Prudential quits individual long-term care biz

PRNewsFoto/Prudential Financial

(MoneyWatch) Another one bites the dust: Prudential Financial (PRU), the second-biggest U.S. life insurer, is getting out of the individual long-term care (LTC) insurance business. The company joins rivals MetLife (MET) and Unum (UNM) in concluding that it's too hard to make money on LTC -- that's a big loss for consumers. Prudential said all existing contracts will be guaranteed renewable and will not change.

What is it about long-term care that spooks these massive insurance companies? The Baseline Scenario's James Kwak cites a recent paper by University of Illinois finance professor Jeffrey Brown and Massachusetts Institute of Technology economist Amy Finkelstein that, while wonky, sums it up pretty well: "While insurance companies are good at pooling and hence insuring idiosyncratic risk, they may be less able to hedge the aggregate risks of rising long-term care utilization or long-term care costs over decades."

In other words, it's hard for insurance company actuaries to accurately project how many people will need long-term care and the cost of that the care. Most insurers allow a little wiggle room in their risk calculations by preserving the right to raise premiums for entire classes of beneficiaries, rather than just individual policyholders. But clearly that wiggle room is too constricting.

Long-term care conundrum
Should you buy long-term care insurance?

Trouble is, the more insurance companies exit the LTC business, the fewer options for consumers. This is especially disturbing given that about 70 percent of people over age 65 will require LTC services during their lifetime, and more than 40 percent will need care in a nursing home, according to the U.S. Department of Health and Human Services.

Remember that this kind of care is NOT covered by Medicare, which only addresses short-term skilled services or rehabilitative care. The federal government steps in (via Medicaid) only if you deplete most of your assets -- not something I advocate. Unfortunately, the stories of people blowing through their hard-earned retirement accounts are not fiction; one of the swiftest ways to deplete an asset base is to get sick at the wrong time. That's probably why Medicaid currently accounts for 40 percent of all spending on long-term care.

So if you are looking for LTC coverage, your choices are diminishing by the minute. As you shop for LTC providers, stick with the highly rated companies that have a proven record of being in the business and not hiking premiums. Unfortunately, Prudential was one of those providers. Still, there are a few still left in the game. Check out the American Association for Long-Term Care Insurance for more information.

[crondanet5]

There are some advisors who recommend securing LTC by age 21. The issue being if you are in an accident that requires such care you would have it ready to begin. Cheap rate at that age too. Lee in Rhode Island.

[markelliston]

Prudential was the 9th largest LTC insurer. Genworth, John Hancock, Mutual of Omaha, MassMutual and MedAmerica are among the top companies where you can still get a good LTC policy. It also might be helpful to know that it is not uncommon for a company to stop selling policies, it happens with homeowners insurance too. But that doesn't change the risk. You can't control if you will need care or when, but you can control how you pay for it.

Jonathan Pond, Financial Planner, says that 90% of estates are spent this way: 1) nursing home, 2) IRS, 3) children, 4) grandchildren, 5) charity. More people are worried about the IRS taking their money than about having to spend it on a nursing home.

With only about 10% of those buying long term care insurance the rest will spend their estates on paying for care and some will end up on welfare health care (Medicaid) after spending all their money.

The Federal Deficit Reduction Act provided for every state to have a Partnership program to provide asset protection for those who buy qualified long term care insurance policies. (http://www.partnershipforlongtermcare.com)

[twmat311]

I've been stuffing/returning the prepaid return envelopes of one particular (boa) crook - I noticed the latest junk mail has a barcoded traceable return envelope (also, the enclosures are "personalized"), so they can likely target areas where the returned junk is sent from. Must find a new way to nag them...

[ludvig1-2009]

My impression of Prudential is that they are a bunch of crooks. This is not big loss for the American people. After seeing them lobby Congress to cut Federal employees benefits a few years back, I pretty much will have nothing to do with them other than stuffing their envelopes with trash and mailing it back at them. Retired Federal Nuclear Engineer and 14 gallon blood donor.