Lessons from the past improve long-term-care insurance
Second of two parts updating Liz Taylor's 2003 series on long-term-care insurance.
The road to buying long-term-care insurance has developed some potholes recently.
In my last column, I talked about the large increase in policy premiums that several carriers recently instituted. Others stopped selling policies altogether. While these changes took many of us by surprise, the industry — hopefully — learned important lessons that should make for smoother travel in the future. Despite the bumps, long-term-care insurance is here to stay. Frankly, I see no other good option. Whatever else happens in the world, several immutable principles apply for most of us:
You can duck but you can't hide: We're living longer than ever before. Boomers, expect to live into your 90s, maybe 100s. The longer you live, the more likely you'll require help to get by, some of us for years.
The cost of that care is increasing dramatically. If you need a lot, it can be the most expensive thing you'll ever buy, even more than your home. My parents, together, required 14 years of paid care.
Don't fall for the myth that the taxpayers have you covered. It's barely happening now — with the poorest quality and the fewest choices. Soon there will be no extra money for anybody — even defense and education — because of the boomers' impact on Medicare and Social Security. Worse, most of these reports came out before the Iraq war, homeland security, tax cuts and the new drug benefit to Medicare. The reality is, we're on our own. You'll find tips on how to choose long-term-care insurance in the series I wrote two years ago. To order a reprint by mail for $6.10 per copy, call The Seattle Times reprint office at 206-464-3113 or go to www.seattletimes.com/growingolder/ and search by the date, Sept. 8, 2003.
If you're in the market for a policy now, you can minimize the possibility of future rate increases by:
Choosing a company that's financially strong. According to Ken Story of the Gjurasic/Story Group in Seattle, this means it has an "A" (excellent), "A+" or "A++" (superior) rating from A.M. Best (www.ambest.com or 908-439-2200, ext. 5742), a business that rates the financial strength of insurance companies.
Focusing on its experience in long-term care. Some companies have sold life, home or disability insurance for decades, but long-term care is a different animal. The longer a carrier has worked in this complicated field, the more likely it's figured out how to price its policies appropriately. It's not foolproof, but it's a good start. For decades, I've been told that the Insurance Commissioner protects consumers against huge price increases. It's not that simple, says Beth Berendt, deputy commissioner for rates and forms with the Washington Insurance Commissioner's Office. If a company demonstrates that a rate increase is necessary, "our office must approve it by law."
The good news, says Berendt, is that all states are getting smarter about assessing financial solvency among carriers than in the past. "Our level of scrutiny and the reporting we require allows us — through the National Association of Insurance Commissioners — to get a better handle earlier on companies that might be heading into trouble. Our No. 1 priority is to ensure that each company keeps its commitment to its customers."
What happens when an insurance company goes belly up? This is rare, says Berendt. Early in its financial difficulty, her office goes to court for permission to take the company into receivership — meaning the commissioner's office takes control to preserve the company's assets and pay claims. This allows the company to get strong enough to be on its own again or sold. Policyholders keep their insurance, but, given the company's financial problems, rate increases are probably necessary.
Every long-term-care policy in this state is "guaranteed renewable." As long as you pay premiums, says Story, your policy must be renewed. Even if a company leaves the market, it must still provide benefits.
So, what if you face a premium increase you can't afford? Says long-term-care-insurance specialist, Lynn Shapley, a nurse, with LTC Northwest, of Seattle, which sells long-term-care insurance, your company will give you two choices: Keep your current coverage at its new price or reduce your daily benefit at the old price. "But you have more choices than that," says Shapley, including reducing your benefit period or increasing your elimination period. Your agent can help you decide.
So, what has the long-term-care industry done to ensure that these large price increases don't happen again? Most have significantly raised rates on their new policies, says Story. While that's painful, prices on these policies are more likely to remain stable. In addition, the companies have a better handle actuarially on expected loss ratios and the rate at which customers are likely to keep their policies. And some are investing their reserves in exceedingly conservative bonds to ensure minimal risk of their investments with which to pay future claims.
These aren't guarantees, but we're going in a better direction.
Liz Taylor's column runs Mondays in the Northwest Life section. A specialist in aging and long-term care for 30 years, she's worked with thousands of families and their elders. E-mail her at firstname.lastname@example.org or write to P.O. Box 11601, Bainbridge Island, WA 98110. You can see all of her columns at www.seattletimes.com/growingolder/.
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