Thursday, December 2, 2010

Bizmology

Bizmology

As Metlife exits long-term care, Boomers get nervous about old age

Posted: 02 Dec 2010 06:00 AM PST

Live long and prosper. —Vulcan proverb

The numbers are dismal, to say the least: to finance the Golden Years, you will need plenty of gold. According to Hoover's First Research, nursing home care may cost $6,000 monthly, assisted living around $3,000. This doesn't take into account medications and medical care, which most retired and elderly utilize more than young people do. Boomers are beginning to take a long look past retirement and into their old age, and the view is making many nervous. They aren't alone: Insurance companies are taking stock as well, and making their own decisions.

Long-term care insurance has always been touted as a good way to finance a comfortable, secure old age. However, as longevity increases, it's become less profitable for insurance companies. People living longer means a lot more money paid out in claims. As a result, MetLife made the decision to get out of the long-term care business (it will honor the policies of existing customers). The insurer isn't the first to take a long hard look at the numbers and throw in its hand, just one of the more visible.

And even if carriers don't exit the long-term care business entirely, many are raising premiums. Insurers are asking states for premium increases of 30 percent or more. At the heart of the issue is the uncertainty of old age. Longevity has increased, as mentioned above, and old age comes with higher health costs too. Take, for instance, Type II diabetes. The CDC estimates that one-third of American adults will have diabetes by 2050. The disease places an economic toll on patients and healthcare providers. In Texas alone (Hoover's home state), diabetes costs the state $12.5 billion per year.

In addition to the medical uncertainties that make long-term care unattractive to providers, and the wildly changing premiums that make it unattractive to customers, long-term products face other obstacles. Persistent low interest rates hurt insurance companies with lackluster investment returns. (Insurance companies don't make a profit on the premiums they take in, but on the investments they put those premiums into until they are needed to pay claims). Customers are also reluctant to pay for care they might not need, although some companies are offering more flexible policies that will pay out for home care.

Making decisions regarding nursing homes and other end-of-life choices is no fun for anyone, not even insurance companies. Boomers hate it; actuaries tear out their hair while contemplating how to determine risk. No wonder MetLife threw in the towel. It just proves that other adage: old age is not for sissies.

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Photo by Mark Kobayashi-Hillary, used under a Creative Commons license.
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