Difficult Choices for Some Long-Term Care Policyholders

Thousands of long-term-care insurance customers are being offered a tough choice that's going to cost them no matter which they choose.

By Ann Carrns

Thousands of long-term-care insurance customers are being offered a tough choice: Pay no more policy premiums in exchange for greatly reduced benefits or keep paying but risk triple-digit premium increases in the future.

Two subsidiaries of Genworth Financial, Genworth Life Insurance Co. and Genworth Life Insurance Co. of New York, are offering customers of some of their long-term care insurance policies those options, as part of a recent settlement of a class-action lawsuit. The companies together hold the largest block of active long-term care insurance policies, a Genworth spokeswoman, Danielle Bolt, said. As many as 350,000 policyholders are eligible, settlement documents say.

The insurance is meant to help cover the cost of long-term care services to help people with conditions like dementia with everyday personal needs — eating, dressing and bathing — when they can no longer care for themselves, whether the care is provided at home, in an assisted-living facility or in a nursing home.

In the suit against Genworth, known as the Haney case, policyholders contended that when the company began raising their premiums in 2013, it failed to inform them that it also planned to raise rates substantially in the future — information that could have influenced their decision to continue paying for coverage. In the settlement, completed in March, Genworth admitted no wrongdoing but agreed to let customers adjust their policies, under multiple special options. Details vary by the type of policy and other criteria.

Policyholders don’t have to accept any of the deals that Genworth is offering under the settlement. They can reject them all and keep their current policies. But Genworth warned them of potential “cumulative” premium increases of 130% to more than 600% if they stuck with their current coverage, or even if they chose a special option that lets them pay lower premiums for now, according to settlement letters shared by consumers and financial advisers.

It’s difficult for consumers to know which option is best because they must consider their finances as well as their health. “It’s been very confusing for people,” said Bonnie Burns, a training and policy specialist with California Health Advocates, a nonprofit education and advocacy group.

Bolt, of Genworth, referred to language in the company’s latest quarterly report that said, in part, that the company expected “an overall net favorable economic impact to our long-term care insurance business from the settlement of this case.”

She also said that as a result of the Haney settlement and two earlier settlements, about 70% of the company’s 1.1 million long-term care policyholders will have been offered reduced-benefit options.

Government programs to help pay for long-term care often fall short of what is needed. Medicare, the federal health insurance plan for older Americans, doesn’t cover such services for extended periods. Medicaid, the federal-state program, generally covers long-term care, but recipients usually must be impoverished to qualify.

Insurance can help cover the cost. But Genworth and other insurance providers have struggled to offer policies profitably because they priced early policies too low by greatly underestimating how much care people would use and overestimating how many would drop coverage.

Many policyholders have already received double-digit premium increases in recent years. In the third quarter of this year, Genworth received approval from state regulators for increases averaging 56%, according to its financial filings.

Jerry, a 78-year-old policyholder in California — he asked that his last name not be used because he was disclosing personal financial details — said he was leaning toward keeping the policy he bought about 10 years ago. He is paying $4,900 a year in premiums for a policy offering a daily benefit of up to $485, and a total available benefit of about $530,700, according to a letter from Genworth. His wife has a similar policy, he said.

That means if he needed care, the policy would pay up to $485 a day, until the overall cap was reached. If he spent the full daily amount, his policy would provide coverage for about three years — but it could last longer if his cost of care was lower.

The policy also has a 5% inflation rider, so the coverage cap rises each year. The typical cost of assisted living in California is $173 a day, while a private room in a nursing home is $400 a day, according to Genworth’s most recent cost data, from 2021.

But if he keeps his policy, Genworth said, he could be subject to premium increases of 130%, should state regulators approve the company’s proposed rate plan.

Two options offer him a “paid up” policy — meaning he would no longer owe any premiums — with the same daily benefit. But one version would slash his total benefit to $86,000, and the other, which also includes a $10,000 upfront cash payment, would cap benefits at just $47,000. Both would eliminate any inflation protection.

A third option offers a cash payment from Genworth of $1,200 but lowers the daily benefit to $364 and the benefit limit to just under $399,000. It continues the 5% inflation protection and lowers his premium — but his premium could increase substantially in future years.

In an email, Jerry said that despite the risk of higher premiums, his policy offers “realistic” benefits in case he or his wife ever needs a high level of care. It “gives us some peace of mind for our hope not to be a burden on our children and their families in the years ahead,” he said.

John Robinson, a financial planner based in Honolulu, urged consumers to read their policies to see what their alternatives were, regardless of the settlement offer. Policies may allow holders to adjust benefits anyway.

He said he recently advised a 75-year-old California client with an unlimited lifetime benefit policy — meaning his pool of benefits never runs out — to ignore the settlement offer because his policy allowed a better way to manage costs. Robinson recommended that the client switch to a six-year benefit period and to cut his daily benefit amount to $300 from $546. His premium will be $2,340 a year instead of the $16,400 he is now paying, and he’ll still have a benefit limit of about $660,000. He can also invest his $14,000 annual savings to help cover future care. Even if Genworth wins approval for significant rate increases, Robinson said, the client would be afford to pay them, based on his lower rate.

“People have no idea they may have options,” Robinson said.

Here are some questions and answers about long-term care policies:

Q: Where can I get help understanding a long-term care settlement offer?

A: The settlement offer includes a customer service number, but if you have a financial adviser or insurance agent you trust, seek their advice first, Robinson said. You also can try contacting your state’s federally funded State Health Insurance Assistance Program office, known as SHIP, Burns said. SHIP counselors can’t offer recommendations but may help consumers understand their options, she said.

Q: How likely are state regulators to approve large premium increases?

A: Regulators must balance the need for a company to raise rates to pay claims and remain solvent with the need for policyholders to afford their coverage, Burns said. “It is a terrible struggle,” she said. Some states cap annual rate increases so that larger increases must be staggered over time.

Some regulators, like those in New York, are realizing that their previous increases may have been too stingy, given the magnitude of the problem. Also, Genworth has said that it may sue states that decline to approve “justified” increases.

Q: My settlement letter has a deadline. What if I need more time?

A: Check with the customer service contact included in the letter, Robinson said. Deadlines vary, but he said he had found that some may offer a grace period of at least 45 days on request.

c.2023 The New York Times Company. This article originally appeared in The New York Times.

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