LTC insurance premium "surprise"

[REWahoo]

I realize I'm probably going to jinx myself by posting this, but...

As discussed in this thread four years ago I've been anticipating a significant increase in our LTC premiums once my 10 year guarantee-of-premium expired. (Note: Until last year I mistakenly thought the 10 years were up in 2009 but discovered we took out the insurance in May of 2000 which makes next month the end of the guarantee period.) My anticipation grew into a cringe whenever threads like this one showed up in the interim.

Not knowing just how big the increase would be, I contemplated at what point we should consider a reduced benefit in lieu of a premium increase, dropping the coverage on one of us, or dropping the coverage entirely.

I got the notice of next year's annual premium today and the increase was...0. Yep, the same amount it has been for the past 10 years.

No idea if this is a head fake, a mistake or what, but I'm not going to ask any questions, just pay up and see what happens next year...

 

[MasterBlaster]

Just make sure that the benefit promised keeps up with inflation. If not you may be in for a real surprise should you actually need it.

 

[ziggy29]

I got the notice of next year's annual premium today and the increase was...0. Yep, the same amount it has been for the past 10 years.

No idea if this is a head fake, a mistake or what, but I'm not going to ask any questions, just pay up and see what happens next year...

Wow. Maybe your insurer actually has done a better job of pricing this stuff.

My premium surprise? I'm basically paying the same for my Megacorp health insurance in 2010 as in 2008. It actually went DOWN 5% from '08 to '09 and back up 5% this year. (This is for their HDHP/HSA plan; the other PPOs are up 15-25% in that time frame.)

 

[REWahoo]

My premium surprise? I'm basically paying the same for my Megacorp health insurance in 2010 as in 2008. It actually went DOWN 5% from '08 to '09 and back up 5% this year. (This is for their HDHP/HSA plan; the other PPOs are up 15-25% in that time frame.)

Are you sure [-]you[/-] we aren't in the Twilight Zone?

 

[W2R]

Are you sure [-]you[/-] we aren't in the Twilight Zone?

You are. Either you are in the Twilight Zone or you have both "lost it". This is not what most of us are experiencing!

 

[FurBall]

My LTC premiums have not gone up in the 5 years we've had the policy despite no guarantee-of-premium. Any yes, the coverage does include inflation protection. Company is Unum Provident.

Health insurance premiums are a different less happy story.

 

[akck]

I'm not retires yet, but I do look annually at what my employer's LTC benefit premium. So far, the rates have not gone up. D-V-A coverage did go up $2/month.

 

[73ss454]

Is the premium a guarantee for another 10 years at the same #?

 

[REWahoo]

Is the premium a guarantee for another 10 years at the same #?

<In my best De Niro voice..> Are you talkin' to me?

 

[Alan]

<In my best De Niro voice..> Are you talkin' to me?

Even if he isn't, I'm interested in your response as if he was...

if ya know what I mean

 

[REWahoo]

No more premium guarantee....

The policy reads as follows: "In no event will the premium rate increase during the initial 10 years after your Effective Date of Coverage."

 

[Alan]

No more premium guarantee....

The policy reads as follows: "In no event will the premium rate increase during the initial 10 years after your Effective Date of Coverage."

Thanks. It sounds like you you have done well so far.

In 2003 a good friend took out LTC with UNUUM for himself and his DW with a similar guarantee but 4 years later he showed me the letter from them stating that the State of Louisiana and given them permission to raise the rates by 35%. (we had talked about LTC a lot and I'd decided to self insure but he was a little older and his kids a lot younger plus a family history of Alzeihmers etc so I think he made the right choice. )

 

[REWahoo]

I'm resurrecting this year old thread to do an update.

We received our LTC annual premium notices today and, once again, the premium is unchanged. As noted above the premiums were guaranteed for the first ten years and that guarantee expired two years ago.

So far, so good...

 

[chinaco]

That probably means your carrier priced it right in the first place and their experience is as they anticipated so far.


Different insurance companies try to manage their risk exposure (to underpricing the product) in different ways.

Our premium increases every 3 years by design...

Our policy has a benefit increase (compounded % for that period) offered every 3 years... for a premium increase. We can take it or decline the increase and stick with the old benefit level/premium level.

We take the inflation increase... the premium increase has been fairly small in $. But the premium increase for the benefit increase, increases with age. When one gets up in their 80's the premium increase is pretty high on a % of old premium basis (but it is affordable).

