Long-term care insurance was supposed to be protection against impoverishment if people became unable to care for themselves.
It was a popular policy to have to protect retirement, lest one find oneself unable to pay for the care required to cope with diseases and infirmities of age—or even for younger people who might be felled by catastrophic injury.
But, The Wall Street Journal reports, the days when the purchase of an LTC policy brought relief are over.
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Now people stress about how they'll keep paying for the policy against the day they might need it—closer now, as they age—or about how much money they will have wasted on premiums if instead they have to walk away from coverage.
The pain is deep, since this was a product heavily sold to the middle class, the report says.
In the 1980s and 1990s, people were told this was a way to protect against catastrophic illness, things like Alzheimer's and other forms of dementia, the frailty of age when it's no longer possible to care for oneself without help. And millions of policies were sold.
But insurers miscalculated, not just on pricing policies, but also on estimating how long policyholders would hang onto their policies—the industry put the "drop rate" (the percentage of policyholders who would simply let their policies lapse without collecting) at 5 percent, when the rate turned out to be closer to 1 percent—and how long claimants would live once receiving benefits.
Lifetime benefits were common in early policies, which had level premiums (although they weren't guaranteed) until a claim was filed; at that point premiums would stop.
Now, however, insurers are paying out billions on care they never expected to pay for, while hitting policyholders with rate increases that can as much as double the premium, or even more—making the coverage unaffordable for many just at the point at which they may be about to need it.
The report cites Genworth as pointing out that while cumulative premium increases have ranged from 50 percent to 150 percent, more raises are necessary.
A whopping 7.3 million people own LTC policies; thinking they had secured their future, they're shocked to find that insurers are hitting them with massive premium increases.
One couple cited in the report bought CNA Financial Corp. policies in 2008 that promised future benefits of as much as $268,275 per person.
But in just the last two years, CNA has raised their premiums by more than 90 percent to $4,831.
Policies are hard to come by these days, with just a dozen or so companies still offering them out of the more than 100 who jumped into the market when it was hot.
The report says, "General Electric Co. said Tuesday it would take a pretax charge of $9.5 billion, mostly because of long-term-care policies sold in the 1980s and 1990s. Since 2007, other companies have taken $10.5 billion in pretax earnings charges to boost reserves for future claims, according to analysts at investment bank Evercore ISI."
With more than half of U.S. adults aged 65 or older projected to need nursing home or other care services, and the cost of care soaring—it can run more than $100,000 a year—insurers are regretting optimistic premium rates set before interest rates fell, and optimistic rates of return—based on a projected 7 percent return.
Last year, according to A.M. Best, the net yield for U.S. life insurers' portfolios, down more than 20 percent since 2007, only hit 4.6 percent.
Regulators say they didn't examine insurers' projections and rates closely enough; insurers were overly optimistic about how much use those policies would actually get, as well as how long claimants would live once they were receiving care.
And the report cites one woman's story that exemplifies why people are so desperate to hang onto coverage, even as insurers are regretting ever having sold it.
Sixty-nine-year-old Ailene Adkins bought an LTC policy in 1993, paying a little more than $12,000 in premiums before she had to file a claim based on an autoimmune disorder.
She now lives in an assisted living facility, and Manulife Financial Corp.'s John Hancock unit has paid $1.2 million for her care since 2001.
A trade group, the American Association for Long-Term Care Insurance, says in the report that in 2017, long-term care insurers spent $9.2 billion on 295,000 policyholders.
With the soaring cost of medical care looming over boomers approaching retirement, or over retirees already beginning to feel the effects of age, the cost of LTC coverage has become a distant dream.
Just 34,000 policies were sold in the first half of last year, according to LIMRA, and the year before sales didn't even hit 100,000—both years producing the lowest totals in more than 25 years. In 2002, at its peak, sales of LTC policies were around 750,000.
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