Reader Beware: Chicago Tribune publishes “half-right” article on LTC insurance

by | Feb 7, 2018

Chicago Tribune writer knows just enough about LTC insurance to be dangerous.

The Chicago Tribune recently published an article by Elliot Raphaelson. It’s entitled, Long-term care insurance: Buyer beware, which is why I’ve entitled this post, “Reader Beware!”

Below are quotes from the article with my replies. Enjoy!

Chicago Tribune: “A major problem for many insurance companies in the long-term care (LTC) industry is that they are either not profitable or losing money.”

LTCShop: Every industry has some companies that are profitable and others that are not. The companies that didn’t find LTC insurance profitable have stopped selling new policies. Thirteen different companies sell long-term care insurance that is both profitable for them and a good value for their policyholders.

Chicago Tribune: “People are living much longer now than when many of the LTC policies were sold.”

LTCShop: This is true, but this has had little impact on LTC insurance rate increases.

Chicago Tribune: “Many of the assumptions actuaries used proved to be erroneous. For example, it was commonly assumed that 5 percent of policyholders would allow their policies to lapse annually. In fact, only approximately 1 percent of policyholders have done so."

LTCShop: That is true. This is the #1 reason claims have been almost twice as high as the insurance companies predicted. Very few LTC insurance policyholders have dropped their policies. The actuaries never expected LTC insurance would be so popular.

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Chicago Tribune: “Many insurance companies offering LTC policies have either gone out of business or discontinued selling the policies.”

LTCShop: It is true that most of the insurance companies that sold LTC insurance in the 1990’s no longer sell LTC insurance. It’s also true that most of the insurance companies that sold medical insurance in the 1990’s don’t sell medical insurance anymore. In most states today there are more companies selling LTC insurance than there are companies selling medical insurance. All of the companies that have stopped selling new LTC insurance policies are still paying claims on their old policies. They have no choice! They are legally obligated to pay all claims. Last year over 100 different insurance companies paid claims to their long-term care insurance policyholders. You can view the LTC insurance claims data in a report published annually by the National Association of Insurance Commissioners.

Chicago Tribune: “Most of the companies that remain in the business have taken steps to increase premiums for both existing policyholders and new customers.”

LTCShop: This is false. This article ignores one of the most important reforms of long-term care insurance: The Rate Stability Regulation. Most of the policies sold before the Rate Stability Regulation have had rate increases. Most of the policies sold after the Rate Stability Regulation have NOT had rate increases. Also, new LTC insurance policies are protected from the pricing mistakes of older policies.

Chicago Tribune: "When premium increases have been granted, they have more than doubled."

LTCShop: This is false. Rate increases are public information. The median cumulative rate increase for policies issued before the Rate Stability Regulation is 45.11%. Most policies issued after the Rate Stability Regulation have not had any rate increases. For those policies that have had rate increases the median cumulative rate increase is only 21.85%.

Chicago Tribune: "Policyholders who have had their premiums raised significantly are faced with two unpleasant options: either allow their policies to lapse or accept smaller coverage."

LTCShop: Most companies have enabled policyholders to avoid the rate increase simply by reducing their policies’ future inflation growth from 5% to 3%.

Chicago Tribune: “Frankly, the situation is unfair to policyholders. Insurance companies have the option to go to their state insurance departments and try to obtain approval for premium increases.”

LTCShop: It is unfair. That’s why the Rate Stability Regulation was passed. The Rate Stability Regulation requires insurance companies to lower their profits if they seek a rate increase. Removing the profit incentive from rate increases has resulted in fewer and smaller rate increases on policies purchased after the Rate Stability Regulation.  Most policies issued after the Rate Stability Regulation have not had any rate increases.

Chicago Tribune: “Even if the insurance department refuses to approve premium increases, and the insurance company, facing large losses, is forced to liquidate.”

LTCShop: This statement is absurd. Long-term care insurance losses are not large enough to force multi-line companies to liquidate. Multi-line insurance companies have profits and assets from other product lines that would prevent them from liquidating.

Chicago Tribune: "When an insurance company is forced to liquidate, the policyholder generally loses some coverage. There is no guarantee, when a company does liquidate, that policyholders will receive the coverage they initially contracted for."

LTCShop: Over the past 40 years there have been roughly 150 different insurance companies that have sold long-term care insurance policies. Three of those insurance companies went through liquidation (i.e. bankruptcy). All three companies were very small with financial ratings that were well BELOW average. Combined those three companies had less than a 2% market share of LTC insurance policies.

Chicago Tribune: “The bottom line is that anybody considering buying a standard LTC policy should understand that there is no guarantee that the premiums will be fixed. Prospective policyholders should determine the past history of the company regarding receiving approved premium increases.”

LTCShop: A better question is, “Has my state approved the Rate Stability Regulation? If so, how many rate increases, if any, has the insurance company had on LTC insurance policies issued after the Rate Stability Regulation took effect in my state?”

Chicago Tribune: “They should also review the financial rating of the insurance company, specifically their A.M. Best rating. Only consider companies with top ratings.”

LTCShop: Absolutely correct!

Chicago Tribune: “I suggest you only consider companies that have been in this business many years, have an excellent financial rating and have not increased their rates or have only increased premiums minimally.”

LTCShop: Again, it’s important to distinguish between rate increases that were approved under the old rules compared to rate increases that have been approved under the new rules. Most of the policies sold under the Rate Stability Regulation have NOT had rate increases. If they have had a rate increase it has been much smaller than rate increases on policies purchased before the Rate Stability Regulation.

Chicago Tribune: “Companies that have not increased their rates are Mass Mutual, New York Life and Northwestern Mutual.”

LTCShop: That is incorrect. New York Life and Northwestern Mutual have had rate increases. Source: CA Dept. of Insurance.

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