Boomergeddon’s Coal Mine Canary Sings Warning

Angry consumer complaints are starting to appear on a growing case record at the State Corporation Commission, which opened the case on its own authority to demand insurance company presentations on the long-term care product market and its history of massive rate hikes.

A typical comment so far: “This frankly, appears to be a ploy of the insurance providers to raise rates so high that they will be completely unaffordable, everyone will drop their policies and the insurers will be able to exit the long term care industry. Consumers must be protected from these predatory practices and these rate hikes must be denied by the SCC.”  Others (the record is here) detail years of steady premium increases and benefit reductions.  

Faced with a huge number of requests for premium increases, many for more than 100 percent, the Commission’s Bureau of Insurance will direct selected insurers to prepare for a scheduled May 21 hearing.  Information on how to file a public comment can be found on the original news release, which prompted some coverage in the media.  This story in the Daily Press is typical.

This is not a new topic for Bacon’s Rebellion, founded by Mr. Boomergeddon himself, who wrote about his own LTC policy three years ago.

His discussion of the industry’s challenges then lends a quality of “déjà vu all over again” going into this new SCC query.  Same problems, only worse.

SCC database on long-term care premium requests.  More here.

The SCC included in the release a link to its internal database (here) of granted or pending premium requests, showing the average, minimum and maximum premium increase for each insurer, and the number of Virginia policy holders for those policies.  You can toggle between approved and pending applications at the top of the page.

The companies selected from that list to make full presentations will be asked for:

  • an overview of past premium rate increases
  • an explanation of the reasons for any pending premium rate increase requests
  • options that are available to policyholders to reduce coverage or lower premiums
  • any actions that have been taken to either eliminate or reduce premium rate increases; and
  • the outlook for future premium rate increases.

The real question:  Does this business model have any chance of surviving at all?

The form you find from each insurer on that application database often offers some comments on the reasons for the premium increases, and the bottom line usually is their initial actuarial projections of usage and cost were wrong.

Here’s John Hancock’s brief note on its modest (in comparison) increases of 11 to 36 percent on about 14,000 Virginia policies:

“Unfortunately, the most recent detailed review of our pricing assumptions confirms that the expected claims … are significantly higher today than they were expected to be when the premiums were originally determined. In general, we are seeing more, longer-lasting claims – claim incidence has increased, claim terminations have decreased, claim utilization has increased, and mortality have decreased. 

“Our decision to increase premiums is solely related to the future claims anticipated on these policies and not to the recent recession, interest rate environment, or any other investment-related reason.  As an alternative to paying higher premiums, we are offering several benefit reduction alternatives and, in most cases, at least one option that will enable the policyholder to keep their premiums at or close to the same level as what is being paid before the rate increase.”

Allstate blames its 90 percent rate request on fewer enrollees dropping out than expected and added: “From this analysis, we determined the maximum justifiable rate increase on this block is over 500%. The company
decided a 90% rate increase is appropriate, which balances the needs of all stakeholders involved, including the company and the policyholders involved.” 

The largest insurer of the American market, Genworth Financial, is based in Richmond and its proposed acquisition by a privately-held Chinese company continues, pending continued regulatory reviews.  The Virginia SCC has signed off on the deal.  Genworth reportedly just announced its long-term care products will no longer be sold through agents, but only direct-to-consumer.  The Investment News story on that adds several details about the struggles of the industry (but read it the first time – the paywall hits after one view.)

An industry snapshot of the longest and largest claims paid – $2 million plus, approaching two decades of payout – is quite telling.  More than $10 billion was paid out in 2018, that source reports.  At the same time, the number of covered individuals and underwriters is dropping.

A line from Econ 101 comes to mind, something about how when you subsidize something, you get more of it. Medicare and Medicaid are being challenged by the same market forces, as more people make it to a ripe old age and then consume more and more health care services to stay there. Long-term care insurance – not (yet) propped up by taxpayers – may be the canary in the Boomergeddon coal mine.

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8 responses to “Boomergeddon’s Coal Mine Canary Sings Warning

  1. Your journalistic product is impeccable and much appreciated. No, I’m NOT kissing up – you do deserve the compliment!

    You’ve captured the issue well but the tenor of your tome seems to focus more on the industry being at fault than it’s customers. One would presume they’re raising premiums because their costs are up but other may feel they’re actually being predatory like big Pharm seems to be. I can tell you that home care can cost $15-20 an hour; tally that cost up for a week or month or year. It’s totally not affordable to all but the most well off.

    But, from a Conservative/Libertarian point of view why is it the business of government to regulate long-term care insurance anyhow? Why is it not just like many ordinary products for consumers to decide to buy and it’s up to them to figure out if that’s what they want and need and how much they can afford? Why is the Government involved for a “market” product? We don’t do cars or dishwashers or ice cream that way, right?

