The Economic Realities of the 2000s

Looking all the way back to the late 90s and the dot-com bust of 2000, the economy has had a storied decade on bust, boom, and bust. The idea of a “company job” with pension, security, and long-term loyalty has been all but thrown out the window, pushing more and more people into small businesses, entrepreneurial endeavors, and even temporary jobs in fields like home health care.  This wave of competition for Home Care jobs and formation of new Home Care agencies has helped put the brakes on cost growth.

While it’s relatively easy to start a home health agency and hit the streets with a marketing plan, opening a Long Term Care facility such as a nursing home or assisted living facility can have much higher barriers to entry.  Many nursing homes are owned by large corporations or REITs that specialize in Long Term Care facilities.  With fewer direct competitors in the market, there’s been a larger spike in Long Term Care prices for facilities.

Will The Baby Boomers Change Everything One More Time?

A wave of future potential customers for nursing homes is coming, and it’s called the Baby Boomer generation.  Smart planning is being done right now to devise ways to accomodate this demand and profit from the inevitable demographic shift that the US will see.  The number of new customers will be unprecedented on the demand side, but what will happen on the supply side?  While we’ve seen growth in home health agencies over the past ten years, we predict the next ten years will add growth in facilities catering to LTC patients, from Assisted Living to Nursing to Continuing Care.

Entry of new participants to the market should help put a cap on the growth in costs related to Long Term Care administered at facilities.  While facilities will grow, there will be little slow down in the growth rate of home health agencies.  After all, 75% of Long Term Care Insurance claims start at home.

Inflation Protection

All of this is relavent if you’re shopping for Long Term Care Insurance.  One of the largest decisions you face as a shopper revolves around your choices for inflation protection.  In a nutshell, inflation protection grows your benefit as time goes on, generally at a fixed rate of 3%, 4%, or 5% compounded.  A policy that pays $4,000/mo today will grow to $7,203 using a 4% increase over fifteen years, according to the Compound Interest Calculator from MoneyChimp.

If you’re deciding what level of inflation protection to buy on your Long Term Care Insurance policy, consider the dynamics of the free enterprise system and how they may affect you going forward.  After all, the next twenty years will look nothing like the past twenty years.

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While 5% simple does qualify her for Partnership benefits, it is simply inadequate unless she plans to use this coverage in the next 5-15 years.  With the average claim age being mis-80s now, it’s unlikely that a sub-60-year-old will need care in 15 years.  First, the Partnership rules:

Ages 61 to 76: You must buy and keep some form of Simple inflation protection until you are 76.  (Simple Inflation is a minimum – we recommend 5% compound for those expecting use out 15+ years)

She’s okay for Partnership purposes, but what about her actual benefits?  Taking $200/day today and running the numbers, at average claim age the client will have more than $220/day in benefit with a 5% Compound option versus a 5% simple option.

Taking that math to its extreme, over the three year life of her policy she will benefit to the tune of $240,000 over the lifetime of the policy.  With a premium difference of $400-$500/year more for 5% compound, and a $240k benefit, the risk-reward equation seems to favor 5% compound in this case.

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Del. David Albo (R-Fairfax Station) introduced House Bill 2253, which along with repealing the long-term insurance tax credit that became law in 2006, sought to decrease individual income tax rates, repeal the land preservation tax credit, impose a 5% state gasoline tax, double the registration fee of electric vehicles to $102, and exempt food from state and local taxes.

The average premium for an LTC policy in Virginia is $2,996, according to a study by LTC Tree.

Virginia’s Long Term Care Tax Credit: 15%

It’s important to note that this is a tax credit, not a tax deduction.  The amount can be equal to 15% of the premium, or about $450 the first year, according to Drew Nichols of LTC Tree.  With state budgets at some of the tightest levels yet, it’s no surprise the state is trying to reduce exposure.  What is overlooked is the fact that Medicaid, a state program, is responsible for the majority of Long Term Care costs in Virginia.  By allowing private citizens to take matters into their own hands, a subsidy in the form of a tax credit may actually reduce the burden on Virginia in the long term.

Long Term Care Insurance is a product often overlooked by many consumers, but popularity among ’baby boomers’ from age 50-60 is increasing as the reality of funding sets in.  With states cutting back on Medicaid programs almost weekly, it’s clear that private citizens are going to need to self-fund or insure the risk of Long Term Care.

