As 2008 came to an end, many of us found ourselves wondering what the adjective “long-term” means in the context of wildly gyrating stock markets and the day-to-day uncertainty this turbulence has created for countries around the globe.
The swift U.S. economic downturn (now officially a recession) has already been so severe that most Americans are far more focused on what tomorrow may do to their nest eggs than on what the “long-term” future may hold in store, health-wise. This is particularly so for baby boomers nearing retirement who may face permanently diminished retirement income streams.
Unfortunately, the long term care insurance arena has also been impacted by the economy, and the impact will be felt in 2009. Here are some examples:
Carrier departures. In the past few months of 2008, one of the original LTC insurers announced it will be exiting the LTC market, effective January 1, 2009.
Rate increases. Carriers choosing to remain in the market have been requesting rate increases. These requests are being granted, particularly for older LTC policies, with the hikes varying among carriers, products and state. The range of increase goes from 4% to as high as 24%.
Insurers are acutely aware of the negative impact that any premium increase has on carrier reputation. But they reason that small increases now will help avoid the need for larger increases at a later date, thus enabling them to maintain affordable premiums so the majority of their policyholders can continue coverage.
Those affected by rate increases should not panic. Advisors should help them first calculate the current cost of coverage compared to the cost of benefits payable if claim were filed today. Then explain that, while most premiums have remained constant for many years, inflation has continued to increase the costs of LTC benefits originally promised by the contracts. When these costs are factored in, the overall amount spent for coverage will generally continue to reflect a significant savings over the policy’s lifetime.
Limited benefit periods. In 2009, more LTC insurers will be seeking to limit benefit periods. The economic turmoil of the second half of 2008 made it increasingly apparent that the unlimited liability created by the lifetime benefit option is far too unpredictable to be reliably priced. While it may take many more years before the quantitative claims data needed for actuaries to set such rates effectively becomes available, when the data does come out, look for further tightening in underwriting criteria.
Simplified policies. Despite changes spawned by 2008’s economic turmoil, however, most consumers will be delighted to find that LTC insurers have finally responded to repeated pleas for simplified contract language and benefits. Today’s policies are finally easier to understand, a long overdue improvement. This trend should continue as new products are introduced in 2009.
Hybrids. During 2008, “hybrid products” made a notable entrance into the market, as alternatives to traditional LTC insurance products. These life and annuity products have LTC components, hence the hybrid moniker. They are still in the early stages of development and are not yet available in many states, but it appears that the benefits can differ considerably from those of traditional policies. LTC specialists should help explain these newer hybrids to consumers, and provide comparisons with traditional products, thereby ensuring that the product and benefits selected are best suited to each customer’s needs.
Ineligible applicants. Despite incentives from government and workplace, the continued increase in the number of Americans with chronic and genetically linked conditions such as diabetes, obesity and Alzheimer’s disease will invariably result in fewer people being eligible for LTC coverage. This will make purchasing LTC protection at younger ages-before symptoms appear and diagnoses are made-more essential than ever.
Above all, since LTC claims often occur as long as 20 or 30 years after LTC contract purchase, advisors should urge customers to select a policy that offers the flexibility to accommodate adjustments. This may be needed, as long-awaited changes in health care coverage impact the LTC market.
Vivian P. Gallo, CLU, CSA, AEP, CLTC is a long term care insurance specialist and certified senior advisor at Choices for Long Term Care, Hartsdale, N.Y. Her e-mail address is Insurance@ChoicesForLongTermCare.com