Henri Spiegel and husband Michael Wolk bought long-term care insurance about five years ago. In December, the Miami Beach couple learned that their John Hancock policy’s rates would rise 40 percent this year.
“I was enraged,” said Spiegel, 57, an attorney. “A 40 percent increase is just exorbitant.”
Spiegel and Wolk are not alone. Many long-term care insurance customers who bought their policies several years ago are seeing a bump in rates, said George Braddock, a long-term care insurance specialist with LTC Financial Partners in Miami. “The industry average for rate increases are from 10 to 25 percent, but insurer John Hancock has had an average increase of 44 percent that started going into effect about a year ago,” he said.
Braddock blames the rate increases on two things. The first is that years ago when setting prices, insurance companies grossly underestimated how much future claims would cost. People are living longer than expected, custodial care costs are rising faster than projected and more people are keeping and using their policies.
The second is the downturn in the economy. “Insurance companies are forced to invest conservatively, because they need to have enough in reserves to pay out claims,” he said. “The downturn in the economy didn’t just affect their sales” but the return on their reserves.
The wave of retiring baby boomers also was something that long-term care insurers did not adequately account for when originally setting rates, said Helen Salazar-Realini, a certified financial planner with Raymond James Financial Services in South Miami.
Spiegel said she felt duped because when she and Wolk bought their policies, they asked about rate increases “because I know health insurance goes up,” Spiegel said. “But all the guy said was ‘All I can tell you is that they’ve never had an increase.’”
Braddock said all premium increases must be approved by insurance regulators in each state. “They are justifiable increases,” he said. “They had to approve them. If the regulators had said no, and the insurance companies can’t pay claims in the future, everyone loses.”
If your long-term premiums have risen, there are basically three things you can do: drop the policy, pay the increase or alter your coverage.
“I’ve had people ask me to price them with a different carrier, but prices are determined by age and health,” Braddock said. “It almost always costs more” to switch.
He said it’s important not to lose perspective. In Florida, care costs can range from $3,000 to $9,000 a month, Braddock said. “Keep the big picture in mind,” he said. “I’m a policy holder. I got a rate increase and I wasn’t jumping for joy…but with or without a policy, you’re going to need care from someone. You can rely on your family, but at what cost?”
If you have a rise in premium on your long-term care policy, the first thing to do is evaluate your coverage, said Tessie Yuste, a certified financial planner with The Lubitz Group in Miami.
“How much is your daily benefit? How much is your coverage and for how long?” she said. “The most important thing is to understand the benefits of the contract.”