Financing questions loom as private LTC insurers falter

A growing number of Americans are expected to need long-term-care services such as nursing home and home health care in the coming years. But experts increasingly doubt that private LTC insurance alone is a viable way to finance that care.

The once-burgeoning LTC insurance market has fallen into a steep decline because of diminished consumer demand, underpriced premiums that did not keep up with sharp cost increases, and an extended period of low interest rates.

Richmond, Va.-based Genworth Financial, a leading seller of LTC policies, recently announced a $345 million charge based on underpricing of its plans. Genworth officials said they were considering halting the sale of new policies, and that they would seek rate hikes and develop higher-return, lower-risk LTC plans.

In 2002, 102 companies sold LTC polices, according to HHS. By 2012, fewer than 15 companies were actively selling a meaningful number of policies. Large insurers, including Aetna, Humana, Nationwide Financial and Prudential have all exited the LTC market. LTC insurers have raised premiums repeatedly to keep up with costs, some by more than 50% for existing customers.

According to Conning & Co., an insurance research firm, there were 92 LTC insurers in 2013 that collected more than $10 billion in direct premiums. Most are small companies that have stopped offering new plans. The 10 largest sellers, including Genworth, Mutual of Omaha and Transamerica, accounted for 78% of the market share in 2013. It's estimated that about 8 million Americans have LTC policies, and approximately 322,000 new policies were sold in 2012, according to the American Association of Long-Term Care Insurance. In contrast, more than 700,000 policies were sold in 2002, according to HHS.

When most insurers entered the market in the 1970s, their LTC expenditures totaled less than $20 billion, according to a 2013 HHS report. By 1990, insurers were paying out more than $70 billion.

Terence Martin, director of life annuity research at Conning, said there is little chance that stand-alone LTC insurance products for individual consumers will ever again see the growth they experienced during the 1980s.

One reason is that LTC insurers' primary market of upper-middle-income Americans is relatively small and shrinking. Wealthy individuals have the means to pay for their own care, while middle- and lower-income people can't afford the premiums. They typically rely on Medicaid, spending down their assets until they qualify for nursing home coverage or other long-term care. As a result, Medicaid has become the single biggest payer for long-term care.

Insurers need a large enough pool of younger, healthy customers to offset the costs of customers who need LTC services. But attracting younger people is difficult because they typically don't think about eventually needing such care. “It's not high on people's agendas when they're planning,” Martin said.

A study published this month in Health Affairs found that 60% of surveyed adults between ages 40 and 65 said they were unlikely to need LTC in the future, despite the fact that 70% of elderly Americans will need services at some point.

Older people interested in LTC coverage “find that it's very expensive and they're not really sure if it's going to cover them adequately,” said Regina Shih, senior behavioral and social scientist at RAND Corp.

The question of how to finance LTC has become more pressing, given projections that the number of Americans age 65 and older will more than double, from 40 million in 2010 to 88 million by 2050, according to HHS.

Also, the pool of informal caregivers such as relatives and friends, who now provide as much as 80% of LTC services, is shrinking, according to a 2014 RAND report. Shih, one of the report's authors, cites a 2013 AARP report that projected the ratio of potential caregivers for adults ages 80 and older would fall from 7 to 1 in 2010 to 3 to 1 by 2050.

A number of other advanced countries have national LTC insurance programs. The Patient Protection and Affordable Care Act originally included a voluntary LTC insurance program offering Americans a cash benefit to help pay for LTC services. But the provision was repealed after the Obama administration deemed it financially unworkable, mainly because not enough people were projected to sign up and pay premiums.

In 2013, a federal long-term-care commission was convened to offer recommendations on how to deliver and finance LTC services.

But the panel was divided over whether to establish a public insurance program or to encourage more private insurance by offering insurers financial incentives to enter the market.

The commission voted 9-6 in favor of establishing public-private partnerships that let people buy limited LTC coverage and later become eligible for Medicaid without having to spend down their assets. The commission could not agree on any financing mechanism.

Follow Steven Ross Johnson on Twitter: @MHsjohnson