Mary
Julia Klimenko thought she was prudent 20 years ago when she invested in a
long-term care insurance policy, one she believed would help pay for the care
she’d need as she aged.
Now
she wishes she’d banked the money instead.
Her
monthly premiums have nearly quadrupled over the past two years, and Klimenko,
now 69, is furious about the choices she’s been given: pay the higher cost,
lower her premiums by cutting her policy’s benefits or drop the insurance
altogether.
For
now, the Vallejo, California therapist said she will pay the higher premiums,
but she’s not sure how many more price hikes she can take.
“I
have no choice. If I drop my insurance, I’ve thrown away all that money,”
Klimenko said. “If I pay less, they’re not going to cover what I need.”
Long-term
care insurance was supposed to help the middle class ease the financial burden
of expensive in-home or nursing home care that now can top $90,000 a year.
Consumers
were urged to buy policies in their 50s, because premiums rose the longer they
waited. About 4.8 million people were covered by long-term care policies in
2014.
But
insurers botched just about every aspect of the policies they sold in the early
days of the industry, said Joseph Belth, a retired professor of insurance at
Indiana University known as one of the insurance industry’s toughest critics.
They underestimated how long people would live and how long they’d need nursing
home care — but overestimated how many people would drop their policies
and how much interest insurers could earn on the premiums they banked.
Hemorrhaging
money, many insurers left the business. Those that remain are in financial
trouble on their long-term care policies. They’re charging far more for new
policies, and sharply raising the premiums of old ones.
“The
industry is a state of severe decline,” Belth said. “Companies … don’t see a
way to successfully market the product and make money on it.”
As
a result, many seniors nationwide face the same unpleasant choices as Klimenko:
paying rising costs, scaling back coverage or dropping it altogether.
New
Yorkers who bought long-term care insurance from Genworth Financial Inc., one
of the few remaining carriers, were hit with a 60 percent premium increase in
October. The same company has asked Pennsylvania state regulators for
permission to raise
premiums by as much as 130 percent for some policyholders.
In
California, an estimated 133,000 residents who bought long-term care policies
from CALPERS, the state workers’ retirement plan, have seen their premiums rise
by 85 percent over two years. A 2013 lawsuit retirees filed
against CALPERS was granted class-action
status in February.
Rising
costs could be prompting many seniors to drop their policies, according to
a study
from Boston College’s Center for Retirement Research. Published in October, it
found that about a third of people with long-term care insurance at age 65 let
their policies lapse, often just a short time before needing care. While some
seniors had memory problems that kept them from paying their premiums, others
dropped their policies because they believed they could no longer afford them,
the researchers found.
A
Growing Burden
Most
Americans don’t realize that Medicare won’t pay for long-term nursing home or
home care.
Rather,
it typically pays only for short stays in a skilled nursing or rehabilitation
facility to recover after a hospitalization. In contrast, long-term care
insurance will pay for what’s known as “custodial care” — help with
eating, dressing, walking, bathing and other daily activities, either at home,
at a skilled nursing facility or assisted living facility.
Medicaid,
the nation’s health program for the poor and disabled, will pay for long-term
care — but it requires seniors to spend nearly all their assets
beforehand. These days, nearly half of all long-term care in the United States
is paid for by Medicaid — a huge burden that is only going to grow as
millions of baby boomers reach their 80s.
Policymakers
and aging experts had long hoped that long-term care insurance might ease that
burden. About 70 percent of Americans who reach age 65 will likely need some
type of long-term care before they die, according to federal estimates.
But
premiums for new long-term care insurance policies have risen so high they’re
out of reach for the middle class, said Bonnie Burns, a policy specialist with
consumer group California Health Advocates and a nationally-recognized expert
on Medicare and long-term care insurance. Yearly premiums for insurance with
inflation protection can be as high as $4,406 for a 55-year-old woman and
$2,309 for a man of the same age, according to the American Association for
Long-Term Care Insurance, which represents insurance brokers. Women’s premiums
are higher because they live longer and are more likely to require
long-term care.
