Today Genworth Financial (www.genworth.com) announced it will be filing an 18% rate increase on its PCS I and PCS II long-term care (LTC) products. This is just the latest move in the long-term care market, which is drawing more and more viability concerns. Here are a few other whopper announcements:
– Last month, John Hancock (www.johnhancock.com) announced it’s filing a 40% increase and withdrawing certain benefit options from the market.
– Last year, Allianz (www.allianz.com) and Great American (www.greatamericaninsurance.com) withdrew from the long-term care market all together.
– Penn Treaty (www.penntreaty.com) went into state receivership last year.
And there isn’t too much mystery to these moves, since insurance companies have to remain focused on profitability. The US Department of Health and Human Services estimated the average cost per day for a private room in a nursing facility was $219 in 2009. That’s about $80,000 per year, arguably a stretch for many US citizens. That cost can only be covered in one of three ways: with insurance, by spending down assets to qualify for Medicaid, or paying out-of-pocket. So LTC is needed, for sure. Is it practical, though, for insurance companies?
In my opinion, the answer is “no.” I don’t think long-term care is viable. There are too many unknowns to develop rate plans that make long-term financial sense for insurance companies.
When an insurance company develops and prices a new product, they try to predict healthcare delivery and costs 20 to 30 years down the road. Predicting near-term healthcare costs is next to impossible these days, let alone costs 30 years from now. And that’s just costs. A pricing actuary also needs to predict interest rate levels, claim adjudication costs, and consumer behaviors over a long period. Regulatory and legal environments are non-supportive, as well; the capital requirements are high, rate increases are difficult to get approved, rate increase benefits are limited, and litigation risks are high.
In 2001, a LTC survey performed by the Brokers World Magazine found there were 57 companies in the LTC insurance market. Today, it’s around 17. That’s a 70% decline. More companies are leaving than are entering.
The need is unquestionable. The viability is unimaginable.