Long-term care insurance facing major pricing shift


One of the biggest fears people have about retirement is getting sick and running out of money to cover their health issues.

So in comes long-term care insurance, which can cover the cost of nursing homes, assisted-living facilities and in-home care. Medicare — except in very limited situations — does not cover long-term care. Medicaid covers long-term care, but to qualify for the benefit, you have to be pretty poor.

If you need help with life’s basic activities — eating, dressing and bathing — it can be expensive and the cost of that care can decimate your savings.

The problem is that there have been some steep premium increases for long-term care insurance, and it has many people wondering if the insurance is worth it. Insurance companies have had trouble pricing the insurance. Initial premiums charged haven’t been enough to cover claims.

But how the insurance is priced may be changing significantly. Rather than keeping premiums steady for several years and then having to impose huge double-digit rate hikes, Genworth, one of the largest providers of long-term care insurance, wants to be have the ability to change premiums annually, reports Forbes contributor Howard Gleckman.

“In this design, unfortunately called the Annual Rate Sufficiency Model, buyers of new policies would likely see modest, single-digit rate hikes each year or two,” Gleckman writes. “If Genworth thinks it is likely to pay fewer claims than expected or if investment income is higher than projected, consumers might even see small rate reductions in some years.”

He goes on: “For years, some brokers told buyers that their premiums would never increase. But in reality, while carriers could not raise rates on individual policies, they could boost prices for an entire class of buyers. They often delayed those rate hikes — or were blocked by state insurance commissioners — for five years or more, until policyholders got hammered with increases of 40 percent and up.”


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