Monday, September 12th, 2016

Long Term Care Premiums Are Going Up

Federal workers could be Democrats, Republicans, Independents, and also from different ethnic groups, races or sexes. They all feel that the rise in long-term care (LTC) insurance premiums is uncalled for and outrageous. In November, there will be an average of 83 percent increase in premiums which is $111 monthly. For some people, the rise in premiums may be up to 126 percent. Those that want to maintain their current coverage will pay higher while others may cut down their plan reducing daily care rate, automatic inflation protection or benefits payment duration.

Why a Rate Hike?
Some believe the premium hike was approved by Office of Personnel Management in charge of managing several in-house government insurance programs. Others believe that greed of John Hancock, the only bidding insurance company on this year’s program. They said OPM and John Hancock insisted that to make up for anticipated future costs, the premium rates must be increased because of “long-term shortfall” due to low oil prices and rising long-term care medical expenses. LTC Partners said that nearly $13 million in federal LTC program claims is paid by John Hancock monthly, and over $700 million have been paid by the federal program for policyholders long-term care since 2002. Congressional hearings have been proposed by some members of the House of the Washington area and the National Active and Retired Federal Employees. But the premiums would have gone up already before the hearing because the extended time-out Congress is on.

Stabilization Act did Not Help
Consumers will continually avoid buying stand‐alone LTC insurance because they have lost trust in LTC insurance companies that request for rate increase. The rate increase was supposed to be rare due to the Rate Stabilization Law of the NAIC of 2000 but due to some reasons, request frequency has increased. John Hancock in 2010 wanted a rate increase of 40 percent for most of its LTC policyholders, while a 10 to 40 percent rate increase was requested by Lincoln National (LNC), AIG, and MetLife. Policyholders facing a high increase in premium rates cannot easily change carriers because new carriers may charge an entry‐level premium that is larger than the former carrier’s charge after an increase in rate. A low health status and a higher age may affect the new entry‐level premium. Policyholders will recover nothing from paid premiums if they decide to void their initial policy. The rate of lapse is usually higher in an LTC policy’s early stages, so the increase in premium rates rarely leads to lapse by insureds. A lapse could happen when the service rendered by an insurance company to the client after initiating a claims request is unsatisfactory. The tedious process of handling huge paperwork and multiple phone calls are some issues policyholders have complained about. The lapse could also be as a result of insufficient knowledge of what is covered by the policy.

Many Americans believe LTC insurance is very expensive that is why they resist buying it. For instance, at policy inception, a 60 years old person can get an inflation protection of 5 percent and a lifetime benefit of $200 daily for $500 per month. It could cost $1,000 per month for a couple buying the product. The NAIC proposes spending less than 7 percent of yearly incomes by individuals on LTC insurance, thereby making the inflation‐ protected coverage unaffordable for many other consumers at the lower class. LTC insurance buyers should have enough spare funds and be willing to spend it. Consumers have complained that the LTC insurance has little coverage for the disabled and elderly population because most of them do not meet its cognitive impairment trigger or HIPAA’s ADL trigger definitions making them ineligible for tax‐qualified LTC insurance policies. Under this policy, eligibility for LTC benefits involves the inability of the individual to perform a minimum of two ADLs for 90 days without assistance from anyone. Individuals that have lost functional capacity and required supervision for protection from safety risks are also eligible. Those that do not pass the eligibility test must still pay additional LTC costs aside the LTC premiums previously paid to their insurer. Consumers have also complained about the use of genetic testing which they feel is unfair because family history or genetic composition cannot be controlled. They feel genetic testing when conducting the initial underwriting is a form of discrimination since it is not a lifestyle related factor.

In the early 1980s, LTC policies were underpriced due to lapse, aggressive claim assumptions, interest rate assumptions, inaccurate mortality, and loose underwriting practices. Price competition in the industry led to the use of similar and extremely auspicious assumptions by everyone. Companies then had to leave the LTC market due to losses or increase the reserves supporting these products. The major factor that led to the new increase in premiums are slow economic growth which has made insurance companies that invest premiums earn little. The federal LTC has become a self-funding program and is expected to cover all earning and premium costs in the program.

Interest rates on Treasury bonds has been held down by the Federal Reserve Board for fear of causing another recession. Also, very low interest rates and slow economic growth in the past decade has affected the assumptions by insurance firms generating long-term asset growth predictions for annuities, life insurance, and long term care insurance. Increasing use of assisted living facilities and paid informal caregivers are some societal changes that has influenced the LTC private insurance market.

More about LTC premiums rising from Huffington Post here

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