John O'Connor, editorial director, McKnight's Long-Term Care News
John O’Connor, editorial director, McKnight’s Long-Term Care News

Two decades ago, private long-term care insurance was seen as a can’t-miss option for funding future nursing home costs. But like many of the people who purchased policies back then, the product now finds itself in pretty bad shape.

Some analysts are wondering why this sensible-sounding funding alternative seems to be suffering a slow, painful death. You don’t need to be an economist to understand the answer. But it helps if you can grasp simple economics.

For starters, many people felt they would never need private insurance. Moreover, many insurers underestimated how much the costs of providing future care would rise. So we now have a situation where MetLife and Prudential have departed the scene, while John Hancock, Genworth and several other remaining players are seeking hefty premium increases – some as high as 90%.

If private long-term care insurance will have an epitaph, it will likely be something like this: It was a good start.

Like working-class parents who raise doctors, lawyers or other professionals, private LTC insurance will likely be a catalyst for more successful insurance options.

Already, we are seeing possible progeny emerge. One leading candidate: hybrid policies that combine LTC insurance with annuities or life insurance. These policies require purchasers to contribute a specified sum for 10 years. The payoff is that policyholders can get long-term care payouts, or their heirs can reap a death benefit. Another desirable aspect is that these policies typically have less stringent medical underwriting restrictions. That’s no small consideration for a person with a heart condition.

Longevity insurance is another newcomer. This allows people to kick in a relatively small amount when they retire — and reap a much larger return two decades later. For those who expect to live well into their retirement years, this can be an attractive choice.

Various other insurance themes are also emerging, and this trend will almost certainly continue.

It’s not so notable that a concept that seemed like a good idea at the time is struggling and may not survive. But it is worth noting that many of the people who developed this concept learned from their mistakes — and came up with new options that are much more likely to flourish.

Think there might be a lesson here for policymakers grappling with the future of Medicare, Medicaid and Social Security?