Insurance giants like Prudential, MetLife, and Allianz have exited the individual Long Term Care Insurance market, and many in the media have begun speculate that the industry is on life support.  As Twain once mused after his obituary was prematurely published in a New York newspaper, “The reports of my death are greatly exaggerated.”

Death of Long Term Care Insurance: The Reports are Greatly Exaggerated

Countless articles that have been written in 2012, saying that Long Term Care Insurance is an impossible market to sell and service policies in. Most major news outlets have instinctually hit the panic button because, “if it bleeds it leads.”  With quips of the industry being anywhere from on “life support” all the way to “Long Term Care Insurance is now on Hospice,” references have been virtually all negative.  While it’s true insurance markets have adjusted, the damage is not widespread as has been reported.

There’s Still Hope for LTCI

Market forces are merely at work in an age when markets rarely seem to function as expected due to manipulation.  What is happening in the Long Term Care Insurance industry is what happens in any industry as it grows: consolidation.   Think about how many cell phone providers there were in 1999,  over 115.  Just 13 years later we have essentially four major players with some regional players here and there.

Perhaps more apt, the Disability Insurance market was started in the 1970’s and there were 48 companies that offered policies.  Today there are just ten insurers in the disability market, yet no one is calling for the end of disability insurance, despite government disability benefits through social security.

The fallacy of imminent death in the LTC market goes something like this:
Insurers are excellent at predicting risk but somehow because of uncertainty around medical advancements are unable to predict with certainty what claims will be for Long Term Care.  A corollary argument is that insurers are unable to predict who’ll most likely need benefits, and hence carry inadvertent risk on their books.  It’s as if the industry is just being formed. The truth is, that was 1974 and we now have 37 years of claims data for actuaries to analyze.

In 1974, the industry was pioneered by Fireman’s Fund (now Genworth Financial) and soon after dozens of other insurers began selling Long Term Care Insurance by the mid-1980’s.  Along came the HIPPA law in 1995 and by 2000, the number of insurers selling coverage had peaked at 35 carriers.  With less market acceptance than expected, companies with smaller market share started dropped out of offering new policies.  Existing policies were honored and today many insurers of yesteryear are still collecting premiums and paying claims daily.

While some companies have struggled to compete, others have made Long Term Care one of their core competencies. Ask any broker (an agent who works with several companies) and you’ll see a trend of which carriers are the most organized and efficient in processing business and claims.  Today there are 14 companies remaining and the top five carriers captured 93.4% of the market in 2011.

What we know about insurance companies is that they can only profit if they design and sell insurance policies that are in demand.  Several insurers have reported healthy demand with double-digit increases in year-over-year sales. The need for Long Term Care planning is only increasing as baby boomers retire in record numbers each day.  LTC Tree alone served 15,000 consumers in 2011.

Think about these odd events the next time you read an article on the death of LTC.  Insurance companies will insure about anything for the right price.

Odd insurance products currently on the market:

  • A hole in one in a golf tournament contest
  • Alien abductions
  • Being haunted by a ghost
  • Stuffed animals
  • Penile arthritis
  • Weather insurance for vacations
  • Reincarnation insurance
  • Taste buds
  • Mustache
  • Singing voice

Insurance companies can and probably will increase the cost of Long Term Care Insurance. If the profitability point has not been achieved, they will increase the cost until they find it.  Despite the negative implications to consumers this is still a needed product that has saved many families from ruin.  The cost of receiving Long Term Care is currently $85,000 per year nationally for nursing homes so even when the insurance cost is raised the policy is still well worth it if you have a nest egg to protect.

Why Long Term Care Insurance is Here to Stay

  1. There is an increasing demand for Long Term Care services such as a nursing homes, assisted living and home health care providers.  Long Term Care insurance caters to a customer base that have assets they want to protect using the insurance as leverage.  If the insurance actuaries miscalculate the risk, they have the freedom to increase rates in most states, though legislation is making it tougher.
  2. A focus on preferred risk: Buyer Beware, because consumers tying to time the market and buy in the future need to consider the implications of inevitable changes in health.  As time goes by, insurance companies are experiencing more claims and are improving their ability of filtering out the risk.
  3. Horror stories of those researching Long Term Care Insurance and dragging their feet only to wind up uninsurable at any cost abound in the industry.  Consumers are often in denial about the likelihood of needing Long Term Care and tend to procrastinate the decision until something shocks them into understanding the need, such as a parent or relative needing care and not having adequate funding.
  4. Future of the Government Safety Net is cracking.  Historically, a reliance upon Medicaid as a payer of last resort for LTC services has led to abuses of the entitlement program.  While Medicaid is still the largest single payer of care, one must effectively spend down the majority of their assets before applying for this government assistance program.
  5. The Great Recession has strained Medicaid budgets and led to documented reduction of care options such as home health care.  As time goes on and baby boomers stress the system, there is a certainty that government programs will see increased scarcity issues, budget cuts, and general.

Buying any insurance policy is not as exciting as buying a new home or car.  However, a well funded Long Term Care Insurance policy can protect everything you have worked so hard to protect if you need care.  It will also protect you from ever being a burden to your kids because you failed to plan for this risk.  All summer long LTC Tree will drilling down on this topic and help our clients find the best policy at the best price.  If you are ready to learn more fill in the form below by clicking the green button at the bottom of this page.