Tag Archives: California Insurance Department

Why Long-Term-Care Insurance Premiums Are Soaring

By Dan Caplinger

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Alamy

With nearly 70 percent of Americans aged 65 or older expected to need long-term medical care at some point, millions of Americans have turned to long-term-care insurance to help them cover its high costs.

But rate hikes on long-term-care premiums are coming, meaning many of those who prudently planned for their long-term-care needs may not be able to afford to keep their coverage.

The largest public pension fund in the country, the California Public Employees’ Pension Fund, runs one of the biggest long-term-care benefit programs in the country. But CalPERS now expects it will need to raise premiums by 85 percent within the next two years. Private insurance companies are seeing many of the same issues, with CNA Financial (CNA) and Manulife Financial (MFC) both having sought or gotten approval from the California Insurance Department to raise their long-term-care premiums by 40 percent to 45 percent.

What’s Behind the Increases?

Insurance companies have faced a triple-whammy that has hit them especially hard in recent years.

Low interest rates and weak investment returns have hampered their ability to build up the loss reserves they need in order to pay out claims. And with long-term-care insurance often extending for decades, the assumptions that insurance companies make about what returns they’ll be able to earn are even more important than on other types of policies, such as homeowners’ insurance.

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At the same time, health-care costs have continued to rise. The same factors that are making it problematic for the federal government to ensure Medicare’s continued stability are hitting long-term-care insurance providers. Private insurers face the added handicap of having a smaller pool of available revenue and financial reserves to draw from.

Finally, insurance companies made poor assumptions about policyholder behavior, overestimating the number of people who would let their insurance policies lapse over the years. Ironically, that suggests that insurance companies did their jobs too well, convincing their customers of just how important long-term-care coverage is for their financial prospects in retirement.

Combine those three factors together, and it’s no wonder why insurance companies are feeling burned.

Several companies, including MetLife (MET) and Prudential (PRU), have decided simply to stop selling long-term-care policies. They have likely found the challenges of getting regulators to approve the big premium increases that would be necessary to make them economically viable outweigh the potential profits from offering the coverage.

Looking at Your Limited Options

The worst thing about the rate increases is that long-term-care policyholders are essentially stuck without good alternatives.

Given the low priority that most insurance companies have given to offering long-term-care insurance, it’s tough to shop around for better deals. If your health has gotten worse since you opened your policy, you may not even be able to get long-term-care coverage from …read more

Source: FULL ARTICLE at DailyFinance

Is Long-Term Care Insurance Just a Ripoff?

By Dan Caplinger, The Motley Fool

Filed under:

For years, long-term care insurance seemed like the ideal solution to one of the biggest concerns of an aging population. But after recent announcements that premiums on existing policies will rise dramatically in coming years, long-term care insurance is rapidly turning into a nightmare for millions of policyholders.

Last month, the California Public Employees’ Retirement System said it would have to boost the premiums it charges its policyholders for long-term care insurance by 85% by 2015. The move caused an outcry among the 110,000 CalPERS policyholders who have long-term care coverage with lifetime benefits, most of whom have had the insurance for 10 to 20 years.

Why is long-term care insurance getting so expensive?
It’s easy to understand why having long-term care insurance is important. With people living longer and the cost of health care skyrocketing, having the safety net of an insurance policy designed to cover the costs of nursing homes and home-health care has grown increasingly necessary.

But the same trends of rising health-care costs and an aging population that have made long-term care insurance so attractive to consumers has presented big challenges to the insurance industry. Having underestimated the true costs of the health care that long-term care policies offer, insurance companies have struggled to price their policies correctly. Moreover, low investment returns have hampered insurance companies in their efforts to reap enough income from early premium payments to cover costs when insured policyholders start claiming benefits.

In response, insurance companies have faced a dilemma: Should they try to get state insurance regulators to approve huge premium increases, or should they simply eat their losses and move on? A number of companies have chosen the latter approach, with Genworth Financial having decided earlier this month to suspend sales of certain long-term care products in California pending approval of a replacement product that will offer reduced benefits at higher costs. Prudential Financial and MetLife have taken the more dramatic steps of discontinuing long-term care sales in recent years, largely because of the financial challenges involved in offering the policies.

In addition to CalPERS, many private insurance companies are seeking higher premiums to keep selling long-term care policies. A subsidiary of Manulife Financial serving California got approval from regulators to raise long-term care premiums by 40% late last year, while CNA Financial has a request for a 45% increase before the California Insurance Department.

Bait and switch?
For existing policyholders, the main problem is one of sunk costs. Insurance agents typically advise people to obtain long-term care insurance as early as possible to reduce costs, as premiums are much lower for younger policyholders who are less likely to need benefits in the immediate future. What that means, though, is that those who’ve held onto their policies a long time have already paid tens or even hundreds of thousands of dollars in policy premiums without having gotten a dime in benefits to …read more
Source: FULL ARTICLE at DailyFinance