A common catalyst to researching LTC is seeing one’s own family members face the devastating costs of Long Term Care.  Many Americans falsely believe that Long Term Care is covered by Medicare when in reality, only 100 days is covered by Medicare in almost all situations.  It’s not uncommon for LTC costs to exceed $50,000/year in Virginia, so insuring even part of the risk can help take the “bite” out of Long Term Care costs at affordable premiums.

To those considering Long Term Care Insurance, shop around with at least 5-6 companies.  Virginia’s Long Term Care costs average close to $200/day, and according to the LTC Tree study, consumers buy an average of $148/day in benefits.  Taking nearly 75% of the average cost out of the equation makes sense for Virginians in the $100k – $2M Net Worth range.  Everyone from Dave Ramsey to Clark Howard will advise smart consumers shopping for Insurance to compare your Long Term Care options and shop the market of major insurance providers in Virginia.

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Thrivent (formerly AAL) is an insurance company marketed primarily to Lutherans.  If you’re one of the 2.5 million American members who is part of a Thrivent chapter, and you’re considering LTC coverage, you may want to compare the Thrivent offering with insurance policies from other carriers.  That’s our primary business here, and we encourage all consumers looking for this type of coverage to shop around.

Long Term Care Market Re-Entry Not Unprecedented

The carriers we cover at CompareLongTermCare have varied over the years, and an uptick is welcome.

Thrivent originally sold Long Term Care policies earlier in the decade, but exited the business in 2003, citing difficult business conditions.  Fast forward to 2012, and Thrivent sees a healthier market, which for an insurer means higher premiums.  Transamerica did a similar about-face in 2010 and re-entered a market it had lost interest in during its first stent in the business.

In the case of Transamerica, they have evolved their offerings over time, and in late 2012 stopped offering riskier benefits like Unlimited/Lifetime benefit payouts, and premiums that only last for ten years.  In addition, other insurance carriers have been paring back the more generous benefit options they offer.  As a result, consumers are still able to find significant value, but at a higher cost than before.  For the premium rate-payer, this may not seem like a healthy market, but it is more sustainable pricing for the long term, which actually is beneficial to all policyholders.

State of the Long Term Care Insurance Market

With Thrivent re-entering the market, consumers are served by another strong competitor vying for their valuable Long Term Care Insurance dollars.  Since 2008, several major insurers had exited the market, including Allianz, MetLife, CNA, and Prudential.  Carriers facing less competition have increased the price new policyholders pay, leading to the market opportunity that Thrivent clearly sees and is looking to capitalize on.  If you’re shopping the market, why not take a moment to Compare Long Term Care options right here on our site.  The variance in pricing from one insurance company to another can be large, as can the financial ratings of the insurers.  Our comprehensive package includes information on all of these things.

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Limitations of Group Policies Today & Tomorrow

Group Long Term Care coverage, which you may be able to buy at work, can have severe drawbacks, both today and in the future.  What makes the issue so confusing is that for health insurance, group coverage is often a better deal than private plans.  The idea of any group insurance plan is to pool the risk of all employees.  So while one employee may have a catastrophic health event, the other employees (your co-workers) that are heathy balance that out.

Long Term Care Insurance is totally different.  For starters, in any given company, generally about 10% of employees will take the coverage out.  You can probably guess who the 90% of those who pass on the coverage are; they are the healthy, often younger, co-workers who go out and shop around for their options and opt for private coverage.  What this means to you as a member of a group LTC policy is that, on average, your fellow policyholders may be less healthy than in a standard insurance pool where everyone has to be medically qualified.

What You’ll Miss Out On Today

Because of the added risk you’ll have with a group-based Long Term Care policy, there are several major limitations to look out for.

• Inflation Protection
• Home Health Care Limits
• Couples Discounts

The Larger, Looming Risk: Group Policy Rate Increases

Because of the larger risk in group policies, and because of adverse selection, your plan from work may be more prone to rate increases.  As real-world examples, consider two large groups: the Federal LTC program, and the California State Employees Retirement system.

The “Fed” plan announced a 25% rate increase on existing policyholders in 2009, which led the GAO to declare the policy a less than stellar deal.

A Large Group LTC Policy: CalPERS

The California retirement system, CalPERS, offered generous and reasonably priced Long Term Care coverage for many years.  State employees comparing the CalPERS plan to private plans may very well have found slightly lower pricing in the group plan.  Many employees opted for the fantastic benefits at relatively lower prices, and things looked good.  Medical qualifications were  much easier with these plans compared to the slightly more expensive private insurance plans offered by companies like Genworth, John Hancock, Mutual of Omaha, MassMutual, Prudential, New York Life, Banker’s Life, etc.

