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Ailing Long-Term Care Insurers Share Their Pain

Abel Mitja Varela | The Agency Collection | Getty Images

Don't look now, but the long-term care insurance business is hurting - badly. And that could make it more difficult, or more expensive, for you to get a policy.

What went wrong?

Long-term care policies have only been offered on a large scale since the 1980s, meaning insurers are just now seeing clear claims patterns emerge. From their perspective, it's an ugly picture: more people than expected are holding onto their policies until they can file a claim, and years of rock bottom interest rates have kept insurers from earning a decent return on policies whose benefits increase three to five percent a year.

The results: a number of providers have left the business, and others are jacking up rates: California's public pension fund, CalPERS, recently won approval for an 85 percent increase over two years. Some, like John Hancock, a subsidiary of Manulife, are offering stripped down plans that keep prices in check but cover less.

Now companies are starting to differentiate among potential customers in new ways to ensure that premiums better reflect policyholders' risk profiles.

The changes are jarring. Genworth, a leading provider of long-term care insurance, has already begun charging single women more for policies. On April 29 John Hancock will follow suit, and the rate hikes could be as high as 40 percent.

"It makes sense. Women get two-thirds of the benefits," in large part because they tend to live longer, says Jesse Slome, executive director of the American Association for Long Term Care Insurance, a membership organization for sellers of long-term care policies. Slome adds that insurance companies didn't understand how gender differences would play out when they first issued the policies.

That's not all. Growing numbers of companies now require "enhanced underwriting." (The rest of us would call it added health screening.) Instead of relying on outside doctors' exams, as they have done since the inception of the long-term care business, insurers will have their own medical professionals conduct evaluations of applicants' insurability.

"The two major long-term care insurers have started drawing blood," to undertake their own analyses of applicants' health, Slome says. "You have to be in relatively acceptable health in order to qualify for this policy."

All this makes a complex type of insurance even more so for consumers. Do you want a plan whose value grows more slowly, or not at all? Or do you want to pay more for greater protection against health care inflation? Should you take out a pricey policy now, paying more premiums over your lifetime, or gamble that you will stay healthy enough to qualify in a year or two?

Or, if you are a single woman, should you be rushing to get a policy before other insurers follow the lead of Genworth and John Hancock?

Patrice Goldfarb, a certified senior advisor and an employee benefits consultant, is adamant on the need for single women to jump in. She says that when she first heard of companies proposing to raise rates for women, "the first thing I did was send a massive blast email to everybody I could think of saying to buy the insurance before rates go up."

But in general, experts say, whether to buy long-term care insurance now depends on your tolerance for financial risk, and your net worth.

Goldfarb has been showing clients ways to buy long-term care insurance that costs less and provides less coverage, but can be increased over time. As an example, she points to a John Hancock policy called Benefit Builder. The policy offers a relatively limited amount of insurance initially but the benefit increases are pegged to John Hancock's investment earnings on part of its general account. Every three years, consumers have the option to add to their policy without an additional medical exam.

Goldfarb also says consumers may need less long-term care insurance than they think. She says studies show that consumers typically put in claims covering less than three years of long-term care.

"I used to say you really need a pool of money that's going to last you at least five years, and I'm finding out that that's not really true," she says.

Slome stresses that shopping around is crucial. His organization recently conducted a study that found prices of high-end long-term care plans - those with protection against inflation of up to 3 percent - varied by as much as 92 percent.

Wealthy individuals can also opt to self-insure - to plan on shouldering their long term care costs themselves. But be prepared to spend big. Goldfarb says a recent Met Life study pegged the cost of a private room in a nursing home in New Jersey at $123,000 per year.

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