You're Anna Emmons, 75, from Saginaw, and gosh are you angry. You've been paying for long-term care insurance through John Hancock for a decade. Now the company has raised your monthly premium 64 percent, from $151 to $247.
Your choices are difficult. You can withdraw from the plan. Or you can pay the increase. Or you can reduce your coverage and keep your premiums low. You smartly thought ahead about some future day when you might need a nursing home or home care. But you never expected your rates to go up, certainly not like this, and not for the second time in three years. You asked The Watchdog how this could happen and what you should do.
When a regular bill jumps like that, especially for retired seniors who have few ways left to earn extra money, it causes heartache and confusion.
The long-term care insurance market is struggling, and some companies are dropping out of selling the insurance to individuals. Others are raising premiums, but nobody is raising them as high as John Hancock, where some long-term care premiums in other states are jumping as high 90 percent.
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The actuarial numbers used to create these plans years ago turned out to be wrong. People are living longer than planned. They stay in nursing homes longer. The premiums they paid were too low. Insurance companies make their profits on investments, and it hasn't been happy days in that area for the last few years.
So it's easy to see how the industry takes a beating.
Also, long-term care costs around $80,000 a year, and with low premiums, if someone stays for years in a long-term care facility, an insurance company takes a bath. The American Association for Long-Term Care Insurance, a trade group, likes to point to a case where a woman paid $2,500 in total premiums before she entered a long-term care facility and stayed for years. An insurance company has paid $1.5 million for her care.
John Hancock spokeswoman Melissa Berczuk told me that that long-term care insurance products haven't worked well for companies that have sold them. "What we've seen is that people are living longer and significantly more people are using the insurance for longer periods of time than anticipated."
When The Watchdog checked with long-term care experts, the verdict about what you should do was pretty clear. If you can afford to pay the extra monthly increase, by all means do it. Your $2,964 annual fee will cover thousands of dollars of daily expenses if you ever need care.
"Even with the rate increase, they're still paying a pittance," says Honey Leveen, a Houston independent insurance agent known as "the Queen of Long Term Care."
Still, a rate increase hurts. Your statement, Anna Emmons, to The Watchdog was, "I don't understand how the insurance board would allow that raise."
State law changed two years ago giving the state Insurance Department the ability for the first time to approve or disapprove long-term care premium increases. Consumer advocates hoped this new power would help keep premium costs down, but that didn't happen. A state spokesman says the department reviews the numbers and determines if a rate increase is justified.
In July, the department approved a 41 percent average increase for John Hancock that affects 7,500 Texans, including you. The highest increase anyone will see in Texas, regulators say, is 80 percent, depending on the type of plan.
John Hancock has two more long-term care rate increases pending before Texas regulators.
Leveen, who sells long-term care products for about 20 companies to Texas customers, says she learned that John Hancock sent emissaries to make the case before regulators in Texas and other states where approval for increases was needed.
Chicago Sun-Times financial columnist Terry Savage has written extensively about the increases. She praises people smart enough to plan ahead for long-term care and predicts that a shortage of care facilities for seniors will be one of the next big crises. Those with long-term care insurance often get into better nursing homes than state-run facilities because operators know bills will be covered, Savage said.
Savage and others point to alternatives for those looking at avoid paying steep increases. "It's not a take-it-or-leave-it proposition," says Jesse Slome, executive director of the long-term care association, of the increases throughout the industry. "Most people will change their policy and keep premiums the same."
If you decide you don't want to pay the new premiums, Anna Emmons, that's probably a good choice. Your best bet may be to eliminate the inflation protection you've had for the past decade. You'll pay close to your current premium, but down the road, if you need to use your policy, you'll pay extra to make up for inflation.
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Dave Lieber, 817-390-7043