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Interest rates and long-term care insurance problems

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Some state insurance regulators seem to be getting tired of seeing new long-term care insurance studies that showed the ceators of LTCI products guessed wrong about… everything.

I personally have wondered: How much of the bad assumptions news is really the result of bad assumptions about people’s health and behavior, and how much of the news is a euphemism for, “Interest rates have been slow for forever”?

Traditionally, insurers were supposed to take all of the responsibility for handling interest rate fluctuations. Some states won’t even let LTCI issuers mention the current ultra-low rate environment in requests for rate increases.

Related: 5 regulator questions about long-term care insurance prices

On the other hand, maybe that’s like a guy who calls the doctor and mentions that he’s obese, and mentions that he smokes, and mentions that he eats poorly, and forgets to mention the guy smothering him with a plastic bag.

Actuaries’ inaccurate guesses about how long LTCI claimants typically live might look a lot better if interest rates were three percentage points higher.

Meanwhile, a few weeks ago, Steven Mnuchin, the new Treasury secretary, was talking about the possibility of the government issuing bonds with 50-year durations.

Well, hello…

If the Treasury Department issued 50-year bonds, then at least an insurer would have a simple way to set an interest rate floor for the investments backing an LTCI policy.

Some critics have said issuing ultra-long-duration bonds would drive up U.S. borrowing costs.

But the country has artificially depressed interest rates for retirement savers and people planning for long-term care expenses for most of the past 20 years. That’s not fair. If issuing 50-year-bonds drives up rates 0.01 percent for 35-year-old home buyer job hunters, tough beans. It’s time for the Treasury to give some of the love it’s been lavishing on the frivolous grasshoppers to the hard-working ants.


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