Long-term care insurance's uphill battle
James M. Berklan
What the long-term care insurance market could use right now is a healthy dose of capitalism. Ain't gonna happen.
The industry has been spiraling down the drain in recent years. Seems something about paying premiums only to face double-digit price increases out of the blue to save one's years-long investment hasn't been too appealing.
For their part, insurers say their payouts have been too expensive, and people are living too long, not dropping some policies as expected, and drawing out more than forecast.
Then comes Genworth, which controls about 35% of the LTC insurance market. It recently announced it would not be leaving the market like so many other companies have. But it is looking for drastic changes to improve its profit ledger. Annual premium increases instead of wallops every five or more years; shorter payout periods; perhaps no inflation adjustments.
You can excuse Genworth executives' stated desire to make 20% or better margins. It turns out it's hard to compete when someone's giving away what you're trying to sell.
Who's this brutal competitor, you ask? Why Uncle Sam, of course. His Medicare and Medicaid programs, while in no way free, don't require extra premium payments. Why would anyone pay LTC insurance premiums for years, even decades, if they know they have a reasonable facsimile for getting care? Besides, with the private stuff, you can pay for years, and if you stop or miss a payment, you could see all your equity vanish.
A spokesman for the LTC insurance industry praises Genworth for stepping forward, and not out of the game. But the glowing talk smacks more of desperation for, well, anything that might keep his association members afloat when all else seems to be failing.
Private insurers likely won't be doing themselves any big favors soon, at least not in the court of public opinion, which has been their downfall lately. Genworth, for example, wants premium increases in the 6% to 13% range. That's if you bought a policy from 2003 to 2012. If you bought before that, premium increases could be in the 25% range that the John Hancock Life Insurance Co. has said it is seeking. Or even double that.
Don't get me wrong. I see the value of bringing private money into the system, which is what LTC insurance would do. But it's tough to see how the masses are going to start embracing it without some breaks coming their way, and not necessarily the insurers'.
James M. Berklan is Editor at McKnight's.