WSJ: Long-Term Care Insurance Gap Leaves Seniors in the Lurch

Long-term care insurance companies are hitting older Americans with skyrocketing premiums as they struggle to accurately reprice their product ahead of the 77 million baby boomers, reports the Wall Street Journal, and some seniors are left facing a healthcare coverage gap. 

One husband and wife saw their premiums hiked 25% and 75%, respectively, in 2012. Although the woman was able to get her rate hike reduced to a more manageable 46%, she also had to reduce her benefits. Some senior policyholders are forced to drop their coverage altogether, lessening their ability to afford in-home care or other forms of long-term care. 

“Currently, Medicare pays for only short stays in nursing homes or in-home care under limited conditions. For the most part, seniors who need care have to burn through their savings to pay for it,” says the article. “Only after they are impoverished will Medicaid—the government health program for poor people—pay for a basic level of care.”

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Insurers have long been aware of the healthcare gap between Medicare and Medicaid. The problem, according to WSJ, is that they underestimated the trajectory of healthcare costs and the number of seniors who would use their long-term care insurance benefits back when they began selling policies in the 1980s and ’90s.

“Many insurers predicted that 5% to 7% of people who bought long-term-care coverage would cancel their policies each year without tapping their benefits,” writes WSJ. “Instead, the annual cancellation rate at many insurers has been less than 2%, actuaries say.” 

Had insurers made predictions assuming such a low cancellation rate, PricewaterhouseCoopers estimates, initial premiums likely would have been priced 35% higher. 

Instead, many underpriced premiums, while others undercharged at first with plans to then hike premiums, the article says citing Joseph Belth, editor of the Insurance Forum newsletter.

“Most of the actuarial assumptions made by insurers years ago turned out to be overly optimistic,” writes WSJ. “Underestimating how long elderly policyholders would live—and collect benefits as a result—led to a 14% shortfall in premiums, according to a presentation to college students by PricewaterhouseCoopers principal Larry Rubin.”

Premium hikes notwithstanding, many of those who thought ahead and bought long-term care insurance are holding onto their policies “for dear life,” unwilling to spend down their assets on costly nursing home bills. For those currently seeking coverage, it may be more difficult to find an insurer. In recent years, many have exited the long-term care market altogether while others have stopped offering new policies in certain areas. 

Five of the top-ten sellers, including MetLife and Prudential Financial, have either sharply reduced or completely discontinued selling long-term care insurance since 2010, according to Moody’s Investors Service.

Others that have remained in the market are starting out with higher-priced premiums and have begun charging women who apply individually more than men due to longevity and a longer care-needs timeframe.

Read the full article at the Wall Street Journal. 

Written by Alyssa Gerace

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