June 22--When Wayne Sexton and his wife purchased long-term care insurance policies in 2003, they viewed it as a financial planning vehicle that would give them peace of mind.
But that peace was shattered recently when the Sextons got a letter from their insurer, John Hancock, informing them that their annual premiums -- which provide in-home, assisted-living or nursing home care if they should ever need it -- were jumping 90 percent. His premium rose from $1,844 to $3,504; hers spiked from $1,771 to $3,364.
"I was in pretty good shock," said Sexton, 64, of Cary. "It just seemed out of line."
Sexton's distress level lessened when his insurance agent pointed out that he and his wife could avoid the premium hikes by reducing their future benefits. That's a bargain Sexton is willing to make.
But Sexton is keeping his fingers crossed that the steep premium hike he and his wife faced was an anomaly.
"Hopefully, this never occurs again," he said.
Similar scenarios are being played out across North Carolina, where about 192,500 long-term insurance policies are in effect.
So far this year, six insurance companies have obtained approval from state regulators for premium hikes on long-term care insurance ranging from a low of 10 percent to a high of 32 percent.
Those are average increases, with individual increases varying significantly. Indeed, John Hancock's premium increase, which was approved last year but kicks into effect as policies come up for renewal, averaged 39.9 percent but ranged from zero to 90 percent.
Steep increases can be especially tough to swallow for seniors on fixed incomes, which many policyholders are. The escalating premiums also complicates the decision for people considering buying long-term health care insurance, knowing that the price you agree to pay today can jump significantly down the road. That's a calculation you don't have to make when buying life insurance.
Regulation of product limited
The state Insurance Department says insurers are seeking the increases because policyholders are living longer than the insurance companies expected as well as fewer policyholders canceling policies than anticipated. Rising medical costs also are a factor.
"This kind of just proves that people are using this product," said Juliana Schiff, a Raleigh insurance agent who specializes in long-term care and health insurance. "When I started selling this product, people would say, 'I would never need this.'?"
Insurance Commissioner Wayne Goodwin said he regrets that he has limited authority to thwart the surge of rate increase requests that long-term care insurance providers began filing in 2010.
"There is very little we are able to do under existing law," he said, noting that rates are jumping across the nation. "I'm upset we are in this box."
Some insurers have even stopped selling new long-term care policies to individuals nationwide, including Prudential and MetLife.
In North Carolina, long-term care insurance operates under a different regulatory scheme than say, auto insurance or homeowners' insurance, where Goodwin has been able to have an impact. For example, auto insurers initially sought a 12.9 percent average increase in 2008 and followed up with a request for a 1.4 percent increase in 2009. They ultimately cut a deal with Goodwin that rolled back rates by an average of one-half percent.
With long-term care insurance, however, Goodwin doesn't have the authority to establish industry-wide rates. Companies request rates individually, and state regulators are required to approve them as long as they're "actuarially justified," Goodwin said.
Of the six companies that requested rate hikes this year, five were approved as requested. The sixth, Mutual of Omaha, requested an average hike of 32.6 percent but state regulators approved a 24 percent increase.
Young industry, aging clientele
Long-term care insurance originated in the 1980s, and insurers say they are still getting a handle on their costs as their policyholders are becoming older and need to tap their policies for in-home, assisted living or nursing home care. "The long-term care industry is still young and only now is seeing actual usage data which indicate the need for rate increases," John Hancock said in a statement. "Carriers have an obligation to policyholders to provide the benefits that have been promised and at the same time need to ensure the viability of the product."
The rate situation is being further exacerbated by low interest rates, which depresses the returns the insurance companies reap when they invest their reserves, said Jesse Slome, executive director of the American Association for Long-Term Care Insurance, an industry trade group that represents insurance agents.
Still, Slome noted, when insurers hike their rates they typically offer a way for policyholders to adjust their coverage to avoid a rate hike. For example, John Hancock, which reports that it has 23,000 policyholders in North Carolina, offered to keep premiums the same for policyholders who agree to scale back the annual inflation increases stipulated in their policies.
The annual increases, which offset the rising costs of care, would be reduced from 5 percent to 2.7 percent. "It's not a take-it-or-leave-it proposition, and most people find the counter-offer acceptable," Slome said.
Slome added that policyholders generally can't find an equal policy for less money from a competing insurer, given that they purchased their policies years ago and premiums for brand-new policies rise along with your age.
Meanwhile, Goodwin, the state insurance commissioner, is putting together a legislative proposal that would give the state greater authority to regulate rates. Among the measures he's looking at recommending is a cap on annual rate increases -- possibly 10 percent or 15 percent -- and an overall cap on the dollar amount of increases during the life of the policy that would be pegged to the original premium.
But with the legislature expected to adjourn in a matter of days, Goodwin doesn't expect legislators to consider the issue until next year.
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