A 1 percent increase in long-term interest rates can mean a 10% to 15% decline in policy premiums or costs, according to the AALTCI.
“Part of the reason monthly premiums have increased over the past few years is because interest rates have been declining,” Slome said.
The last time the Federal Reserve raised interest rates was 2006. The extended low interest rate environment has forced several long-term-care insurers to exit the business. “It’s difficult for insurers to earn a desired return on business when interest rates are so low,” Slome said.
Although a growing number of baby boomers are expected to need long-term care as they age, Aetna, Humana, Nationwide Financial and Prudential have withdrawn from the LTC business. But this trend may shift as interest rates rise.
“It will become increasingly attractive for insurers to re-enter the long-term-care insurance market, and when they do, expect them to introduce new policies that are less expensive, which will drive accelerated change,” said Slome.
The number of people age 65 and older who are expected to develop Alzheimer’s disease adds to the problem.
According to the Alzheimer’s Association, by 2025, some 7.1 million people will have the illness, which is a 40 percent increase from the 5.1 million aged 65 and older that were affected in 2015.
"We have a growing aging population that will need long-term care and clearly no government plans for dealing with the need or cost for care," Slome said.