Opinion

Rethinking the Approach to Long-Term Care Insurance

Long-term care insurance has been a valuable retirement protection tool for millions of Americans, having paid out billions of dollars to soften the blow of costly, and largely inevitable, long-term care events — typically when these Americans are beyond their income-earning years.  The unmistakable value of this insurance coverage notwithstanding, these insurance policies have also been plagued by a dated, governing regulatory regime that has resulted in billions of dollars of losses to carriers and high, double-digit premium increases for policyholders.

Genworth Financial knew there had to be a better solution, and we believe we’ve found it. We are working with a handful of state regulators with whom we hope to begin piloting — in the next few months — a promising new way to oversee long-term care insurance pricing that could make double-digit premium increases for new long-term care insurance policies a rare occurrence.

This new approach will behave similarly to homeowners, auto and health insurance, with premiums adjusted annually as claims experience and projections emerge, resulting in modest, single-digit increases or decreases, if needed. This is the polar opposite of the way long-term care insurance policies historically have been regulated, where carriers had to wait so long for actuarially justified increases that they incurred large losses and were forced to raise premiums by double, even triple digits. Although carriers are entitled to receive these actuarially justified rate increases when claims exceed the claims that were anticipated when the policies were priced, they are difficult for policyholders, carriers and state regulators to manage.

That’s why we are so encouraged by the annual re-rating solution we are proposing. And we are not alone in believing this solution can help the industry turn the page. We have been partnering with several state insurance departments to develop this new framework, and a few progressive states are currently considering a pilot program.

These forward-thinking regulators are stepping up to take on one of the most pressing challenges facing our country – helping Americans address the financial challenges of aging.

We believe that, when this new framework is enacted, it can spur a stronger and more attractive private-sector solution to paying for long-term care. This breakthrough comes at a critical time when government entitlement programs such as Medicaid, the largest payer of long-term care costs, are increasingly facing funding cuts. Consumers may not be able to count on those programs to be there for them down the road when they may need long-term care.

There is a reason that most long-term care insurance policyholders keep their policies intact in the face of premium increases. They know that the benefits they ultimately receive will be many multiples of the premiums they have paid, even with the premium increase. Private long-term care insurance also gives policyholders choice and control over where and how they receive care, which is not always the case with government programs.

All Americans deserve access to reliable long-term care insurance without the stress of worrying about untenable premium hikes. Together, insurers and state regulators have the opportunity to create a regulatory environment that encourages growth, innovation and greater access to affordable and predictable long-term care insurance products.

By adopting an annual re-rating model, we believe we can fix what’s wrong with long-term care insurance and help more Americans address the financial challenges of aging, so that they can receive the care they deserve — on their own terms — with dignity, choice and control.

 

Tom McInerney is president and CEO of Genworth Financial.

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