The Crisis in Long-Term Care Insurance

We’ve been covering it in detail in Retirement Watch for a while. The issue finally hit the big time with a major piece in The Wall Street Journal. (Subscription might be required.) The article reviews all the issues known to my readers: premiums on older policies are rising; insurers are dropping out of the market in droves; terms and premiums on new policies are very different from old policies; policyholders generally are reducing coverage to keep their policies affordable.

The article offers no solutions. Instead it provides a detail discussion of how the LTCI industry developed over the last three decades or so. The good news is that the policies are likely to be more stable going forward as insurers learn from their mistakes, charge proper premiums, do better screening of new policyholders, and eventually investment returns increase.

“We’ve learned a lot over the last 30 years, and we now believe we have a better ability and more knowledge” to issue policies that “provide significant financial protection to Genworth,” Genworth Chief Executive Thomas McInerney said in an interview.

The insurer started requiring blood tests and other medical screening, which the industry generally hadn’t done before. And it is charging women who apply individually more than men for the first time because women tend to live longer and require more years of care.

In general, a 55-year-old single person buying long-term-care protection can expect to pay $2,065 a year for $162,000 in benefits, including a 3% inflation-protection rider—a 20% increase from last year, according to the American Association for Long-Term Care Insurance trade group.