Fast forward to 2012, and CalPERS policyholders are now “approved” for an 85% rate increase.  Case in point of why a group plan can have initially lower prices followed by much higher prices.

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Evaluating Your Risk of Rate Increases

The Bigger Risk: Needing Long Term Care

1. Work with a broker, not an agent.  If you’re just beginning research on Long Term Care coverage, you’ll first want to work with an unbiased agent who represents many insurance companies.  Too often, agents who represent a single company may place their client with a company with substantial rate increases and less desirable financial ratings because the conversation simply never comes up.  As unbiased brokers, we are happy to talk about the companies that have and have not raised prices on their existing clients, and discuss industry trends company by company.  That level of candidness is missing from many single-company LTC insurance shops.

2. Ratings are weakly correlated with rate increases.  There are quite a few A+ rated companies that have had to roll our increased LTC prices.  To name a few, John Hancock [A+], Transamerica [A+], and Mutual of Omaha [A+] have all raised prices in most states on past policies.  The top-tier of carriers, including New York Life, MassMutual, and Northwestern LTC, have all held rates stable thus far, so there is a correlation there.

3. Companies selling longer are more likely to have increased.  This seems obvious, but if you’ve only sold Long Term Care for 10-15 years, you are no where near peak claims, and hence do not need to raise prices at nearly the same rate as companies with 20-year-old books of business.  To elaborate, the average purchase age for Long Term Care is in the late 50s, so ten years later a company has a still-healthy group of clients paying premiums and has no need to raise prices, because they’re paying virtually no claims yet.  Fast forward ten more years, and the average client is late 70s, approaching claim age.  Rate will almost certainly be more likely to be increased when a company’s book of clients is closer to average claim age. MassMutual and Northwestern (A++ both) have ~15 year old policy books, so their claim to no rate increases should be considered in this context.

Two Pillars of Rate Increase Justification

There are really two major reasons that insurers have had to go back and request rate increases: miscalculations on lapse ratios and, more recently, low interest rates that cannot sustain insurer profitability.

Lapse Ratios: Modeled After Disability

Originally, Long Term Care policies were modeled after disability policies by many insurance actuaries.  They suspected that the lapse ratio, or percentage of policyholders that would continue coverage, would be similar.  Disability policies are widely known to have an average lapse ratio of 5%, meaning in any given year, 5% of the clients will drop out, having paid premiums but likely never made claims.

Long Term Care clients are planning differently, and as time has passed, the lapse ratio at most companies has trended at approximately 1% instead of 5%.  Prescient companies like Genworth Financial noticed this in the early 2000s and begin to adjust their pricing models to reflect a more realistic lapse ratio of 1%.  Buck Stinson, VP of LTC at Genworth, stated that lapse ratios had been adjusted by 2005.

Interest Rate Risk

With 30-year mortgages near 3% as of writing, there is very little interest being paid, and very little interest being earned.  Insurance companies are like seniors, they depend on interest income to sustain them.  One assumption of insurance companies is that they can collect premiums, invest them in low-risk assets, and collect interest at a healthy rate to help cover future claims.  With the Fed’s insistence on virtually zero real interest rates, and massive amounts of monetary stimulus since the financial collapse of 2008, insurance companies far and wide have been hard hit by diminishing returns on their investments.  Long Term Care is especially hard hit because of the spread between the time of purchase and the time of claim (an average of over 20 years!)

As of Fall 2012, one major insurer has privately acknowledged that they are incorporating a 50-year interest rate assumption of 4% into their LTC product pricing.

The Chance of Increases is Decreasing

The ultimate irony of this all is that, as insurance companies more conservatively price their policies and make more realistic assumptions, the chance of future increases actually decreases.  As a new policyholder, you’ll pay substantially more for the same coverage you could have purchased in past years at much lower rates, but you’re also implicitly more insulated from rate increases.

A healthy attitude: build in room for the potential of a rate increase on your shiny new Long Term Care policy, but keep in mind that forces of inflation may help make those future payments easier to make with dollars worth less.  Meanwhile, as long as you have inflation protection, your policy is going to be providing more and more value as time goes by.

