Increasing long-term care costs are a problem
March 9, 2015
by Brian Wolf

Do you know who's going to be paying for your long-term care? If you don't have long-term care insurance, then you will be required to spend your own money until you are just about broke, and then the government will take over and pay for your care. In my opinion, having the government in charge of your long-term care is, at best, a little scary, and at worst, downright terrifying.

In a recent Investment News article, this headline was used "Genworth Financial struggling under the weight of long-term care costs." Turns out that one of the biggest issuers of long-term care insurance was way off the mark when it came to pricing its products. In other words, they didn't charge enough money for policies and are now lossing a lot of money. One factor is, in a low-interest environment, insurance companies struggle to make money on their own investments, along with the fact that they guessed wrong as to the lapse rates, life expectancies, and actual costs of this care.

Here is an excerpt from the article.

"Here's an uncomfortable question: who's going to pay for mom or dad's nursing home bill — or yours, for that matter?

"The answer, for about 1.2 million Americans, is Tom McInerney. Mr. McInerney, 58, is the chief executive officer of Genworth Financial Inc., the beleaguered giant of long-term care insurance.

"Mr. McInerney is in a tight spot, and it's getting tighter. Long-term care policies written in past decades have turned into a black hole for the insurance industry. Executives misjudged everything from how much elder care would cost, to how long people would live. Result: these policies are costing insurers billions.

"Genworth is struggling to contain the damage and . . . warned of a 'material weakness' in some of its accounting. To cope with mounting costs on the policies, Genworth has been raising premiums again and again. Some policyholders are furious.

"'I was mad as hell,' says Arthur Mueller, an 83-year-old former real estate executive who lives in Dallas. Over the past 15 years, his annual Genworth premium has roughly doubled to $6,879."

No quick fix

There's no quick or easy fix for Richmond, VA.-based Genworth, which has posted two straight quarterly losses. The stock fell by more than half in the past 12 months, including a 5.4 percent slide recently after disclosing the accounting weakness.

Genworth and other insurers have had to contend with the confluence of three powerful forces. The first, is the rising price of elder care. Nationwide, the median cost of a private room in a nursing home is now more than $87,000 a year, after annual increases of 4 percent over the past five years, according to Genworth.

Adding to the problems, interest rates have plunged to record-low levels. Insurers need to invest funds for decades before paying out on long-term care claims, so low rates hit profits from those policies particularly hard.

This leads me to the question; are Americans going to be buying longterm care insurance if the premiums keep climbing? At some point, people will just "take their chances," which generally is not a good idea.

I believe the long-term answer is most likely in combo products. This is where you combine long-term care coverage with life insurance product or an annuity. Although we certainly have these combo products today, most people are just not aware of them.

If you would like to learn about these combo products; where you can get long-term care coverage without the increasing costs, give me a call and I would be happy to tell you about the various options outside of the traditional long-term care policies.

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