On July 11, 2011, the Governement Accounting Office (GAO) released a study based on the Federal Long-Term Care Insurance Program (FLTCIP). The information provided in this study offers insight as to the importance of owning long term care insurance, and how consumers value the benefits available from a policy. According to the The Federal Long Term Care Insurance website (www.ltcfeds.com), as of August 31, 2010, there were more than 224,000 people enrolled in the plan.
In 2009, the insurer of the Federal Long Term Care Insurance Program, John Hancock, revised its actuarial assumptions. The rational behind this revision was to adjust the cost of participation based on the actual experience and actual assumptions of the program. The revision also reflected John Hancock’s position that more people would maintian their coverage over time versus letting their coverage lapse.
In order to continue to fulfill their obligations John Hancock notified 66% of the enrollees that they would experience a rate increase up to 25% to account for the difference in experience and actuarial assumptions. What the Governement Accounting Office found in there study was actually quite significant. The GAO found that of the enrollees who were notified of the rate increase, 46% chose increase their premiums instead of reducing their benefits. Another 46% chose to reduce their policies inflation protection option to stabilize their cost. Out of all the enrollees only 1.6% chose to let their policy lapse rather than maintain premium payments.
Many people who have or are considering long term care insurance are often concerned about future rate increases (and rightfully so). The long tem care insurance industry over the last decade has been plagued with this burden. But, there are a few things many people aren’t aware. First, long term care insurance is what we call guaranteed renewable. What this means is that as long as you make your premium payment on time the insurance company cannot take away your coverage…no matter what! Second, insurance companies cannot raise rates on individual policies. The rate increase must be for a “pool” of polic holders. Also, rate increases must be approved by state regulators. Third, if you are in the unfortunate position to receive a rate increase notice you have options. When a carrier increases rates the insured has the option to either (a) accept the rate increase, or (b) adjust their long term care insurance benefits to align with the premium you were paying prior to the rate increase. Just because a company increases their rates doesn’t mean you should get rid of your coverage.
The long term care insurance landscape seems to be changing frequently. A number of companies have recently introduced new products that provide consumers with added flexibility when it comes to designing a suitable policy. These new products will allow consumers greater flexibility in the form of policy pricing, and benefits when care is required. However, it is important that when you design your plan you work with an advisor that can educate you on what is available and assist you in understanding what features and benefits will assist you the most based on your personal goals and objectives.
