Insurers leave ailing long-term care market

Most people don't like to think about what will happen to them when they're older.

Will a nursing home, assisted-living facility or home care be necessary? What costs could a future sickness lead to besides those covered by health insurance? And who will pay those additional expenses?

The financial aspects of long-term care often don't come up until people see loved ones trying to figure it out, said David Guttchen, director of the Connecticut Partnership for Long Term Care, which operates within the state's Office of Policy and Management.

"When a child or grandchild sees that, oftentimes they say to themselves, T don't want that to happen to me,'" Guttchen said. Long-term care most often refers to custodial care, or bathing, feeding and other types of care needed by patients, which most people don't realize are not covered by health insurance or Medicare.

The partnership's mission over the last two and a half decades has been to educate Connecticut residents about the importance of planning for long-term care. Close to 60,000 people have bought plans through the partnership, with about 41,000 currently in force.

Still, not many people in Connecticut have policies. Fitch Ratings estimates that only about 5 percent of state residents have a long-term care insurance policy. And those who have it tend to be in the upper middle class.

"The lower income brackets can't afford the policy and people in the high end have enough money, or think they do, to pay their long-term care needs," said Doug Meyer, managing director and head of U.S. life insurance for Fitch Ratings.

Premiums are dependent on a person's age, how long their policy lasts and a number of other factors, with the average annual premium paid across the country between $1,600 and $1,800.

This is often more than people can afford and this, in turn, leads to an overreliance on Medicaid to cover the longterm care costs, said Matthew Barrett, president and CEO of the Connecticut Association of Health Care Facilities.

lie estimated Medicaid is used to pay for 70 percent of the $2.8 billion spent annually on long-term care costs across the country, with about $1.3 billion spent on home care costs and $1.2 billion on nursing facilities. Guttchen said the cost for a semi-private nursing facility bed is over $150,000 a year. Even people who have savings can end up going through those funds quickly and end up on Medicaid, a system meant to help low-income individuals with health care costs.

"Unfortunately, the way long-term care is financed hasn't changed for 25 years or more," Guttchen said. This will likely become a problem in the future as baby boomers continue to age.

But the long-term care insurance industry is also feeling the pinch, based on a business model that isn't working. When insurers were making assumptions in order to price the premiums in the 1990s and early 2000s, they miscalculated a number of factors because they lacked historical experience, which essentially meant they significantly underpriced the plans, experts say.

For this reason, insurers have been seeking premium rate increases over the years to make up for the mistaken assumptions and policyholders are facing significant rate increases. This year alone, four insurers have opened requests for rate increases with the state Insurance Department that range from 27 percent to 229.5 percent.

Since 2007, the state Insurance Department has received 261 rate increase requests, 55 percent of which have been outright rejected. Only 10 per- cent of requests have been approved as submitted, with the rest approved at a lower increase than requested.

Paul Lombardo, actuary for the Insurance Department, said the department has been approving higher increases in recent years. "While the increases have not been granted at the level requested, they have been higher than we've approved in the past," he said.

He said this is a result of insurers paying out at or above the statutory minimum required for long-term care costs in recent years. For individual long-term care, the minimum statutory loss ratio is "60 percent, meaning that at least 60 cents of every premium dollar is spent on benefits," according to the department's website. For group insurance, the ratio is 65 percent.

In 2016, insurers requested an average rate increase of 49 percent but received approval to increase premium rates by an average of only 18 percent on approximately one out of four Connecticut policyholders, according to Fitch. This compares to a 14 percent increase on almost one out of three Connecticut policyholders in 2015. Fitch expects this trend to continue.

Because of this, many companies have backed out of the long-term care insurance industry. While there were more than 100 insurers offering this type of insurance a decade ago, there are less than 15 now across the country.

John Hancock, the second largest player in the long-term care insurance industry, recently backed out of the business, no longer accepting new policies. The company is now seeking increases in Connecticut on existing individual and group plans.

Several years ago, Connecticut passed a law that requires any premium increase equal to or greater than 20 percent to be phased in over three years.

Barrett said the state and federal governments have over the years explored different ways to fund long-term care, including through a 2013 national report by the Commission on Long-Term Care.

He said some suggestions that have been explored are the application of tax credits for the cost of premiums or direct subsidies for these costs. Considering the state and national economies, these are not options that seem feasible at the moment, Barrett noted.

This article first appeared in Hearst Connecticut newspapers.