In the US, long-term care (“LTC”) insurance is a major issue as the cost of quality nursing care is expensive and can last many years. Policymakers are concerned about the aging population and the long-term costs to care for the elderly. Insurance companies are concerned about the open-ended liability from existing policies which were modelled on optimistic investment returns, lower life expectancy, and lower policy cancellation rates as policyholders realized their insurer’s miscalculations. Consumers are confused by alternatives and fear nursing care costs wiping out a lifetime of earnings and being a burden on their families.
Whilst these common concerns are shared in Israel, there are some major differences between Israel and the US. Firstly, Israel has one of the highest penetrations of LTC insurance members via the public health system, with over 4 million members. These policies are collective policies offering basic coverage at competitive premiums, but the premiums are periodically updated with regulatory oversight. Further, this coverage is for a fixed period only, typically 5 years; for a payment amount which only partially covers the costs; and is dependent on the age at enrollment. These policies are typically viewed as only the first tranche of LTC insurance protection and are not sufficient on their own.
Private insurance companies provide the second tranche of LTC insurance which supplements the public health system and further protects family assets. These policies can be set to the desired level of coverage and accumulate over time a cash value, and are marketed as a means of “pre-paying” for nursing care. The monthly premiums paid are significant and the decision to begin a policy is a major decision as once started the policy is unlikely to be cancelled. This is due to the increased likelihood of the insured growing older and developing a new medical condition that would render cancellation not worthwhile. Further, switching to a new company or policy is unlikely as newer LTC policies have tighter underwriting, higher premiums and harsher definitions for claim eligibility.
In response to increased life expectancies, rising LTC costs and a future of lower investment returns, many US insurance companies have gone out of business or have discontinued selling the policies. Currently, only about a dozen companies in the US still offer LTC policies. Most of the companies that remain in the business have taken steps to increase premiums for both existing policyholders and new customers. While current policyholders continue to pay premiums with the hope that their company will be solvent to pay their future claims.
Similarly, in Israel the feasibility of these policies has attracted the attention of the regulator. In both countries, there is no guarantee that if an insurance company is forced to liquidate, the policyholder will receive the coverage they initially contracted for. However in Israel, there is little, if any, attention paid to the financial strength of the insurance company.
Proposals to clients in the US typically show rating agency A.M. Best’s credit rating for the issuing insurance company. This is a major factor in the sales process as the LTC policy is exactly that, for the long term. If the insurance company due to mis-management, lack of underwriting, or cut-throat premium pricing becomes insolvent then its policyholder might be left in a terrible situation.
In Israel, at present there is tremendous attention to premium levels and fees by consumers, and meetings with clients usually start with costs and fees rather than qualitative factors. However, for LTC insurance due to the underlying nature, price should not be the primary criterion, rather the long-term ability of the insurer to meet its obligations in the very far future. The decision for LTC insurance is in effect a lifetime decision as premiums might be paid for 20+ years, with little or no ability to switch companies without impairing benefits. Therefore the choice of insurer and type of policy coverage is paramount. For a decision of this magnitude professional advice by a licensed insurance agent is essential.
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