Long-term care rates set to skyrocket

Some Kansans who bought long-term care insurance got an unpleasant surprise this year when they received notice their premiums would rise by double digits.

A customer of Continental Casualty Company contacted The Topeka Capital-Journal after receiving notice that premiums for herself and her husband would rise by 60 percent. The Kansas Insurance Department confirmed the notice was authentic, and said many companies have had to pass on substantial increases to their customers.

Cindy Hermes, director of public outreach for the insurance department, said companies began offering long-term care insurance in the 1970s and 80s, and didn't realize how long their customers would live. In the beginning, they set prices too low for what they eventually would have to pay out, she said, and most companies asked for "double digit" increases this year.

"They didn't price policies for what was going to happen," she said.

Hermes acknowledged rate increases of 60 percent or more are painful to consumers, but said the insurance department has an obligation to balance the company's solvency and costs to its customers. Continental didn't respond to a request for comment.

"We negotiate it as low as we can get it," Hermes said. "When (the request to raise rates) came in, it may have been 150 percent or 200 percent."

Craig Van Aalst, assistant director of the health and life insurance division at the insurance department, said 13 companies currently accept new long-term care insurance customers in Kansas. Dozens more are serving current customers, but not taking new ones due to a "perfect storm of factors," he said.

Low interest rates are limiting the growth of companies' investments, Van Aalst said, but the biggest problem is that many assumed that more customers would let their coverage lapse. If coverage lapses, a company may be able to keep the premiums the customer already paid without paying out benefits, unless the contract stipulates otherwise.

"They're seeing, in some cases, a lapse rate of 1 percent," he said.

Continental wasn't the only company that raised rates this year. The insurance department approved increases of 25 percent to 40 percent for New York Life Insurance Company's policies, 40 percent on average for John Hancock Life Insurance Company and 10 percent to 35 percent for Bankers Life and Casualty Company.

Jason Weinzimer, spokesman for New York Life, said it was the company's first rate increase for its long-term care customers in Kansas, but demographics and risks have changed since it first offered the plans in 1988.

"As a mutual insurance company, we differ from others who may make decisions for short-term gain, or for stockholders instead of policyholders," he said. "The inescapable conclusion was that we needed to narrow the gap between actual experience and our pricing assumptions by seeking an in-force rate increase."

Melissa Simon Berczuk, spokeswoman for John Hancock, said increases were necessary because customers were filing more claims and for longer periods than anticipated. Both John Hancock and New York Life said they offered customers the option of reducing their benefits to keep premiums lower.

Steve Wood, agency manager for Country Life Insurance Company in the Kansas City area, said the low rate of lapsed coverage has hit the company, as has the increased incidence of Alzheimer's disease. The company hasn't raised long-term care premiums for current customers, he said, but new male customers will pay 38 percent more and female ones will pay at least 75 percent more.

"We've been very conservative in our underwriting," he said.