Is the long-term care insurance market sick?

November 19, 2010

This might not be what the insurance industry had in mind when it proclaimed November to be National Long-Term Care Awareness Month: MetLife, one of the industry’s biggest players, decided to drop out of the market.

MetLife said earlier this month that it will stop writing new long-term care policies (LTC), although the company affirmed its commitment to stand by current policyholders. And another huge underwriter, John Hancock, recently suspended sales to employers who offer LTC insurance as an employee benefit, although it continues to sell policies to individuals.

Industry experts are quick to point out that the list of LTC underwriters changes from time to time, and the insurance carriers that do exit continue to service their existing customers. Plenty of household names remain in the LTC market, including John Hancock, Prudential, New York Life, Northwestern, Mass Mutual and State Farm.

But the MetLife and Hancock developments come against a backdrop of other signs of problems in the LTC market.

Long-term care insurance sales - LIMRALTC sales have been hit harder than any other segment of the insurance business. Sales fell 24 percent in 2009, but bounced back 11 percent from that level in the first ten months of 2010, according to LIMRA, an industry research and consulting group. LIMRA reports that seven million LTC policies are in force — less than five percent penetration of the total possible market.

Unpredictable premium hikes are a key problem facing the industry. LTC policies require that customers keep current on premium payments from the time of purchase up until the point when a claim is made, but there’s no guarantee that rates won’t rise. Insurance companies need the approval of state insurance commissions to put through rate hikes and several have sought double-digit hikes this year. For example, Hancock has asked state regulators for permission to boost rates on most of its existing customers by about 40 percent.

The rate hike requests are driven, in part, by the current ultra-low interest rate environment, which makes it difficult for insurance companies to earn an adequate return on the investment portfolios that help fund policy payouts. Insurers need a 10 to 15 percent increase in premiums for every one percent drop in interest rates, according to the American Association for Long-Term Care Insurance.

But some LTC insurance providers also bet wrong on how customers would manage their policies. For example, just 3.8 percent of policyholders allowed their coverage to lapse between 2005 and 2007, and the rate was just 1.5 percent on policies at least six years old, according to LIMRA. That’s good news for consumers, but the rate is much lower than for other types of insurance.

“LTC is a tough business to be in,” says Jennifer Douglas, associate research director at LIMRA. “Pricing aside, consumer resistance is enormous, although they are becoming more aware of the need and the fact that they are responsible for funding a possible long-term care need.

“The insurance carriers are becoming more realistic about consumer willingness and ability to pay for it,” she adds. “We survey carriers every three years about their concerns, and they’re saying it may be too expensive, and that we may need to reinvent ourselves and offer more affordable products for the middle market.

Annual premiums can run $3,000 or more for policyholders who buy LTC coverage in their fifties, and it’s impossible to know if you’ll ever need to claim benefits. Some insurance companies are introducing less expensive policies with more limited benefits; others are introducing hybrid life-and-LTC products aimed at the affluent end of the market.

For example, Hartford Financial Group now offers a universal life insurance product through financial advisers featuring a “life access accelerated rider” that gives policyholders an option to begin drawing death benefits early to fund a LTC need, with flexibility on how the payout is used. The rider adds no more than 15 percent to the policy’s cost, says a spokesman, who adds that the vast majority of buyers are affluent boomers. “It’s really been exceeding our expectations.” Sales are up 66 percent in the past 12 months.

Certainly, the need to insure against long-term care risk hasn’t changed; the Center for Retirement Research at Boston College (CRR) says about one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives.

Medicare covers only a small portion of long-term care needs, and the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

That leaves advisers and consumers without clear answers.

“I’d like there to be something I could comfortably recommend to my client,” says Harry S. Margolis, an attorney specializing in elder law and founder of ElderLawAnswers. “This is what the premium is and this is what the benefit is and it’s not going to change. But it’s not there.”

In my next post, I’ll discuss how to cope with LTC premium increases.

10 comments

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There are two types of long-term care policies that can never have a rate increase. Here’s an explanation of them:

http://bit.ly/Level-Premium-LTC-Insuranc e

Posted by ScottAOlsonLTC | Report as abusive

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Quality thoughts Harry.

It occurs in the financial services business and insurance that there are quality years with growth and prosperity and then years where there are premium increases and financial challenges.

I welcome your comments in this area.

