LTCi: The other side of the story

Recent articles in InsuranceNewsNet have discussed the long-term care insurance industry’s concern and confusion about why increasing numbers of Americans are avoiding LTCI.

The industry is examining issues of profitability, morbidity and mortality rates, and greater-than-expected policy retention rates, and trying to introduce new hybrid products that may be more attractive to consumers.

A recent InsuranceNewsNet article, As interest in LTC insurance declines, families exposed to care costs, said that “according to Nationwide’s 2025 Long Term Care Survey, 40% of Americans age 29+ said they do not plan to buy coverage, which is up from 32% during the previous year.”

Perhaps these younger Americans are finally listening to their parents, many of whom are suffering from punitive premium increases for the legacy LTCi policies they bought years ago.

People who bought LTCi 20 or more years ago, are now paying premiums 200, 300, 400% and more from the initial premiums they were charged, with more increases on the way.

The industry claims that these rate increases are needed for a variety of reasons including poor investment and interest returns, the rising cost of care, people living longer than expected and people holding on to their policies longer than expected.

One industry official once said:

“We expected more people to forfeit their policies. We assumed 80% of policies would be surrendered by the time people filed a claim.”

What the industry won’t admit, is that the legacy LTCi industry’s current financial crisis is of their own creation. If you look at the other side of the story, you will see that policies sold in the late 1990s through mid-2010s, were destined for financial failure before they were ever sold. Consider these “mistakes” committed by the industry.

Perhaps most critical is that insurers violated the Law of Large Numbers. In many cases, a policy form was sold for as few as 3-5 years, preventing a large enough population to cover future claims.

To attract new business, insurers offered massive discounts on premiums, further eroding the ability to build the necessary premium for future reserves. One policyholder was quoted an initial premium discounted 68% from the premium stated on the declaration page of the policy. Today, that premium has increased almost 400% from the original payment.

LTCi policyholders were misled

Policyholders were misled by the industry. In some states (such as Connecticut), applicants were asked to sign a personal worksheet which stated that insurers had sold these policies for decades and never raised premiums and then asked if the policyholder considered if they could afford to pay for the policy if the premium increased 20%. These statements set an expectation of what future rate increases might look like and policyholders made their purchase decisions based on those representations.

Today, insurers offer options to help policyholders lower their ongoing costs. The fact is these alternatives are far more beneficial to the insurer than they are to the policyholders.

And when you consider that many of these legacy policies participate in a state-sponsored “partnership program” which protect the policyholder’s assets from Medicaid requirements, these reductions in benefits could expose the policyholder to losses even greater than the cost of care itself.

Could it be that these 29-year-old Americans have seen what happened to their parents and don’t trust that this next generation of LTCi will be any better?

Examine new offerings

What should insurance advisors, financial planners and others do?

The current belief that people can rely on Medicare and Medicaid to fund long-term care is just wrong. Advisors must continue to educate their clients on this important point.

LTCi can be an important part of overall financial planning. Most important, advisors must take the time to examine these new offerings and ensure their clients are protected from industry “mistakes” far better than they were before. New products must be priced correctly, avoid giving applicants misleading statements that set false expectations for the future and eliminate these punitive rate increases.

It remains to be seen what the new LTCi products look like. From information currently available, it appears they will provide much lower limits of coverage with no inflation increases and as such, will probably not provide the asset protection of a partnership program, without legislative changes by individual states. Then the question becomes, are they worth it at all?

It’s high time the industry takes responsibility for their actions of the past and ensures they don’t happen again.

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David I. Schwartzer is a retired insurance executive with more than 40 years of experience in the property/casualty insurance industry. He now serves as an LTCi policyholder advocate. Contact him at [email protected].