Commentary: Actuarial Errors Result In Huge LTCi Rate Hikes
Actuarial science is a discipline that deals with assessing the risks in the insurance and finance fields using various mathematical and statistical methods. The field of actuarial science hasn't been all that accurate recently when it comes to long-term care (LTC) insurance.
I depend as an insurance agent on actuaries to provide me with policies and programs that accurately predict the risk factors and are priced accordingly. What I don't expect is that somewhere down the road an insurance provider will say "oops" and raise the rates for a policy by 75 or 80 percent.
I have written before about my objection to standalone LTC policies. Though the newest iterations have some policyholder protections, they are still expensive and subject to the failure of the provider to accurately predict their overall risk.
CNA a few years ago raised rates 80 percent on policies that had a 10-year rate guarantee that had expired. MetLife and Prudential Financial have stopped selling LTC because of significant loses, while the companies that are still willing to sell LTC are struggling under the weight of claims and under predicting their risk factors.
The largest LTC provider, Genworth Financial, in its quest to corner the market basically misjudged everything from the cost of care, rates of returns on investment and to how long people will live. These miscalculations are costing the company billions of dollars in losses and threatens to sink them. So Tom McInerney, Genworth's CEO has a plan.
Pass the losses onto those people who put their faith into the company expecting to be taken care when they are at their most vulnerable time in their lives. He went to the insurance departments in each state and requested a 74 percent rate increase for older policies. All but three states approved the increase.
Unfortunately, Michigan wasn't one of the three. So policyholders in Michigan have been forced to make some hard decisions for the company's mistake. Those people who've come to me for help aren't too thrilled with any of the choices. They have three options: Take a deep breath and accept the rate increase, adjust their benefit to a lower level to keep premium from increasing the full amount, or cancel the policy and forfeit the years of premiums paid.
I'm sure you can guess which of the options Genworth wants its policyholders to choose. The national average for a private room in a skilled nursing facility, based on Genworth's own 2014 survey, exceeds $87,000 a year. You can understand the company's frustration with people who have the audacity to live too long.
LTC was supposed to be the answer. Individuals bought a policy, went into a nursing home for 2½ years and died. It hasn't worked that way.
I'm sure that Mr. McInerney cringes every time he sees a commercial on television that promotes a new miracle drug promised to add years to our lives. Every pill we swallow is a bitter pill for the LTC providers.
For every disease we conquer, we place more responsibility on society. For every medical breakthrough, society must adjust for and plan for the future consequences. We must as a society reconcile what to do with the coming aging crisis.
We can on one hand ignore it and let attrition take its toll. Or we can go to the other way and provide every service needed. Neither extreme really works.
Somehow we need to find a happy median - and we need to do it now. By 2050, 75 million boomers will be in their 80s.
The answer is out there. Collectively, we can find it.
Fred L. Goldenberg is a Certified Senior Advisor (CSA) and the owner of Senior Benefit Solutions, LLC, a financial services and certified health insurance organization in Traverse City. Questions or comments about this column or other senior issues can be directed to (231) 922-1010 or [email protected].
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