How sick is the long-term care insurance industry?
The headlines are bleak:
“What’s killing the long-term care insurance industry?”
“Costs of Long-Term Care Rise While Payment Options Narrow”
Contrary to what is often published on the internet, long-term care insurance premiums are very stable. According to the Texas Department of Insurance website, 8 of the top 13 long-term care insurers have not had any premium increases on any of the long-term care policies they’ve sold since 2001. (I wish my medical insurance premium was the same as it was in 2001.)
In August 2000, regulations were passed that removed the profit incentive for any premium increase an insurer requests on long-term care insurance. Most of the premium increases we read about are for policies that were sold before these regulations took effect.
“Is long-term care insurance doomed?”
It’s true that a few insurers like Met Life, Prudential, and UNUM have stopped selling long-term care insurance. However, other long-term care insurers have had double-digit growth each year, which is a remarkable feat in this economy. In fact, today, nearly twice as many people own long-term care insurance as did in the year 2000.
“Is long-term care insurance safe?”
Since the financial meltdown of 2008, only two insurance organizations have had an increase in their financial ratings by A.M. Best from “A” to “A+”. Both of those companies are top long-term care insurers.
“Is the long-term care insurance industry in a state of flux?”
What industry is not in a state of flux right now? Every industry has been turned upside down since the internet was opened to the public in the early 90’s.
Remember how personal computers were once referred to as “IBM-compatible”. Well, in 2004, the company that had set the standard for personal computers stopped selling personal computers. After dominating the PC market for two decades, IBM abruptly left the PC market. No one was silly enough to write the headline:
“IBM stops selling personal computers–future of personal computing is in doubt!”
Yet, in the Spring of 2012, after one of the larger long-term care insurers announced that it would stop selling long-term care policies, “experts” concluded that the future of the long-term care insurance industry was “in doubt”.
IBM made a simple business decision in 2004. They concluded they were not nimble enough to profit from low-margin, price-sensitive, computer manufacturing. Insurance companies also make simple business decisions. There are significant overhead expenses to create, market, and underwrite long-term care insurance.
These expenses are incurred regardless of how many (or how few) policies are actually sold. If sales are too low, the overhead costs per policy make it unprofitable for the company to sell new policies.
Not only are some LTC insurers growing, but some that had gotten out of the business have decided to get back into the business. One highly-rated insurer that sold long-term care insurance for nearly 20 years, and then stopped selling new LTCi policies, started selling new LTCi policies again after significantly reducing their overhead and streamlining their business processes.
Healthcare reform does not provide any long-term care benefits.
The “CLASS Act” is dead.
Medicaid is not the solution for the middle class or the wealthy.
Long-term care insurance policies are not the perfect solution. But, a well-designed long-term care policy, especially a government-approved long-term care partnership policy, may be the best way to prepare for the “long-term care tsunami” headed our way.
If you still have questions, or would like to speak with a long-term care insurance specialist, please click here or visit our video library.
Mark H. Covey, CLTC, CSA
Member of Dave Ramsey’s Endorsed Local Provider Program