The Long-Term Care Insurance market is collapsing. A recent Wall Street Journal article pointed this out. It is a nice article, written to high journalistic standards, but written more from the standpoint of the insurers rather than from the insureds. I write to the insureds, and my interpretation of the article is the following: If you don’t already have LTC insurance, you won’t get it. Especially if you have any pre-existing conditions, you are Skeee-rewed! I have some experience with this market through clients and insurance agents that I will share below. Here is a link to the article:
The article states that there were fewer than 100,000 LTC policies sold in the US in 2016 and the pace was at fewer than 70,000 through the first half of 2017. Sales peaked at about 750,000 policies at about 750,000 policies in 2002. That’s a decline of about 90%. That’s a collapse of a market.
Long-Term Care
Long-Term Care insurance is supposed to insure against the costs that you will likely incur when you get older and/or become ill. In addition to nursing home care, LTC insurance also covers in-home care and home health aids, as long as the insured cannot accomplish various Activities of Daily Living, or ADL’s, such as bathing, feeding, getting out of bed, etc, on their own. We probably all know some or many people, perhaps family members, who have needed a home health aide or a nursing home.
Aging Boomers
Demographics do not bode well for the LTC insurance market. Conversely, they bode very well for the homes and service providers. The largest generation in US history is reaching the age that they will need assistance, if not full-time care. The insurers are getting caught in this trap and they are retreating. The following are some of the reasons given in the WSJ article for why insurers are losing money on LTC insurance:
- Insurers overestimated how many people would opt for care given by family members and underestimated how many older people instead would opt for extended care or nursing homes. Maybe it was the frazzled family members who opted the older relatives into the homes.
- Insurers underestimated how much home residents have enjoyed their new living arrangement and how relatively well they have thrived and how long they have lived once inside the homes. This meant insurers’ payouts were much greater than originally anticipated.
- I infer from the WSJ article that policies written at the beginning of the LTC insurance industry, say 40-50 years ago, had no cap on payouts, but were able to increase premiums with permission from the relevant State insurance commissioner. If so, these insurers are really screwed. Genworth is mentioned. More recent policies do have a cap on payouts. Even so, insurers underestimated how much they would pay out and for how long.
- Reinvestment rates are half of what was anticipated, if that. Insurers collect your premium money and invest it, mostly in various bonds, and hold it for anticipated payouts. Actuaries get involved. This is how insurance companies make money. As interest rates have decreased to near zero or negative in some places, insurers have suffered.
- Policies are not lapsing as anticipated. Only 1% per year are lapsing, vs. 5% anticipated by the actuaries. LTC policyholders are diligent in their planning and in their payment of premiums.
- Cost of care has skyrocketed. That is the subject of a whole column to be written.
IMO
We financial planners tell clients that they really need to get LTC insurance in order to offload the risk that they might someday need to be taken care of. Unless you are young, healthy, and not on any medications or at least not adding or changing any medications, you most likely won’t be able to buy your LTC insurance. Insurers are finding any way not to write new policies, citing risks related to unstable health history, among other excuses. At the same time, married couples have been having fewer children, meaning that families are smaller than they used to be, meaning that there are fewer children available and willing and able to take care of elderly parents, meaning these elderly are going into and staying in homes. Being simply sick or disabled is one thing. Having Alzheimer’s or other disease-related dementia requires a whole other level of care that is above and beyond the pay grade of family members who may have younger family members of their own that need care. All of this means that you need to save for your own care, probably way more than you thought you would need to save.
Our society stresses eating vegetables, eating well, and living a healthy lifestyle so that you can enjoy the life you have and so that you won’t die young. Then, after having lived said healthy lifestyle, you still get sick and need care when you get old. So, is the trope that you need to eat healthy just a conspiracy put forward by the nursing home industry to ensure that they have full beds going forward? I don’t think there is a conspiracy, but it is one of the ironies of life and it does stink.