We are lucky... our policy is a group policy and the cost is very low relative to buying individual policies.

 

[samclem]

We take the inflation increase... the premium increase has been fairly small in $. But the premium increase for the benefit increase, increases with age. When one gets up in their 80's the premium increase is pretty high on a % of old premium basis (but it is affordable).

When last I looked at it, the increased premiums for those 80+ didn't strike me as "affordable", but of course that is very subjective.
With these types of "pay for more as you go" policies, it's very important to buy the inflation increases every year while you are young and for as long as you can afford it. If you wait, you can never get quite "caught up" and you'll always be paying more for less coverage than if you hadn't skipped the increase earlier.

 

[chinaco]

When last I looked at it, the increased premiums for those 80+ didn't strike me as "affordable", but of course that is very subjective.
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Not sure what your plan looks like... but I see our schedule when it is released... it has never been outrageous. But it is obviously higher in the 80s than at 60s. You have to look at it in the context of the overall cost over the life of the person. Obviously, there is no free lunch... only the pooling of money to mitigate risk! If it were a level plan... we would just be paying more up front. As the risk increases, the cost increases. If one of us dies younger, we avoid some of the premium cost.

Plus, our premium is very, very low! If I ran those numbers up to our 80s... it would be less than I could purchase an individual policy on the open market. Even then, they might (probably would) increase the premium at some point.

One of the nice things about a group plan (from a huge mega corp)... the company negotiates and is an advocate for employees and retirees in the pool!

So far, so good!

 

[samclem]

Not sure what your plan looks like... but I see our schedule when it is released... it has never been outrageous. But it is obviously higher in the 80s than at 60s.

Here's a link to a previous post on buying-as-you-go ("Future Purchase Option") vs. the level premium option for LTC. In the federal program (a group plan) for a simple example I looked at, monthly premiums go up 1000% between ages 65 and 85: At 65 years old the person paid $140 per month, by age 85 the person would have to pay $1500 per month for this policy ($150/day benefit, 5 years payout). Maybe some people consider this "affordable," it just didn't seem affordable to me. At 5% inflation growth per year, the 65 year old's $140 premium should have gone up to $341 by the time he was 85. The $1160 additional amount beyond that represents the increased cost of buying additional insurance as one becomes older. For comparison, if purchased at age 45, his level premium ("Automatic Inflation Compounding Option") would have stayed at $80 per month. The FPO premium exceeds the level premium staring at age 62 and the level premium option looks like quite a bargain at later years, compared to buy-more-as-you-go" ("Future Purchase Option").

One of the nice things about a group plan (from a huge mega corp)... the company negotiates and is an advocate for employees and retirees in the pool!

Yes, that's why a lot of federal employees bought their coverage through the OPM plan. Then in 2009 they got hit with a large group rate increase. I like the idea of being in a huge group, I think that might be useful if I were being unfairly denied benefits, but I'm under no illusions that it would protect me from rate increases. Group coverage is usually more expensive than individual coverage for those who are healthy/have lower risk factors.

So far, so good!

I hope it keeps working for you. I was surprised how steeply the rates go up with advancing age. Please be sure you are rock-solid in understanding what your true future rates are going to be. The "future purchase option" you are using can make a lot of sense, but I think for most folks it works best as a complement to a plan to "self insure" for a big part of the LTC cost when it no longer makes sense to keep buying more coverage when the rates skyrocket in old age. Kinda like "buy term and invest the difference" rather than buying whole life insurance.

 

[Dawg52]

My LTC premiums have not gone up in the 5 years we've had the policy despite no guarantee-of-premium. Any yes, the coverage does include inflation protection. Company is Unum Provident.

Health insurance premiums are a different less happy story.

I had a 3 year guarantee with Unum. I'm approaching my 9th year with the policy and no increases as of yet. I'm sure I just jinxed my luck.

 

[chinaco]

Here's a link to a previous post on buying-as-you-go ("Future Purchase Option") vs. the level premium option for LTC. In the federal program (a group plan) for a simple example I looked at, monthly premiums go up 1000% between ages 65 and 85: At 65 years old the person paid $140 per month, by age 85 the person would have to pay $1500 per month for this policy ($150/day benefit, 5 years payout). Maybe some people consider this "affordable," it just didn't seem affordable to me. ...

