LTC insurance -- where do the premiums go?

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prd1982
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LTC insurance -- where do the premiums go?

Post by prd1982 »

Insurance for LTC seems like it should be a winner. A few people need LTC for a very long time, many for no time and many for a couple of years. However, it is clear from this forum that many people feel that LTCi is not worth it. I suspect that a lot of this stems from not knowing where your premiums are spent. How much goes to patient care, how much to sales commissions, how much to administration, and how much to profit? I have been unable to find any articles that give this breakdown. Does anyone know of articles that discuss this?

I have Genworth. They have implemented 2 rate increases totally 25%. They want substantially more, which I suspect they will eventually get. In looking at my state's website, the policies were priced at a 60% loss ratio, and Genworth is now projecting an 80-90% loss ratio. Is this the % of premiums that goes to patient care? If so, 60% sure seems low, and 90% sounds too high.

I would encourage people in the industry to participate as long as identifying yourself. I also want to discourage people using words like rip-off and scam. Hopefully this forum entry can primarily provide links to facts!

I hope this forum entry is actionable because it will help folks make informed decisions.

Thanks.
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willthrill81
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Re: LTC insurance -- where do the premiums go?

Post by willthrill81 »

prd1982 wrote: Sat Jul 06, 2019 10:06 am Insurance for LTC seems like it should be a winner. A few people need LTC for a very long time, many for no time and many for a couple of years.
That's not really accurate. It's estimated that about half the population will need some type of LTC at some point in their life. But the overwhelming majority do not need it for very long. Among those who enter long-term care facilities, 75% are there for under 20 months. So most of the expense associated with LTC insurance is in paying for the first two or three years of LTC (i.e. pre-paid LTC).

Many here, including myself, would be far more interested in LTCi with a long elimination period, at least three years. But the industry provides no such policy, likely because few retirees have the resources to pay for LTC out of pocket for that long.
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ResearchMed
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Re: LTC insurance -- where do the premiums go?

Post by ResearchMed »

willthrill81 wrote: Sat Jul 06, 2019 10:27 am
prd1982 wrote: Sat Jul 06, 2019 10:06 am Insurance for LTC seems like it should be a winner. A few people need LTC for a very long time, many for no time and many for a couple of years.
That's not really accurate. It's estimated that about half the population will need some type of LTC at some point in their life. But the overwhelming majority do not need it for very long. Among those who enter long-term care facilities, 75% are there for under 20 months. So most of the expense associated with LTC insurance is in paying for the first two or three years of LTC (i.e. pre-paid LTC).

Many here, including myself, would be far more interested in LTCi with a long elimination period, at least three years. But the industry provides no such policy, likely because few retirees have the resources to pay for LTC out of pocket for that long.
Given the number of people who use LTC for relatively short times, wouldn't even a one year elimination make quite a difference? What is the longest typical elimination period? 90 days (which I think is common)? 180?
Making it 365 saves the insurers quite a bundle, presumably, especially given that many of those insureds won't end up claiming anything.

RM
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sometimesinvestor
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Re: LTC insurance -- where do the premiums go?

Post by sometimesinvestor »

insurance COMPANIES DIDA POOR JOB ON ESTIMATING HOW TO CALCULATE RISK HENCE RECENT rATE INCREASES.The older the policy you have the more likely it is to be a good one. One error the companies made was incorrectly estimating how long people would keep their policy before cancelling.They overestimated how often people would cancel their policy. This is very profitable for the companies as they would have collected premiums and never paid out
Last edited by sometimesinvestor on Sat Jul 06, 2019 11:16 am, edited 1 time in total.
simas
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Re: LTC insurance -- where do the premiums go?

Post by simas »

prd1982 wrote: Sat Jul 06, 2019 10:06 am Insurance for LTC seems like it should be a winner. A few people need LTC for a very long time, many for no time and many for a couple of years. However, it is clear from this forum that many people feel that LTCi is not worth it. I suspect that a lot of this stems from not knowing where your premiums are spent. How much goes to patient care, how much to sales commissions, how much to administration, and how much to profit? I have been unable to find any articles that give this breakdown. Does anyone know of articles that discuss this?

I have Genworth. They have implemented 2 rate increases totally 25%. They want substantially more, which I suspect they will eventually get. In looking at my state's website, the policies were priced at a 60% loss ratio, and Genworth is now projecting an 80-90% loss ratio. Is this the % of premiums that goes to patient care? If so, 60% sure seems low, and 90% sounds too high.

I would encourage people in the industry to participate as long as identifying yourself. I also want to discourage people using words like rip-off and scam. Hopefully this forum entry can primarily provide links to facts!

I hope this forum entry is actionable because it will help folks make informed decisions.

Thanks.
I think it make sense to remind how insurance works in general - risk and money are pooled together to create cash reserves out of which claims/expenses are paid. statistical modeling (actuarial work) is done to guide the rates, terms, etc as the validity of how risk was estimated (probability, severity, costs ,etc) may not be known until some point in the future and potentially far into the future. Insurance is (heavily) regulated business (typically at the state level) in which each state monitors the health of the each insurance company, manages the filling process for rates and determines what the rates are (which are in turn driven by events that happened, costs , expenses ,etc).

