Insurers' soaring rates sting millions of Americans with long-term care policies
By Alex Nixon
Published: Thursday, July 18, 2013, 12:01 a.m.
Larry Grumet and his wife were trying to be responsible when in the late 1990s they purchased individual insurance policies to cover the cost of nursing home care they might someday need.
More than a dozen years later, the retired Squirrel Hill residents wonder whether they can afford to hold onto long-term care insurance, which is slated for a 20 percent premium increase at the end of this year — the third rate hike since 2008.
“I didn't want to have my daughter responsible” for providing care later in life, Grumet said. The two policies cost a combined $2,400 a year. The latest increase will mean an extra $480 a year for the couple.
Millions of Americans face the problem. Insurers are hiking rates by double-digit percentages, threatening to make coverage unaffordable at a time when demand for nursing home, assisted-living facility or in-home care is likely to increase as baby boomers age.
State and federal budgets, straining under the weight of skyrocketing health and retiree costs, could face an onslaught of applications for Medicaid, which pays for nursing home care when people deplete their savings.
This year, the Pennsylvania Insurance Department approved rate increases for 11 insurers, raising premiums by 10 percent to 20 percent on tens of thousands of policyholders.
Insurers say they need the money to cover higher-than-expected claims. People live longer and medical costs are rising, and insurers miscalculated the impacts, said Eileen Tell, a senior vice president with Univita of Natick, Mass., which administers long-term care plans. They incorrectly estimated the number of policies that would have lapsed, she said, risking a higher than anticipated number of claims.
The rate hikes won't stop after this year. Most insurers asked the state to approve even higher increases, some up to 90 percent. State regulators capped the largest requests at 20 percent. The insurance companies said they'll be back.
Ray Landis, an advocacy manager for AARP in Pennsylvania, said the organization hears from upset policyholders.
“The real shame of it is that they are the folks that did it the way all the financial experts told them that they should,” he said. “So many people don't plan (for long-term care), but these are the people who did, and they're getting burned.”
Moody's analyst Laura Bazer said long-term care insurers across the country hiked premiums, and many are quitting the business.
“Basically, life insurers mispriced the older blocks of business, and they're unprofitable,” Bazer said.
Many assumptions the insurers made when setting prices in the 1980s and 1990s — how long people would live, how many people would drop coverage before using it, and interest that could be earned from premium dollars — were incorrect, she said.
Five of the nation's eight largest long-term care insurers no longer write policies, according to a report by Bazer last year.
Several companies raising rates in Pennsylvania this year no longer write policies. They include Metropolitan Life, Continental Casualty, Allianz Life and Highmark.
“It's become a high-end niche product,” said John O'Leary, a consultant in North Andover, Mass. “The people who have the money, there will be a viable market (for them). ... For people who can't afford that, which frankly is the vast majority of us, it may not be the answer for the middle class.”
An average couple turning 65 will spend an estimated $63,000 on a nursing home or other long-term care, according to a March report from the Long Beach, Calif.-based SCAN Foundation, which advocates for solutions to the care problem.
Few Americans saved enough to cover those costs and have enough on which to live, O'Leary said.
The number of Americans needing long-term care is expected to increase from about 12 million today to 27 million in 2050, according to the SCAN Foundation.
“More middle-income Americans will be making claims on safety net programs like Medicaid, as a result of being financially ill-prepared,” the foundation's March report stated. “This would further threaten the financial health of those safety net programs.”
Pennsylvania has the fourth-oldest population among states, with 15.4 percent of residents, or nearly 2 million people, 65 or older, the 2010 Census found.
The Grumets bought policies from Genworth Life, the nation's largest issuer of long-term care policies. It has about 60,000 policyholders in the state, more than half of whom will absorb rate increases of 20 percent. That follows increases of 9 to 12 percent in 2008, and 18 percent in 2010.
Steve Zabel, Genworth's senior vice president of long-term care insurance, acknowledged the company significantly erred in estimating the percentage of people who would let policies lapse. That resulted in a bigger-than-anticipated payout on claims, he said.
Genworth this year asked states to approve rate increases of 88 percent on policies with a lifetime benefit, and 35 percent on those without.
“We will be coming back with future requests,” Zabel said.
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or firstname.lastname@example.org.
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