Some Long-Term-Care Premiums to Rise

Is it true that John Hancock will be raising premiums by 40% on some of its long-term-care insurance policies?

Yes. John Hancock just announced that it will ask state regulators to allow it to increase premiums for many of its long-term-care insurance policies by an average of 40%. If regulators approve the request, the insurer expects to start sending notices about the increase to policyholders in early 2011 and to start raising rates in April or later.

The specific size of the increase may vary, depending on your age and when you purchased the policy, says Marianne Harrison, president of John Hancock Long-Term Care. The increase applies to both individual and group policies, and the largest increases will be restricted to older policies. But the rate hike will not apply to Leading Edge or Custom Care II Enhanced policies, two of their newer policies that are subject to stricter standards for setting premiums. Nor will the price hikes affect the long-term-care policy run by John Hancock for federal employees, which already had a premium increase of up to 25% in the spring.

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But for many policyholders, the proposed price hike comes on top of a rate increase of 13% to 18% in 2008. The other long-term-care insurance leaders, Genworth and MetLife, also increased premiums for many of their policies around that time.

John Hancock is raising rates after a study found that the number of claims, the length of claims and the use of benefits from 1990 to 2010 were much higher than the company had expected -- particularly the open-ended expense of providing lifetime benefits in an era when people live longer thanks to medical advances and then require extensive long-term care. “The claims on the lifetime coverage on our older policies were higher than our original policy assumptions,” says Harrison. (John Hancock stopped selling new policies with lifetime benefits in June 2010.)

“This is a last resort, from our perspective,” says Harrison. “But this is not a viable product if we do not have the appropriate money there to pay claims in the long term.”

John Hancock will give policyholders several options. They can keep the policy as is and pay the higher premiums, or they can make changes to lower the cost -- such as reducing the benefit period, adjusting the daily or monthly benefit amount, or extending the waiting period before benefits kick in. Another option would be to switch to a reduced inflation option. “In almost all cases, that would avoid the rate increase completely,” says Harrison.

That option could work if you’re in your seventies or eighties and have already benefitted from a 5% annual compound inflation adjustment for many years. In that case, the current value of your benefits may have kept up or exceeded the cost of care in your area. To see how your policy stacks up, look up the average cost of care in your area for care in your home, a nursing home or an assisted-living facility at the MetLife Mature Market Institute.

Marilee Driscoll, an expert in long-term-care planning and insurance in Plymouth, Mass., recommends that you keep the policy as is, if you can afford it, to maintain the most protection. If not, investigate whether you can lower the benefit period and keep your premiums the same. The average long-term-care claim is for less than three years.

It’s generally less expensive to keep your current policy than it is to switch to another company -- especially if you’ve developed a medical condition that could make it tough to qualify for new coverage. But if your health is the same or better than when you bought the policy -- especially if the policy is less than five years old -- Driscoll recommends asking your agent to look around for a new policy with the same benefits.

But don’t hold your breath for a better deal, says Murray Gordon, chief executive of MAGA Ltd., in Riverwoods, Ill., a firm that advises financial professionals about long-term-care planning. Premiums for new long-term-care policies increase with age, and insurance companies have been raising rates even higher for new policies to try to avoid the same long-term funding problems in the future, Gordon says. He recently compared prices for a financial adviser who owns a John Hancock policy and found that although the proposed rate increase for his policy was 22%, buying a new policy at his current age would have more than doubled his premiums and provided less coverage. Also keep in mind that the premiums for any new policy you purchase now could be subject to rate hikes in the future.