End of Long-Term Care Insurance? - WSJ

[etarini]

In today's online Wall Street Journal, in the Weekend Investor section, it shows an article titled "Is This the End of Long-Term-Care Insurance? ", but if you click through (or read it in the print version), the title is "Long-Term Care: What Now?".

http://online.wsj.com/article/SB10001424052970203961204577269842991276650.html

Although it tiptoes around the title's actual topic, it's an interesting read. One fact I didn't know: 10 of the top 20 insurers by sales selling to individuals have left the market in the last five years, according to Limra International, a research firm. The article mentions the recent departures by Prudential Financial, MetLife, and Unum Group. What happens to the people who bought policies and have years more to pay? Does this only apply to new policies? How is this market sustainable?

"Prudential Vice President Malcolm Cheung says the company decided to stop selling long-term-care coverage to individuals because of the uncertainty surrounding future claims and persistently low interest rates."

I've been an undecided fence-sitter regarding long term care insurance, and every new thread raises my anxiety all over again. I'm 62 and my wife is 61, and we're in excellent health, but I know that can change quickly, so we're running out of time to make a decision. But if the long-term care insurance market can't be counted on, there might be no decision to make before long.

It seems to me that the low interest rates are only the insult to injury: any insurance company that understood demographics (ever hear of the Baby Boomers?), that had been following the healthcare cost inflation, and could see the scary patterns of increasing health risks among Americans (let's all super-size, young and old!) shouldn't have missed this logical outcome. They'd have to be able to get returns that are two to three times the rate of overall inflation in order to have a prayer of paying the benefits. Or maybe they knew that, made their money while they could, and figured they'd get out when it no longer made sense.

I don't see how this market could work (except for the very wealthy) unless the risks were fully pooled across all individuals, which, of course, isn't likely to happen.

I wish I could feel better about the options, but I feel like I was born 10-15 years too late for this product to make sense, though I'd love to be able to believe otherwise.

Eric

[abuss368]

This is a scary thought.

Not sure if most Bogleheads purchase LTC insurance or not.

Would be interested in the general consensus.

[The Wizard]

No, I'm not interested in buying LTC insurance.
Just because an insurance company is SELLING a product is no reason to line up to BUY it.
It's only been around a few decades and a decade from now, who knows?
http://law.freeadvice.com/insurance_law ... m-care.htm

[plannerman]

etarini,

If you are concerned about long term care, you should at least investigate Continuing Care Retirement Communities (CCRC). We have several in our area and they all have different requirements, facilities and financial deals. So do your home work while you have plenty of time.

My wife and I are both 69 and do not have long term care insurance. We just applied to and were accepted our first choice local CCRC. We told them our ETA was 2020, but if our health deteriorates we can move up the date. At the one we chose, one of the two of you needs to be able to walk in when you are admitted, but once you are in, your are in for life.

In essence, the the CCRC is providing the long term care insurance for those who run out of money.

plannerman

[dhodson]

All these issues have been discussed here.

For those who have policies, most likely they just need to be prepared for rate increases...probably several times.

[Honobob]

In essence, the the CCRC is providing the long term care insurance for those who run out of money.

plannerman

I checked into this for my dad about 14 years ago. It cost about $140,000 just to get in and then the monthly fee depended on the care you were getting. The care went from very nice luxury apartments to assisted care to SNF. My dad was supposed to live only 6 months and never live outside a SNF. He did live in a SNF for less than 6 months but was able to live with me for almost 10 years although he went to day care while I worked.

I'm curious that you will not live there for 8 years. Do they only have assisted and SNF? I thought the main upside is that you transitioned to no care to SNF. The upfront cost was dependent on their assessment of my dads health. Are they guesstimating your health 8 years from now?

Also, won't you always have a monthly fee?

[HardKnocker]

The need to pool the risk is essential to make the LTC product sustainable.

You need a large pool. The individual LTC market is a tough way to go for the insurance companies. A much better strategy is to get this product included in employee benefits like disability insurance. I've seen it in some government employee/union packages.