I understand your point. There is definitely a pay me now pay me later component to it.

I've seen our plan's schedule.... it is not as severe as you depicted in your illustration.

Of course with any of these products, there are not any guarantees on future premium levels. Especially the further out in time (20, 30, or 40 years). The company may have miss priced the product, they may have bad experience, or they may exit the market and your pool may shrink... on and on. Any illustration out that far in time (into the future) is just a guess... a projection based on some assumptions. Just as there is no way to predict longevity or if one even uses the benefit.

All one can do is make decisions based on the information available. How it plays out far into the future is indeterminate (no matter what anyone thinks). This means one should have a plan in place with contingencies. Our overall LTC plan is only partially based on our policies. If we need the benefit, it could only wind up defraying some of the cost (in certain scenarios).

IMO - There are two consideration: care and asset protection.

The care component will be there even if one runs out of money and falls into the safety net (govt). Asset protection for the spouse (estate or whomever) is the other component. This is where one needs to understand their state's rules and build a plan accordingly.

LTC policies (of almost any stripe) may only provide partial protection no matter what. Why? Because one could linger for 10 years in a NH. We had a family member in that type of situation. Severe stroke in their early 80s lingered 10 years. Most people do not have that kind of money that late in life! If one is still financially sound (well off) in their late 80s, it will not matter so much. if their nest egg has diminished, but they have some money, that is where an overall asset protection plan becomes very important. One central planning item: How does the survivor retain adequate assets for their needs? Everyone should have a Plan! Unless one is really rich... part of that analysis should include a realistic look at the worst case scenario. Which is, one spouse winds up on medicaid... how much will the spouse retain and how does it work? Do you have an adequate plan for their future?


I suppose new information could surface, laws could change, situations could change... anything. I am very confident about our plan, given our situation. If a worse case scenario happens... the survivor is protected and will not have a diminished lifestyle (in terms of income to provide for their needs). From here... all we can do is make adjustments based on how the future unfolds.

 

[chinaco]

Here's a link to a previous post on buying-as-you-go ("Future Purchase Option") vs. the level premium option for LTC. ...

I want to change directions a little on the topic.

Does one have an actual LTC plan or just an LTCi policy?

The last comment was really based on the longer term aspect of LTC, cost of certain types of policies, the future, etc...

Many assume this scenario:

DW and I get much older (80s or 90s) and LTC is needed. These planning assumptions are often based on averages.

Of course, there is a increased probability for large numbers of people as they get older... but for the individual, it might turn out to be 100% reality at any age!

There are other very likely scenarios:

• Need it in the 50s
• Need it in the 60s
• Need it in the 70s

What is LTCi? Financial risk transfer!

Some people who think that LTC insurance will be too expensive when they are in their 80s or 90s (indeterminate) and therefore unacceptable may be to limited in how they are thinking about the problem.


They could use that type of plan (that we discussed) to have coverage in their younger years and deal with the late years in some other manner... as well as the survivor planning aspect.

I don't think those types of plan are bad... as is always the case, what is your situation and how are you intending to make your plan work?

People have options an many ways to create a workable plan. If insurance is part of the plan... you gotta buy it while you are insurable. If one delays and becomes uninsurable or heavily rated... it may no longer be a viable option at all.


IMO - LTCi is a tool. Insurance in general is a tool. If one intends to use those types of tools for health or life... they really need to consider them while they are healthy. Procrastination could result in those products being unavailable to them!

Risk is a complicated topic. One has to assume that there is a realistic chance of the event occurring to see the value of it at some unpredicable time in the future (tomorrow or 25 years from now).

 

[Independent]

Here's a link to a previous post on buying-as-you-go ("Future Purchase Option") vs. the level premium option for LTC. In the federal program (a group plan) for a simple example I looked at, monthly premiums go up 1000% between ages 65 and 85: At 65 years old the person paid $140 per month, by age 85 the person would have to pay $1500 per month for this policy ($150/day benefit, 5 years payout). Maybe some people consider this "affordable," it just didn't seem affordable to me. At 5% inflation growth per year, the 65 year old's $140 premium should have gone up to $341 by the time he was 85. The $1160 additional amount beyond that represents the increased cost of buying additional insurance as one becomes older. For comparison, if purchased at age 45, his level premium ("Automatic Inflation Compounding Option") would have stayed at $80 per month. The FPO premium exceeds the level premium staring at age 62 and the level premium option looks like quite a bargain at later years, compared to buy-more-as-you-go" ("Future Purchase Option").
.

