MassMutual is the latest among many long-term care insurance (LTCI) providers to announce significant rate increases for existing policyholders. The company recently announced plans to seek a whopping 77% rate hike that will impact three-quarters of all MassMutual LTCI policyholders — some 54,000 customers in all.
While the company was something of a holdout when it came to rate hikes, it succumbed to the pressures that have been weighing on the entire industry: People are living longer, insurers underestimated how much they’d end up paying in claims, long-term care costs have risen significantly, and more LTCI policyholders than expected are keeping their policies.
Once seen by insurers as a potentially strong profit center, hundreds of providers have exited the business while the dozen or so that are still writing policies have had to raise rates dramatically in order to pay claims.
What’s an existing policyholder to do?
If you own a policy that you purchased prior to 2011, it’s likely you have received notice of an impending rate hike, leaving you with three options:
Pay up. If you’re intent on keeping your current benefits, you’ll have to pay the higher premium. However, given how steep some of the rate hikes have been that may not be viable.
Accept a trade-off. Most issuers will allow you to reduce your benefits in exchange for no rate hike or a more modest one. For example, you could extend the waiting period before benefits would begin, reduce the maximum benefit period, accept a lower daily benefit amount, or, if your policy includes an inflation rider, decrease the rate at which benefits would increase.
Drop your policy. This may be the least appealing option of all. After all, you’ve been paying for coverage; it would be difficult to see all those payments go for naught.
What should those considering LTCI coverage do?
If there’s any good to have come from the upheaval the LTCI industry has experienced in the recent past it’s that new policies are likely to be much more accurately priced. That means while newer policies are less likely to require significant future price hikes, underwriting standards have become more stringent and starting premiums have become more expensive.
If you’re considering buying a policy, be sure to read SMI’s recent cover article on the topic as well as the comments section of an earlier article. They will help you look past the scary headlines to better access your need for coverage and walk you through some LTCI alternatives.
In our household, we’re going without long-term care insurance, in part because neither side of our family has a history of debilitating illnesses that required an extended stay in a nursing home or assisted living facility. Instead, we’re maxing out contributions to a health savings account. As we get past the high healthcare cost years (braces for three kids!), we’re hoping to build the account by investing the money. Our HSA provider, Lake Michigan Credit Union, pays a respectable 1% interest on savings account balances of $5,000+ and recently began offering the option to invest balances above $1,000.
How are you preparing for future long-term care costs? Also, if you own an LTCI policy and were hit with a rate hike, what did you choose to do about it and why?
