Federal Long Term Care Insurance Premium Increases

[mickeyd]

Well, I think the fact that they've had to jack up "locked in" LTC rates rather steeply tells you all you need to know about the insurers' inability to appropriately price their risk. When you buy a life insurance policy with "locked in" rates, you don't have an insurer coming at you with premium increases down the road. Insurers know how to price life auto insurance very effectively -- even homeowners insurance to a large degree, despite the variability of super-cat disasters.

As far as health and LTC, it's pretty obvious there are difference pricing dynamics and the usual actuarial methods of trying to find an appropriate "price" (as with auto and life) are doomed to fail.

Another very obvious issue is the fact that LTC is being heavily marketed to boomers with deep pockets of cash/savings. Generating fear-of-the-unknown in millions of sixtysomethings that think that they will live another 30-40 years (don't we all?) is a real cash cow for the insurance industry.

 

[Purron]

Although odds are she will outlive me, I don't want to place her in a situation where she is forced to take care of me at home to avoid financial ruin.

YOU are a keeper

 

[Notmuchlonger]

YOU are a keeper

Yeah you cant turn em back in after 40 years anyways.

 

[Brat]

I think the rate increases are primarily due to their investment losses, not payouts.

 

[Purron]

I think the rate increases are primarily due to their investment losses, not payouts.

Investment losses from John Hancock, who recently won the contract or MetLife, who currently has the contract? I'm confused.

 

[brewer12345]

I think the rate increases are primarily due to their investment losses, not payouts.

Highly unlikely, given what I know of the industry, the product and industry regulation. Far more likely that they underpriced the policies up front (intentionally or otherwise) and now have to catch up. A lot of insurers priced a lot of lapses into their assumptions, and LTC policyholders have proven to be a persistent lot.

 

[Purron]

Highly unlikely, given what I know of the industry, the product and industry regulation. Far more likely that they underpriced the policies up front (intentionally or otherwise) and now have to catch up. A lot of insurers priced a lot of lapses into their assumptions, and LTC policyholders have proven to be a persistent lot.

This rings of the truth Brewer. Underpriced to win the big Gov'ment contract then repriced when reality hit the fan. And yes, Fed employees are a persistent lot. Kinda like badgers*.


*CFB, any chance you are lurking? Remember that insane badger song you posted?

 

[REWahoo]

*CFB, any chance you are lurking? Remember that insane badger song you posted?

This one? Badger Badger Badger

 

[Rich_by_the_Bay]

A lot of insurers priced a lot of lapses into their assumptions, and LTC policyholders have proven to be a persistent lot.

Yep, and why not. With years or decades of paid premiums behind you it would be tough to just walk away from renewing. An increae of 20% may be frustrating but not enough to make you abandon the tens of thousands that you have already paid them.

I worry about not having LTC insurance, but I still can't make the arithmetic work well enough to convince me to buy. The recent round of premium increases doesn't make it any more appealing.

 

[Purron]

This one? Badger Badger Badger

Yup. That's it. Now it will be stuck in my head for week just like when Bunny posted it. Hey, better than frettin' over LTC insurance, huh?

 

[Brat]

Not investment losses Humm...

Counting on lapses? The insurer didn't do a behavioral analysis of Fed employees. As a former member of that clan I can confirm that once they make a decision it is rarely revisited. Many of their benefit programs are one way roads, there are few opportunities to re-enroll. OPM trained them well.

 

[chinaco]

http://spwfe.fpanet.org:10005/publi...bility of Long-Term Care Insurance Versus.pdf Financial Planning Journal Article

Some Statistics. Long term care insurance facts statistics information on long term care planning from long term care insurance industry organization

FCA: Selected Long-Term Care Statistics

More Information:

http://aspe.hhs.gov/daltcp/reports/ltcinsfr.htm
http://www.emaxhealth.com/1/105/32147/2009-national-long-term-care-insurance-price-index.html
http://www.guidetolongtermcare.com/charts.html
http://www.financinglongtermcare.umn.edu/basics/prepared/mythsandfacts/LTCrisk/LTCrisk1.htm -- Quote below

[FONT=Arial, Helvetica, sans-serif]Myth: There is less risk associated with long term care than with other life events.[/FONT]

• [FONT=Arial, Helvetica, sans-serif]FACT: Some estimate that the actual risk of needing long term care (either in the home or in a nursing home) is 50%. This risk is significantly greater that the risk associated with other life events. For example, insurance professionals (Kesy, 2000) cite the following probabilities for other life events:
  
  [/FONT]
• [FONT=Arial, Helvetica, sans-serif]Probability of losing a home to a fire is 1 in 1,200[/FONT]
• [FONT=Arial, Helvetica, sans-serif]Probability of having a car accident is 1 in 240[/FONT]
• [FONT=Arial, Helvetica, sans-serif]Probability of a hospital stay costing $30,000 is 1 in 15[/FONT]

New Hybrid Insurance Products:
http://retirementincomejournal.com/issue/july-8-2009/article/spia-ltc-hybrid-still-just-a-concept

 

[chinaco]

I believe the decision factors about LTC and perception of them changes as one ages.

