Long-term care insurance may not be a “cure-all” for the estimated 12 million Americans who will require such care by 2020, according to Sen. Herb Kohl, chairman of the Senate Special Committee on Aging.
Providers such as Genworth Financial Inc. are reporting losses and others such as Conseco Inc. are increasing premiums, which raises questions about the viability of the industry, Kohl said at a Washington hearing on June 3.
“We need to boost consumer protections and ensure the solvency of these products in the long run, and even then, long-term care insurance may not be right for everyone,” said Kohl. “Long-term care insurance should not be considered as a cure-all.”
The Wisconsin Democrat introduced legislation today to provide a uniform way of handling claims, transferring policies between states and increasing premiums. Long-term care insurance should reflect standards set by the National Association of Insurance Commissioners, Kohl said.
The policies provide coverage to help pay for home-health aides or residence in a nursing home or assisted-living facility. Insurers have sold about 10 million of the policies since 1987, according to the Menlo Park, California-based Kaiser Family Foundation. Private insurance accounted for 9 percent of the almost $180 billion spent on long-term care services in 2006, said Kaiser, a nonprofit group focused on health-care policy.
Medicaid, the insurance program for the poor, paid for 40 percent of long-term care spending in 2006, according to Kaiser. To lower costs, states are encouraging residents to purchase policies through partnership programs with private insurers, Kohl said.
A senior who buys a policy from a company participating in a state's partnership program will pay premiums and receive benefits for a specified period of time. After that, the state takes over and covers the required care.
Indiana, one of the 36 states that has a partnership program, has saved as much as $12 million for its Medicaid program since offering private policies in 1993, according to Carol Cutter, the chief deputy commissioner of health and legislative affairs at the Indiana department of insurance and a witness at today's hearing.
“Purchasing a long-term care insurance policy offers a viable way to save seniors' assets and reduce the burden on states and the federal government,” said Senator Mel Martinez, a Florida Republican and committee member.
States are encouraging residents to consider these programs, without weighing the plansí consumer protections and companies’ financial solvency, said Kohl. There were a total of 43 ratings downgrades to companies in the life/health insurance industry by AM Best Co. and the rating company downgraded its industry outlook to negative from stable in 2008.
State solvency laws require long-term care insurers to set aside enough reserves to pay all claims on policies the companies have issued, said Frank Keating, president and CEO of the Washington-based American Council of Life Insurers, in a statement.
“Long-term care insurance can't solve the financially devastating problem of the cost of long-term care,” said Joseph Belth, professor emeritus of insurance at Indiana University in Bloomington. Provisions in policies, which are primarily marketed to the middle class, prevent sufficient coverage, Belth said.
A typical policy sold in 2008 cost $2,329 a year on average for a single 60-year-old person, according to Kaiser. If purchased at age 70, the same policy would cost $4,515 a year. Nursing home care averages $70,000 a year, assisted-living facilities average $35,000 a year and 24-hour home health service care averages $306,600 a year, Kaiser said.
“Long-term care insurance generally provides peace of mind to policyholders and their family in a time of shifting and uncertain economic burdens,” said Thomas Stinson, the president of insurance products for Genworth, based in Richmond, Va., at the hearing.
Genworth, one of the largest providers of long-term care insurance, had a first-quarter loss of $469 million compared with profit of $116 million a year earlier. Conseco, the Carmel, Ind.-based insurer, had eight consecutive quarters of losses tied to long-term care policies before posting a profit of $24.5 million in the first quarter.