Klimenko
points to the 57 percent increase in her long-term care insurance policy
monthly premium. For now, the Vallejo, California therapist will pay the higher
cost, but she’s not sure how many more premium hikes she can take. (Heidi de
Marco/KHN)
California
is one of many states that created public-private partnerships in the 1990s to
encourage more people to buy long-term care insurance and reduce state tax
burdens. The partnerships set standards for the policies and helped market them
to consumers. But in California, partnership policy sales have dropped to
between 500 to 800 per quarter because of price hikes. That’s compared to tens
of thousands of policies per quarter when the partnership started, said Rebecca
Schupp, director of the California Department of Health Care Services’ Long
Term Care Division.
Burns
said that as interest rates go up, companies will have actually overpriced new
policies to avoid future losses like the ones they sustained on previous
policies.
“This
is really a vexing issue for the country,” she said.
How
We Got Here
When
the first long-term care policies came on the market in the mid-1970s, insurers
based their projections for premium costs and payouts on life insurance data.
They told consumers that premiums would rise minimally, if at all, over the
life of their policy.
But
people lived longer and health care costs grew faster than the insurers ever
expected. Seniors who bought low-priced policies in the 1980s and 1990s lived
for years with chronic and expensive-to-manage conditions like Alzheimer’s
disease or Parkinson’s disease. Worst of all, low interest rates meant that
insurers earned very little on the premiums they collected — money they’d
need to pay future claims.
Even
Genworth’s CEO, Tom McInerney, calls this state of affairs “a ridiculous
business model.”
Genworth
has lost $2 billion on its long-term care policies overall and continues to
lose between $100 and $150 million each year, he said in an interview.
"I
have no choice. If I drop my insurance, I’ve thrown away all that money. If I
pay less, they’re not going to cover what I need." Mary
Julia Klimenko.
About
85 percent of the company’s long-term care policyholders who’ve received
premium hikes have decided to pay them, while another 9 percent chose to cut
their benefits to keep their premiums the same. About 6 percent opted to drop
their policies, although Genworth will pay claims up to the amount of premiums
already paid, so consumers won’t lose everything they’ve paid, McInerney said.
Fewer people
today are buying traditional long-term care insurance policies, which only adds
to insurers’ financial woes. Some are considering newer “hybrid” products such
as life insurance or annuities that provide a long-term care benefit, but
they’re also expensive and some require a large up-front payment.
That’s
why pressure is mounting for state and federal lawmakers to come up with ways
to finance long-term care for millions of aging baby boomers. Policy proposals
abound, such as requiring people to buy subsidized long-term care insurance,
much as they now need to buy health insurance. Other ideas include creating a
government-run catastrophic plan or allowing people to convert their life
insurance policies to long-term care policies. But all of these would require
legislative action, and lawmakers at the state and federal level have been slow
to act because of the sheer scope of financing Americans’ long-term care.
In
the meantime, McInerney and other long-term care insurance leaders are trying
to change the way consumers see their private sector product: as catastrophic
insurance with more limited benefits and consistently rising premiums, rather
than as a way to pay for all of their long-term care.
It’s
a hard sell.
“No
one likes premium increases, but they do understand, in the end, why they’re
needed,” McInerney said. “We certainly can’t lose billions of dollars and have
consumers expect us to pay claims.”
But
Klimenko, who is struggling to pay the higher premiums for her own long-term
care policy (which is not a Genworth product), expected exactly that. It’s what
she paid for, for 20 years.
“The
insurance salesman who came to my home told me that if I took out the policy,
that when I was old and got sick, I’d be taken care of,” Klimenko said. “Now
that I’ve lived so long, none of that is true.”
http://californiahealthline.org/news/long-term-care-insurance-less-bang-more-buck/
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