Long-term care insurers request big rate hikes, but COVID-19 not to blame

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    HARTFORD, Conn. (Hartford Business Journal) — Long-term care insurers, which provide coverage for future stays in nursing homes and assisted-living facilities, as well as at-home care, have asked Connecticut regulators for major rate hikes in recent months, putting further pressure on policyholders who have consistently shouldered escalating costs over the last half-decade or so.

Since March, long-term care insurers have asked the Connecticut Insurance Department (CID) to approve premium increases totaling approximately $72 million, which would nearly double the combined cost of those plans and impact approximately 23,000 existing policyholders, according to rate filings analyzed by the Hartford Business Journal.

Despite the timing, the requests aren’t related to COVID-19, which has killed more than 3,000 people in Connecticut nursing homes and assisted-living settings.

“To date, we have not seen any impact of COVID-19 as part of the reasoning or rationale for rate increases or impacts on rates,” said Paul Lombardo, CID’s life and health division director. “We’re only four months into this.”

Instead, the proposed rate hikes are largely spurred by mispricing of legacy policies sold years or even decades ago, when insurers made incorrect future assumptions about mortality rates, care costs, interest rates, and how many policyholders would drop or “lapse” their coverage before it was ever needed, Lombardo said.

“It’s very consistent with what’s been occurring for the last four or five years at least” in the long-term care insurance sector, he said.

Still, the ever-rising costs threaten to price out more policyholders, including some who could be facing long-term health impacts from the novel coronavirus that struck Connecticut in March and has infected 48,000 residents since.

COVID-19 is caused by a new virus, so study of its long-term health effects is still in the early stages, but initial research indicates they could be serious, ranging from heart and lung damage to strokes and embolisms — conditions that may leave someone unable to provide for their own personal and medical care.

Rate actions

CID has approved smaller-than-requested increases — between 9% and 50% — in a majority of the dozen long-term care rate filings submitted between March and mid-July.

However, several big rate filings remain pending, including an application from Brighthouse Financial asking for an eye-popping 173% increase on 4,900 policies. Several hundred of those policies would see their average annual premium rise above $19,000, if the filing is approved as is.

Another pending filing, from John Hancock, requests a 68% increase on 7,150 policies.

Those two filings combined, if approved by CID, would increase written premiums by nearly $64 million on policies sold as far back as 1990.

Under a 2014 state law, increases of 20% or higher must be spread out over three years. Since then, some lawmakers have pushed for a longer phase-in period, but without success.

The policies are increasingly expensive because long-term care is too. According to an annual cost survey by Genworth, a private room in a Connecticut nursing home has a median annual cost of nearly $167,000, while a private room in an assisted-living facility has a median cost of $58,560 — an increase of about 40% each since 2008.

Older policies tend to see the biggest increases.

Meantime, carriers are selling fewer new policies as well.

Long-term care insurance sales in Connecticut have steadily fallen, shrinking by double-digit percentages in seven of the last 10 years, and the number of insurers writing business here has also declined.

In 2018, the most recent year for which data is available from the state, the number of policies sold fell 13% to a new low of 1,846, down from 8,571 policies sold in 2008.

Private long-term care insurance tends to be purchased by higher earners who want to preserve an estate for their heirs when they die; or by people who want richer benefits than Medicaid offers, or to avoid shouldering out-of-pocket care costs when the time comes.

There were 106,000 Connecticut-sold policies in force as of 2018.

Long-term care insurance comprised just 4% of the $235 billion worth of total long-term care spending in the United States in 2018, according to AARP. Medicaid and out-of-pocket spending were the two largest spending segments.

Will COVID-19 affect long-term care premiums?

While the pandemic hasn’t yet played a role in insurer rate requests in Connecticut, it may in the future.

One morbid reality of long-term care insurance is that it can be less expensive for the insurer if a policyholder dies earlier.

The shock of deaths in nursing homes and other facilities across the country in recent months could therefore be a financial positive for insurers, according to an April report from the actuarial firm Milliman, which said insurers’ future cash outflows could decline by up to 10.5%, depending on their customer mix, and other factors. There is still much uncertainty about many of those factors, the authors wrote.

However, lower interest rates — which have created financial struggles for long-term care insurers for years, and have been cut even further during the pandemic — could quickly swamp any financial benefit, the report said.

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