Bill Nemitz: Welcome to long-term care insurance. You want some sanity with that? - Press Herald

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Twenty-one years and more than $75,000 ago, Linda and David Brookes had a plan: With retirement on the not-too-distant horizon, they’d start funneling money into their new long-term care insurance policies. In return, when age and infirmity finally caught up with them, they’d get the help they need without going broke or becoming a financial burden on their four children.

Then came the shakedown.

“This letter is to notify you that we have recently filed for a 112% premium rate increase in your long term care insurance policy,” read the letter David received from Genworth Life Insurance Co. this fall. Linda got the same notice – except Genworth said it wants to bump her premium by 146 percent.

Typos? They wish.

Some kind of practical joke? There’s nothing funny about it.

A company passing the buck – or in this case, the bill – for its own failure? Now we’re getting warmer.

“It’s unbelievable,” Linda Brookes said in an interview last week. “I just can’t believe it.”

Nor can the hundreds of other Mainers, all in their twilight years, who logged in Thursday for an online forum on one of the insurance industry’s most colossal screw-ups in modern times. Long-term care insurance, once ballyhooed as the key to peace of mind and financial security, is fast becoming the boondoggle of the century.

The Brookeses are, by any measure, a responsible, prudent couple.

Linda, 72, is a retired social worker. David, 81, worked for Motorola. They lived for 20 years in Scarborough before moving in 2015 to Florida, confident that when the time came for long-term care – not covered by Medicare and most supplementary health plans – their Genworth policies would foot the bill. No relying on their children for money, no draining their assets and hoping their fixed incomes might qualify them for Medicaid, no dependency whatsoever beyond the coverage Genworth promised them all those years ago.

They also thought, at least at first, that their monthly premiums would remain affordable – while Genworth had the right to make occasional adjustments, any rate increases would have to first be approved by the Maine Bureau of Insurance.

But increases of 112 percent and 146 percent? Or, in the case of other Maine policyholders, 178 percent? Let me go out on a limb here and suggest that’s beyond unfair.

“It is. I couldn’t agree more,” Eric Cioppa, the bureau’s superintendent, said in an interview following last week’s forum. “If I’m not here to help out consumers in this case to the extent I can, what am I here for?”

At the root of all this is an industry-wide product in free fall. As Cioppa noted at the outset of Thursday’s four-plus-hour marathon, the long-term care insurance market arose about 40 years ago and was, from the beginning, built on a host of severely flawed assumptions:

Insurers thought they could fund future claims over the long term by investing premium payments at an annual rate of return somewhere between 6 percent and 8 percent. In reality, the bonds in which all that cash was stashed have performed, as Cioppa noted, at “well under 4 percent.” Meaning Genworth, like other companies that made the same mistake, now finds itself in a hole that will only grow deeper as more claims pour in.

The insurance companies also factored in a “lapse rate” – the number of customers who over time fail to renew their policies – at between 4 and 5 percent, just like the longstanding rate for life insurance policies. Wrong again – fewer than 1 percent of long-term care policyholders have let their plans lapse.

Finally, the companies miscalculated their morbidity projections – or, to be more blunt, they thought their customers would die sooner. Alzheimer’s and other long-lasting diseases have turned that assumption on its head.

All of which brings us to the central question that had more than 400 Genworth customers – with almost 4,100 policies in Maine, it’s the state’s largest long-term care provider – glued to their computer screens Thursday: Who should have to pay for this screw-up, the customers who signed on in good faith or the company that made a colossally bad bet?

Linda Brookes, who along with her husband has already sunk $75,057 into their Genworth policies since 1999 and would now see their premiums jump from $5,184 to $11,868 annually, was more than ready for her turn to speak. Her deeply researched presentation initially clocked in at over seven minutes, but she trimmed it to meet the forum’s initial five-minute ground rule. Then, after the list of people wanting to speak grew beyond 200, the speaking slots were cut to a mere two minutes, forcing Brookes to further condense her outrage.

“I find myself struggling to define the difference between elder financial exploitation and coercion and the premium-raising practices of Genworth and the (Maine Bureau of Insurance). It seems a very fine distinction indeed,” she said, referring not just to the latest proposed rate hike but to other increases and benefit cuts she and her husband already have endured in recent years.

Unlike many others who used their allotted time simply to vent, Brookes then quickly listed her recommendations for cleaning up this mess: Impose a moratorium on all premium increases until solutions can be found that take customers’ concerns into account. Recognize the “erosion of trust” in not just the insurance industry but also the state officials who are supposed to regulate it. Factor in the savings Genworth will realize from people who reduce their benefits to save their policies. Account for the money Genworth has saved due to policyholders dying sooner than projected from COVID-19. And finally, allow companies like Genworth to improve their cash reserves by investing in more than just the low-yield bond market.

All good ideas. Here’s another: Shift the burden of responsibility for this circus away from the policyholders and onto Genworth and the other companies who, from the outset, were far better at selling these plans than at estimating how much they’d cost. That reckoning might start at the top – as more than one speaker noted at last week’s forum, Genworth President and CEO Thomas McInerney’s annual compensation package is north of $9 million.

“This does not appear to be reflective of a company struggling to say solvent,” Brookes observed in her pre-edited comments.

It’s hard to say where all this is headed. Genworth wants its request for a rate hike wrapped up by August, although Superintendent Cioppa won’t go beyond saying it will be resolved sometime in 2022. Genworth in all likelihood won’t get all it wants – it’s up to Cioppa to determine whether the proposed new rates are “excessive and discriminatory” – but those sitting on policies still lie awake worrying how much they’re going to get soaked this time.

As Brookes put it after giving her two minutes’ worth at the forum, “The most we can do is to educate the public on an issue that has led to serious consequences for policyholders. And hope the powers that be will pick up on the opportunity to actually do some good ‘for the people’ by legislating effective barriers” to Genworth’s and other insurers’ stunning arrogance.

Late Friday, I received an email from Danielle Bolt, senior communications manager for Genworth. Most of it was a recap of what another company official had already said at Thursday’s gathering – all rooted in the reality that Genworth’s projections, like the rest of the industry’s, “played out differently than projected.”

Bolt also listed a range of options from which Genworth policyholders now can choose: Keep paying the full premium, however jacked up it turns out to be. Accept further benefit cuts in exchange for a lower (but still higher) monthly bill. Or stop paying premiums now and, if and when need arises, Genworth will pay claims up to but not exceeding the total premiums paid to date. (That last one’s a real laugher – any policyholder could have achieved the same thing simply by putting their money in a cookie jar.)

Noted Bolt, “We are focused on leveraging the touchpoints we have with our policyholders to provide education on their coverage and potential coverage needs.”

If only they’d educated themselves first.

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