When Norm and Susan West bought long-term care insurance in 1998, Susan had just turned 50, Norm was 51, and it seemed like a good idea to plan ahead for how they would pay for potential nursing care.

Way, way, way in the future.

Fast forward 23 years and the Wests have continued to pay annual premiums only to see the cost more than double from 2010 to 2020. They were notified Dec. 22 their provider, Brighthouse Financial, was again boosting their premiums, this time by nearly $1,000 by 2022.

“With every year’s announcement of the next big increase, they always remind me that I don’t have to pay it,” said Norm West, 74, who lives near Fairbank. “I can always reduce or cancel my coverage. Wouldn’t they love that! After paying more than $22,700 in premiums over the years without them paying out a cent, I could just walk away. Right, you bet.”

Norm, worries he and Susan wouldn’t be able to get another long-term care package now that they are in their 70s.

This dilemma is playing out across Iowa and the nation with long-term care insurance, a market that Iowa Insurance Commissioner Doug Ommen called “extraordinarily troubled.”

The policies, which promise to pay a daily benefit for long-term care needed over a period of time, usually three to five years, were underpriced at the beginning, Ommen said. Lots of Americans bought in, hoping insurance would cover the costs of in-home or nursing home care so they didn’t have to burden their families. But as more baby boomers filed claims and fewer young customers purchased policies, premiums skyrocketed.

“It’s unfortunate that wasn’t better contemplated 30 years ago,” said Ommen, who has led the Iowa Insurance Division since 2016. “There is no area of responsibility more frustrating than the issue of long-term care insurance rates.”

Premiums not covering all claims

By 2030, all baby boomers will be older than 65 and 1 in 5 Americans will be retirement age, the U.S. Census Bureau reported. By 2034, people over 65 will outnumber people under 18.

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Americans paid $11.7 billion in premiums on nearly 6.2 million long-term care insurance policies in 2019, according to a 2020 report from the National Association of Insurance Commissioners. Of that, Iowans paid $231.7 million in premiums on 124,613 policies.

But while companies that provide long-term care insurance in Iowa collected more than $230 million, they paid out more than $275 million in claims. Some companies were hit harder than others. Thrivent Financial for Lutherans, based in Wisconsin, collected $11.3 million in premiums but paid out more $30 million in long-term care claims.

Steve Sperka, vice president of health insurance products at Thrivent, said the company can continue to cover claims because it has “incredibly strong capital and surplus positions.”

“We take great care in the way we design and price our long-term care products to ensure we’ll be able to pay claims when our clients need them,” he said in a statement.

Working against long-term care insurance providers are low interest rates. Most long-term care insurance policies grow by 5 percent a year to keep up with inflation. When interest rates were 6 to 8 percent, insurances companies could make enough income from investments to meet obligations to policy holders, said Jesse Slome, executive director of the American Association for Long-Term Care Insurance.

“When interest rates are zero, that doesn’t work,” Slome said.

Companies that provide long-term care insurance in Iowa asked the Insurance Division to let them increase premiums by an average 41 percent 2020, but the division negotiated an average increase of just under 12 percent, according to a state rate increase history since 2005.

“We do not approve every rate increase requested, but the numbers are what the numbers are in terms of trying to preserve the company for the time they will be obligated to pay benefits,” Ommen said. If a company liquidates, customers will get only a small payout required by law, he said. “It’s a balance.”

Firms say customers have benefit choices

Brighthouse Financial, based in Charlotte, N.C., said it seeks rate increases only “when they are actuarially justified,” meaning when there is a correlation between a policy holder’s case characteristics (such as age) and the likelihood of increased claims cost.

MetLife, which may have been the original holder of the Wests’ long-term care policy, in 2017 spun off this part of its business into a new company, Brighthouse.

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“Brighthouse Financial understands that rate increases on LTC policies may be a challenge for some policyholders, and to provide flexibility to our customers, we offer options to give them a choice to find a premium level that works for their individual needs,” the company stated.

In the company’s Dec. 22 letter to Norm West, the firm told him he could lower his premiums by reducing the daily benefit or the number of years covered.

Transamerica, with more than 3,500 full-time employees in Cedar Rapids, has more than 8,000 long-term care insurance customers in Iowa.

Michael Rathje, head of Inforce Product Management, said the company offers customers options to keep premiums affordable. “Policyholders may be able to reduce benefits or increase elimination periods” (the number of days the policyholder pays for care before the policy pays out), Rathje said.

This type of negotiation is what Ommen advises for people struggling to pay their long-term care insurance premiums. Customers also should contact the Insurance Division at (515) 654-6600 or iid.iowa.gov/contact, he said.

Division staff can ask providers to spread the cost of one insurance type over a larger pool of customers, he said.

“By law, they aren’t required to do that, but we have put that type of pressure on them to not treat these blocks as closed, but spread it through other parts of the business,” he said.

Companies are now offering hybrid life insurance policies that provide a long-term care benefit, Ommen said. If a policy holder needs long-term care, the policy pays out then. If no long-term care is needed, the payout becomes a death benefit to beneficiaries.

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“Your long-term care benefit later in life is really just an early benefit drawdown of what would be paid in a life insurance benefit,” he said.

These policies also have the potential for a larger, more consistent pool of customers. “Most every Iowan recognizes the risks of mortality and tends to have life insurance,” he said.

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