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As Elderly Population Grows, Long-Term Insurance Scales Down

We have written before about how the elderly population will continue to grow in the years to come, as the members of the enormous baby boomer population enter their golden years. As they grow older, the need for various levels of third-party care will be necessary or at least preferred to keep them as healthy as possible and in some cases allow them to lead relatively independent lives. As this segment of the population grows, the costs of caring for so many will increase, possibly putting a strain on finances and the abilities of insurance companies to adequately cover care for their policyholders.

Life Spans & Insurance

In recent decades, in addition to health insurance, other long-term insurance policies such as life insurance were considered essential parts of planning ahead for the eventual need for care in later years. In recent news, however, this fact-of-life type of insurance is on the cusp of becoming much less affordable, and thus much less available to the growing crop of elderly Americans. The expectations about life spans of policyholders and how much it would cost to care for them influenced policy provisions and premium rates, yet this sector has apparently hit a breaking point because those past assumptions have not matched the current reality as costs increase for an aging but still living part of the population.

As reported in recent news, citing the Moody’s Investors Service, insurance companies that issue long-term policies have seen their earnings decrease by close to 11% in the last fiscal quarter, as in 2014 alone these insurance companies paid out several billion dollars in claims. One company in particular watched its stock plummet to less than half of what it was in the course of a year. As this segment of the insurance industry has become less profitable, many companies are no longer issuing new long-term insurance policies because the costs of care for so many do not make the business worth it for them if they will have to pay out so much to cover medical expenses and nursing expenses.

The alternative would be to charge premiums that may end up being too prohibitive for policyholders, which has already happened to a degree. For example, nursing home costs can be tremendously high particularly for longer stays which may occur more and more over time. A substantial part of the population is not just getting older, but in general live longer, meaning a longer period of time they’ll need medications, more nursing home stays that may last longer, more hospitalizations, to name some scenarios. Ultimately, though, companies are looking to simply scale back instead of continuing to provide policies, which decades was ironically the mechanism to hedge against rising healthcare costs.

The remaining options for many are private health insurance, which can be quite expensive, Medicare which only covers nursing homes in select circumstances, or more than likely a bigger number of people will look to Medicaid. As an Associated Press article notes, over the course of the last half decade nursing home stays have increased in price by a rate of 4% per year. While long-term policy rates can cost thousands per year, nursing home rooms can cost several thousand dollars monthly.

Correlated with this is the significant rise in insurance premiums coupled with cutbacks on benefits, though such changes may not be so easy depending on government regulations, meaning certain restrictions could mean the demise of these companies or at least the forms of long-term insurance we are used to having. This development is important to follow for the emerging elderly generation, while the paradigm may shift completely for generations to come.

See Other Blog Posts:

Selecting the Best Nursing Home for Your Needs

GAO Finds Major Overuse of Antipsychotic Drugs by the Elderly

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