    Second – What happens to folks who do not have long term care insurance? Or perhaps more to the point – what happens to taxpayers ? Every year at budget time, people go haywire fretting about the cost of Medicaid but usually the “concern” is about “giving people health care” as opposed to paying for long term care for folks who did not save enough money to pay for it themselves (or afford insurance)?

    How should we “fix” this problem? I don’t think we’ll “fix” it by going after the insurance companies and making the rules so tough that many will just leave that market and even fewer providers will remain and premiums will go even higher.

    So how do we deal with this issue?

    Should we “force” people to put money aside for their long-term care?

    Should we DENY paying for long-term care for those who did not save for it?

    Less than 10 million people have LTC – according to one source checked.

    Do most of us EXPECT Medicaid to help out if we end up needing that help? If we do have that expectation, should we ALSO – EXPECT to pay taxes to fund Medicaid LTC not that different than the mandated taxes we have to pay for Social Security and Medicare?

    If we were not forced to pay into Social Security and Medicare, would most of us not pay into it the same way most of us do not have long term care insurance?

  2. I don’t think either the industry or the customers are at fault, but it is basic economics. The programs are making it both possible and less stressful to…..stay alive! All the actuarial assumptions from decades ago have been blown to pieces. I also think the very existence of a third-party payment system makes it easier for costs and utilization to explode. I for one am very interested in what the SCC learns.

  3. Thanks for the update, Steve. I’ll have to check to see if my long-term insurance provider, New York Life, has re-filed for a second rate increase.

    The SCC is between a rock and a hard place here. Consumers are getting screwed — they paid thousands of dollars for terms that the insurance companies will not, because they cannot, live up to. Most think that when they sign on the dotted line, they are signing a contract. I’m not sure exactly how insurance law works, but it’s not the same as other kinds of contract law. Insurance companies don’t have to live up to the deal they made if their actuaries miscalculated.

    At the same time, the SCC doesn’t want to put the insurance companies out of business. It needs to keep the policies solvent. Tough balancing act.

    My thought is that the SCC should hold the insurers’ feet to the fire and extract the maximum economic value from them short of putting them out of business. If the insurers have shareholders, like Genworth, shareholders should take a bath before policy holders do.

  4. re: ” the SCC should hold the insurers’ feet to the fire and extract the maximum economic value from them short of putting them out of business. If the insurers have shareholders, like Genworth, shareholders should take a bath before policy holders do.”

    I’m SHOCKED. This sounds for all the world just like a Social Justice Warrior!

    Do we REALLY think the govt should ” extract the maximum economic value from them short of putting them out of business.” for gasoline or homes or kumquats?

    why just for this and not for – say ” health insurance” also?

  5. Allstate blames its 90 percent rate request on fewer enrollees dropping out than expected and added: “From this analysis, we determined the maximum justifiable rate increase on this block is over 500%. The company
    decided a 90% rate increase is appropriate, which balances the needs of all stakeholders involved, including the company and the policyholders involved.”

    Seriously?

    Fewer people dropped out so insuring those in the plan suddenly cost 5X as much. Really? However, because Allstate are such nice guys they only raised the rates 90% instead of 500%. This seems very fishy.

  6. My father in law had to get a lawyer to collect on his LTC from a well known company who initially claimed he did not meet the requirements.. once the lawyer got involved VOILA! but makes me wonder how many don’t have the funds for a lawyer…

    I think there are a lot of “ripoffs” from cable TV to LTC and more… but I still am intrigued by the philosophy that there are “markets” and buyer.sellers and according to some folks – the govt should not be involved in, much less dictating the price so I’m curious why LTC is worthy of more govt involvement and control, price dictation, etc…

    Is this one of those issues where supply/demand without govt interference should prevail and if not – whats the justification of govt involvement?

  7. so.. basically CRICKETS on the question as to why the Govt should control the pricing of insurance.. in this case Long Term Care but a bigger question of Health Insurance which in these same pages we hear that the “market” should affect health care prices and not the government. That the govt role should be to require transparency of prices then consumers will take over from there.

    Why not do this also for LTC insurance or other kinds?

    There seems to be a very competitive market for some kinds of insurance, like Auto and LIFE insurance, even Medicare Advantage but not so much health care or LTC insurance.

    So, at this juncture – a question is why is the SCC involved in LTC insurance – and not regular health insurance?

    Why the different approaches? Why are BOTH just free market offerings for consumers to choose from?

    Why criteria separates LTC from Health insurance in terms of the purview of the SCC?

    I’ll keep asking these questions in future posts… also.. if that helps.

  8. Pingback: Long-Term Care: A Great Bet If Made Long Ago - Bacon's Rebellion

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