delay and defray those increases as much as possible to help state residents experience more manageable steady increases. Insurers are requesting these increases for a few reasons. First, they underestimated the growth of the nursing home industry, resulting in more beds available and more claims requested. Along with the increase in capacity, patients who have been accepted to nursing homes have been living longer under the proper care and supervision of the trained staff, resulting in longer claim periods. Additionally, many of the quoted premiums assumed a high rate of return on premium funds the company invested. After the Great Recession in 2008, many companies were left with premium reserves that were much smaller than they had projected.
While these premium increases may be hard to swallow for existing policyholders, the market may be even tougher on people looking for new policies. Due to the difficulties faced in the past, many companies have simply decided to stop offering long-term care policies altogether Now only about a dozen insurers still offer LTC policies, down from over 100 at the peak of the industry. Just recently General Electric took a pretax charge of almost $10 billion to cover unexpected losses from LTC policies issued in the 80s and 90s and would require $15 billion more over the coming years to reinforce their insurance reserves. That being said, arguably more important than the price and terms of a LTC insurance policy is the financial health of the company offering the policy. The last thing you want to happen is to pick a policy based on price, only to have the company go bankrupt. If your provider does go bankrupt, state guaranty associations would step in and provide some level of coverage, but most states cap the available benefit at $300,000, which may not be enough to cover your expenses if you have a longer than average claim. As with any financial decision, the choice to purchase a long-term care policy is one that is very unique to each individual and anyone looking to acquire a policy should research the company and the industry as much as they compare prices and terms of individual policies.
To read more details about LTC insurance premium increases and the troubles of companies in the industry, click here.