Long-term care insurance is one of those things that responsible people buy, hoping to ensure that they don't become a burden on society or their family in their old age. Since Medicare doesn't pay for nursing home services, consumers must bear the cost themselves or rely on their families, or burn through their assets to become eligible for Medicaid.
But as so often happens to responsible people who try to do the right thing, affordable long-term care policies that provide decent coverage are becoming nearly impossible to find. Even worse, existing policyholders are facing sharp premium increases, decreased benefits, and, in some cases, the outright collapse of their insurer.
That's the case with those who bought policies from two units of Penn Treaty American Corp., a small Pennsylvania insurance company that has an estimated $4 billion in long-term care liabilities but assets of only $600 million. Liquidation is expected next year, which may leave consumers who paid their premiums for years facing reduced benefits when they need them.
Those who presently have policies from Penn Treaty should not abandon them, since they will receive at least some of the benefits owed them and, more importantly, may not be able to find coverage anywhere else.
Because insurance is regulated on a state-by-state basis, Penn Treaty policyholders will fare better in some states than others but all are likely to receive far less coverage than they anticipated.
Many insurers have already gotten out of the long-term care business because of the same factors that have combined to sink Penn Treaty -- rising medical costs, longer life expectancies, and, perhaps most critical, low interest rates that have made it impossible for many insurers to earn the kind of returns they need in order to meet their obligations.
While not every case is as drastic as Penn Treaty, there are very few long-term care policyholders who haven't experienced major rate increases, including those who bought policyholders from Genworth, a major insurer that once enjoyed top ratings from consumer groups and state agencies.
"After seven years with Genworth, we have been hit this year with a 60% rate increase," said Elizabeth of New York, N.Y., in a recent ConsumerAffairs review. "My husband and I simply cannot afford to pay the new rates, but we are in our seventies and are likely to need the coverage."
"I called the New York State Insurance Department, and their lawyer explained that the rate increase was approved by the state. Some consumer protection agency!" Elizabeth said.
Linda of St. Joseph, Mo., has a similar problem. "When I (a widowed senior) purchased my LTC policy from Genworth, It was represented as a policy in which the premiums would not go up unless the entire class of policies had an increase. ... WOW! I just received the letter informing me that to retain my current policy would require an increase of 50.55% (correct, that is Fifty percent) effective January 1. This would be more than $1200 for the year for me."
Linda concluded by saying she will look elsewhere for coverage. "I will definitely be acquiring LTC insurance elsewhere."
Unfortunately, she will be hard-pressed to do so. The price of long-term care coverage is based on a number of factors, including the customer's age and state of health. If Linda is already a widowed senior, she is not going to be an attractive prospect to an insurance company, for the simple reason that as an older person, she is more likely to need long-term care within the next few years.
Young, healthy consumers are more attractive prospects because, barring an accident or rare illness, they are not likely to need long-term care for decades. By that time, in many cases, they will have canceled their policy because of -- you guessed it -- rising premiums.
A different world
There is plenty of blame to go around and, while there have been lawsuits by aggrieved policyholders, it is difficult for consumers to prevail because insurers' rate increases are, as Elizabeth learned, approved by state insurance regulators. It's hard to sue someone for doing something legal.
Regulators say their hands are tied because if they do not grant premium increases, insurance companies will be unable to meet their obligations and will wind up like Penn Treaty. This ends up costing everyone, since other insurers must pay into a fund to help cover the obligations of companies that fail, an expense that winds up contributing to future premium increases.
While there are arguments to be made on either side, long-term care insurance -- which was launched on a large scale back in the 1990s -- may simply turn out to be an idea that collided with unforeseen changes in healthcare costs, longevity, and the state of the financial markets.
All it would take to turn the situation around would be for Americans to resume dropping dead in their 60s, for someone to find a cure for Alzheimer's, and for inflation to bring back double-digit interest rates for institutional investors.
What to do
What's a consumer to do? There's no easy answer. There are still a few companies writing long-term care insurance (including New York Life, Mutual of Omaha, and Northwestern Mutual, according to a recent Wall Street Journal report) but it is hard to qualify and any pre-existing condition will likely cause you to be rejected.
With nursing homes costing $100,000 a year or more, even a millionaire could run out of money if incapacitated for a decade or more. Staying healthy is obviously the key, but there are many cases of people whose healthy diets and frequent exercise give them the heart of a horse but who nevertheless contract Alzheimer's or another form of dementia and live for many years in a state of total dependency.
The ultimate answer is beyond an individual consumer's control and lies in the realm of public policy. Whether you call it socialized medicine or sound governmental policy, federal action is needed to address the problem. Whether that's possible in today's sound-bite and Twitter-bit era is a question beyond the scope of this article.