Long-term care policyholders caught in a dizzying cost spiral
Julius Mariasis of Framingham is grappling with one of the most pressing issues facing his generation: how to pay for his care when his health starts declining.
The 72-year-old Mariasis thought he had put the issue behind him nine years ago, when he made the decision to purchase long-term care insurance from CNA Financial Corp. of Chicago to help cover the costs of a nursing home or home care.
But CNA is now forcing the retired economics professor to revisit that decision. The company recently notified him that his annual premium would rise over the next three years to $3,447 from $2,295, a jump of 50 percent.
The increase is so big that Mariasis now finds himself in a real bind. He can't jump to another company because at his age the premiums would probably be even higher.
His only choices: Come up with the extra money on a fixed income, eliminate or reduce benefits to shrink his premium, or drop the coverage altogether after nine years and about $20,000 in payments. The lack of control really galls him.
''It's a vicious cycle," he said. ''Once you're in it, you have no control over what the costs will be."
More and more seniors may be facing a similar scenario.
Massachusetts regulators say about 10 companies with long-term care insurance policyholders here have pushed through hefty premium increases over the last year, one as high as 88 percent. Analysts say more increases are likely.
''It's going to get worse and I don't see a solution," said Benjamin Lipson, a Boston insurance broker who has written extensively about long-term care insurance. ''The only people who can afford it now are very affluent people. The person on a fixed income simply can't afford it."
Van Ellet, senior legislative assistant at AARP, a group that represents Americans over 50, said the benefits provided under long-term care policies are significantly better today than they were years ago.
''But the policies are expensive and they're subject to price increases, usually at a time when you can afford it the least," Ellet said.
Long-term care insurance is a complicated product that's not for everyone.
Policies can vary dramatically from one company to the next, and can cover or partially cover the cost of such services as nursing homes, assisted-living facilities, and the employment of home care workers.
Companies generally issue policies only to people who meet medical underwriting standards, meaning they don't have existing serious health problems.
LIMRA International, a Connecticut association serving insurance and financial services companies, estimates just over 6 million people have purchased the coverage. The number is expected to rise as the population ages, but right now it represents less than 10 percent of the potential market.
Christopher Dalto, a principal at Delessert Financial Services in Waltham, said the coverage is most appropriate for seniors who want to protect their assets as their health declines.
He said he recommends the coverage to clients in their mid-50s with $500,000 to $1 million in assets. Wealthier clients may have enough money to pay out of pocket, while those with assets under $500,000 may find it hard to afford long-term care insurance.
Because the risk of insuring a younger person is less than it is for an older one, the cost of long-term care policies increases dramatically with age.
Policies are generally sold with what is called a ''level premium," which means the premium is expected to remain stable over the life of the policy and not be affected by the individual customer's medical condition.
But what relatively few policyholders realize is that a level premium doesn't mean it will never go up.
According to a guide on the website of the Massachusetts Division of Insurance, ''An insurer with higher than anticipated losses may raise your premium if approved by the Division of Insurance and as long as it does so for all other policyholders."
Premium increases of this type have become more and more commonplace. With a year's stay in a nursing home costing anywhere from $40,000 to $100,000 and home health aides charging $18 an hour, the cost of healthcare is an obvious driver behind the rate increases.
But industry officials say the lack of experience with long-term care insurance -- policies first hit the market in the late 1980s -- may be an even greater factor in the recent spate of price increases.
''It's not like life insurance, where there's been decades and decades of data to see what the potential losses are in terms of underwriting policies," said Dalto, the financial planner in Waltham.
Mariasis' insurer, CNA, told Massachusetts regulators it needed rate increases of 30 to 50 percent on its various policies to cover future projected expenses. The company has 6,000 policyholders in Massachusetts.
After hiring an actuary to verify that the company's expense projections were accurate, state regulators approved the rate request earlier this year, with one caveat.
Kevin Beagan, the director of the State Rating Bureau, which oversees the rate filings, said he prevailed on CNA and other insurers that have sought rate increases of similar magnitude to spread them out over several years rather than imposing them all at once.
Mariasis, the Framingham retiree, said he's going to hang on to his coverage as long as he can afford it. What worries him is that CNA, which stopped accepting new customers in May 2003 as it shifted its focus to property and casualty insurance, has little incentive to keep its prices down.
CNA, once a pioneer in long-term care insurance, declined comment.
Mariasis said he thinks it's time for lawmakers to get involved, to set some sort of limit on premium increases, much as municipalities have offered property tax relief to seniors to prevent them from being forced out on the street.
But Lipson, the insurance broker, is pessimistic, saying it may be time for policyholders to cancel their coverage. ''If they're concerned about preserving an inheritance, maybe they should have their kids pay the premium," he said.
Bruce Mohl can be reached at mohl@globe.com.