• The younger you are, the less it seems to make sense. Seems like a poor investment. The sinking reality of failing health seems distant.
• The older you are (when you realize it might make sense), you are more likely to be uninsurable because of some sort of illness or problem that makes you a risk that the insurance company will avoid (not underwrite you). At this point in life, it looks less like an investment and more like the lack of resources is a major life changing factor (for you or your surviving spouse).

I think it is safe to say we all should plan for LTC needs (if you have any assets). This is one of those things that you need to consider while you are still fairly young. If you intend to self-insure, you need to setup a reserve fund. If you go the insurance route, better do it while you have no health problems (or that avenue will be closed to you).

The other option is to just hope for the best. It seems odd, but hoping for the best in this case is hoping for a quick exit when one goes.

 

[brewer12345]

Not investment losses Humm...

Counting on lapses? The insurer didn't do a behavioral analysis of Fed employees. As a former member of that clan I can confirm that once they make a decision it is rarely revisited. Many of their benefit programs are one way roads, there are few opportunities to re-enroll. OPM trained them well.

AFAIK, insurers generally are not allowed to (directly) pass on investment losses to policyholders, at least outside of participating policies (which these are not). OTOH, the industry as a whole priced LTC with certain lapse assumptions (3% a year plus or minus from what I understand). It turns out that lapses have been a lot lower. This is also an extremely long duration policy (possibly the longest of any major product line) so small mistakes quickly become big ones.

 

[73ss454]

And yet if you drop the insurance, essentially you have put $11,400 into LTC insurance over the past 10 years and got nothing for it, so that is an incentive to accept whatever increase is imposed. With LTC premiums going up so much, even for the fed LTC insurance, I think you and many others have good reason to be worried.

Insurance is insurance so what can you do. I paid for disability ins for 25 years and never got to use it. Also pay 7K a year for my whole life policy and have done so for over 20 years. I pay health ins and auto ins and home owners ins. So should I hope that I got to use the life ins, had a car accident, hope my house burns down or was disabled?

 

[Rich_by_the_Bay]

Insurance is insurance so what can you do. I paid for disability ins for 25 years and never got to use it. Also pay 7K a year for my whole life policy and have done so for over 20 years. I pay health ins and auto ins and home owners ins. So should I hope that I got to use the life ins, had a car accident, hope my house burns down or was disabled?

I understand your point, but the analogy is not quite adequate for LTC insurance, IMHO. Statistically you are insuring an event that is probably 20 to 30 years away. Life insurance does the same, but it is a sure thing in that you will die, while LTC may happen or may not. Policy and health care reimbursement are likely to change substantially over a 20 to 30 year period and may render LTC insurance less important (or maybe more so?). Premiums are likely to rise a lot, creating a different decision equation, yet your prior premiums (hopefully which bought you a better actuarial premium for the life of the policy) are hard to walk away from, so you may feel trapped into continuing the higher-premium coverage.

The current LTC policies are widely described as being underpriced, and as the boomers boom, the premiums may rise sharply -- we don't know how the carriers will fare in these new, untested waters.

Then there's the opportunity cost of all those premiums: $3,000 a year at 6.00% for 25 years $165K, which pays for 2+ years in a NH (which is under 50% likely to occur); You can factor in inflation, but most policies cap coverage on a nominal per diem basis, so even with LTCI you have some out-of-pocket expenses, making this an even closer call.

I am not saying I have a good answer and you have to look at your individual circumstances, but I find that just assuming "insurance is insurance" doesn't paint the whole picture for me for this tough issue. DW and I have decided to hold off for now, but will try to reassess this every so often.

 

[Dreamer]

My DH and I recently received the letters and are also looking at the 25% increase. I am not sure what we will do.

