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Is COVID-19 to Blame for Potential Long Term Care Rate Increases?

Beginning in March, Long Term Care Insurers have asked the Connecticut Insurance Department (CID) for approval to increase premiums. Pending approval, these increases would be just shy of $72 million, and would impact roughly 23,000 current policyholders.

While the timing coincides with the emergence of the COVID-19 crisis, the two are actually unrelated. While the virus has killed thousands in Connecticut, the CID’s health and division director says he sees no connection between the proposed increase of premiums and the virus.

The proposed increase in premiums is actually linked to legacy policies, many sold decades ago. This is due to mispricing of these policies by insurers, based on incorrect inferences of mortality rates, interest rates, when policyholders would drop or “lapse” their coverage, along with other factors.

The increase will potentially price out plenty of policyholders, many of whom will eventually need the care. While the proposed increase is not linked directly to COVID-19, it will affect many who may have long-term side effects from the virus, including but not limited to, the 48,000 residents of Connecticut who have been infected since March. While the virus is still in its early stages, initial research has shown that those infected may suffer later from potential lung and heart damage.

The CID has already approved increases on a majority of long term care rate policies that have been submitted since march, each on a smaller scale, ranging from 9% to 50%. Many policies are still pending, and their increases would be on a much larger scale. Brighthouse Financial is asking for a 173% increase, while John Hancock is asking for a 68% increase. If approved, these two will see a combined $64 million increase. Some policies included that may see a major spike in their premiums were sold decades ago, some in the early 90’s.

These increases wouldn’t happen overnight, under state law in Connecticut, increases of over 20% and up, must be spread over a three year period. This law varies state to state, and we are seeing this proposed increase in many other states.

While COVID-19 and the proposed increase of premiums are not linked, how will COVID-19 affect long term care in the future? A morbid fact to consider; it is usually less expensive for the insurer, if the policyholder dies earlier. Considering nursing homes and care facilities are seeing a major increase in COVID-19 cases and deaths, this may be a major financial benefit for insurers in the future, a possible 10.5% payout decline may be possible. Only time will tell.

There are two potential courses of action policyholders can take to fight the rising costs of premiums. The first; if you are ready to start with home care and are claim eligible, you can begin receiving care and utilize the waiver of premium provision that exists in the majority of Long Term Care insurance policies. While the waiver of premium provision can differ from policy to policy, generally speaking once benefits have started you will no longer be required to pay premiums as long as you receive those benefits. Second option; the majority of Long Term Care insurance companies offer policyholders options to reduce policy benefits in exchange for a reduction in premiums. However, we caution you to seek advice about the options they are giving you, and making an informed decision prior to reducing your benefits.

At our firm, we can assist you with both options. Whether it be, walking you through the benefit process, or advising you on the various options your insurance company may  be offering you.

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