Federal LTC Insurance Program Rate Increase - Commentary

​As an insurance broker who has sold LTC insurance since 1992, and who has focused exclusively on LTC insurance since 2000, I have been following the FLTCIP rate increase news since it is such a large player in the marketplace.  The "average" increase for current policyholders is over 80%, with some as high as 125%!
 
Here's my take:  Welcome to LTC insurance. 
 
The FLTCIP is basically having to realize the same increases, for the same reasons as the rest of the private LTC insurance marketplace.  125% is NOT an outlier.  Several other companies including some of John Hancock's individual policies, and Genworth’s have had 80%-100%+ increases.  Others have had those amounts as well cumulatively over 2 or 3 increases in the past 10 years ..........

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​One of the reasons the current FLTCIP increases are so large all of a sudden is that they can only raise premiums on the contract anniversary, which is only every 7 years.  While frustrating, and unexpected, the FLTCIP coverage is STILL A GOOD VALUE.  The in-force rates are being raised up to today's new-business, new-issue standards which is what is required to sustain the claims into the future. 
 
I do think we will now see much greater premium stability going forward, for both existing policyholders as well as new participants.
 
The reasons for the large rate increases are now “baked-into” the new-applicant rates, as well as being re-set for existing policyholders.  These include: a near-zero “lapse rate” assumption – it can’t go lower, so that variable can’t return to impact premiums; historically low interest rate earning assumptions on insurance reserves which are now being set at today’s rates going forward - so any future increases in interest earnings from here only helps stabilize rates; the claims assumptions are now based on 70-times more credible data than existed in 2000; and the companies are building in even more conservative worst-case claim buffers into the new premiums.
 
To see the value in what you have today, even with the rate increase (from any LTC insurance plan), get a quote for an apples-to-apples benefit replacement (including inflation rider increased benefits) at today’s older age.  For most people, it’s at least double the premium even after the rate increase.  But also look at a new quote for the same (lower) starting coverage at your original, starting age (unfortunately you can’t go back!).  You will find that your increased premiums today are nearly equal to what a new applicant would pay for the same (lower) starting coverage at your original age.
 
A final thought:  If offered, take the reduced future inflation increase percentage.  This is a good value to keep the premium level.  Also remember that you do not have to have 100% coverage for 100% of the highest, potential cost of care.  Some coverage IS better than none.  It shouldn’t be an all-or-nothing decision.  A majority of LTC claims start at home, close to 80%, and a majority, over 50% also end at home.  So covering the cost of part-time home care (even just $3000 to $4000/month) is very valuable.  While this amount of coverage may only cover half the cost of care in a nursing home, it’s still covering half!  The focus should not be on the highest cost of care in a nursing home which is very unlikely, but rather ensuring there is enough coverage to keep you safely at home, for as long as possible, without overly burdening your spouse, partner, kids, or other loved ones.
 
No one likes a rate increase.  But it’s necessary to sustain the coverage well into the future for all policyholders – in the FLTCIP and with private LTC insurance.

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