Nearly 20 years ago I was working on a Medicaid reform project known as the Partnership for Long Term Care. Partnership was a federal/state initiative to encourage more people to purchase long-term care insurance by allowing Americans to shelter assets equal to the amount of their coverage. If someone ran though $100,000 in coverage and then had to turn to Medicaid for a nursing home stay, they could shelter up to $100,000 in assets. In response to something I had written, a man called my office to lecture me about it. He explained that if medical inflation was higher than investment rates of return, it would be nearly impossible for an insurance company to make money selling coverage for long term care. He had a point. Due to the skyrocketing cost of long-term care, many people are finding their long-term care premiums are skyrocketing. The following is from an ungated version of an article that appeared in Barron’s.
When Loren Penman and her husband were in their 50s, they bought long-term care insurance. The couple took comfort in the big names behind it: Genworth Life Insurance and AARP, which advertised the policy and handled their payments. After 16 years, the Batavia, N.Y., couple say they spent more than $94,600 on the insurance.Now, they face a wrenching dilemma: Keep the insurance at much higher premiums or brace for potentially crippling bills on their own. Genworth is asking regulators to approve a 143% hike in premiums that would take the Penmans’ annual cost to $25,800. If the Penmans, retired schoolteachers, don’t pay up, the couple could keep the insurance without owing more premiums. But the benefits would be capped at far lower levels—not even covering a year in a long-term care facility.
Nursing home stays tend to be short, but a few drag on for years. About half of long term care residents stay for one year, while 21% stay five years or more. An older survey estimated the average length of stay at 835 days, or about 2.3 years. Over the years (1985 to 2011) several family members required long-term care at the end of their lives. At that time the costs were relatively manageable, even without long-term care insurance. More recently, one of my wife’s family members was in long term care. Her cost of care for a 26-month stay was about equal to what her house sold for when she could no longer live at home (more than $11,000 a month). Long term care is expensive without coverage, and coverage for long term care is expensive.
Private insurance was supposed to be an answer to the country’s inadequate system. Yet Americans who bought coverage decades ago—counting on it for financial security in old age—now face soaring premiums as insurers try to curb benefits and stabilize a product that was riddled with faulty actuarial assumptions when it was first sold, leading it to be drastically underpriced.Insurers aren’t the only ones bearing responsibility. Individual states, which regulate insurance, fumbled their job of vetting the actuarial models and were too slow in approving price increases as insurers got into financial trouble, resulting in today’s exorbitant price hikes.
The market for long term care insurance is collapsing for reasons the man I talked to 20 years ago tried to explain. Insurance companies cannot collect your premiums, invest them and generate returns that grow enough compared to medical inflation that’s driving up the cost of long-term care.
A robust long-term care insurance market could have supported the aging baby boomers and eased financial pressure on the government for their care. Yet the traditional product has largely collapsed: Insurers issued just 35,000 stand-alone policies in 2023, down from more than 585,000 in 2000. Premium revenue plummeted from $1 billion in 2002 to $143 million in 2023, according to data from Limra, an industry trade association.
Longer lifespans are also adversely affecting the long-term care insurance market. People are living long enough to become frail or to develop dementia. One-in-three seniors develop dementia after age 85. Cancer and heart disease used to be reliable killers of old people. These diseases are still deadly but now death often comes later than in years past. In addition, insurers were depending on 5% of policy holders dropping coverage after a few years of paying premiums. They didn’t. The drop rate was about 1/10th of what insurers anticipated. Most importantly, the biggest problem in the long term care insurance market is the rise in the cost of long-term care.
Medicaid pays one-half of All Iowa Nursing home stays, so the IRS will come clawing back money from the family’s estate—a poor way to finance long-term care. Devon was at the National Center for Policy Analysis (NCPA), where the rumer is, the tax-free HSA was thought up there. John Goodman calls himself the father of HSAs, but I wrote the 1st one and disagree.
The Republican Study Committee (RSC) supports raising HSA deposits to $12,000 for singles and $24,000 per family. People need the tools to be more self-sufficient so they don’t have to get down on their knees and beg a politician for a handout in retirement.
Blue Cross’s Brand could be tarnished forever by their actions. Tampa Bay Pasco Schools just raised their teachers’ family premiums by $569 to $2,563 monthly for the Schools’ Blue Cross PPO for January 1st, 2025! This is now the highest teachers premiums in America. McKinney, Texas, in Dallas, teachers pay $1,201 monthly to insure one child. To add a spouse and child, Texas teachers’ $2,535 monthly premium has fallen into the 2nd position Nationally behind Florida School Districts and Florida Blue Cross, a nonprofit, wink-wink.
Trumpcare “Child Only” coverage for a child is only $101 in Orlando, Dallas, and Phoenix, with a ZERO deductible and a 3-year Rate Lock! Blue Cross and Obamacare companies got caught with their pants down, not realizing a competitor was coming to clean their clocks.
Trumpcare provides a voluntary option to Obamacare, Medicaid, and Dangerous Employer Insurance (DEI) for Americans. The Free and Open Market is saving America without the assistance of one politician, non-taxed think tank, or media outlet. Milton Friedman was correct about the power of Free and Open Markets. The invisible hand is a metaphor inspired by the Scottish economist and moral philosopher Adam Smith that describes the incentives that free markets sometimes create for self-interested people to accidentally act in the public interest, even when this is not something they intended. Adam Smith is talking about Allstate in the future, which purchased TIME, America’s oldest health insurance company, from Milwaukee.
In 500 years, the history books will say Free Markets saved America from Socialism. It’s too bad you didn’t lead the charge, Devon. Let me guess, no sacred honor, right?
Thanks for the painful article on the failure of long-term care insurance.
I see no alternative to some kind of addition to Medicare. Germany bit the bullet on something like this about 15 years ago, and they raised their payroll tax to cover it.
Americans have not been grown up about this issue.
As for Ron’s short term plans, these products are banned in about 19 states — including MN where I live. I am pretty disgusted by this action.