Insurance company has direct expenses (i.e. verdict payout ,settlements ,etc), in-direct expenses associated with the claim (i.e. cost of expert witnesses used to defend you when you get into the accident, legal fees to attorneys, etc.) and operational costs (payment for offices, phones, people, technology ,taxes, etc). Insurance company may or may not have any profit at all depending on how it is chartered (i.e. mutual insurance companies, risk retention groups ,etc) , any "profit" is returned to policy owners.

As for loss ratios above, I am not in LTC and I do not know what is normal in the industry. Google says here https://en.wikipedia.org/wiki/Loss_ratio that in P&C insurance "normal" loss ratio is 40-60%, I do not think the state regulators would allow insurance company to operate at 90% loss ratio as they are in charge of its health and may actually require the rates to be raised. Again, regulated industry - what you look at rates in your state, you are a looking at what your department of insurance is doing and all the rules the honorable general assembly (or whichever name state government has in your jurisdiction) have made up impacting the operation of chartered insurance companies and their costs...

similarly for Vanguard, I know it is the 'mutual model' that in theory run "at cost" - however I do not know without going into a lot of detail of how much of my expense ratio was advertisement Vanguard is actually doing, what in there are salaries, what is the technology cost, what is the payment to various actors in financial industry ,etc. Vanguard does pay for all of it, I am just not sure it breaks it for me on simple ER percentage so I can complain of their salaries being too high, too low, etc. Similarly insurance companies public their statements, reports which state auditors require and review and that controls a lot of what is in insurance rate...
TN_Boy
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Re: LTC insurance -- where do the premiums go?

Post by TN_Boy »

prd1982 wrote: Sat Jul 06, 2019 10:06 am Insurance for LTC seems like it should be a winner. A few people need LTC for a very long time, many for no time and many for a couple of years. However, it is clear from this forum that many people feel that LTCi is not worth it. I suspect that a lot of this stems from not knowing where your premiums are spent. How much goes to patient care, how much to sales commissions, how much to administration, and how much to profit? I have been unable to find any articles that give this breakdown. Does anyone know of articles that discuss this?

I have Genworth. They have implemented 2 rate increases totally 25%. They want substantially more, which I suspect they will eventually get. In looking at my state's website, the policies were priced at a 60% loss ratio, and Genworth is now projecting an 80-90% loss ratio. Is this the % of premiums that goes to patient care? If so, 60% sure seems low, and 90% sounds too high.

I would encourage people in the industry to participate as long as identifying yourself. I also want to discourage people using words like rip-off and scam. Hopefully this forum entry can primarily provide links to facts!

I hope this forum entry is actionable because it will help folks make informed decisions.

Thanks.
No, the problem is not that I don't know "where your premiums are spent." In fact, that is completely irrelevant to me.

The problem is that when you do the math on the likelihood of an extended stay in LTC, versus the cost of yearly premiums (which are likely to go up) then you realize that it may not make financial sense to buy a policy. It is that simple.

Most people will NOT have an extended stay in a care facility.
Shallowpockets
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Re: LTC insurance -- where do the premiums go?

Post by Shallowpockets »

Who really cares where the premiums go? This percent here, that much there. What matters is the price and value to you, of the policy. OP wants to know all those percents as if it would make any difference overall. Says 60% is too low and 90% too high. Squeeze those numbers to what you feel is good. Then what? Shop for a policy that fits OPs parameters?
The original question is where do the premiums go?
I say, does not matter.
markcoop
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Re: LTC insurance -- where do the premiums go?

Post by markcoop »

sometimesinvestor wrote: Sat Jul 06, 2019 10:42 am The older the policy you have the more likely it is to be a good one.
Although this is probably true, I wonder if this will be true going forward. I spoke with a LTC salesperson and he used this fact as a reason to buy now vs the future. I understand the argument to lock in lower rates based on age. But this particular argument was along the lines that policies will probably continue to be more restrictive/costlier in the future and therefore it is important to buy one now. We will look back at policies of today in a few years and say they were the "good ones". I felt really uncomfortable with this argument. In fact, I recently read an article in the NY Times titled "New Tax Will Help Washington Residents Pay for Long-Term Care" - "Eligible residents who live in Washington State will have a new benefit available to them starting in 2025: a $100-per-day allowance for a variety of long-term care services, which will last up to a year." It seems to me this is a real problem and I wonder if gov't (fed or state) is going to step in somehow like Washington State is trying to do. Not trying to start a political debate, but thinking some innovative solution is going to be needed going forward and I'm not sure I want to lock any policy in today before I see more of a direction from the industry.
Mark
stan1
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Re: LTC insurance -- where do the premiums go?

Post by stan1 »

With both LTCI and SPIA policies purchased right now you are locking in today's low interest rates. Buying a lot of either policy is basically speculating that rates won't go up a lot during your lifetime. With SPIAs you can somewhat offset this by buying incrementally at different times with different market conditions. Can't do that with LTCI. Both turned out to be a good deal for people who purchased them in the 90s or early 2000s because insurance companies did not predict current interest rates.
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