Mainers who planned ahead and bought insurance to cover the cost of end-of-life care are seeing premiums that held steady for years suddenly skyrocket.
Now some policyholders of long-term care insurance are reducing their benefits to afford the cost of their plans or forfeiting them altogether. Maine’s insurance superintendent is looking for ways to offer plans that are affordable for both insurance companies and consumers.
According to the U.S. Centers for Disease Control, more than two-thirds of those 65 and older will need long-term care at some point during their lives. It’s something that Noelle Merrill witnessed firsthand as the executive director of the Eastern Area Agency on Aging. So in 2007, she and her husband bought a long-term care insurance policy.
“It made sense because you see people who are spending all of their hard-earned money and then ending up on MaineCare — Medicaid — for long-term care,” she says.
At the time she signed up, Merrill says, her insurance company told her any sizable rate increases were unlikely. That was the model for long-term care insurance: premiums were stable. So she was surprised in 2013 when she got a letter from the insurance company.
“That there was going to be a 58 percent increase,” over the course of three years, she says.
To avoid paying higher premiums, Merrill and her husband have trimmed some of their benefits. First they dropped one year of coverage for long-term care. Next, they lowered the daily benefit — how much the policy would pay for care per day.
“Now it’s another lower daily benefit choice, or forfeiture, or pay the increase, which for this part of it is 12 and half percent, which is a lot of money,” she says.
“I’ve never seen a policy where there’s a tremendous need, but the existing policies that are issued aren’t meeting that need,” says Maine Superintendent of Insurance Eric Cioppa.
Cioppa says when long-term care insurance plans were first introduced about 30-40 years ago, insurance carriers did a poor job pricing them. For one, he says, carriers wrongly assumed interest rates would hold steady.
“They predicted 6-8 percent, and now it’s 4,” he says, so insurance companies had less money than they counted on to pay claims.
Cioppa says carriers also incorrectly predicted how many people would let their policies lapse. When a policy lapses, the money in it goes into a pool to pay others’ claims.
“We’ve all together lost billions of dollars,” says Tom McInerny, CEO of Genworth, the largest provider of long-term care insurance in the U.S. His company alone, he says, has lost $2 billion that it will never recoup.
McInerney says carriers had an impossible task to predict interest rates decades in the future. Even though some premiums from older polices are now taking a sharp turn upward, he says they’re still a great deal.
“When you look at premiums paid versus benefits you had, it’s usually a factor of six times to ten times what you pay in premiums,” he says. “So even with increases it’s still a good deal.”
McInerny says future long-term care insurance policies will likely include smaller, annual premium increases. In the meantime, state superintendents like Cioppa are looking are looking for solutions that balance the interests of both insurance carriers and consumers.
But it may be too late for Merrill. She says she’s considering forfeiting her policy because she’s not sure long-term care insurance is worth it anymore.
“Everyone’s gonna need it, and why are we giving it only to a few?” she says. “The poor are guaranteed something, the wealthy are guaranteed something due to their wealth. The middle class will lose everything, either through a policy or because they need long-term care and don’t have money left.”
If Merrill had her way, she says the federal government would come up with an option to provide long-term care for everyone.
