What’s Wrong in the Long-Term Care Market?
MetLife announced last Thursday that it wanted to get as far away from the business as possible. It is not alone:
In the last decade, 11 companies that were once in the top 10 in market share in this area have bailed out, according to Limra, an industry research group…
Genworth Financial is seeking an 18 percent [premium] increase on older policies held by about 25 percent of its customers. And John Hancock has filed for permission to raise premiums for about 80 percent of its customers by an average of 40 percent. It has also temporarily stopped offering new long-term care insurance plans through employers while it tries to figure out what to charge.
The problems: low interest rates, the decisions to cover assisted living, policyholder persistence (fewer drop outs) and increased life expectancy.
It’s hard to insure against events that turn out to depend on the choices of the insured rather than on some uncontrollable external factor. For every person in a nursing home, there are two equally disabled people not in a nursing home. Assisted living is even more of a lifestyle choice rather than a random, uncontrolled (and therefore insurable) event.
I agree with Paul. They need to rethink the product.
Bait and switch.
What happens to those people who have paid their premiums for years but cannot afford the increase?
They lose their investment while the insurance company swindles a new set of suckers?
What is needed is a savings plan coupled with insurance, where the insurance component covers only truly insurable events.
I’ve been watching all of the issues in senior housing over the last few years. Here’s a bold prediction: We’ll be retro-fitting apartment complexes to be quasi-assisted living facilities. Seniors won’t have enough savings to be able to afford nice retirement communities. So, it will be places that are converted from other uses.
You’re right about long term care. You can’t insure for something that most people go through. It has to be a savings plan. The boomers might just run out of money on this one.
I’ve often wondered about the perverse incentives involved when long term care insurers begin to cover both home care and nursing homes. On the one hand, home care costs less than half of traditional nursing home care. On the other hand, no doubt every senior could use a little help around the house as they become feeble — yet none wants to be moved to a nursing home. I can imagine the likelihood of a claim to fund home care being substantially greater than the likelihood of a claim to cover nursing homes.
There is an interesting post by Jason Shafrin at his blog here:
http://healthcare-economist.com/2010/11/17/medicaid-and-long-term-care-services/
As Mr. Shifrin’s article notes, Medicaid is the single largest payer for LTC. Steven Moses of the Center for Long-Term Care Reform (www.centerltc.com) has described how the “eldercare” industry has developed techniques of “artificial impoverishment” to allow higher-income folks to qualify for Medicaid LTC.
These techniques obviously contribute to the death spiral, because people can wait until they get old and their middle-aged kids can then hire eldercare lawyers to get them qualified for Medicaid.
It strikes me as awkward for a government so intent on expanding healthcare services so people live longer, yet has no strategy providing they are successful.
USA Today has a piece on this in today’s paper:
http://usatoday.printthis.clickability.com/pt/cpt?action=cpt&title=Long-term+care+insurance+worries+Baby+Boomers+-+USATODAY.com&expire=&urlID=441126662&fb=Y&url=http://www.usatoday.com/money/perfi/insurance/2010-11-22-longtermcare22_CV_N.htm%3Floc%3Dinters