NEW YORK — Thirty years ago, insurance companies had the answer to the soaring cost of caring for the elderly. Plan ahead and buy a policy that will cover your expenses. ADVERTISING NEW YORK — Thirty years ago, insurance companies
NEW YORK — Thirty years ago, insurance companies had the answer to the soaring cost of caring for the elderly. Plan ahead and buy a policy that will cover your expenses.
Now, there’s a new problem: Even insurers think it’s unaffordable.
Life insurance firms pitched long-term care policies as the prudent way for Americans to shoulder the cost of staying in nursing homes. But those same companies have found that long-term care policies are squeezing their profits. Earnings for life insurers slid 11 percent in the most recent quarter, according to Moody’s Investors Service, and long-term care was the chief culprit.
“Insurers that sell these products lose money on them,” said Vincent Lui, a life-insurance analyst at Morningstar. “So they’re raising prices and also trying to get out of the business right and left.”
Four of the five largest providers — including Manulife and MetLife — have either scaled back their business or stopped selling new policies, according to Moody’s. The largest provider, Genworth Financial, continues to offer them, yet has struggled under the weight of rising costs.
The trends behind the industry’s troubles sound like good news outside the world of insurance. Older Americans are healthier and living longer. But that makes it difficult for the industry to turn a profit. Stays in nursing homes tend to last longer, so insurers have to pay out more in benefits than they had planned.
For older Americans and their families, however, there are few options besides private insurance. Medicare doesn’t cover nursing home stays except in certain circumstances. The Obama Administration had planned to make a long-term insurance program part of the Affordable Care Act but eventually abandoned it.
Sean Dargan, an analyst at Macquarie Group, an Australia-based investment bank, expects to see more people turning to Medicaid, the government’s health insurance for the poor, to cover the costs of care.
“It could really blow a hole through state budgets,” he says. “I think states and the federal government are going to need to think creatively to find a way out of this.”
For insurance companies, long-term care has proven to be a tough business.
Genworth, based in Richmond, Va., has turned in losses for two straight quarters. On March 2, the company reported it discovered errors in its accounting for funds set aside to cover long-term care claims, knocking its stock down 5 percent in a single day. Analysts say problems with these policies explain why Genworth has lost more than half its market value over the past year, plunging from $17 to a recent $7.79.
“Their single biggest product is long-term care, and look at their share price,” Lui says. “It’s one trouble after another.”
