Insurers' push for rate hikes in long-term care coverage prompts state hearing
March 7, 2016 12:00 AM
Dan Marschka/Intelligencer-Journal via AP
Tina Reese leads a word game for residents at a nursing home in Lancaster, Pa. Long-term care insurance policyholders who spent many years unaccustomed to rate increases have been undergoing price shock recently, a quietly disturbing trend that will be spelled out publicly in Pennsylvania for the first time this week.
By Gary Rotstein / Pittsburgh Post-Gazette
Long-term care insurance policyholders who spent many years unaccustomed to rate increases have been undergoing price shock recently, a quietly disturbing trend that will be spelled out publicly in Pennsylvania for the first time this week.
The latest round of eye-popping price increases sought by four insurers — ranging up to the 130 percent that industry leader Genworth Life Insurance Co. wants to impose on some of its longtime customers — has prompted a rare public hearing Thursday by the state Insurance Department. It will hear from both insurers and consumers as well as explain its rate approval process.
The discussion will shed light on a product that can help a portion of the relatively affluent population but was never considered a great deal for everyone. Financial planners say there’s no formula to determine just who should pay for it, as it should be part of an overall strategy for the future by someone nearing retirement with substantial savings and assets to protect and sufficient income to afford a couple hundred dollars monthly for it. Recent price adjustments, however, have put it in a new light.
“A person purchasing a long-term care insurance policy is getting the risk of spending money on long-term care off the table, but a new risk has appeared — that premium increases will take it to unaffordable levels,” said Anthony Webb, a research director who studies retirement issues at the New School’s Schwartz Center for Economic Policy Analysis in New York City.
Some of those speaking at Thursday’s hearing in Harrisburg, whether as industry officials or regulators, will describe a problem that insurance actuaries themselves created decades ago with dramatically erroneous assumptions in recommending premium prices too low to cover future claims. Without substantial rate hikes now to compensate — and they’ve become common across the nation in the past several years, with state regulators’ approval — the companies contend they’ll lack the pool of funds to someday cover Aunt Betty’s long-term nursing home stay if and when she needs it.
Even if the insurers’ own miscalculations were responsible for losses that caused most of them to stop writing new policies in recent years, their need for cost correction with longtime customers isn’t much disputed by analysts.
“Long-term care insurance is very unique in terms of the challenges it presents to regulators,” said state Insurance Commissioner Teresa Miller. “We’ve got to look at the rates and make sure [we protect consumers] but also make sure companies are around to pay claims. It’s become a difficult balancing act.”
There’s one piece of good news for thousands of area residents who bought policies in middle age to protect their savings from being swallowed in frailer years by nursing homes, assisted-living centers or in-home help: Pennsylvania’s Insurance Department several years ago set a ceiling of 20 percent on nearly all rate increases, regardless of whether companies made a sound case that they needed more.
The bad news: The 20 percent cap means companies are returning on an annual basis to apply for higher rates, creating the potential for 20 percent on top of 20 percent on top of 20 percent in price increases. And that limit isn’t guaranteed. Ms. Miller said the maximum is not set in regulation but simply a “guideline” adopted several years ago to cushion the price blow for the estimated 288,000 long-term care policyholders in the state. Other states have adopted similar caps.
Of 43 rate hike requests submitted in Pennsylvania between Sept. 15, 2014, and Sept. 15, 2015, the department approved increases of 20 percent in 18 cases and lesser amounts in all others except for a 25 percent boost allowed Continental Casualty Co., which had sought 60 percent.
In the pending cases, Genworth is seeking increases ranging from 33 to 130 percent affecting 27,551 customers; John Hancock Life Insurance Co., 14 to 88 percent affecting 7,572 customers; Metropolitan Life Insurance Co., 43 to 60 percent affecting 6,573 customers; and Unum Life Insurance Co., 63 to 94 percent affecting 4,829 customers.
Those requests each have wide ranges because companies divide policyholders into different classes whose rates are determined by factors such as their age and the level of benefits provided. The increases don’t apply to new policies; MetLife and Unum are among those that no longer add long-term care clients.
Tom McInerney, the Genworth chief executive officer who plans to speak at Thursday’s hearing, said companies like his that are still selling new policies have been able to adjust rates and benefits to cover future claims, but it means the new business is only about one-third the volume industry-wide of what it was several years ago. Meanwhile, Genworth and others continue trying to make up for past losses. Mr. McInerney said Genworth began providing long-term care insurance in 1974 but never raised rates before 2007.
“I think consumers are justifiably complaining” when learning of new hikes, he said. “I would say that on the other hand, they have paid well under what they should have been paying along the way” based on three faulty assumptions when the insurance was introduced late last century:
• Fewer than 1 percent of customers annually drop their policies and give up their right to future benefits, when actuaries had assumed a lapse rate of at least 5 percent based on the history of their other products, such as life insurance.
• The companies are limited to investing customer premiums in relatively safe government and corporate bonds to build up their claims revenue, but those returns of 4 percent annually are barely half of what they were last century when projections were made.
• Inflation in the cost of long-term care exceeded expectations.
Genworth says average annual costs in Pennsylvania last year were $110,960 for a private nursing home room, $36,900 for an assisted-living facility and nearly $50,000 for someone receiving extensive home help. Insurance benefits usually are triggered when individuals are diagnosed with cognitive impairments such as Alzheimer’s disease or need help with “activities of daily living” such as dressing, bathing and walking.
Medicare provides a limited period of benefits for such care when beneficiaries are recovering from medical procedures, and Medicaid covers it for people who qualify financially by spending down their assets. Otherwise, people are on their own, and the 8 million long-term care policies in America exist primarily for people trying to preserve ample savings for their heirs and retain more choice over their care than Medicaid offers.
Mr. McInerney said that in the time since Genworth began substantial rate hikes in 2012, about 85 percent of its customers have retained their full coverage and the rest either reduced future benefits to avoid increases or decided not to renew policies. He said Genworth allows customers who drop policies to at least obtain future benefits equal to the amount they’ve already paid in premiums.
Insurance representatives and financial planners say it’s a good time for policyholders to review their coverage, as they can elect cost-cutting options by reducing benefits such as inflation protection, maximum daily benefits and the number of years they receive benefits. A John Hancock spokeswoman said nearly half of customers who would have been affected by a prior rate increase avoided it by reducing the 5 percent annual benefit increase for inflation that had been built into their policies.
“It’s important to make sure a policy fits your long-term financial plan, whether that means keeping the same benefit and paying the increase or taking less benefits and paying the same dollars,” said T.J. McCance, director of insurance for the Hefren-Tillotson investment management firm.
He and Mark Ceraso, vice president of financial planning and risk management for BPU Investment Management Inc., said people should be cautious about dropping coverage, as older policies are still a better deal in terms of costs and benefits than the plans being sold today. New customers, they said, are often finding it preferable to tie their long-term care insurance to their life insurance in new plans that provide a return for their money — to survivors — even if policyholders don’t end up needing long-term care.
Local residents interested in watching the Harrisburg hearing, scheduled from 9 to 11:30 a.m. Thursday, may do so in person through a live telecast at Carnegie Library’s East Liberty branch, at 130 S. Whitfield St., or online via livestreaming at http://pacast.com/players/live_insurance.asp.
Gary Rotstein: email@example.com or 412-263-1255.
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