Back in March 2023, Genworth, the nation’s biggest provider of long-term care (LTC) insurance, in terms of the number of policyholders, agreed to settle a class-action lawsuit over premium increases. The terms of the agreement were that customers could either accept rate hikes or settle for less coverage.
The repercussions of the settlement are ongoing. But to industry insiders, one thing is already clear: Reports of the demise of the LTC insurance industry have been greatly exaggerated.
“My LTC policy sales are steady,” said Aaron Schindler, president of Care Concierge New York, a provider of LTC services in and around New York City.
Most carriers don’t allow policyholders to alter their basic coverage in reaction to rate increases, he said, but they might offer the option of removing an expensive inflation-adjustment rider, which would effectively freeze the benefit potential at current levels. That’s one of the easiest ways that clients can cut costs.
“The inflation rider can account for 15% to 20% of the annual premium,” he explained.
Brian Gordon, president of Gordon Associates Long Term Care Planning in Bannockburn, Ill., expressed a similar view. “Unless a policyholder was inclined to make a change or cancel their policy prior to the settlement, we are seeing most elect not to accept any of the options [offered by the settlement] and maintain current benefit levels,” he said. “In my opinion, the biggest winners from the settlement are the lawyers who brought it.”
Hybrid Plans Remain Popular
For the past several years, the strongest growing area of LTC insurance has been the hybrid segment, said Gordon. These are LTC policies that are linked to life insurance policies or annuities. “We have more LTC options in the hybrid life or annuity side of the business [than before],” he said.
There are several reasons for the popularity of hybrid plans, he continued. First, they guarantee a payout, whether as an LTC benefit or life insurance or annuity distribution. To policyholders, this means they know they will get something out of it. They are not funding a policy they might never use.
Another important advantage is that their underwriting standards are less stringent. The health requirements are somewhat looser, so it’s easier to qualify, said Gordon--which is especially important for people who have delayed buying coverage.
“Many [clients] have waited too long to have the conversation, and they can no longer qualify [for a traditional policy] from an underwriting or financial standpoint,” he said. “LTC insurance is not like a fine wine. The longer wait does not pay off.”
Hybrid plans, though, are typically more expensive than traditional standalone policies. But their premiums are guaranteed not to increase, he said.
Strains On The System
LTC policies first became widely available in the 1970s, when the cost of senior care was a lot lower. Advisors say the industry misjudged virtually everything—the size of price increases for medical equipment, at-home assistance with daily-living tasks, nursing-home care, and other expenses related to the infirmities of old age. Also underestimated were how many policyholders would actually keep their coverage and use their benefits, let alone how long they would live.
The strains on the system were reflected in premium increases, more limited coverage, and more rigorous requirements for who was considered insurable, advisors say. Over the past few decades, carrier after carrier quit the industry as their obligations became financially insupportable. LTC insurance policies even played a role in the financial decline of Genworth's former parent, giant General Electric, once the gold standard of clue-chip companies.
But ordinary health insurance and Medicare will only provide temporary rehabilitation assistance after a severe injury or illness, at best. Neither supports extended custodial aid. (Medicaid might, but you have to be impoverished to qualify for it.) So unless you’re wealthy enough to self-insure, experts say, private LTC coverage is the only way to offset the liabilities of long-term debility.
“LTC is an area where many Americans are retaining a significant risk,” said Shane Johnson, senior partner at the Perspective Financial Group, an Alera Group company, in Berwyn, Pa. “[They] are under-insured against it and, in a majority of cases, lack sufficient assets to self-insure. There needs to be more educated around the topic,” he said.
The industry has a reputation problem, he contended. Widespread reports of steep premium increases have frightened many potential customers and policyholders.
Indeed, only 3% to 4% of Americans age 50 or older has purchased an LTC policy, according to insurance-industry data tracker Limra.
A Still Developing Industry
“The LTC insurance industry is still young and continues to develop,” Johnson said.
Where that development will lead is anyone’s guess. “The industry needs to move to products that middle-income families can afford,” said Tom Beauregard, founder and CEO of HCG Secure in Goshen, Conn., which sells LTC insurance with a particular focus on aging at home, not in an institution. “This means lower coverage levels that will cover the average care need, versus the traditional and richer plans that are in place as asset protection models for wealthier families.”
The necessity of innovation in the industry is “huge and growing,” he said. Too many families need “better access to stable products that will cover the average risk period, which is approximately three years,” he added.
Government statistics would seem to agree. A 2019 study by the U.S. Department of Health and Human Services found that 70% of adults who survive to age 65 develop severe LTC needs.
One hopeful development has been the introduction of group LTC plans offered through employers, said Todd Wolfe, senior insurance associate at Telemus Capital in Southfield, Mich. “This movement signifies a shift towards providing more accessible LTC insurance solutions, leveraging the collective bargaining power of group plans to offer more favorable terms and premiums than individual policies might provide,” he explained.
This move might just be the silver lining of the Genworth settlement.
“The Genworth case reflects the struggles within the LTC insurance industry, leading to more rules, greater awareness among buyers, and a push for new, more sustainable insurance products,” Wolfe observed. “It's making companies rethink how they offer and price these policies, aiming for a balance that keeps them in business while still being fair to customers.”