Is LTC A Thing Of The Past?

Wouldn’t you know that the future of long term care insurance as we know it is being seriously called into question this November, the month some marketing genius has labeled “Long Term Care Awareness” month. Ron Lieber of the New York Times recently reported that MetLife would stop underwriting long term care policies for individuals on December 30, while at the same time halting new enrollment of LTC insurance for groups and other plans sponsored by an employer.

According to Mr. Lieber’s article, many other insurance companies, leaders in the LTC insurance filed, are requesting large premium increases or are also seriously contemplating going out of the LTC business. The reason given: Companies were not charging policyholders enough to cover the quickly expanding costs of LTC.

After the blizzard of comment we all have weathered during the recent health care battle in Washington, this should not surprise us. It is obvious that we are living longer (although the affluent seem to be getting a bigger share of longer life than the rest of us). And, although we seem to have made great strides in battling heart, lung, cancer and other killers, we seem not to have made much headway against the major LTC afflictions: Alzheimer’s and dementia, which fill our nursing homes and assisted living facilities.

With demographics (the Baby Boomers) indicating that these afflictions will increase without a major breakthrough, the future looks bleaker and bleaker.
Mr. Lieber’s article points out how far off the mark insurance companies were in pricing these LTC policies. Many factors caused this, the major ones being:

* INTEREST RATES - Everybody knows that rates have hit bottom and are staying there for a while. This hurts insurance company income which relies heavily on invested premiums’ interest income. Low interest income adds to the already heavy load of ever-increasing cost of long term care.

* MORBIDITY – Miscalculating the number of LTC claims the insurer will be carrying on its books and how death and other causes will affect the policy payout.

* PERSISTENCE – This is where more turns out to be less for LTC companies. One would think that having policyholders continue to pay premiums for insurance would be to the benefit of insurers. Not so in LTC where premiums do not cover outlay without normal interest income. In LTC, when a policyholder stops paying the premium, there is no further obligation on the insurer to pay for care, so all monies already paid in, less administrative costs, are pure profit to the company. However, if the policyholder keeps paying premiums until he or she requires LTC benefits, the insurer faces the real prospect of losing money, depending on how long the policyholder draws benefits. So, if a company based its premium on a larger number of policies stopping payment before claim than actually do, the insurer may find its premium schedule too low. Clearly, insurance company underwriters, in their haste to sell product, have grossly miscalculated the risk of this coverage and carriers are now battling to head off future losses.

Is the long term care insurance policy doomed? Will Baby Boomers be left without financial protection when they face the uncertainty of later years? With insurance companies being uncertain about the risks and interest earnings on the bottom, who can tell?

The perfect solution would be for science to unlock the secrets of Alzheimer’s and dementia so they may be done away with, or at least, alleviated to the point where people can function. Without such a breakthrough, the future for this type of insurance looks grim.

Anyone have any ideas?