What is long-term care insurance, and why are premiums still rising?

Jul. 1—Here is a breakdown of long-term care insurance basics.

What is long-term care insurance?

Private long-term care insurance helps pay for services that aren't covered by regular health insurance or Medicare once someone develops a prolonged illness or disability. For instance, someone with Alzheimer's could use it to pay for an aide to help them at home with everyday activities, relieving family members of the obligation.

How do people qualify for long-term care insurance?

People only qualify to buy policies if they are healthy, so they are encouraged to buy them when they're younger. The likelihood of an insurance carrier granting people policies decreases with age.

People are only eligible to be reimbursed for services once they need help with at least two of six activities of daily living. Those six are:

— bathing and cleaning oneself, including getting in and out of the bath or shower

— feeding oneself

— dressing

— walking and getting in and out of bed or a chair

— using and getting on and off the toilet

— controlling one's bladder and bowel functions

About 49 percent of men and 64 percent of women who reach age 65 will need significant long-term care during their remaining years, according to a 2022 study from the U.S. Department of Health and Human Services.

Why are premiums for long-term care insurance plans purchased decades ago still rising?

Rising rates are largely the result of inaccurate assumptions made by insurance companies decades ago about their future costs. They are still making up for underpricing their products.

Insurance carriers didn't anticipate how many people would keep their insurance or how long people would need care once they began filing claims. They underestimated the cost of claims related to cognitive disorders, and they believed they would earn more interest on their reserve funds than they did.

"Companies that initially developed and priced long term care insurance did so with very little credible data to guide them because there was little experience available," said Bob Carey, superintendent of the Maine Bureau of Insurance.

Insurance companies paid $12.3 billion in long-term care claims for 336,000 claimants nationwide in 2021, up from $10.3 billion for 303,000 claimants in 2018, according to the American Association for Long-Term Care Insurance.

But hasn't the market righted itself by now?

For traditional policies issued decades ago, not yet.

"The same pricing problems exist, and we continue to see requests for rate increases," Carey said.

What about long-term care policies sold now?

Time will tell, but policies sold now won't necessarily see the same problems as those sold decades ago.

"They've made a lot of corrections to the pricing assumptions. The policies that are being sold today are far more stable ratewise than those policies that they sold when they were learning the business," said Kerry Peabody, a long-term care, life and disability insurance agent with Clark Insurance in Portland, a business of Marsh & McLennan Agency.

A study from the Society of Actuaries estimated that today's policies have less than a 10-percent chance of needing a future rate increase.

What has to happen for the rates to go up?

When people sign up for long-term care insurance, they should be notified that their premiums may go up. Before any increase can take effect in Maine, they have to be approved by the Maine Bureau of Insurance, which performs an actuarial analysis to make sure the requests are necessary.

The bureau compares the present value of past and future insurance premiums with the present value of past and future claims, excluding expenses for sales, administration and taxes, Carey said. The bureau can approve a scaled back request if the full request is not justified.

Long-term care insurance companies don't file for rate increases lightly, Peabody said.

"It's an expensive proposition for them, and it consumes a lot of time. So when they file for a rate increase, they try to get one that's going to be meaningful," he said.

Maine doesn't require long-term care insurance companies to wait a certain amount of time before filing for another rate increase, but the bureau is unlikely to approve an increase less than a year after a prior rate increase went into effect, Carey said.

How much does public input play a role in the state's decisions on rate increases?

Carey said the bureau accepts and reads all public comments.

Is Maine an outlier in seeing higher premiums?

No.

"It is difficult everywhere. Maine is no different from any other state. We are seeing similar rate increases nationwide," Carey said.

What should people do if they are facing a steep increase?

"The first thing is: Never make a hasty decision," Peabody said.

He urged people to talk to the agent who sold them their policy. If that person is no longer available, find a good long-term care insurance agent who can explain the available options.

"There are lots of ways you can take your price down, and the carriers are being really creative and offering ways to do that. You can change your inflation rider. You can decrease your benefit. You can decrease your benefit period. But it's really important that the clients work with somebody who can help them understand the impact of those options," he said.

Peabody never recommends that someone cancel their policy entirely because they will lose their investment.

Where can people find more information?

See a list of all pending and recent long-term care insurance rate requests in Maine here.

Find the long-term care insurance companies' rate request filings here.

Read the Maine Bureau of Insurance's FAQs on long-term care insurance here.

For statistics, read the National Association of Insurance Commissioners' most recent data report here.

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