The U.S. leads the pack in the percentage of older adults who have trouble paying their medical bills.
By Cyril Tuohy
Genworth Financial president and chief executive officer Thomas J. McInerney called for the dramatic expansion of private long-term care insurance (LTCi) coverage to ease the burden of paying for long-term care on taxpayers.
McInerney, head of one of the largest LTCi underwriters in the country, also appealed to the industry to find new business models and a more efficient regulatory framework to prevent more LTCi carriers from exiting the market.
Genworth is considered an industry bellwether. Analysts follow the company closely for clues to future trends in long-term care.
“We should all be focused on how to dramatically expand the number of Americans who purchase private long-term care insurance,” McInerney said in prepared remarks before the Intracompany Long-Term Care Conference in Orlando, Fla.
LTCi covers only about 7.4 million Americans, but there are 115 million Americans between the ages of 40 and 75 years old without coverage who need to buy it if states want to avoid blowing through Medicaid budgets, he said.
Of the 10,000 Americans turning 65 years old every day until 2030, about 70 percent will need some form of long-term care support during their lives, he said.
Lawmakers in Congress are considering new ways to broaden the role for private insurers in the LTCi market as Medicare generally does not cover long-term care and not everyone qualifies for Medicaid, which is administered by the states.
Every dollar paid for by private insurers toward long-term care is a dollar less that taxpayers won’t have to pay through government programs like Medicaid, whose budgets are under pressure from long-term care costs.
The average cost of nursing home care is about $83,000 a year. With an annual inflation factor of 3 percent, nursing home care will run between $170,000 and $200,000 a year in 25 to 30 years, McInerney said.
The government “can’t afford a 100 percent public solution,” he said.
Last year, the Federal Commission on Long-Term Care proposed expanding the private LTCi market to ease the burden on public funding sources, but long-term care experts say that even the private market cannot supply enough coverage at an affordable price to meet exploding demand. LTCi, therefore, will contribute to the long-term care solution, but in a supporting role.
For the private LTCi market to work properly, McInerney said state insurance regulators need to let long-term care insurers raise rates and grant smaller but more frequent rate increases so insurers can adjust pricing to match the long-tail risk, a risk that stretches out 20 to 25 years before any claims are paid.
In the past, the industry priced LTCi “up front,” before the claims came due. When long-term care costs increased, insurers realized they had not priced their coverage high enough. Many insurers lost billions of dollars on their policies and abandoned the market.
For LTCi companies to remain in the market, or to attract new ones, the industry needs “greater consistency, predictability and clear and reasonable regulation that allow carriers to manage in-force rate actions, where those rate actions are actuarially justified,” McInerney said.
As of Dec. 31, Genworth has received approval to increase LTCi rates on old policies in 41 states, which will allow it to bring the policies “closer to break-even” when the increases are implemented in 2017, he said.
As many as 85 percent of Genworth LTCi policyholders have accepted the full increases on their long-term care policies, he added.
McInerney called the resistance on the part of some regulators to authorizing rate increases “short-sighted” and “disruptive.”
“That is bad for the insurance companies, individual states, the LTC market, Medicaid solvency, consumers and all taxpayers,” he said.
He said the new framework should consist of a simpler, more efficient process to apply for rate increases before state regulators, product approval deadlines of 90 days, frequent re-rating of LTCi policies, and approvals to raise premiums on policies issued before the year 2000 to bring them to break even, or even lock in modest losses.
Failure to implement the reforms would likely mean the exit of the remaining LTCi companies from the market in certain states.
The National Association of Insurance Commissioners is circulating a draft of changes to long-term care insurance regulation.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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