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RIP long-term care insurance?

By Jay MacDonald ·
Friday, October 12, 2012
Posted: 10 am ET

Is long-term care insurance inherently unsustainable?

One could easily reach that conclusion based on a new report from Moody's Investor Service that throws into question the long-term viability of a complicated product that brokers have found difficult to sell in a down economy, even to aging boomers.

Moody's notes that five major insurance companies have ceased writing long-term care insurance in the last two years: MetLife and CUNA Mutual departed in 2010, CNA and Berkshire dropped out the following year, and Prudential pulled out of the individual market this year.

That leaves the bulk of the market to Genworth, Northwestern and John Hancock, which combine for 61 percent, according to a 2012 report from Broker World magazine.

If you've ever purchased long-term care insurance, you know that the question that keeps you up nights throughout the selection process is: Which company is most likely to be there 10, 20 or 30 years from now, when I'm most likely to need them?

The Moody's report won't help you answer that question or sleep any better.

According to Laura Bazer, the Moody's vice president who wrote the report, long-term care insurance suffers from a short track record, having only appeared on the market in the 1980s. What limited claims experience does exist shows that insurers mispriced those early policies and were overly generous with terms. The miscalculation forced many to increase reserves, which they did in large part on the backs of new customers over the past two years.

It can be pretty hard to sell a "new" product by jacking up its price, as the industry has found out recently. To further correct course, Bazer says long-term care insurers also have gotten jiggy with their products, restricting benefits and payout periods and combining long-term care coverage with life insurance and annuities to make it more attractive to some.

Unfortunately, that approach can make a complex product even more confusing -- and perhaps more suspect in the eyes of unenthusiastic buyers.

Moody's concludes that the recent exit of five major players, combined with a low-interest-rate environment, throws into question whether long-term care insurance is a sustainable product.

The Moody's assessment echoes concerns expressed last year by Health and Human Services Secretary Kathleen Sebelius when she announced that the feds were temporarily suspending their search for a sustainable long-term care solution under health care reform.

The rap on long-term care insurance has long been that those who can afford it don't need it and those who need it can't afford it.

To that, Moody's has added a third possibility: that it may be impossible for even the savviest actuary to devise a long-term care product that brings in more money than it gives away.

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December 04, 2012 at 8:43 am

While it is said that LTC plans are not for everyone, it can still be a good option for those who want a sound retirement plan. But as mentioned, not everyone can afford it. Yet, if one starts to plan early, get long term care insurance quotes , he can start saving himself a pool of money for his future health care. Additionally, buying LTCI plans early has perks that can help him save on premiums.

Jesse Slome
October 13, 2012 at 9:01 am

With all due respect, the premise is dead wrong. Long-term care insurance is far from dead. It is (like so many other things today) undergoing change. It is a most viable option for millions of Americans who 1. don't want to turn loved ones and family members in to their caregivers, and 2. recognize that already meager government programs will not be there in 10 or 15 years when they need care. New approaches to long term care insurance are going to be very attractive to consumers and very sound for insurers.
Jesse Slome
Executive Director
American Association for Long-Term Care Insurance

Nathan Sanow
October 12, 2012 at 11:38 pm

The recent exit of some of the carriers has more to do with the ultra low interest rate environment than it does other factors. For comparison, the health, life, and disability insurance markets have been steadily losing covered people over the last 10 years. One could assume that those markets are dying as well. According to Industry trackers like LIMRA and others the LTC market grew by over 6% in 2011. Once interest rates return to a more normal level I expect you will see other carriers re-enter the market and product innovation to make the plans easier to understand and more affordable is already underway. The LTC market is not dying but just in mid life crisis figuring itself out.

October 12, 2012 at 4:21 pm

This type of article helps no one. Yes, the LTC insurance industry is changing, but to say it won't survive? It certainly will because it has to, as the number of our elderly grows every year. Please consider the following:

There’s a new type of long-term care policy that can protect your assets from Medicaid even after the policy runs out of benefits. These government-approved policies are like a traditional long-term care policy with additional consumer protection features.

The Long-Term Care Partnership programs provide dollar-for-dollar asset protection. Each dollar that your partnership policy pays out in benefits entitles you to keep a dollar of your assets if you ever need to apply for Medicaid services.

Here’s an explanation of how these policies work: