Exiting the Market: Understanding the Factors behind Carriers' Decision to Leave the Long-Term Care Insurance Market. Introduction


Paying for long-term care (LTC) continues to be one of the great financial risks facing Americans during retirement. Current estimates suggest that the annual costs of care in a nursing home are roughly $85,000 and that home health care can cost upwards of $25,000 per year.1 Given that one-in-five individuals can expect to spend more than two years in need of care, this represents a significant financial risk. In 2010, total spending for LTC was $208 billion or roughly 8% of all personal health care spending.2 For the most, part such care is provided and paid for by families whereas the largest public payer of LTC services is the means-tested Medicaid program, which pays more than 40% of costs. Medicaid is one of the fastest growing health programs in the country, and is creating significant budgetary pressures on the states. Private insurance covers a small -- less than 10% -- but growing share of LTC expenses.

Throughout the 1980s and 1990s a growing number of private insurers began providing insurance for LTC, as an alternative to public coverage (i.e., Medicaid) or to out-of-pocket payments by the elderly and their families. At first, such insurance policies covered care provided only in a nursing home. Gradually, coverage expanded to include payments for home care services, assisted living, adult day care, and other community options. By the mid to late 1990s more than 100 companies were selling policies to individuals and to individuals in group markets (i.e., employer settings).3 Moreover, annual sales increased almost every year throughout the decade. In 1990, 380,000 individual policies were sold; by 2002, 755,000 policies were sold in that year.4

In 2003, the pattern of annual increases in sales came to an abrupt end. In fact, LTC policy sales began to decline rapidly. Between 2003 and 2009 individual policy sales declined by 9% per year.5 Thus, in 2009, fewer policies were sold than had been sold in 1990. Moreover, while in 2002, there were 102 companies selling policies by 2009, most of these companies had exited the market; that is, they had stopped selling new policies.6

The sheer magnitude of the projected growth in the retiree population -- from 12 million today to 27 million by 2050 -- along with the significant exposure to financial risk suggests that a business opportunity exists for companies to provide LTC coverage. As well, there has been consistent public policy support in the form of state and federal tax incentives, Partnership Programs across a growing number of states, and public awareness and education campaigns in support of private insurance. All of this points to a strong desire on the part of public policymakers that the private insurance market prospers and grows. Yet, this has clearly not happened, and in fact, the number of companies actively selling LTC insurance continues to decline at a pace far in excess of the small number of companies entering the market.

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