Penn Treaty fails: What does this mean for you if you want long-term care coverage?

Thousands of people across the nation hold long-term care policies from Penn Treaty Insurance Company. The company and its American Network Insurance subsidiary have been in dire financial straits since at least 2001. With the company short the $4 billion necessary to cover claims, a Pennsylvania court in March gave the go-ahead for Penn to liquidate. The court reasoned that liquidation provided the best outcome for policyholders in a bad situation. 

What happens to policyholders now? 

State insurance guaranty associations will now pick up the benefits for policyholders. According to estimates from the Long Term Care Group of the Guaranty Association, Florida is on the hook for about $354 million. However, in most states there is a cap on payouts. In Florida, the limit on individual payouts is $300,000. Some states have higher limits; in Connecticut and California, for example, it is $500,000. Note: To be covered, you must continue to pay your premiums. Read Penn Treaty's information for existing policyholders here. 

How could this happen? 
The long-term care insurance industry emerged about two decades ago in response to the needs of an aging population. Many companies underestimated the cost of coverage, however. Actuarial projections and premium structures failed to anticipate the number of policyholders who would claim benefits or let policies lapse. Penn Treaty had particularly lax underwriting standards; some of my clients who were turned down by other carriers were often able to secure Penn Treaty policies. A low-interest-rate environment also affected insurance companies' projected return on assets. As profits faltered, several carriers left the market, and those that remained raised premiums. The good news is, the insurers that survived are now doing a better job of underwriting.

Should You Get Long-Term Care Insurance? 
As with any form of insurance, there are no certainties, only  probabilities, risks and rewards to be weighed. Peace of mind should be figured into your calculations, too. In general, I am in favor of it. First, as noted above, traditional policies are now better underwritten and the companies in the market are more solid. Also, as I will explain later, new kinds of policies are available today that were not available just a few short years ago. 

Here are a few facts and figures to consider: 

• A 2015 report from The Centers for Medicare and Medicaid Services notes that at least 70% of those over 65 will need long-term care services at some point in their lives. 

• A 2014 report from the Centers for Disease Control and Prevention finds that the average stay in a long-term care facility is 845 days. 

• According to a 2015 Genworth Financial report, the average cost for a nursing home in a private room in Florida statewide is $265 per day. Based on an average stay of 845 days, the total cost is $223,925. (In some parts of the state, a private room can cost far more - as much as $505 daily.).

• Medicare does not cover long-term care. 

• Medicaid, which has been the saving grace for many of my clients, may continue to be available for those who do the proper planning. Even so, the fate of the Medicaid program is uncertain in the current political climate.

• In Florida, it is very difficult to get Medicaid assistance for at-home care. The waiting list is near interminable. If one is able to qualify and secure assistance, it is usually only for 4 hours per day.

• Veterans Benefits may be available to certain elderly and aged veterans or their widows, but it is widely expected that the Veterans Administration will tighten its eligibility requirements in the near future.

• You are more likely to qualify for and get better prices on long-term care insurance if you apply when you are younger and healthier.

• Many of my clients say they do not want to spend their children's inheritances on long-term care. Understood - but without long-term care insurance, they may end up depleting their nest egg anyway, all the while having deprived themselves and their family of the peace of mind that comes from knowing there is coverage if the worst comes to pass. 

Types of Policies Available
Traditional: As noted above, traditional long-term care policies still are available from certain carriers. You should always investigate the ratings for these companies before you buy. Moodys, Standard & Poors and other organizations rate these companies for financial soundness.

Hybrid policies: There are both life insurance policies and annuities which may be purchased with a long-term care rider. Also, if you have an existing life insurance policy or annuity, you may be able to use the policy to purchase a new policy with a long-term care rider. If you want to cancel the policy or never file a claim, you may be entitled to a return of premium on an annuity policy, or for a life-insurance type policy, to a death benefit.

Here is a chart I originally posted in 2014 that will help you understand the differences between traditional and hybrid policies. If you would like to investigate purchasing long-term care insurance, contact my office and we can put you in touch with someone who can assist you.   

	Traditional Policy	Hybrid Policy
Premiums	You pay the premium annually or in periodic installments.	Annuities and most life insurance policies: you pay a lump sum at the inception of the policy. No additional premiums thereafter. Some life insurance policies may offer annual premiums.
Policy Lapse	Policy will lapse if you fail to keep up with the premiums. No refunds. No benefits from premiums paid to date.	Policy remains in force after initial payment, except life insurance policies with annual premiums, which must be paid.
Premium Increases	Premium increases may occur if company gets approval for increase from State Insurance Commissioner.	No increases.
Filing a Claim	When you file a claim and if your policy has a waiver of premium clause, you will not have to continue to pay premiums.	With a lump sum annuity or life insurance policy, you may owe no additional premiums. With the life insurance policies that have additional premiums, you will have to make payments even after you have filed a claim, unless you have a waiver of premium clause in your policy.
If You Never File a Claim	No return on what you’ve paid in.	On an annuity type policy, you will be entitled to a lump-sum payment when you cash in the policy, or upon your death. With a life insurance policy, you will be entitled to a death benefit as scheduled.