LTCI Industry Spiraling

Why are so many companies pulling out of long term care insurance? Shortly after announcing their withdrawal from the individual LTCI market, Prudential has announced that it will no longer sell to companies or groups, either. Industry giant Genworth, along with Unum, Transamerica, Mass Mutual, and John Hancock, have all made major cuts to benefits and some have increased premiums. How can it be that all of these insurance experts have misjudged the market so completely? Insurance is, after all, what they do – why are things suddenly so bad that they are treating LTCI like a hot potato? There are a few factors.

We’ve all heard it many (many, many) times over the past few years, but the economy is struggling. Low interest rates means that insurers investing in the market are not getting a great return on their investment and therefore don’t have as much capital to pay out benefits. This, in fact, is the main reason Prudential cited for withdrawing from the industry.

Another problem is that not enough people are dropping their policies. Insurance companies expect a certain number of people to drop their coverage without ever using it; generally, about 5% of policy holders do this. In LTCI, the number is more like 1%. This leads to more people making claims that insurers did not anticipate.

Additionally, claims made for Alzheimer’s are growing; it is the reason for more claims than any other coming out of nursing homes, and it is straining LTC insurers. In 2011, LTCI payouts for Alzheimer’s reached $6.6 billion. As Americans live longer and we provide better care for our Alzheimer’s patients, the cost of treatment goes up.

All of these factors may lead to a company to stop providing Long Term Care insurance. So, people looking to purchase a policy go elsewhere. From a provider standpoint, this seems like a good thing. But since LTCI is a risky investment for insurers, they don’t want it to become a large percentage of their business. As more people come looking, they start to cut back benefits and raise premiums, or duck out of the market altogether.

The big question is: what do we do now?

An average nursing home costs over $75,000 a year, and the cost is growing. This is not something most people can pull out of their back pocket when the need arises. It’s easy not to think about it when you are young or even middle aged, but the reality is 1 in 8 older Americans has Alzheimer’s, and that’s just one of the conditions that could end up requiring long term care. The unpleasant truth is that Medicare and Medicaid can’t sustain the expense of the tens of millions of Americans approaching their golden years in LTC (expected to costabout $1.1 trillion by 2050).

So where do we go? As insurance becomes less available and more expensive, and the cost of care continues to rise, planning for retirement begins to look insurmountable. Even worse, what do we do when a loved one needs care and doesn’t have the resources or insurance to pay for it? Remember, LTCI is still available – though you may want to look into it sooner, rather than later. We will continue to look into this issue for you and, in the meantime, check out payingforseniorcare.com for some resources.

About the author

Amanda Dean

Amanda Dean is an expert in senior care with almost two decades of experience. After graduating from Cornell University with a degree in Human Development, Amanda was selected for the highly coveted role at NYU Langone Medical Center as a Geriatric Case Manager. She then founded and ran the largest independent local senior care advisory in NY for 12. Amanda joined Silver Living as the Senior Editor in 2012.