For fixed-income seniors who’ve planned ahead for the likely prospect of long-term care, their financial assumptions might be upset in the coming months.
Several insurance companies including John Hancock and Genworth Financial are seeking state governmental approval for long-term care premium hikes of 50 percent or more, according to USA Today and the New York Times. In fact, the increases have already taken effect in a few states.
“We’re definitely seeing a lot of increases, especially for older policies,” Clarissa Hobson, financial planner with Colorado Springs’ Carnick and Kubik, told the New York Times. “Some increases are as much as 40 to 60 percent.”
While some critics claim insurers purposefully under-priced their policies to begin with, most financial experts cite actuarial difficulties as the main reason for the sudden and drastic hikes. Lisa Horowitz, a New York-based CLU, ChFC and long-term care expert, agrees.
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“We used to refer to long-term care as the final frontier of insurance,” she said. “Life insurance, car insurance and property and casualty insurance have been around a long time, and actuaries can accurately figure out what to charge. But when you have a product without a long history of claims, you’re missing a big piece of the puzzle.”
Aside from the lack of actuarial data, long-term care insurance has been particularly difficult to price because it must take into account both morbidity and mortality. Not only are people living longer, noted Horowitz, they’re living with life-changing ailments for far longer than anyone thought possible ten to twenty years ago.
Insurance companies may have assumed in the 1990s and early 2000s that an Alzheimer’s patient would only require a few years in assisted living or nursing care, for instance, while today ailing seniors can live a decade or more. Insurers who want to stay in the market not only have to account for such cases in the future, they also need to raise current premiums to absorb the costs of hundreds of thousands of miscalculations.