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Long-term care insurance is proving to be the Edsel albatross of the insurance industry for its storied poor reputation, as cited in the June 9 front-page article "Elderly care insurance in crisis." During my insurance underwriting career I learned what constitutes an insurable risk, and any review of the woes of the Medicaid system may have forewarned insurance companies of this perilous folly of venturing into long-term care insurance. Insurance needs to collect adequate premiums from very large numbers to pay the relatively rare losses of the few unfortunates experiencing losses.
Dementia illnesses running in family genetics should have been deemed an uninsurable risk for their near certainty of occurrence, as one good example of adverse selection, where those most likely to suffer loss bought into what they expected, a potential 10 years of needed care. Diabetics, those with stroke risks, and even those with good genes for very long lives may similarly need years of care. The 4% who bought into this care package did so for the good-bet reason of expecting benefits at some time in their lives. The other 96% merely took their chances or worked hard for good health, hoping to never need care and live their last days at home.
Aggressive companies charged far too little to draw in customers, who eventually became reluctant to give up their years of payments, even as increasing premiums became less affordable, while others quit leaving their investment lost forever. Actuaries failed to factor in inflation of care costs and increased life expectancies. They failed to underwrite their customer base, accepting some of the worst risks.
Many continue to spend down their finances to Medicaid eligibility as "you can't take it with you." Billions in current annual Medicaid payments are increasing with the growth of our aging population. Medicaid will need additional funding to pay future benefits at some point. Medicare might pay for 20 days of "transitional" nursing care and therapies, but beyond that provides no further long-term care benefits. Medicare will likewise need additional funding soon.
Unfortunately, insurers have now dug themselves into a deeper hole by denying claims and slowing payments, leading to substantial fines from insurance regulators. Individuals have sued at great effort, but perhaps a class-action lawsuit will be in their future as well, possibly for breach of contract, acting in bad faith by denying valid claims, not meeting their obligations in a timely manner, and discriminatory practices against such a vulnerable population of customers. Any lawyers interested here?
Michael Tillemans, of Minneapolis, is a retired insurance underwriter.