Contact Us For State-Specifics

Some states are better than others at regulating Long Term Care insurance rate increases.  Contact one of our professional agents today for comparison quotes and the full specifics on LTC rate increases in your state.

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Terminology of Rate Increases Explained

When you investigate Long Term Care rate increases, you’ll quickly encounter lots of archaic-sounding terms.  This topic is full of forms, classes, and lots of code numbers.

Classes - The most nebulous term to watch out for when discussing Long Term Care Insurance Rate Increases is the concept of “classes.”  Often you’ll find that companies use a disclaimer to the effect of “we can’t raise rates on you, but we can raise rates on everyone in a class in your state.”  The question is: how are these classes divided up?

Policy Forms - A form number is a state-approved policy that is sold during a certain period of time.  Everyone in your state who purchases that same policy form may be considered part of a class, but again the class term is up for debate.  A policy form will be available for sale during certain years.  In recent years, we’ve seen policy forms last as little as a year before being replaced by a new form number.  When it’s time for a rate increase, the company will address the performance of each policy form series.

Some Examples of Rate Increases, by State:

Your Long Term Care Insurance application has to disclose the rate increase history of the policy you’re applying for as well as the company’s other policies sold in the past.  We’ve highlighted below that the current offering from Mutual of Omaha for sale has not raised premiums, but past policy form numbers have experienced increases.

Each state has a slightly different disclosure.  Some examples are below, all current as of October 2012:

Florida Mutual of Omaha Rate Increase Disclosure

Click the table above to enlarge.

Florida currently offers different policy forms than many states, and individually reviews company filings.

Florida also has a different rate increase history than many other states.  You can see in the attached table that Florida policies experienced a  5% Rate Increase in 2007 for Tax Qualified policies, while policyholders in other states saw an increase of 3-30%.  Each insurance department has different protocol for handling rate increases.  Florida can require actuarial review of some rate increase requests.

» Review more on Florida Long Term Care Insurance options.

New York Mutual of Omaha Rate Increases

New York’s form specifically states that on the NHA/LTA/HCA forms sold in the past and increased with a 23% overall increase in 2003, New York did not receive any rate increases on these forms.

New York, like Florida, has a unique regulatory environment.  Often, you’ll find that policies for sale in New York are a unique policy form number and not for sale in other states.

Wisconsin Mutual of Omaha Rate Increase Disclosure

Texas Mutual of Omaha Rate Increase Disclosure

Texas has comprehensive rate increase Rate Increase data here: http://www.tdi.texas.gov/consumer/cpmltchistory.html

Mutual of Omaha’s increase history, linked directly from TDI: http://www.tdi.texas.gov/consumer/documents/ltcratehistory57370.pdf

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Live Data: What cities in Florida are researching Long Term Care Insurance? Click to expand.

The Sunshine State accounts for 3.30% of the Long Term Care Insurance market, and 6.2% of the U.S. population, meaning Floridians protect themselves at smaller proportions than the rest of the country.  Florida is also a retirement haven, with many baby boomers moving here each year, so Long Term Care insurers would be remiss to ignore this market.

Internal data suggest that Florida residents purchase Long Term Care Insurance at lower premiums per dollar of benefit than virtually any other state.  This is because the genration of Long Term Care policies in Florida available for sale is older with several of the major companies.  Newer policy series available in other states generally are priced higher for the same benefits.  This is current as of September 2012, but may change over time as the state insurance regulators approve newer versions of policies.

Unique Features of Long Term Care in Florida

Florida, due to its large size of retired citizens and its overall population, has a robust regulatory environment, and the Long Term Care policies sold in Florida will often differ from other states.  While many states are part of an “Interstate Compact” that essentially rubber stamps insurance policies rolled out by insurance companies, Florida reviews policies individually.  As mentioned above, this leads to a lower rate structure under current conditions because Florida has not approved newer, more expensive policy forms from many of the major Long Term Care insurers.

The state has even set up a Long Term Care-specific site.

