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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.

The 2000 National Compensation Survey determined that 7% of all employees are eligible for long term care insurance as an employee benefit. Professional and technical employees, those who work in larger companies, and those who are represented by unions were much more likely to be eligible for this benefit.

Penn Treaty, a leading provider of long term care insurance, announced that its auditors have expressed doubts about the company's future based on its 2000 financial statement, and the company has hired two investment banks to help explore its strategic options. The company's auditors said they will include a going concern qualification on its 2000 financial statement because Penn Treaty's surplus to pay for insurance claims has fallen below the regulatory level. The company said they believe they have sufficient reserves, and are in the process of filing actuarial reports with state regulators to support their claim, but admit that it is possible they will be required by reglators to increase reserves. In that event, the company will need to find additional capital. In their annual report filed with the SEC they estimate that we may need to generate at least $40 million of additional capital in order to provide sufficient funding for their liquidity and statutory surplus needs during 2001.

Penn Treaty derives most of its revenue from the sale of long term care policies. About $355 million of the total $357 million premium revenue they reported in 2000 was from long term care policies. LifePlans, Inc. reports that Penn Treaty is the second largest writer of long-term care insurance in terms of new policies and among the five largest writers of individual long-term care insurance in terms of annualized premiums. Penn Treaty has been writing long term care insurance since 1972.

Massachusetts Mutual Life Insurance Company has signed a deal with the U.S. Chamber of Commerce to offer a tax-qualified long-term care insurance product to member businesses at a 15% discount. The Chamber reports that 2/3 of Chamber members surveyed said that they regard the high cost of long-term care as a major concern, and nearly half reported that they had taken time during the workweek to attend to the daily living needs of a relative or friend. Yet only one in eight respondents currently own long-term care insurance and three-fourths have not budgeted for the cost of long-term care.

Most business owners surveyed said they would be more likely to buy long-term care insurance if they could do so on a pre-tax basis, and just over half said they would be more likely to offer long-term care as an employee benefit if there were better tax incentives to do so.

Submitted by Kim Purcell

Congresswoman Nancy Johnson (R-CT), Chairwoman of House Ways and Means Health Subcommittee, has introduced HR 831, a bill which would provide additional tax deductions and credits for long term care insurance and caregiving expenses. HR 831 has a number of interesting provisions. It would give higher deductions for long term care insurance premiums to people who have owned policies for a number of years. People under age 55 who have owned policies for 4 years or more would be able to get a full deduction of their premiums, and people aged 55 or over would get the full deduction if they've owned a policy for two years or more. The proposed legislation also would allow long term care insurance to be included in cafeteria plans and flexible spending arrangements.

In addition to the provisions for long term care insurance premiums, HR 831 provides for a $1,000 "caregiver" tax credit for each qualified person under the care of the taxpayer claiming the credit. There are a number of restrictions, including a requirement that the person receiving care be living in the same household as the taxpayer.

The bill is co-sponsored by Jim McCrey (R-LA), Karen Thurman (D-FL), and Earl Pomeroy (D-ND). Contact the sponsors or read the text of the legislation for more information.

The Center for Aging Research and Education (CARE) revealed early results from online Long Term Care survey. They found what they called "shocking" results. For instance, of respondents who considered themselves "financially knowledgeable", 78% do not own LTC insurance, 46% do not even understand it, and 16% believe that the government will cover any long term care needs that they have. On average, people overestimated the cost of LTC insurance by up to 400%. Respondents were also unclear about what LTC insurance covers, with most believing it covers only nursing home care. Adding to the perception that LTC insurance is unnecessary, nearly 50% are counting on their spouse to take care of their long term care needs.

Act No. 2000-795, HB170 was signed by the Governor and became effective August 1, 2000. The companion bill was S-187 (Butler). This bill amends the Alabama Medicare Supplement Policy Minimum Standards Act and adopts the Alabama Long-Term Care Insurance Policy Minimum Standards Act, so as to make Alabama law substantially similar to the uniform standards developed by the National Association of Insurance Commissioners and required by the Federal Health Care Financing Authority.

The South Dakota Office of Adult Services and Aging and the Senior Health Information and Insurance Education Program (SHIINE) have published a new guide to long term care insurance for South Dakota citizens. The guide includes general information about long term care insurance, but also includes a comparison of the premiums and benefits for most policies licensed for sale in the state of South Dakota.

Tillinghast-Towers Perrin told members of the Health Insurance Association of America (HIAA) about results of a recent study they did about insurance products for seniors. They said that many organizations believe that LTC is a product that must have a bright future ? it just hasn?t been fully realized. Relatively high premiums combined with low perceived need is being addressed on several fronts. Insurers are seeking ways to penetrate the market by combining or integrating LTC benefits with other coverages. Many respondents felt that the above-the-line tax deduction the Congress is considering would dramatically increase the public?s appetite for LTC products. But respondents also noted that state-by-state regulations, a lack of perceived need or understanding, and difficulty with distribution channels all present significant barriers to LTC products taking hold. Many insurers indicated they are leaning towards developing integrated products that provide seamless care across settings and providers?and which can take coverage from middle age through end-of-life. The hope is that integrated products such as life insurance with LTC or health plus LTC will respond better to diversifying market demand than today?s siloed offerings.

One out of three Americans above the age of 55 believe the single most important action government could take to help families meet their long-term care needs would be to offer tax relief for people who purchase private long-term care insurance, according to a new survey released today by the Health Insurance Association of America (HIAA). They found that more than three in four people who decided not to buy private long-term care insurance would be more interested in doing so if they could deduct the premiums from federal income taxes.

Other key findings of the new HIAA survey include:

• Most Americans do not believe that the government will pay for most long-term care services within the next 10 years.
• In 2000, 77% of long-term care insurance policies cover both nursing home and home health care, compared to 37% in 1990.
• Over the past five years, the average daily nursing home benefit has increased by 28% while average annual premiums have increased only 11%.
• One-third of all individual long-term care policies sold are purchased by people between the ages of 55 and 64.
• The median income of current buyers of individual long-term care insurance is $42,500.
• In 2000, 65% of buyers, and 55% of non-buyers of long-term care insurance believe that they have a greater than 50-50 chance of needing nursing home care. This compares to 26% of buyers, and 25% of non- buyers in 1995.

HIAA's survey of buyers and non-buyers of long-term care in the individual insurance market was conducted by LifePlans, Inc. of Waltham, MA.