Group rates for long term care insurance will rise steeply in November.
- Federal LTCI premiums will rise an average of 83%
- CNA recently raised premiums nearly 100% for some group policies for employers, unions, and associations.
- John Hancock Financial raised premiums as much as 126% on group policies for federal employees and retirees.
Policy holders, many of them angry, are wanting to know the reason for the sudden rise in rates.
Some blame the Office of Personnel Management. OPM oversees government insurance programs and must approve any rise in premiums.
Some say that the government keeping oil prices down produced the shortfall.
Others blame John Hancock, the only insurance company to bid on the federal program this year. John Hancock pays about $13 million a month in federal long term care insurance claims. Since 2002 the federal program has paid out more than $700 million for long term care.
Part of the reason for the rise in premiums is that insurers originally set prices too low, underestimating how long people would live and need care. Insurance companies must balance the need for affordable rates with the responsibility to pay claims when they come in. Fourteen years ago, 102 companies offered long term care insurance. In 2016, only 12 to 14 companies are still in the business.
Insurance companies earn some of their money in interest on premiums; they make investments that help pay for claims. The recession unexpectedly brought interest rates down below 8%. Around the world, interest rates are near zero, and in some places have even become negative. The low interest rates are one of the main reasons insurance companies must raise premiums.
Because of the low earnings, some insurers have struggled to pay dividends to their shareholders. The Federal Reserve Board held down interest rates on Treasury bonds to prevent another recession.
A law passed in 2012 was supposed to protect consumers from steep increases in insurance rates. Insurers need permission from regulators in most states before premiums can be increased. However, since state insurance regulators still have not issued the final rules, insurance companies can raise rates on some policies without regulatory approval. Group coverage, while it offers discount rates, does not have the same regulatory protections as individual coverage. New regulations are being discussed.
The National Active and Retired Federal Employees Association and some members of Congress are calling for hearings on the premium increases. But Congress will have little time for action before September 30 when enrollees must decide whether to keep their policies; so hearings will probably take place after the premiums have already gone up.
For those who enrolled in a policy before August 2015, premium increases will begin on November 1.
Policy holders must choose to either keep their policy and pay higher premiums, scale back coverage, or discontinue the policy and consider getting a different policy. Some enrollees can switch to an option in which they pay no more premiums but have a much lower benefit.
For some people, it may be possible to find a better policy in the private market. If the policy holder is in good health and bought the policy within the last few years, it may be possible to get a new policy with better rates. However, if the original policy was bought many years ago, a new policy will probably not cost less – and may have no guarantee that its premium will not rise.
Premiums are based on the insured’s age at the time of purchase. Each year the purchaser waits to buy a policy, premiums can rise 5% to 12%. The risk of being denied coverage for medical reasons also increases with age. And newer policies are regulated more strictly, which makes them more expensive than those issued years ago. Ways to lower the cost of a policy include reducing the benefit period, reducing the daily or monthly benefit, extending the waiting period before benefits apply, or changing the inflation protection. People who have policies with lifetime coverage could save a lot by reducing the benefit period to three or five years. Most long term care claims are for three years or less.
Policy holders should not wait until the last minute to look at the alternatives. If you decide to switch to another company, make sure your application has been approved before ending your existing coverage.
Many policy owners bought their policy before their state had approved the Partnership asset protection program. Some policyholders may choose to buy a smaller second policy just to get the Partnership.
Despite the proposed rate hike, long term care insurance is still the most cost effective way to protect yourself from the high risk that you will need expensive long term care.
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