Sam, did you try a calculation that assumed you invested the difference in a side fund, then used that fund to cover the old age premiums? That's what the insurance company does with the excess of the $80 over the $50, and they make it work.

If I were starting this at 40, I'd have traditional investments for the next 20 years, but at some point I might move to a SPIA to get a little more cash.

There are a lot of variables, one is whether or not you stay with this particular insurer. The increasing premium version gives you more options, if you decide to change carriers you at least take your side fund with you. If you die your spouse gets the side fund. The insurer can give you an pretty good equivalent interest rate on the level premium option because it assumes a certain percent of the policyowners will die or voluntarily drop out along the way and they can transfer the assets backing those policies to the people who stay with the program.

I'm not saying it's always better to do the increasing premium, but I take chicano's "no free lunch" comment and try to see this through the insurer's eyes. That may highlight the important uncertainties for me to consider.

 

[samclem]

Sam, did you try a calculation that assumed you invested the difference in a side fund, then used that fund to cover the old age premiums?

Yes, I did this calculation at the time. I don't recall the specifics, but the required rate of return on the side fund was very high, and totally unobtainable given the level of risk one would want to take for a fund with this purpose.

That's what the insurance company does with the excess of the $80 over the $50, and they make it work.

Well, not quite. Since I wrote the initial post, the insurance company significantly increased their rates on policies with the included inflation protection, so even the "big boys" weren't able to make it work. This was because their investments weren't producing the expected returns, not because the cost of care had gone up (they pay out a set daily dollar rate, so the LTC insurers are largely insulated from rising care costs, that risk is left to the policyholder). In addition, insurers have some advantages that we'd lack-they get the benefit of all the policies that lapse or are abandoned early, and each policy doesn't need to cover that specific patient's costs (as long as all the policies written, in aggregate, cover all costs, in aggregate).

As I said, I think these FPO policies may make some sense as part of a complete package. It's "cheap" coverage against a very early need for LTC, and one can still retain the flat benefit (without buying additional coverage to keep up with inflation) at moderate cost if additional insurance is declined starting at about age 65-70. But this requires a good understanding of the risks one is taking, especially with regard to inflation.

 

[mask]

Whether the premiums for your LTC policy has increased so far or not, it is bound to increase multiple times in the near future (during the next 2 to 20 years).

Here is why I say so. When LTC insurance product was being designed and priced by the Actuaries, they had assumed some of the ratios (don't want to get too technical here, feel free to ask me if you want to know more) from their experience with Life Insurance products however later they realized that their assumptions were 100% incorrect. So much so that within 20 to 30 years of launching the product in the market, the premiums collected turned out to be insufficient to pay off the cost of claims. This was the case with all the insurance companies who offer LTC insurance in the US. As a result all LTC insurance companies had to apply for rate increase with the Department of Insurance (DOI).

The DOI does not approve the total increase requested by the insurance company straight away keeping in mind the interest of the insured. So the DOI approves only a fraction of the rate increase demanded by the insurance company which compels the insurance company to go back to the DOI in a couple of years.

This vicious circle will continue till such time the LTC insurance providers are able to increase the rates to an extent where the premiums not only cover the cost of claims but also make some profit!

So whether your rates have gone up or not, be prepared to receive at least 2 to 4 letters from your LTC insurance provider in the next 2 to 20 years asking you to either pay higher premiums to keep the same coverage or choose a lower coverage to keep the same premiums or a combination of both!

 

[REWahoo]

Whether the premiums for your LTC policy has increased so far or not, it is bound to increase multiple times in the near future (during the next 2 to 20 years).

Assuming I'm not incarcerated in a LTC facility this time next year, I'll keep this thread updated to check the accuracy of your forecast. Of course your prediction that my rates will increase over a period of 32 years (the 12 I already have under my belt + 20 more) is not something I'd want to bet against.

 

[mask]

Assuming I'm not incarcerated in a LTC facility this time next year, I'll keep this thread updated to check the accuracy of your forecast. Of course your prediction that my rates will increase over a period of 32 years (the 12 I already have under my belt + 20 more) is not something I'd want to bet against.

Its not my forecast; its a fact probably known only to the insiders in the LTC industry!