Back in March 2023, Genworth, the nation’s largest provider of long-term-care insurance by 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 long-term-care insurance industry have been greatly exaggerated.
“My LTC policy sales are steady,” says Aaron Schindler, president of Care Concierge New York, a provider of long-term-care insurance services in and around New York City.
Most carriers don’t allow policyholders to alter their basic coverage in reaction to rate increases, he says, 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 clients can cut costs.
“The inflation rider can account for 15% to 20% of the annual premium,” he says.
Brian Gordon, president of Gordon Associates Long Term Care Planning in Bannockburn, Ill., says the lawsuit hasn’t changed many of the policyholders’ behavior. “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 says. “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 long-term-care insurance has been the hybrid segment, Gordon says. These policies are linked to life insurance or annuities. “We have more LTC options in the hybrid life or annuity side of the business [than before],” he says.
There are several reasons for the popularity of hybrid plans, he says. First, they guarantee a payout, whether it’s as a long-term-care benefit or life insurance or annuity distribution. This means policyholders know they will get something out of it. They are not funding a policy they might never use.
Another important advantage of the hybrids is that their underwriting standards are less stringent. The health requirements are somewhat looser, so it’s easier to qualify, says 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 says. “LTC insurance is not like a fine wine. The longer wait does not pay off.”
Hybrid plans are typically more expensive than traditional stand-alone policies. But their premiums are guaranteed not to increase, Gordon says.
Strains On The System
Long-term-care policies first became widely available in the 1970s, when the cost of care was a lot lower. Advisors say the industry misjudged virtually everything about the way expenses would evolve—the size of price increases for medical equipment, the need for at-home assistance with daily-living tasks, the growing need for nursing-home care, and other expenses related to the infirmities of old age. The industry also underestimated how many policyholders would actually keep their coverage and use their benefits, not to mention how long they would live.
The strains on the system have been reflected in the premium increases, the more limited coverage and the more rigorous requirements for those considered insurable, advisors say. Over the past few decades, carrier after carrier has quit the industry as its obligations have become financially insupportable. Long-term-care policies even played a role in the financial decline of Genworth’s former parent, giant General Electric, which was once the gold standard of blue-chip companies.
Ordinary health insurance and Medicare have not filled the gap. At best, they provide only temporary rehabilitation assistance after policyholders suffer a severe injury or illness, but not ongoing assistance with daily-living needs. 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 long-term-care coverage is the only way to offset the financial setbacks of long-term debility.
“LTC is an area where many Americans are retaining a significant risk,” says Shane Johnson, a senior partner at the Perspective Financial Group, an Alera Group company, in Berwyn, Pa. “[They] are underinsured against it and, in a majority of cases, lack sufficient assets to self-insure. There needs to be more education around the topic.”
The industry has a reputation problem too, he says. The widespread reports of steep premium increases have frightened many potential customers.
Indeed, only 3% to 4% of Americans age 50 or older have purchased a long-term-care policy, according to insurance-industry data tracker Limra.
A Still-Developing Industry
“The LTC insurance industry is still young and continues to develop,” Johnson says.
Where that development will lead is anyone’s guess. “The industry needs to move to products that middle-income families can afford,” says Tom Beauregard, founder and CEO of HCG Secure in Goshen, Conn., which sells long-term-care 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, [with less emphasis on] the traditional and richer plans that are in place as asset protection models for wealthier families.”
The need for innovation in the industry is “huge and growing,” he says. Too many families need “better access to stable products that will cover the average risk period, which is approximately three years,” he says.
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 will have a great need for long-term care.
One hopeful development has been the introduction of group plans offered by employers, says Todd Wolfe, senior insurance associate at Telemus Capital in Southfield, Mich. These plans, he says, use collective bargaining power to get more favorable terms and premiums than individual policies might provide.
And that might 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 says. “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.”