Philly.com
January 7, 2019
A 20 percent rate
increase in his long-term care insurance premiums in October was bad enough,
David Rivera said.
But the clincher
came in the letter he received about the new rate: His insurance carrier,
Genworth Life Insurance Co., planned to seek at least 150 percent more in
premium increases over the next six to eight years for coverage that Rivera
bought nearly 20 years ago for long-term care for his wife, Clara, 67, and
himself.
“The letter is
really meant to scare people,” said Rivera, who is 73 and lives in West
Mifflin. “A lot of people want to do the right thing and not be a burden to
their families. I was trying to be responsible about our care.”
Given Genworth is
the biggest long-term care insurer operating in the state, thousands of
Pennsylvanians would feel the sting of the rising rates.
Long-term care
policyholders faced with painful rate hikes are in a bind. Canceling coverage
because of rising premiums could mean forfeiting money that was paid over the
years to the carrier or accepting skimpier benefits. Keeping the coverage means
swallowing rates that keep rising.
But the only wonder
may be why Rivera’s rate hike wasn’t higher.
In its
third-quarter report to shareholders, the Richmond, Va.-based Genworth, which
recorded a loss of $34 million from long-term insurance, said it had received
approval from state agencies for average rate increases of 53 percent for the
three months ending Sept. 30.
And more rate
increases are on the horizon. In the fourth quarter, Genworth planned another
53 rate-hike filings with state agencies, affecting $335 million in premiums,
according to a report accompanying the financial results.
All together,
Genworth has lost $3.1 billion on long-term care insurance business. “We
continue to lose money on these older policies each year 2019-- losses we will
never recover,” spokesperson Julie Westermann said in a statement. “We continue
to file for premium rate increases to bring these older policies closer to
break-even.”
For policyholders
who don’t want to pay the premiums anymore, the company provides a paid-up
policy equal in value to what has already been paid, so the consumer has some
coverage for long-term care expenses, she said.
Behind the rate
hikes is a market that’s collapsing. Genworth is among a decreasing number of
companies selling insurance to cover medical care provided outside a hospital.
Last year, for
example, long-term care insurer Penn Treaty of Allentown was forced into
liquidation by state regulators because its assets no longer covered its
liabilities, Pennsylvania Insurance Commissioner Jessica Altman said.
“Many of the
assumptions that were used, which were believed to be accurate, weren’t
accurate,” Altman said. “The products need to be higher-priced in order to
cover the cost of long-term care.”
The problems hit
from many sides, including years of low interest rates that cratered insurance
companies’ investment earnings and overly optimistic assumptions factored into
calculations about the cost of long-term care.
Some brokers have
been advising clients to skip long-term care insurance in favor of fixed
annuities with long-term care features or new life insurance plans that can be
used to pay out-of-hospital medical expenses in retirement.
In response to the
market squeeze, some long-term coverage carriers are seeking sharply higher
rates, like Genworth, while others are simply dropping out.
“It’s terrible,”
said Ed Auble, principal at Paoli, Pa.-based Auble Financial, who has sold
long-term care insurance for three decades. “Now, I feel like I might as well
be talking about buggy whips. This is the worst I’ve seen it.”
About 100 companies
nationwide sold stand-alone long-term care insurance in 2002, according to the
National Association of Insurance Commissioners. Now, there are only 17, which
includes 10 companies selling policies in Pennsylvania.
Depressing the
market are assumptions about long-term care that were made long ago when many
policies were written.
For one thing, more
claims were filed than were projected because members are living longer than
anticipated. In addition, fewer people than expected dropped the coverage
before receiving benefits, experts say. Also, a decade of low interest rates
eroded investment earnings that are used to pay claims.
“The overall
financial performance of our long-term care insurance business depends
primarily on the accuracy of our pricing assumptions, including for morbidity
and mortality experience, persistency, and investment yield,” Genworth wrote in
its 2017 annual report.
“Financial
performance on older policies issued without the full benefit of this
experience has been worse than initially assumed in pricing of those blocks.”
The company’s strategy is to “pursue significant premium rate increases” in the
future.
Genworth and other
carriers are just now seeing the results of actuarial errors made years ago,
said Richard Sabo, principal of Gibsonia-based RPS Financial Solutions.
“The industry has
been imploding because they sold a ton of policies and they mispriced them,”
Sabo said. “They have a financial mess.”
In Rivera’s case,
Genworth offered four options to soften the premium increase, including
trimming benefits and paying a higher premium to keep rates flat through 2028,
an option that he wound up choosing. His monthly premiums have risen 123
percent since he took out the policy 16 years ago, from about $900 to $2,014,
and he’s miffed over what he sees as the company’s failure to take
responsibility for its miscalculations.
“If the numbers
were actuarily wrong, it’s not the customer’s fault,” he said. “It’s the
company’s fault.”
The Pittsburgh
Post-Gazette reporter Kris B. Mamula can be reached at kmamula@post-gazette.com or
412-263-1699
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