Part 3: “Half-right”: Two things the New York Times article on long-term care insurance almost got right.
“Half-right”: Two things the New York Times article on long-term care insurance almost got right
The New York Times article on long-term care insurance states:
“By 2020, sales of traditional policies had dropped to 49,000 and the number of carriers offering plans had fallen to fewer than a dozen from more than 100.”
It’s true that over 170 insurance companies used to sell traditional long-term care insurance. It’s also true that fewer than a dozen companies sell traditional long-term care insurance today. However, most of the companies that stopped selling long-term care insurance stopped selling it over 20 years ago (around 2002). The number of companies selling traditional long-term care insurance since 2002 has been relatively stable. It’s been about 10 to 15 in most states at any given time.
The question the NY Times article should have asked is this: “Why did so many companies stop selling long-term care insurance around 2002?”
There are four reasons:
- As mentioned in part 2 of this series, in order to try to prevent rate increases on newer long-term care insurance policies, in December of 2000, the National Association of Insurance Commissioners created a new regulation for long-term care insurance pricing. This regulation was named the “Rate Stability Regulation”. The regulation created several new rules that would lead to more stable rates for long-term care insurance. The biggest rule change was this:
The profit incentive was removed from rate increases.
States began to adopt this regulation in late 2001 and 2002. By early 2003 the two biggest markets for long-term care insurance, California and Florida, enacted the Rate Stability Regulation. Most insurance companies did NOT like this regulation and, therefore, stopped selling new long-term care insurance policies.
- Interest rates dropped after 9/11. Long-term care insurance companies collect premiums and then invest those premiums in safe government and corporate bonds. They collect the interest from the bonds and use it to help pay all future claims. When interest rates dropped after 9/11, many insurance companies determined they could not profitably sell long-term care insurance. The mortgage crisis in 2008 prolonged the low-interest rate environment and prevented companies from re-entering the long-term care insurance market.
- To reduce overhead and achieve economies of scale, over the past 30 years, the insurance industry, like most industries, has consolidated. Many of the companies selling long-term care insurance merged with or were acquired by other companies selling long-term care insurance. One long-term care insurance company, in particular, acquired over a dozen smaller long-term care insurance companies.
- Lastly, many insurance companies can make higher profits by selling life insurance as a solution to long-term care rather than selling long-term care insurance. That’s why if you ask 20 insurance agents for information on long-term care insurance, 19 will probably give you information on life insurance.
Half-truth #1 (Again)
New York Times: “By 2020, sales of traditional policies had dropped to 49,000 and the number of carriers offering plans had fallen to fewer than a dozen from more than 100.”
Again, this statement is only “half-true”. The article leaves out that in 2021 nearly 500,000 people in the state of Washington purchased some form of private long-term care insurance. They were given a choice between contributing to a state-run program (called the “WA Cares Fund”) or purchasing a private long-term care insurance policy. The vast majority of higher-income earners in Washington chose a private policy rather than a state-run program. They discovered that private long-term care insurance would, in most cases, provide richer benefits for less premium than the state-run program.
New York Times: “In 2021, about 30 percent of applicants ages 60 to 64 were denied long-term care insurance. For applicants 70 to 74, the rejection rate was 47 percent. Even among people in their 50s, more than one in five were turned down. Chronic health conditions, a history of stroke or diabetes, or psychiatric illness may all be grounds for disqualification.”
Again, this is something that is “half-true.” A lot of applications are declined. However, it’s not because the insurance companies have tightened their underwriting. The opposite is true. For many health conditions, long-term care insurance underwriting has become more lenient over the past decade, NOT stricter.
There are three main reasons so many applicants are declined today:
- “Investment advisors” often don’t discuss long-term care insurance with their clients proactively. Their client has a health change and then brings up the subject of long-term care insurance with their advisor. Unfortunately, at that point, it’s often too late to qualify for a policy.
- Many famous “financial pundits” recommend waiting to buy long-term care insurance until age 60 or 65. Unfortunately, many people develop chronic health conditions before age 60 and are unable to buy a policy. I became uninsurable for long-term care insurance at the age of 58. Thankfully, I purchased a quality long-term care insurance policy in my forties.
- In general, consumers don’t understand much about long-term care insurance. I had a call the other day from a woman who wanted to buy a long-term care policy for her husband, who had just had a stroke and was in a skilled nursing facility getting rehab. She said, “He’s coming home in about 30 days, and I need a policy to pay for a home health aide to care for him daily.” I explained to her that her husband was uninsurable. He could NOT qualify for long-term care insurance. She said, “But the Affordable Care Act does not allow someone to be denied insurance.” I explained to her that the Affordable Care Act only deals with medical insurance. The ACA does not regulate other types of insurance, including life insurance, disability insurance, or long-term care insurance.
In Part 4 of our in-depth analysis of the New York Times long-term care insurance article, we’ll discuss what the NYTimes got right.