Why Long-Term Care Policy Premiums are Rising so Sharply

Consumers around the country have seen steep increases in their premiums on long-term care policies in recent years.  Regulators approved rate increases of 40% or more on about half the requests that insurers made according to a 2016 survey conducted by the consulting firm Milliman. A little more than a quarter of their requests secured premium increases of 20 to 39%. The 26 respondents of the survey had annual premiums that represented 73% of the long-term care industry.

Each state’s agency of insurance regulators determines whether insurers can adjust and increase the premiums. Many agencies also govern whether the companies are entitled to a rate increase and it cannot merely to increase their profit margins. “An insurer must justify its request by identifying which of its original pricing assumptions were inaccurate, and by demonstrating how they developed the new premium based on revised projections,” says California Department of Insurance spokesperson Allison Castro.

Castro explained that large increases are currently being allowed for insurers because where long-term care insurance was introduced in the 1990s, the companies looked at consumer behavior with other insurance products when predicting how many would purchase the plans and eventually make claims. These predictions ended up being far too optimistic according to Castro, and “most companies’ long-term care rates were too low to keep up with the cost of claims that were made years later.” Life expectancies are longer and claims are higher than expected, and the original assumptions can no longer keep up.

See Cathie Anderson, Why Long-Term Care Policy Premiums are Rising so Sharply, Sacramento Bee, January 24, 2019.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.