I think that there were only 2 people in my office that enrolled for LTC insurance when it was offered. I don't know of anyone in my family that has been in a nursing home, other than 1 recently that was in for a very short stay. My side of the family has in the past died fairly early and fairly quickly. However, my DH's father had a stroke and numerous other medical problems and so has his mother. She is currently in a NH paid for by Medicaid. (DH's father is deceased.) I do not want to have to have either of my 2 kids take care of me, if something happens. I also don't want to be left high and dry if spouse has a stroke and I can't take care of him and he has to go in a NH. As far as I know, I am the only person in my family to ever have LTC ins. I keep wondering if I am just wasting my money. I also see seminars advertised in the paper for how to be able to keep your money if you have to go into a NH. I know that at least one of the retirees, that did not obtain LTC ins, went to one of them and said briefly that they made some changes. I did not ask her about it, but I might. Both her and her DH are federal retirees.

Sorry, that I can't help, but I am unsure what to do. If anyone figures out a good solution, I hope that they will update this thread. Thanks in advance.

 

[prubin]

And yet if you drop the insurance, essentially you have put $11,400 into LTC insurance over the past 10 years and got nothing for it, so that is an incentive to accept whatever increase is imposed. With LTC premiums going up so much, even for the fed LTC insurance, I think you and many others have good reason to be worried.

Do you look at your auto insurance premium at renewal time and regret that you haven't had any claims? Purchasing insurance is a risk mitigation strategy not an investment.

re: "...an incentive to accept whatever increase is imposed"
Prior sunk costs do not justify future expenditures --

 

[Purron]

I also see seminars advertised in the paper for how to be able to keep your money if you have to go into a NH.

I've seen those too. My understanding is you have to be pretty much broke before Medicade kicks in. You are allowed to have a house and a car, but most of your other assets must be depleted. I believe many of the seminars focus on transferring assets out of your name. There are very specific rules on this - it must be done well in advance of applying for Medicade for LTC.

 

[prubin]

I've seen those too. My understanding is you have to be pretty much broke before Medicade kicks in. You are allowed to have a house and a car, but most of your other assets must be depleted. I believe many of the seminars focus on transferring assets out of your name. There are very specific rules on this - it must be done well in advance of applying for Medicade for LTC.

There is some variation by state, but they consistent theme is "...you have to be pretty much broke before Medicade [sic] kicks in." My mother-in-laws pension and SS exceed the maximum monthly amount and wife has to periodically (annual?) renew her mother's Medicaid application. The first time she had to renew she filled out the web based application and then received a phone call from a moron in FL social services telling her to fill out the hard copy form because "...we don't read the applications submitted electronically." He literally snickered when he told my wife she was up against a deadline and her mother's Medicaid payments could cease.

My mother-in-law had to burn close to $400k in skilled nursing facility costs before qualifying for Medicaid. I wish all states would adopt the LTC insurance partnership model used in NY, CA, CT and IN. I think this would increase the size of the LTC insurance pool.

 

[Moemg]

When I look at my family and it is fairly large no one has ever spent time in a nursing home and the women in my family have incredible longevity . That is why I waiver on LTC insurance .

 

[REWahoo]

When I look at my family and it is fairly large no one has ever spent time in a nursing home and the women in my family have incredible longevity . That is why I waiver on LTC insurance .

Barring some sort of genetic disease I'm not sure family history can give us much of a clue what the future holds for us. My mom spent 2+ years in a NH, my dad about 9 months. My two oldest siblings both died without spending a day in one...

 

[Purron]

When I look at my family and it is fairly large no one has ever spent time in a nursing home and the women in my family have incredible longevity . That is why I waiver on LTC insurance .

Then there's my family. MIL 15 years so far (she's now 90 and comes from a very long-lived family), aunt 7 years, grandmother 5 years.

 

[Moemg]

Barring some sort of genetic disease I'm not sure family history can give us much of a clue what the future holds for us. My mom spent 2+ years in a NH, my dad about 9 months. My two oldest siblings both died without spending a day in one...

Absolutely , my late husband had an incredible family history of longevity . In his family 65 was middle aged . His Dad died at 96 and he died at 60 .

 

[freebird5825]

Investment losses from John Hancock, who recently won the contract or MetLife, who currently has the contract? I'm confused.

Don't know if this was already answered, but the original Fed LTC contract was awarded to both JH and MetLife, as some sort of joint venture. The revised current contract only has JH as the insurer.
I believe the correct term here is contract modification, not re-award.
I also got my "warning letter" about premium increases, but have not seen the actual increase in premium data yet.
I got in at age 42, and took the ACIO feature and the minimum wait period, also thinking my premiums ($152/mo) were fixed for the life of the policy. I read every single line of the brochures and the website.
I am not happy about what OPM has allowed to occur (premium increases), but without having the original contract in hand, it's impossible to figure out how the loophole was allowed.
In any case, I will stick with the same coverage I originally signed up for and take the premium increase hit. I have no kids, nor do I have relatives in a position to assist, so I don't have much choice.