Head­ing for the exit

Turmoil hits long-term-care in­surance com­pa­nies

Modern Healthcare - - Long-term Care -

With 70 mil­lion Amer­i­cans over age 55, you might think that the long-term-care in­surance busi­ness would be boom­ing. You would be wrong. In­stead, the sec­tor is strug­gling. Last month, MetLife, one of the largest long-term-care in­surance car­ri­ers, an­nounced it would dis­con­tinue sales of new poli­cies. Sev­eral other ma­jor long-term-care in­sur­ers have raised rates or been placed in re­ceiver­ship in re­cent years.

The sec­tor, now 30 years old, faces mul­ti­ple chal­lenges, in­clud­ing higher-than-ex­pected claims; strict reg­u­la­tion; the re­ces­sion; and his­tor­i­cally low in­ter­est rates.

“It is a re­ally dif­fi­cult, ex­pen­sive and highly reg­u­lated busi­ness,” says Jesse Slome, ex­ec­u­tive di­rec­tor of the Amer­i­can As­so­ci­a­tion for Long-Term Care In­surance, which rep­re­sents bro­kers. “There’s no ques­tion when a lead­ing player in any in­dus­try de­cided to leave the mar­ket­place, it’s never de­sir­able.”

MetLife was a top-five player in the mar­ket and had been in the busi­ness for 25 years. The com­pany has 600,000 long-term-care in­surance pol­i­cy­hold­ers, all whom will be al­lowed to con­tinue cov­er­age. The New York-based com­pany will no longer ac­cept in­di­vid­ual en­rollees as of the end of the year, and new en­roll­ments in ex­ist­ing group and mul­ti­l­ife plans will end next year, ac­cord­ing to the com­pany.

“While this is a dif­fi­cult de­ci­sion, the fi­nan­cial chal­lenges fac­ing the (long-term-care in­surance) in­dus­try in the cur­rent en­vi­ron­ment are well­known,” Jodi Ana­tole, vice pres­i­dent of longterm-care prod­ucts for MetLife, said in a state­ment. MetLife de­clined to com­ment fur­ther.

One of the biggest is­sues, says Jef­frey Lane, se­nior fi­nan­cial an­a­lyst for A.M. Best Co., is pric­ing the prod­uct.

“The older poli­cies didn’t do ex­ten­sive re­search on Alzheimer’s or dementia, for in­stance,” Lane says. “They are get­ting bet­ter at it, but it’s an un­known. You don’t know how to price it.”

Slome agrees. “You need a crys­tal ball to look out 10 to 20 years,” he says. “Five years ago if you had Alzheimer’s, you died within seven years. To­day, peo­ple are liv­ing 10 to 12 years.”

Many older peo­ple are liv­ing health­ier lives, and have a strong de­sire to stay out of nurs­ing homes and other long-term-care fa­cil­i­ties. But claims costs keep ris­ing, and more pol­i­cy­hold­ers are us­ing the in­surance, with fewer al­low­ing their poli­cies to lapse. The lapse rate is be­tween 1% and 1.5%, Slome says.

To­day, about 8 mil­lion Amer­i­cans have longterm-care in­surance, and the in­dus­try paid out $6 bil­lion in claims last year. Mar­ket pen­e­tra­tion is less than 10%. In 2008, about 180,000 pol­i­cy­hold­ers were “on claim”—us­ing their in­surance ben­e­fits.

Other top in­sur­ers in­clude Bankers Life and Ca­su­alty Co., Gen­worth Fi­nan­cial, John Han­cock Fi­nan­cial Ser­vices and Transamer­ica Corp. In Oc­to­ber, Gen­worth said it would raise rates by 18% on some older poli­cies, ac­count­ing for about 26% of to­tal ac­counts. And in Septem­ber, John Han­cock said it would raise rates on longterm-care poli­cies by 40% on av­er­age.

Gen­worth at­trib­uted its rate in­crease to “per­sis­tency,” or that more pol­i­cy­hold­ers were re­tain­ing their poli­cies rather than let­ting them lapse, re­sult­ing in higher claims than pric­ing as­sumed for the older poli­cies. Gen­worth said in a state­ment it is still com­mit­ted to the sec­tor.

The se­vere eco­nomic down­turn hasn’t helped mat­ters. The sec­tor was hit harder by the re­ces­sion than other in­surance prod­ucts, ac­cord­ing to LIMRA, an in­surance con­sult­ing firm that tracks the in­dus­try. Sales of new poli­cies fell 24% in 2009, though re­cov­ered some­what this year, ac­cord­ing to the firm.

His­tor­i­cally low in­ter­est rates also are hurt­ing the in­sur­ers, Slome says.

Mean­while, the in­dus­try is highly reg­u­lated, and some states can block or re­ject pre­mium rate in­creases. Neg­a­tive me­dia at­ten­tion about sky­rock­et­ing premi­ums also has caused some po­ten­tial cus­tomers to shy away from prod­ucts, Slome says.

These predica­ments have put some in­sur­ers in peril. In Jan­uary 2009, two Penn­syl­va­nia car­ri­ers were placed in a trust. Penn Treaty Net­work Amer­ica In­surance Co. and Amer­i­can Net­work In­surance Co. faced neg­a­tive cap­i­tal and sur­plus, and were un­able to find a buyer for the busi­ness. Some es­ti­mate that more than $1 bil­lion in added funds may be needed to pay fu­ture claims for its 142,000 pol­i­cy­hold­ers.

To be sure, many ag­ing Amer­i­cans aren’t aware of long-term­care in­surance, typ­i­cally sold to peo­ple ages 55 to 75 years old. This could change with a pro­vi­sion in the fed­eral health re­form law.

The Com­mu­nity Liv­ing As­sis­tance Ser­vices and Sup­ports Act, or CLASS Act, is a vol­un­tary long-term-care ben­e­fit fi­nanced through pay­roll de­duc­tions. Un­like pri­vate long-term-care in­surance, this pro­gram is guar­an­teed-is­sue, mean­ing mem­bers can’t be un­der­writ­ten or be re­jected. Af­ter a five-year vest­ing pe­riod, those in need of care can get $50 a day to buy non­med­i­cal ser­vices to help them stay in their homes.

If suc­cess­ful, not only could the pro­gram re­lieve some pres­sure on Med­i­caid, it could make peo­ple more aware of the is­sue of plan­ning for re­tire­ment care. The pro­gram is ex­pected to start in 2012 or 2013.

“It gives aware­ness to fi­nan­cial plan­ning,” Lane says.

Some in the in­surance in­dus­try were crit­i­cal of the CLASS Act, say­ing it is un­sus­tain­able and will add to the na­tional deficit.

But Slome says CLASS won’t be a com­peti­tor be­cause of dif­fer­ences in ben­e­fits and el­i­gi­bil­ity, and in­stead it could help over­all.

“Long-term care is an enor­mous is­sue the coun­try has yet to face,” he says. “CLASS, while not a per­fect so­lu­tion, is at least an at­tempt to do some­thing.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.