Getting it included in the benefit packages of the private sector would be almost an impossibility in my opinion. Too expensive. Employers will not go for it. Just is not going to happen without a government mandate.

[ruralavalon]

The article mentions the recent departures by Prudential Financial, MetLife, and Unum Group. What happens to the people who bought policies and have years more to pay? Does this only apply to new policies?

As I understand it, they are not selling new policies. There will probably be premium increases on the existing policies.

[Alan S.]

I would not be comfortable forking over thousands of dollars in the current environment for LTC insurance and projected future environment. The proposed federal program as part of the ACA folded before implementation due to unsustainability according to detailed actuarial studies. When companies are leaving the market, it leads to a lack of competition and rates for those than remain will be loaded up due to negative assumptions for future costs and fear of adverse selection from applicants. The low interest rates that are becoming structural in developed nations in another hurdle as are demographics.

There have been various net worth windows under which purchase of LTC was recommended. That window should be compressed considerably under these conditions. That means for low net worth individuals it does not make sense to incur the premium cost and for higher net worth individuals, they are better off self insuring and benefiting from the added flexibility that cash will have over contracts with limitations and exclusions at the time of need.

Much of this seems to be intuitively factored in by the public since the purchase of LTC insurance has never really caught on considering that everyone has exposure to these expenses.

[LH]

Stable value.

Same principles apply.
Money has to come from somewhere, primarily stock bond returns. If things go bad, stable value will be anything but stable.

[Default User BR]

Stable value.

Same principles apply.
Money has to come from somewhere, primarily stock bond returns. If things go bad, stable value will be anything but stable.

Yet stable-value funds have done fine through bad times before. What makes "this time different"?


Brian

[Spirit Rider]

The article mentions the recent departures by Prudential Financial, MetLife, and Unum Group. What happens to the people who bought policies and have years more to pay? Does this only apply to new policies?

As I understand it, they are not selling new policies. There will probably be premium increases on the existing policies.

The premiums increases for these plans will be significantly higher than companies continuing to sell policies. This is pure actuarial math. If you remove the lower risk entries into the pool, the pool will increasing skew to an older average. The increasing cost of care will be amplified by the increasing risk pool, consider this a negative surviorship bias.

[LonePrairie]

I bought a group LTC plan in 2002. I paid a high rate at the beginning for an inflation protection option and the promise that the premium would never increase because of inflation or if my health changed. Eight years later, the plan raised rates for me and others in my age group by 25% because I was "among a group of enrollees whose premium is determined to be inadequate." People who had bought LTC when they were older had smaller premium increases.

I felt like an idiot for paying premiums for several years thinking they'd never increase. By then my nest egg had grown so I decided to drop the insurance and self-insure.

[Atilla]

I had a great aunt with two artificial hips. Great uncle had MS diagnosed decades ago. They never made great money but saved and invested in stocks right from the start.

Back in the 70's they spent a bunch of money making their house wheelchair friendly while they could both still walk relatively easily. Wide hallways, ramps, special countertops, accessible bathrooms.

When it became necessary they hired live-in help. Remodeling costs and ten years of just paying someone to care for you in your house was how they handled it and was easily affordable for them. They both managed to stay at home until the end.

[robertalpert]

I don't see how this market could work (except for the very wealthy) unless the risks were fully pooled across all individuals, which, of course, isn't likely to happen.

A national strategy where all people enroll. That would solve the problem, but you're right ------ unfortunately, it's not likely to happen right now.

[yobria]

Thanks for the link.

Prudential Vice President Malcolm Cheung says the company decided to stop selling long-term-care coverage to individuals because of the uncertainty surrounding future claims and persistently low interest rates."

They're not selling it for exactly the same reason I'm not buying it - the companies happily accepting your premiums today may or may not be around in 30 years to pay out your claims. Note how quickly the stock price of Genworth, the largest provider, dropped from $35 to $.85 a couple of years ago.

