Prudential Stops Offering Individual Long Term Care Policy

Another one bites the dust: Prudential Financial (PRU), the second-biggest U.S. life insurer, is getting out of the individual long-term care (LTC) insurance business. The company joins rivals MetLife (MET) and Unum (UNM) in concluding that it's too hard to make money on LTC -- that's a big loss for consumers. Prudential said all existing contracts will be guaranteed renewable and will not change.

What is it about long-term care that spooks these massive insurance companies? The Baseline Scenario's James Kwak cites a recent paper by University of Illinois finance professor Jeffrey Brown and Massachusetts Institute of Technology economist Amy Finkelstein that, while wonky, sums it up pretty well: "While insurance companies are good at pooling and hence insuring idiosyncratic risk, they may be less able to hedge the aggregate risks of rising long-term care utilization or long-term care costs over decades."

In other words, it's hard for insurance company actuaries to accurately project how many people will need long-term care and the cost of that the care. Most insurers allow a little wiggle room in their risk calculations by preserving the right to raise premiums for entire classes of beneficiaries, rather than just individual policyholders. But clearly that wiggle room is too constricting.


Trouble is, the more insurance companies exit the LTC business, the fewer options for consumers. This is especially disturbing given that about 70 percent of people over age 65 will require LTC services during their lifetime, and more than 40 percent will need care in a nursing home, according to the U.S. Department of Health and Human Services.

Remember that this kind of care is NOT covered by Medicare, which only addresses short-term skilled services or rehabilitative care. The federal government steps in (via Medicaid) only if you deplete most of your assets -- not something I advocate. Unfortunately, the stories of people blowing through their hard-earned retirement accounts are not fiction; one of the swiftest ways to deplete an asset base is to get sick at the wrong time. That's probably why Medicaid currently accounts for 40 percent of all spending on long-term care.

So if you are looking for LTC coverage, your choices are diminishing by the minute. As you shop for LTC providers, stick with the highly rated companies that have a proven record of being in the business and not hiking premiums. Unfortunately, Prudential was one of those providers. Still, there are a few still left in the game.

The Reason Behind People's Uncertainty in Purchasing Long Term Care Insurance

It isn’t news that Americans are reluctant to buy private long term care insurance. Only 7 million have policies and few people are buying new ones. But why don’t we plan for the risk of needing assistance at some point in our lives? After all, 7 of every 10 of us will need care sometime after we reach age 65 and others will need it at younger ages due to injury or illness.

An important new survey has found some answers. There is no magic bullet–no single concern that, if addressed, could convince us to plan for old age. Instead, the study found multiple–and sometimes puzzling reasons–why people don’t buy. And that suggests it won’t be easy to get them to either save more or purchase this insurance.

The researchers, Jeff Brown of the University of Illinois, Gopi Shah Goda of Stanford, and Kathleen McGarry of UCLA, based their conclusions on responses of 1,512 people over age 50 in a survey taken in May and June.

The single most important reason people don’t buy: Long term care insurance costs. With 60-year-olds paying average annual premiums of around $2,500, this is no surprise. In one 2007 industry survey, more than 8 out of every 10 non-buyers cited cost as the main reason why they passed up long-term care insurance.

But while 57 percent cited price, others cited a potpourri of reasons why they don’t own insurance. About 12 percent felt they don’t need it: Some said they were too young to buy (remember these were people aged 50 and older) and others felt they’d never need assistance.

Special Report: Health, Wealth & Aging

Some non-buyers were unaware that long-term care insurance is available, some thought they’d be rejected due to health reasons, and 4 percent thought they were covered by other insurance. About 9 percent who said they have long-term care coverage believe it is included in their health policy–though that is unlikely. Btw, whenever I speak to consumer groups, I always ask how many have long-term care insurance. It turns out that most who think so actually have Medicare Supplement (Medigap) insurance, which does not cover long-term care. These policies may cover limited home health services, but not long-term assistance.

Interestingly, only about 4 percent of the uninsured felt they had other ways to either pay for care or believed family or friends could care for them. In other words, they understand they are not prepared, but still are not doing anything about it.

Finally, a substantial number of the uninsured say they have not bought because they believe carriers will go out of business, refuse to pay claims, or raise premiums. Not a great sign for private carriers.

The role of Medicaid in this decision is very important. Jeff Brown wrote influential papers in 2007-2008 that concluded the availability of Medicaid long-term care benefits could explain why most Americans did not buy private insurance. But this survey tells a somewhat different story. It turns out that people who are aware that Medicaid covers long-term care are slightly more likely to buy than those who do not. Oddly, those who (incorrectly) think Medicare pays for such personal care are slightly less likely to buy private insurance than those who don’t.

Medicaid coverage may still crowd-out private insurance for low-income buyers, but it did not matter much for those in this survey (who were on average 61 and in good health).

Some people will buy private insurance: If they think they can afford it, believe they’ll need care, are reluctant to have family members help them, plan for the future, or want to leave an inheritance. The problem is, not a lot of people fit in these categories.

Steps in Choosing Long Term Care

With the continuous rise in long term care insurance costs, people should plan this accordingly and choose the kind of long term care they think will be appropriate for their situation in the future. Most people have no idea how to go about this and that's why Medicare provides interested parties with all the information they need in order to have a comfortable and secured future. Here are the steps in choosing long term care:

1. Assessing your Needs

Will You Need Help with These Daily Living Activities?

• Bathing
• Dressing
• Eating 
• Toileting
• Getting in and out of bed, chair or wheelchair

Will You Need Additional Help in These Activities?

• Shopping
• Preparing Meals
• Going to Medical Appointments
• Household Chores
• Using the Telephone

Will You Need The Following Care?

• Medication Management
• Monitoring your Diabetes
• Getting Oxygen
• Taking Care of Catheters

2. Researching Facilities

There are many types of long term care and living choices for older people. Check out your options first. Find out more about assisted living facilities, nursing homes and other senior care communities before you make a choice.

3. Finding What is Right for You

You can ask recommendations from friends who have already tried this certain facility or you can simply ask your local long term care ombudsman to give you information regarding the facilities you are interested in.

4. Visiting Facilities

It is important to visit facilities first before you make a decision. Don't be shy in asking questions or if you have things you need to clarify. In order to help you, these are some of the questions you can answer after visiting a facility:

• Did they listen to me and make me feel comfortable?
• Did I ask all my questions?
• Did they give me answers that satisfied me?
• Are the employees helpful and respectful?
• Does the facility meet my needs?
• Is the facility clean?
• Can I afford the facility?