The unseemly side of long-term care insurance
Here is an except from their article:
A nursing home resident who suddenly loses long-term care insurance faces an uncertain future. But your client may not be the only one. Take a closer look: You may be able to uncover systematic abuses that reach far beyond your client. * * *
“The long-term care party of the 1990s gave us one hell of a hangover in the 2000s.” That’s how one company executive put it in an internal company memorandum pondering what direction to take next. The party he refers to was a hoopla of sales and profit-taking in the 1990s, when aging Baby Boomers set off a gold rush of sales for nursing-home and assisted-living insurance.
Companies elbowed their way into the market. They bid against each other for market share with ever-increasing promises of deep coverage and substantial benefits. Since all the folks signing up for coverage were still healthy, the companies collected lots of premiums and paid few claims. If you are an insurance company, that’s about as close to heaven as you are likely to get. Everybody wanted in.
But then something inconvenient happened: People not only bought policies, which is good for the company, but they also kept them, which is bad for the company. That’s because insurance companies price their policies, in part, on estimated “lapse rates”—the number of people who buy the policy, pay the premiums for a few years, and then drop it before filing any claims. A lapsed policy is pure profit, because, after collecting thousands of dollars in premiums from a policyholder, the risk of ever paying claims to him or her drops to zero when the policy lapses. But in the rush to grab market share, the companies overestimated the lapse rates.
And then something even more inconvenient happened: People got old and started filing claims. On top of all that, the companies learned they had miscalculated the mortality rates for the target population.