[bel886]

I think this is an unfortunate development. I have long felt that LTC was a product that really benefited society by enabling a higher quality of life for individuals unable to perform ADL's. This observation has been supported by conversations I have had with elder law attorneys, who see this side of life frequently. The beauty of the product is that should you go on claim, you will get your premiums back rapidly through benefits. My wife and I each own fairly large policies, and I obviously believe in it.
The primary sources of profit for the product are lapses and investment returns. My guess is that lapse rates have been somewhat less than anticipated and yields have been a great deal less than anticipated. The product is harder to sell than life insurance, and not every agent is willing to invest in the training required, which makes it a specialty product, not something around which management can build a company .
However, there is still a group market, albeit reduced.

[plannerman]

I'm curious that you will not live there for 8 years. Do they only have assisted and SNF? I thought the main upside is that you transitioned to no care to SNF. The upfront cost was dependent on their assessment of my dads health. Are they guesstimating your health 8 years from now?

Also, won't you always have a monthly fee?

We are currently living in a single family house in a golf community and are not ready to move to a CCRC yet. However, most good CCRSs have a waiting list, so you can't wait to the last minute to sign up and expect to get in right away. A very modest payment, in our case $1000, puts us on the waiting list. Over time, you bubble up to the top. When you reach the top you don't have to go, you can simply say you are not ready yet and stay on the top of the list. This gives you some assurance that when are ready, you can get in in a reasonable amount of time. The place we chose is really aimed at people who can live independently but who might need other levels of care in the future. It's not a nursing home. That's why it is important not to wait until it's too late, healthwise, to go in. This particular CCRC has cottages, villas, several levels of apartments for independent living, assisted living and skilled nursing. We plan to go into a cottage, but that could, of course, change.

plannerman

[LH]

I don't see how this market could work (except for the very wealthy) unless the risks were fully pooled across all individuals, which, of course, isn't likely to happen.

A national strategy where all people enroll. That would solve the problem, but you're right ------ unfortunately, it's not likely to happen right now.

National strategy? All people enroll? social security comes to mind. Only 76 percent funded they tell me each year. We routinely get told to not count on it planning wise. Problem solved?

[grok87]

This is a scary thought.

Not sure if most Bogleheads purchase LTC insurance or not.

Would be interested in the general consensus.

I've thought about it. I'd be much more likely to buy if it were a fixed rate per year like term life. I just never could get past the problem of "rate increases"- too much uncertainty. I can't see putting myself at the mercy of some insurance company (i.e. they can charge me whatever they want)
cheers,

[HardKnocker]

The term "long-term care" implies the need for security and stability.

If you can't be assured of the stability of the insurance company and the stability of the premiums you must pay over the LONG TERM then this is a huge negative.

Many, many of these policies will be forfeited by the insured because of premium increases. Like whole life policies of which a huge number are forfeited. It's all figured into the projections except at least with whole life you are assured of a fixed premium. With LTC not even that. The insurance companies petition the government for rate increases and often get it. You, however, cannot petition the government for an increase in your income to afford the premium.

It's all a bit untidy.

LTC is a concept with merit.

[JMacDonald]

What happens to the people who bought policies and have years more to pay?
Eric

Hi,
I dropped my LTCI because of premium increases. I would imagine that the ones left with polices are going to see continuing increases in premiums. The insurance companies are not going to lose money on these policies.

[dhodson]

What happens to the people who bought policies and have years more to pay?
Eric

Hi,
I dropped my LTCI because of premium increases. I would imagine that the ones left with polices are going to see continuing increases in premiums. The insurance companies are not going to lose money on these policies.

As has been discussed, the state will always eventually approve the rate increase. They may delay it a little while to make the public feel like they are doing something, but they have little choice in the matter since they consider the alternative worse.

[BruDude]

Many, many of these policies will be forfeited by the insured because of premium increases. Like whole life policies of which a huge number are forfeited. It's all figured into the projections except at least with whole life you are assured of a fixed premium. With LTC not even that. The insurance companies petition the government for rate increases and often get it. You, however, cannot petition the government for an increase in your income to afford the premium.

It's all a bit untidy.

LTC is a concept with merit.

The lapse ratio for LTC is about 1%, far lower than life insurance. Most companies expected 5-8% lapse ratios and it hasn't happened.