Major Carrier Withdrawing from Long-Term Care Market
John Hancock Financial, owned by Manulife Financial Corp., a Canadian firm, is pulling out of the long-term care market for insurance this December. John Hancock has been one of the largest long-term care insurance providers in the United States with over 1.2 million outstanding policies. These policies will remain in effect, but no new policies will be sold moving forward. The move comes after years of premium increases for existing long-term care policies, flat consumer demand, and decreasing avenues in which to distribute long-term care insurance. This withdrawal signals what many financial planners, government officials, and financial service firms have known for years—that the United States is nearing a long-term care planning crisis.
Long-term care for seniors is very common, with over 70% of people aged 65 and over needing some long-term care during their lives. And the costs can be staggering, with a semi-private nursing home room costing well above $100,000 annually in some states. Instead of self-funding this cost or buying long-term care insurance, most individuals rely on family caregivers, who often go unpaid, to provide the care. However, this system of relying on family members could also soon be faltering. According to an AARP Study, The Aging of the Baby Boom and the Growing Care Gap, the ratio of potential family caregivers to high-risk people in their 80s will decline from 7-to-1 in 2010 down to 4-to-1 in 2030, and is expected to decline to just 3-to-1 in 2050.
As Hancock withdrawals from the marketplace, Americans are quickly finding themselves with fewer options to fund their long-term care expenses. Limited options coupled with a decrease in available family care givers may force many retirees to rely exclusively on Medicaid as a long-term care funding source. However, Medicaid generally requires that an individual spend down his or her assets before qualifying for government assistance. Additionally, relying on Medicaid means giving up a lot of control over how and where you receive long-term care services.
For years now, state governments and the federal government have been looking at ways to cut back reliance on Medicaid, which could mean increased reliance on state filial laws like the one applied in HCRA v. Pittas.. In this case, a son was required by the court to pay his mother’s $93,000 nursing home bill pursuant to Pennsylvania’s filial responsibility law. Almost half of all U.S. states have a similar law in place, making certain family members potentially liable for another family member’s long-term care expenses. In Pennsylvania, this type of law has even been applied to allow a child to recoup from his siblings the costs the child incurred while taking care of a parent at home. It is possible that states will rely on these filial support laws to ease the burden on Medicaid by requiring family members to chip in for some of the long-term care costs when possible.
Long-term care planning remains crucial, and while John Hancock is withdrawing from the market, other firms like Lincoln Financial, Thrivent Financial, and Genworth are still providing long-term care insurance policies, at least for the time being. However, some of these companies, like Genworth, have seen significant premium increases on existing policies.
Long-term care planning still remains a crucial part of retirement planning and it must be done well in advance of when care is actually needed. If you are thinking about long-term care insurance, in many cases, the best time period to begin planning is in your 50s and early 60s, as it becomes significantly more difficult to qualify for long-term care insurance in your late 60s and 70s. However, other options also exist, like hybrid long-term care and annuity or life insurance products, which have grown in popularity over the last few years. These products can serve multiple functions and can have less restrictive underwriting requirements than long-term care insurance. Ultimately, John Hancock’s withdraw highlights the challenges facing both Americans and companies trying to find the right solution for long-term care funding.
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