Only about 89,000 people bought private long-term care insurance in 2016, a nearly 14 percent decline from 2015, according to an industry survey. Nearly all were bought in the individual market, though about 15,000 people purchased coverage through their jobs.
The sales decline continues a stunning trend. At the market’s peak in 2002, consumers bought 750,000 traditional policies, eight times what they purchased last year. For the second year in a row, the total number of people covered by long-term care insurance fell slightly as more dropped coverage, died, or exhausted benefits than bought new policies. Roughly 7 million people currently own traditional policies, a number that has not changed in a decade even as the population of those 55 and older (those most likely to buy or use long-term care insurance) has grown by 30 milllion.
While fewer people bought traditional insurance last year, more purchased policies that combined life insurance with long-term care benefits. More than twice as many consumers bought policies that typically add long-term care benefits to annuities or whole life plans than purchased stand-alone coverage. Some consumers continue to want to hedge against personal care costs in old age, but not with traditional, stand-alone policies.
The authoritative industry survey by the actuarial firm Milliman Inc. reported that 17 carriers sold traditional long-term care policies in 2016. Measured by premium, the top two carriers, Northwestern Mutual and Mutual of Omaha, accounted for nearly half of all sales last year. Strikingly, Genworth, the long-time industry leader that generated nearly one-third of all new premium dollars as recently as 2014, sold only 12 percent in 2016. The survey results were published in the trade journal Broker World (firewall).
Average premiums fell slightly in 2016, from $2,497 to $2,480. That may reflect a mix of several factors. They include slightly younger buyers and slightly less generous daily benefits, though the average length of policy benefit period rose a tick from 2015. Consumers also purchased less generous inflation protection, with many choosing a feature known as Future Purchase Option that allows them to buy more coverage in future years instead of getting automatic annual benefit increases.
About 40 percent of buyers bought three-year policies last year. Eighty-five percent bought coverage for five years or less. While most insurers focused on shorter-tem policies, one reported selling eight-year coverage, though those policies accounted for less than five percent of those sold.
One carrier, using a back-to-the-future marketing strategy, sold single-premium lifetime policies. This product, popular a decade ago, allows consumers to make one upfront payment and avoid future premium increases. But nearly all carriers abandoned the design because of the big, and difficult to predict, risks they were taking on.
In 2016, insurers were also underwriting prospective customers more strictly, with more carriers reviewing consumer’s medical and medication records and doing telephone interviews and cognitive assessments. Other research suggests that as many of one-third of those who want to buy long-term care insurance are unable to do so because they cannot pass underwriting.
Traditional long-term care insurance is disappearing as a way for middle-income people to prepare for their personal care needs in old age. It is too expensive for many consumers, and too difficult to buy, especially for those who wait until their 60s when they are likely to have pre-existing conditions that may disqualify them. At the same time, most large life insurance companies—which were once the core of the business—are unwilling to sell long-term care coverage at all.
The rise of combination products suggests that people still want protection against long-term care costs. But without big changes, stand-alone long-term care insurance is likely to play only a modest role in this market for the foreseeable future.
Combine that with ex post facto underwriting (deny all claims and raise premiums), and you have a recipe for collapse.