Raymond Lavine
Gig Harbor, Washington

Posted by LTCGuy | Report as abusive

Mark, when we established Long-Term Care awareness Month back in 2001 longer-term interest rates were say 7%. Today they are historic lows (great for mortgage refinancing, lousy for LTC insurers).

And one other point. Average premium amounts are meaningless (and why we rarely offer them). We are getting ready to release a report of what real buyers paid for LTC insurance (first half of 2010). Some 28% of buyers (under age 61) paid less than $999 a year. Some 19% paid between $1,000 and $1,500. Yes, 7% paid over $4,000 BUT you don’t have to.

Jesse Slome
Executive Director
American Association for Long-Term Care Insurance
http://www.aaltci.org

Posted by jesseslome | Report as abusive

One other key point I forgot. Yes, we (I) created the “month” (Congress recognized with a resolution) BUT there’s no word Insurance in it. I did that on purpose because every adult American needs to understand the issue and consider their options. That’s the goal … and since no one else seemed ready to unertake that … we took it on.

A small but (I think) importance nuance.

Jesse Slome
Executive Director
American Association for Long-Term Care Insurance
http://www.aaltci.org

Posted by jesseslome | Report as abusive

[…] But the MetLife and Hancock developments come against a backdrop of other signs of problems in the LTC market. […]

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[…] Is the long-term care insurance market sick? – Reuters Blogs (blog) from → MetLife Insurance Products ← S&P’s Puccia Says “It Takes a Lot to Kill” a Life Insurer – Bloomberg LikeBe the first to like this post. No comments yet Click here to cancel reply. […]

Posted by Is the long-term care insurance market sick? – Reuters Blogs (blog) « MetLife Insurance Products News and Reviews | Report as abusive

The whole “Medical insurance” system has BROKEN DOWN!!!” How can individuals AFFORD medical care on fixed-incomes like myself! The only inflationary movement upwards is in medical care and soon nobody of modest-means will be able to afford it!

Are you reading us “Mr. President” & Congress???

Middleclassman

Posted by Middleclassman | Report as abusive

Why is it someone always pulls the POLITICAL card… GEEZZZ BOTH parties have driven this train right onto a washed out trestle. The washout was evident decades ago. No ONE party is more to blame than the other. Neither one wants to give up power in order to solve problems

Posted by matt51 | Report as abusive

Sad but true, ginchinchili. One of these days, brazilianization is going to come to America, and it won’t be a pretty sight. The middle-class is disappearing, and with that, a certain kind of stability will be nowhere to be found. The rich will live in closed off cities with private police forces, fire, ambulance, etc., while outside there will be third-world country conditions. I’m always looking for signs that it is creeping up on us.

Posted by swill8295 | Report as abusive

More to the point, what is the condition of the insurance industry as a whole? None of this stuff is heavily regulated, varying a bit by state, and none is Federally guaranteed.

American finance has been rocked by dishonesty and fraud and deception. Why do we think the insurance industry is purer than the banks? Will any of us ever be able to collect on all this insurance we pay for? Hello.

Posted by txgadfly | Report as abusive

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Posted by ElderLaw Answers Blog » Blog Archive » See Mark Miller’s Post on MetLife Leaving the LTCI Market | Report as abusive

LIMRA responds only with sales for individual long-term care insurance policies when asked. Half of the LTCI policies today are bought at work, which includes both individual products offered with limited health questions as well as “true group” products. The carriers who stay are committed and will just do better as they will get the business that would have gone to MetLife. As for John Hancock, yes, there’s an average rate increase of 40%, but the good news is they didn’t leave. And the big picture is, LTCI carriers have had one or maybe two rate increases over a 20 year period. Can any other product say that? Medicare supplement plans typically go up every year. Car insurance, auto insurance, and certainly health insurance have rate increases ongoing – it’s part of life. Some of the most thankful people I’ve ever known are children when they realize their parents loved them enough to buy long-term care insurance. There are ways to construct guaranteed premiums. Most Americans will be touched by this very common occurrence, either as a caregiver or care recipient…and some will be both. If you don’t want that care to be in a nursing home, this insurance is essential as it’s not fair to ask loved ones to do it all to keep us at home.

Posted by PhyllisShelton | Report as abusive

This is an entirely ironic situation we find ourselves in with our friends in the insurance industry. We pay them premiums to protect ourselves from the exorbinate costs created by the effects of their greed and influence on the heath care industry over the years. Interesting. Personally, I will refuse.

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