Rate Increase – What Do I DO?!

So you have a rate increase letter and possibly even an “offer” to reduce benefits. We have seen this frequently of late with Genworth rate increases. But it happens periodically with others (Allianz, John Hancock, Mutual of Omaha, Equitable, UNUM, CNA, LifeSecure, New York Life, Physicians Mutual, Northwestern Mutual – really nearly all the traditional insurance companies have had these).

So here are a few things you can do if a rate increase comes through or if you have a rate increase that also comes with an offer to reduce coverage.

FIRST – remember you can always reduce coverage. You have the right on any week or any year to call the company up and reduce the amount of coverage you have. If you can tell them exactly what benefits you would like to see reduced, they will send that offer to you in writing also. Be warned: once you reduce it, you never get to raise it again. But instead of just lapsing the policy altogether, think about ways in which you can reduce benefits. Read on below to see some ideas.

SECOND – if you have offers in writing to reduce coverage, you need to make a decision. These often have a timed deadline on them. They are valid only until that deadline. Sometimes the offers are unique and so you need to evaluate them to see if any fit your needs. Maybe they do – or maybe you decide to circle back to “FIRST” above and see if there is another way to drop the premium but still keep meaningful benefits on the table.

HERE ARE THE MOST COMMON PLACES TO REDUCE BENEFITS (and thus reduce price):

• Daily/weekly or benefit amount: You need to know how much it pays for care today? If you never had an inflation rider, it may be the same value as what you bought years ago. But if you have an inflation growth rider built in, it is probably worth significantly more than it was when you bought it. Once you know it’s current value, you compare it to the cost of care in your neck of the woods. You are trying to see if you benefit is large enough that you could scale it back. Here is a website that lets you look at cost of care by zip code: Cost of Long Term Care by State | Cost of Care Report | Genworth. I find the data runs a smidge low. So I would look at two or three places near you to get a more accurate feel. FYI, metros tend to be higher than rural as well. Do a little math. If the cost of care, as an example, is $300/day and your policy pays $450/day now, then you could safely scale this variable back. I would argue that if the cost is $300/day and your policy is at $300 or even $280/day, you might scale it back still. After all, if you are needing that level of care, you probably aren’t doing much with your income at that point other than caring for yourself. Always calculate how much you could pay out of pocket. Figure out how much you benefit you need based on how much you can pay out of pocket.

• How long will it pay for care? Back in the day a lot of people bought unlimited policies. It made sense when the price was low and you were young…now at age 78 or 85, the chances of being in care for 15 or 20 years or more are pretty low. Further, most care is less than 5 years according to the federal government data (How Much Care Will You Need? | ACL Administration for Community Living). Weigh this “average” run of care against your family’s pattern of care. For instance my family has dementia running down the generations. I am more likely to be a longer run than someone who does not have that in their family tree. There is no way to know for certain how long you will be in care, but you are in a spot today to re-assess this and see if you can make a more informed decision…and maybe even shave some of the years off the policy to save on premium.

• Elimination Period (Deductible window): all policies have a window of time where in you have to pay the full cost of care before the policy kicks in. Most policies are 90 or 100 days. But if you happen to have one where you bought less (zero, for instance, or 45 or 30 days), then you could possibly raise the deductible and save some premium.

• Inflation rider: back in the day most people bought 5% compound as it was the gold standard. Well…here we are years down the road. That rider may have done a great job and boosted your benefit above where you need it. Further, you know more accurately what your retirement savings and income are likely to be now. So you can decide whether you still need this policy to be growing that aggressively…or if you could now shift to 5% simple or 3% compound. The policy benefit will grow slower…but you are also many years closer to care than you once were – it may be just fine for it to grow slower now. Fair warning: always ask the insurance company If you get to keep your growth to date if you change to a lesser rider. What you do not want to do is to change your inflation rider and have them go back and reprice it from when you bought it! So, you need to be clear on how it works with your company.

Rate increases in a traditional long term care company are a normal part of the contract. The company isn’t “gouging” any more than car insurance or home-owners is “gouging” when we have a bad hurricane or tornado season that drives prices up. If there are more claims and the stock market hits a slump, insurance companies have to raise premium in order to make good on their claim obligations to the consumers. These rate increases are mostly regulated through your state insurance commissioner (go ahead and call your insurance commissioner if you want to check on the validity of any rate increase – always a healthy thing to do to let your tax-supported commissioner’s office answer your tax-payer questions about the job they do for you).

The thing about rate increases is to not panic. Work through the problem to see what benefits you could live with so you can see how you can keep significant coverage in place…without breaking the bank on premium.

Stana Martin, PhD, founded Mrs LTC to provide a top-quality resource for clients and customers who need help with long term care claims or insurance comparisons.