Since long-term care insurance was first introduced in the late ‘70s, many payers have dropped out of the market after underestimating how many people would actually use the insurance and the length of time they would be paying claims. Bonnie Burns, a policy specialist with consumer group California Health Advocates and a nationally-recognized expert on Medicare and long-term care insurance, told Kaiser Health News (KHN) premiums have risen so high they’re no longer affordable for the middle class. In 2015, a study conducted by Boston College’s Center for Retirement Research found about one-third of long-term care policyholders over the age of 65 let their policies lapse, largely because they could no longer afford them.
According to KHN, Genworth has lost a total of $2 billion on long-term care policies and continues to lose between $100 and $150 million annually. Tom McInerney, Genworth’s CEO said about 85% of its policyholders have chosen to pay recent premium hikes, 9% chose a reduction in benefits to keep premiums stable and 6% dropped their policies altogether.
In the 1990s, California, along with many other states, created public-private partnerships to boost sales and reduce state tax burdens. But price hikes have caused sales to drop to anywhere from 500 to 800 per quarter, compared to tens of thousands of policies per quarter at the partnership’s inception.
Are hybrid policies the answer?
Some payers have begun writing hybrid policies that bundle long-term care insurance with life insurance or a fixed annuity. Those policies can be used for purposes other than long-term care and can be left to beneficiaries after the policyholder’s death.
Wes Shannon, an investment adviser with SJK Financial Planning, told CNBC he prefers annuity contracts with long-term care provisions to standard long-term care policies. “I like them better, because if you never use the long-term care portion, at least there's some return on investment,” he said. “With long-term care insurance, you don't get anything back if you don't use it.”
According to The New York Times, hybrid policy sales have more than doubled since 2008, topping $2.4 billion in 2015. Only $300 million in stand-alone long-term care policies are sold each year.
Kristi Sullivan, a certified financial planner in Denver, said the hybrid policies are, “Not for everybody.” The policies should be considered by people with $500,000 to $2 million in assets, she told The New York Times. Sullivan reasoned that people with more assets could self-insure or pay for care out-of-pocket while those with fewer assets could spend down until they qualify for Medicaid.
Why people aren’t buying
A major barrier to getting people to purchase long-term care policies continues to be a lack of education. Until they are faced with a need for long-term care, many people still believe it will be covered by Medicare.
As baby boomers continue to age, state and federal lawmakers are feeling the pressure to come up with solutions for financing long-term care. Several proposals are currently under discussion. Potential solutions include:
- Making long-term care insurance a requirement;
- Developing a government-run catastrophic plan; and
- Allowing life insurance policyholders to convert those policies to long-term care policies.
In the meantime, McInerny told KHN that Genworth is trying to get customers to view long-term care insurance as catastrophic insurance with limited benefits instead of as a way to fully cover the costs of long-term care.