Virtually all major insurance companies have approved Long Term Care policies in Florida, with nine companies approved for Partnership policies, which we recommend.  The Partnership-approved companies are:

Companies Selling Partnership Policies in Florida

Company names are followed by their product names, where available…

1. Massachusetts Mutual Life Insurance Company, Signature Care MM-500 2011
2. Genworth Classic Select and Privileged Choice 2007 Florida
3. John Hancock Custom Care III
4. LifeSecure Individual LTC
5. MedAmerica Simplicity II
6. Mutual of Omaha Mutual Care Plus
7. New York Life LTC Select Premier 5.5
8. Northwestern Mutual TT.LTC (1010) QuietCare
9. Transamerica TransCare
10. United of Omaha Assured Solutions Gold & Cash-First FL
11. United Security Assurance Company of Pennsylvania

» Get Six Free Florida-specific Quotes »

Partnership Policies & State Requirements

Florida Long Term Care Insurance News

Updates as needed with state regulations changes, product updates, etc.

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Heat Map: Demand for Long Term Care Insurance, by State.

Does the Affordable Care Act Address Long Term Care?

Short Answer: No.

Long Answer: The original bill included legislation originally introduced by the late Ted Kennedy, known as the CLASS Act.  The Community Living Assistance Services and Supports program (CLASS Act) has been effectively disabled as of 2012 by the Obama administration, but the legislation has not been formally removed from the ACA.  A 2010-era brief (read: dated) on the provisions the Act was supposed to have can be found here.  Because the Class-Act had to be actuarially sound for 70-years, it has been abandoned by the Secretary of Health and Human Services until it’s failings can be addressed.

What went wrong with the CLASS Act?

Short Answer: It failed as it was designed to.

Long Answer: Despite its obvious inadequacies, The CLASS Act was included in the health reform bill for one simple reason: it helped reduce the cost of the bill by hundreds of billions of dollars.  CNN reports that the first decade savings were estimated at $80,000,000,000.

When the CLASS-Act was allowed to be scored by the CBO as part of the Affordable Care Act, it was responsible for $80B in “positive” revenue for the Act.  Ultimately, the savings helped get the Act passed.  Hence, it was included but designed to be ditched or re-tooled later.

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Live Data: What cities in Washington are researching Long Term Care Insurance?  Click to expand.

The Evergreen State accounts for 2.89% of the Long Term Care Insurance market, and 2.2% of the U.S. population, meaning Washingtonians protect themselves at higher proportions than the rest of the country.  Washington residents are also known to be some of the healthiest in the United States, so Long Term Care insurers would be remiss to ignore this market.

Internal data suggest that Washington residents not only purchase Long Term Care Insurance in higher proportions, but also purchase larger policies.

Unique Features of Long Term Care in Washington

Washington has a unique and robust regulatory environment, meaning the Office of the Insurance Commissioner is serving its citizens well.  The state has even set up a Long Term Care-specific site.  The State site mentions that, “Washington state laws took effect Jan. 1, 2009, to further protect consumers who buy long-term care insurance.”  With the average time span between a purchase of a LTC policy and the actual claim being 20-30 years in most cases, having a well-regulated insurance market is of utmost importance to consumers.

There are 24 insurance companies approved in Washington, with nine companies approved for Partnership policies, which we recommend.  The Partnership-approved companies are:

Companies Selling Partnership Policies in Washington

1. Bankers Life & Casualty Company
2. Country Life Insurance Company
3. Mutual of Omaha Insurance Company
4. State Farm Mutual Automobile Insurance Company
5. Thrivent Financial for Lutherans
6. Transamerica Life Insurance Company
7. United of Omaha Life Insurance Company
8. United Security Assurance Company of Pennsylvania

» Get Six Free Washington-specific Quotes »

Partnership Policies & State Requirements

You may exchange your existing policy, as long as your current policy was issued on or after Feb. 8, 2006, and it’s the type of policy certified for the Long-Term Care Partnership Program. However, some restrictions may apply. Check with your insurance company for details.

If your policy was issued before Feb. 8, 2006, check with your insurance company to see if they offer an option to exchange it for a Partnership policy.

Washington Long Term Care Insurance News

Updates as needed with state regulations changes, product updates, etc.

January 2012:

Washington residents polled by King 5 report dissatisfaction with the mandate portion of the health care law.  (Link)
Read our take on the Health Care reform law here.

September 2012:

Washington updated their inflation protection rules surrounding CPI-Linked inflation models.  (Read the amended regulation here.)
Summary: Inflation protection of at least 3% Compound must be offered for Partnership compliance.  CPI decreases cannot decrease benefits, but can be offset by future years.  It is possible, though not certain, that Washington will approve previously sold policies as Partnership.  Policies will have a Partnership Status Disclosure Notice included with them at issue if they have been approved.

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