Long Term Care, Long Term Costs

Informative excerpt from an April 1st, 2015, San Diego Union Tribune article on Long Term Care insurance by Matthew Craft:

Thirty years ago, insurance companies had the answer to the soaring cost of caring for the elderly. Plan ahead and buy a policy that will cover your expenses.  Now, there’s a new problem: Even insurers think it’s unaffordable.

Life insurance firms pitched long-term care policies as the prudent way for Americans to shoulder the cost of staying in nursing homes. But those same companies have found that long-term-care policies are squeezing their profits.  Earnings for life insurers slid 11 percent in the most recent quarter, according to Moody’s Investors Service, and long-term care was
the chief culprit.

“Insurers that sell these products lose money on them,” said Vincent Lui, a life-insurance analyst at Morningstar. “So they’re raising prices and also trying to get out of the business right and left.”

Four of the five largest providers — including Manulife and MetLife — have either scaled back
their business or stopped selling new policies, according to Moody’s. The largest provider, Genworth Financial, continues to offer them, yet has struggled under the weight of rising costs.

To cope with mounting costs and faulty assumptions, insurers have been cutting benefits and hiking their premiums year after year. Average premiums for new policies rose nearly 9 percent over the past year.

Prices range widely, depending on where you live, your age, level of benefits, and much else. In Tennessee, for instance, a 55-year old woman who is healthy enough to qualify for a policy can expect to pay $2,411 in the first year for $136,000 in benefits. That’s a brand-new policy, likely the lowest premium a person will pay. The expense climbs steadily as people age, and those holding policies typically don’t make a claim until they reach their 80s.

Analysts who follow the industry think that insurers have learned from their missteps and probably figured out the right price to charge for long-term care policies to turn a profit. The problem is, it might be too high for most people to pay.

“I’m of the opinion that it’s appropriately priced today,” said Macquarie Group’s Dargan. “But it’s also out of reach for most middle-income Americans. And that’s who needs it the most.”

UPDATE 4/30/15:  A colleague shared this useful article from Fidelity Investments on items to consider when purchasing long term care and how to weigh the pros and cons of your own unique situation.