Long-Term Care in a Post-Pandemic World

COVID-19 impacted the long-term care insurance (LTCi) industry in many ways.

By Claude Thau

Of course, the long-term care industry—that is, the caregiving industry, not the insurance industry—suffered with patients and staff incurring high COVID-19 incidence rates. Usage of nursing homes for LTC purposes had been decreasing even before the pandemic, as the assisted-living facility (ALF) industry was growing, and people were increasingly choosing to get care at home.  During the pandemic, patients left nursing homes, and people became more determined to avoid them in the future.

Besides lower occupancy, nursing homes experienced physical and procedural modifications, a need for higher staff-to-resident ratios, and training and staff replacement costs. Beyond LTC services, the industry suffered because people needing rehab avoided facilities.

A December 2020 survey found 65 percent of nursing homes operating at a loss and another 25 percent operating on a 0-3 percent margin. Similarly, half of the assisted-living facilities were operating at a loss, with 13 percent having 0-3 percent profitability. Post-pandemic recovery should help (reducing overtime, for example, and increasing rehab usage), but facilities seem unlikely to rebound to earlier profitability without price increases. Many facilities might close, improving the profitability of remaining facilities but reducing pressure for competitive pricing.

Home care hourly costs are also likely to increase due to significantly increased demand and limited supply. Additional costs for protective equipment, testing, and training could also contribute to higher prices, as could non-pandemic factors such as continuing industry consolidation and a higher minimum wage.

Older Insurance Policies

The impact on the insurance side of the industry varies between older policies (mostly issued before 2005) and policies issued today.  As many readers know, the older blocks of policies have resulted in huge losses for insurers.

Despite such losses and their reluctance to set precedents that could come back to haunt them, some insurers belied the theory that they focus on how to avoid paying claims. They offered outstanding accommodations to support claimants and their families during the pandemic. Among them:

1. Some paid for home care when people vacated facilities, even if the policy did not cover home care.

2. Some paid for care by family members, ignoring exclusions or limitations in the policies.

3. Procedures to recertify needs were loosened, and new techniques were developed, such as video claimant assessment.

4. Some waived premiums for claimants who stopped receiving covered services, contrary to policy provisions.

5. Provisions such as elimination periods and bed reservation benefits were liberalized.

6. At the same time, insurers invested in and rolled out software facilitating the claims process.

While making such accommodations, those older blocks’ financial results improved because claimants and near-claimants died rather than staying on claim longer or incurring a claim in the near future. In some cases, facility claims were replaced with generally less-costly commercial home care and family caregiving.   

The LTCi industry improved from a $2.3 billion loss in 2019 to a $241 million profit in 2020. Those factors contributed to the improvement, as well as price increases and perhaps less reserve strengthening. The pandemic might reduce the need for future price increases on these older blocks of LTCi.

LTCi Currently Sold

The situation for current-issue care insurance is markedly different. Few people realize how much pricing has stabilized for stand-alone policies. Of the three major insurers offering stand-alone coverage through insurance brokers, Mutual of Omah has not raised prices on any policy issued after 2011, Thrivent has not raised a price on policy issued after 2003, and National Guardian has never raised the price on an existing LTCi policy (but has been selling only since 2016).

The question for policies issued today is: Will the pandemic leave people in a weakened state that will increase the future need for care? Insurers express an intent to maintain existing pricing despite such uncertainty.

On the marketing side, pandemic spurred an increased interest in both life and care insurance. Following a long-term downward trend, the Life Insurance Marketing and Research Association reported that 30 percent of respondents are more likely to buy life insurance policies as a result of the pandemic and that premiums for new sales increased by 20 percent in 2021, with a projected 10 percent increase in 2022 and further increases expected in 2023. People seem more aware of their susceptibility to death.

Interest in both stand-alone care policies and those combined with life insurance (or annuities) has also grown. Sales of those products ballooned in 2021, but the pandemic impact was outweighed by the “Washington Cares Fund” in the state of Washington. (Because people wanted to be exempt from a new uncapped Washington payroll tax for a small state-provided LTCi benefit, the insurance industry sold more than 90 times as many stand-alone LTCi policies and more than 90 times as many life insurance policies with LTCi features in Washington in 2021 than in 2020.)

It will be interesting to watch the future. 

About the author

Claude Thau is a national long-term care insurance expert based in Kansas City.

P | 913.707.8863
E | claude@back9ins.com