ElderWeb

An April 2004 story in the AARP Bulletin reports that CNA recently increased premiums to long-time long term care insurance policyholders by 50%. As a result of the premium hikes, policyholders have to decide whether to retain the insurance and pay the higher premiums, reduce the level of coverage to keep the lower premiums, or walk away from the premiums they have paid and let the policy lapse. A story in Consumer Reports written in November 2003 says 50% premium hikes are being allowed by state insurance regulators, and warns consumers that long term care insurance may now be too risky and expensive to purchase.

I've been warning people for years that the quality of the insurance company they buy a policy from is critical, but that might not have kept someone from purchasing a policy from CNA. Nor is it enough to look for a company that has lots of long term care policies outstanding. Conseco is one of the largest long term care insurers around, but they have been in bankruptcy and have gotten permission for 40% premium rate hikes from regulators in the past.

There are several problems, all creating a "perfect storm" for many long term care insurance policyholders:

The cost of nursing home and other long term care is increasing, in some cases beyond amounts insurers had planned for when pricing their policies.

Investment returns are way down, and investment returns have traditionally helped offset claims payments for insurance companies.

The market is competitive and many companies underpriced their policies initially, forcing everyone to keep premiums unrealistically low and resulting in a later need to increase them.

There is a tremendous amount of consolidation and change in the market, so that policyholders may find that their policy ultimately ends up in the hands of a company that looks quite different from the company they initially purchased it from.

In spite of these disturbing stories, I am still hopeful that good companies will sell good policies and will be there to stand behind them when claims come due, but it is definitely a "buyer beware" marketplace out there. I still believe that anyone who wants to retain their ability to age in place should investigate long term care insurance, but they must be willing to do some homework to be sure they are getting the right product at the right price for the right reasons, and they must be sure they understand what can happen to rates in the future if the company is not pricing policies correctly. It is more important than ever to work with agents and companies who really understand this marketplace and its challenges.