Mary Julia Klimenko thought she was prudent 20 years ago when she invested in a long-term-care insurance policy, one she believed would help pay for the care she’d need as she aged. Now she wishes she’d banked the money instead. Her monthly premiums have nearly quadrupled over the past two years, and Klimenko, now 69, is furious about her choices: pay the higher cost, lower her premiums by cutting her policy’s benefits or drop the insurance altogether.
For now, the Vallejo, California, therapist said she will pay the higher premiums. “I have no choice. If I drop my insurance, I’ve thrown away all that money,” Klimenko said. “If I pay less, they’re not going to cover what I need.”
Known as LTC insurance, it was supposed to help the middle class ease the burden of expensive in-home or nursing home care that now can top $90,000 a year. Consumers were urged to buy policies in their 50s, because premiums rose the longer they waited. About 4.8 million people were covered by LTC policies in 2014. But insurers botched just about every aspect of the policies they sold in the early days of the industry, said Joseph Belth, a retired professor of insurance at Indiana University, known as one of the insurance industry’s toughest critics. They underestimated how long people would live and how long they’d need nursing home care — but overestimated how many people would drop their policies and how much interest insurers could earn on the premiums they banked.
Hemorrhaging money, many insurers left the business. Those that remain are in financial trouble on their LTC policies. “The industry is in a state of severe decline,” Belth said. “Companies don’t see a way to successfully market the product and make money on it.” As a result, many seniors nationwide face the same unpleasant choices as Klimenko. New Yorkers who bought LTC insurance from Genworth Financial Inc., one of the few remaining carriers, were hit with a 60 percent premium increase in October. Rising costs could be prompting many seniors to drop their policies, according to a 2015 study from Boston College’s Center for Retirement Research. It found that about a third of people with LTC insurance at age 65 let their policies lapse.
Most Americans don’t realize that Medicare won’t pay for long-term nursing home or home care. Rather, it typically pays only for short stays in a skilled nursing or rehabilitation facility to recover after a hospitalization.
Medicaid, the nation’s health program for the poor and disabled, will pay for long-term care — but it requires seniors to spend nearly all their assets beforehand. These days, nearly half of all long-term care in the United States is paid for by Medicaid — a huge burden that is only going to grow as millions of baby boomers reach their 80s. Policymakers and aging experts had hoped that long-term-care insurance might ease that burden.
About 70 percent of Americans who reach age 65 will likely need some type of long-term care, according to federal estimates. But premiums for new long-term-care insurance policies have risen so high they’re out of reach for the middle class, said Bonnie Burns, a policy specialist with consumer group California Health Advocates and a nationally recognized expert on Medicare and LTC insurance. Yearly premiums for insurance with inflation protection can be as high as $4,406 for a 55-year-old woman and $2,309 for a man of the same age, according to the American Association for Long-Term Care Insurance, which represents insurance brokers. Women’s premiums are higher because they live longer and are more likely to require long-term care.
About 85 percent of the company’s LTC policyholders who’ve received premium hikes have decided to pay them, while another 9 percent chose to cut their benefits to keep their premiums the same. About 6 percent opted to drop their policies, although Genworth will pay claims up to the amount of premiums already paid, so consumers won’t lose everything they’ve paid, Genworth CEO Tom McInerney said.
Fewer people today are buying traditional LTC insurance policies, which only adds to insurers’ financial woes. Some are considering newer “hybrid” products such as life insurance or annuities that provide a long-term-care benefit, but they’re also expensive and some require a large upfront payment. That’s why pressure is mounting for state and federal lawmakers to come up with ways to finance long-term care for millions of aging baby boomers.
In the meantime, McInerney and other LTC insurance leaders are trying to change the way consumers see their private-sector product: as catastrophic insurance with more limited benefits and consistently rising premiums, rather than as a way to pay for all of their long-term care. It’s a hard sell. “No one likes premium increases, but they do understand, in the end, why they’re needed,” McInerney said. “We certainly can’t lose billions of dollars and have consumers expect us to pay claims.”
But Klimenko, who is struggling to pay the higher premiums for her own LTC policy (which is not a Genworth product), expected exactly that. It’s what she paid for — for 20 years. “The insurance salesman who came to my home told me that if I took out the policy, that when I was old and got sick, I’d be taken care of,” Klimenko said. “Now that I’ve lived so long, none of that is true.”