Upheaval in the long-term care (LTC) market has drastically increased premiums and reduced consumer choice. In the last couple years, many LTC carriers left the market or dramatically increased their rates when they discovered that they had dramatically underpriced coverage.
MetLife, for instance, eliminated its long-term care insurance products at the end of 2010, saying that interest rates, among other things, made the product line impossible to continue. At the same time, John Hancock announced that it was raising premiums on in-force policies by 40%.
Carrier pullback from LTC insurance couldn’t come at a worse time, as baby boomers start to qualify for Medicare and Congress threatens deep cuts to entitlement programs.
A recently released Government Accountability Office (GAO) study provides some insight into the LTC insurance marketplace, and may signal a re-entry strategy for exiting carriers. The study examined the federal long-term care insurance program (FLTCIP), which has offered long-term care insurance to federal employees and retirees since 2002.
The most important finding of the study is that a majority of employees will take a rate increase over benefits reduction when offered the choice. Only 1.6% of FLTCIP enrollees chose to discontinue their coverage in the face of premium increases. This result shows that consumers understand the importance of LTC insurance and are willing to pay the increased premiums required by carriers who choose to stay in the market.
John Hancock Life Insurance Co., the carrier at the center of the study, was awarded the FLTCIP contract in 2009. After the first year of its contract, John Hancock amended its actuarial assumptions when it found that participants were living longer than expected and were maintaining their coverage longer than John Hancock had assumed.
Exit is not the only option for LTC carriers. Consumers understand the importance of LTC insurance and are willing to pay for the benefits they understand they need.