🔒High premiums slow long-term care insurance sales to a trickle

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When Dr. Milton Wallack and his wife Joan bought long-term care insurance in 1995, they thought it was a smart financial move.

“We knew that you could get wiped out,” by nursing home or other long-term care costs, said Milton Wallack, a retired periodontist who was in his 50s when he bought the coverage.

While the price tag on that Travelers policy wasn't cheap when the Branford couple bought it — just shy of $5,000 in annual premiums — their insurance agent told them the price was unlikely to rise in the future.

For years, she was right. But in 2011, when MetLife acquired the policy, the Wallacks say their annual premium jumped 39 percent. Another 20 percent hike came in 2014, and 10 percent more in 2015.

Those double-digit rate hikes haven't stopped since, even after their policy changed hands again last year, when MetLife spun out an independent company called Brighthouse Financial.

Soon, the Wallacks — who say they've shelled out more than $156,000 in premium payments since they purchased their policy — will be required to pay a combined annual premium of nearly $12,400, or they will lose their policy.

The increases “border on outrageous,” Milton Wallack said.

The couple's experience isn't unique. They are two of many Connecticut residents who bought long-term care insurance during a 1990s industry boom, only to see the costs of those plans skyrocket in recent years.

Over the past decade or so, insurers that sold or acquired many long-term care policies, which help pay for things like nursing home, assisted-living or homecare services, have asked for large premium hikes, particularly older plans no longer being peddled to consumers.

Many insurers have said they made faulty assumptions years ago about the cost of care, interest rates, policyholder lifespans, retention rates and other factors, all of which led them to price policies too cheaply.

As premiums have steadily increased, sales of long-term care insurance have plummeted in Connecticut and nationwide. At the same time, the number of insurers offering such plans in the state has been cut in half since 2005.

State lawmakers are trying to step in with a bill that was recently proposed in the Insurance and Real Estate Committee, which would spread out large premium increases over a longer period than is currently required.

Insurers, which argue their rate increases are actuarially justified and allowed by law, say phased-in increases could hurt carriers' solvency and ability to pay claims. The Connecticut Insurance Department (CID) says it's concerned by rate increases, but agrees the bill could hurt insurers' financial health and ultimately lead to larger future rate hikes.

Milton Wallack, who in 2003 founded the Connecticut Stem Cell Coalition, a group that successfully pushed for the creation of the state's embryonic stem cell research program, said he and his wife have just a few choices: Continue to pay the higher rates, switch to a lower-benefit plan to blunt the increases, or lose coverage.

They've opted for the first option, despite the increasing financial burden. Their desire to stay insured has been buttressed by the experience of an extended family member who recently developed dementia and moved into an assisted-living facility, which has been covered by a long-term care policy.

Such insurance is one of the few ways to cover those costly services, short of paying large sums out of pocket or becoming impoverished enough to qualify for Medicaid, which is the single largest spender for long-term care services in Connecticut.

“Why would we, after paying these premiums for so many years, reduce our benefit package or terminate entirely when we potentially need it the most — when we are older and are on a fixed income?” Joan Wallack said. “But that is precisely what the insurance companies want you to do so that they will not have to be responsible for payment of benefits.”

In a statement, Brighthouse Financial said the long-term care industry is facing challenges as a result of evolving actuarial assumptions on pricing.

“We understand that rate increases on our policies may be a challenge to policyholders,” the company said. “To provide flexibility, the contracts offer options that give policyholders a choice in managing to a premium level that works for their needs.”

A long-term trend

The insurance industry has had a difficult time projecting the costs of long-term care plans.

Many insurers that have asked the Connecticut Insurance Department for double-digit premium increases in recent years have explained the challenge this way: “Unlike medical health insurance with premiums set to cover expenses incurred only during the upcoming policy year, long-term care premiums are set to cover expenses that are not expected to occur until a distant date, sometimes 20 years in the future.”

Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says much of the bad experience from older policies has been priced into newer plans. Many insurers, however, don't often get the full premium increase they want.

For example, Genworth — which leads the Connecticut market with more than 26,000 active long-term care policies as of late 2016 — asked regulators late last year for a nearly 59 percent rate hike on a plan sold between 2002 and 2005 that's held by 4,700 residents.

State insurance regulators acknowledged that Genworth's claims costs were “much higher” than it had originally anticipated, but approved an 18 percent increase instead.

Slome said long-term care insurance is similar to a reverse lottery: people put in money and hope not to win.

However, if one ends up needing long-term care, insurance is a godsend, helping improve a policyholder's quality of care and lifestyle, he added.

“It will give you more choice, more options and faster access to care,” he said.

Sales plummet

As long-term care premiums have climbed, policy sales in Connecticut have plummeted since the turn of the century, particularly during the most recent recession, which fits into a national industry decline.

“A lot of that is due to large increases in the cost of policies,” said David Guttchen, director for the Connecticut Partnership for Long-Term Care within the state Office of Policy and Management.

In 2016, policy sales in Connecticut numbered 2,583, the lowest in at least two decades, and down from a 2000 peak of 16,674 policies sold.

Of all the Connecticut policies sold over the years, 107,607 remained active at the end of 2016.

Nationally, annual sales in the individual long-term care insurance market fell from a peak of 754,000 in 2002 to 129,000 in 2014, according to a National Association of Insurance Commissioners (NAIC) report released in 2016.

The number of insurers offering long-term insurance policies has also fallen steeply. Nationally, there were 125 insurers selling policies in 2002. By 2014 that had fallen to 15, according to NAIC.

In Connecticut, 24 insurers sold plans in 2005. That number had been cut in half by 2016, according to OPM data.

“Many of the big names in long-term care insurance have just gotten out of the market completely,” Guttchen said.

Big players that stopped selling plans in Connecticut include MetLife and Prudential. Meanwhile, Genworth has seen its sales fall from 2,353 in 2005 to just 45 in 2016. John Hancock, which sold 814 policies in 2005, sold 78 in 2016.

Unum stopped selling new policies here in 2012, according to spokeswoman Kelly Spencer, though the company added approximately 660 customers in 2016. Kelly said that growth was likely the result of companies adding new employees or their family members to existing group policies that are no longer sold here. 

Companies that added the greatest number of new customers in 2016 included Bankers Life, TransAmerica and Northwestern.

The partnership

Guttchen has overseen the Connecticut Partnership for Long-Term Care since it launched in 1992.

About 40 percent of Connecticut's currently active long-term care policies have been sold through the partnership, which markets plans that meet its design standards.

Despite rising premiums, the partnership still urges consumers to purchase long-term care insurance.

Since its founding, the program says it's helped save Medicaid more than $30 million by shifting long-term care costs to private payers.

The partnership requires its insurers to increase benefit amounts each year to keep up with inflation, which helps policyholders in the long run but contributes to higher premiums.

In addition, partnership policies are the only plans in Connecticut to offer Medicaid asset protection — a key benefit that allows policyholders to shield various assets from Medicaid, should they one day need it.

That protection can allow policyholders to have an estate to leave behind when they die. It can also improve older adults' lives by allowing them to access private nursing home rooms or a larger monthly disposable income than Medicaid allows.

Sidebar: Hybrid insurance product emerges

Correction: This story has been modified to clarify that Unum is no longer selling new policies in Connecticut, though its membership here increased in 2016 as a result of activity on older plans.