By Mark Miller
CHICAGO Feb 14 The gender gap is about to get a little wider as the formerly egalitarian long-term care insurance market starts charging higher prices for women.
While life insurance has long been priced by sex, companies that provide long-term care insurance (LTCI), mainly used to cover healthcare expenses in old age or for severe illness, have long avoided it. But for the first time this year, they will introduce gender-based pricing, starting with policies from Genworth Financial Inc, the nation's largest seller.
The aim is to reflect actuarial realities - women live longer and prepare ahead more for their futures by buying policies. Genworth says two-thirds of its LTCI claim payouts go to female customers, and overall, women account for 57 percent of all policy sales in 2011, according to data from LIMRA, the insurance research and consulting group.
Genworth will introduce gender-specific policy pricing by this spring, if the plan passes regulatory hurdles. That will boost the cost of new policies for women by 20 to 40 percent, depending on the applicant's age and benefit package, according to the American Association for Long-Term Care Insurance (AALTCI).
A Genworth spokesman stresses that the pricing will be applied only for women applying on their own - 10 percent of its policy applicants. The company will continue to offer lower rates to married couples who purchase joint coverage, and the changes won't affect current policyholders.
Industry experts expect gender-based pricing will be adopted by other carriers before the end of this year - both for individuals and married couples.
"Three or four other companies are looking at gender based rates, and already have their regulatory filings ready to go," says Dawn Helwig, a principal with Milliman, an actuarial consulting firm that works with the LTC insurance industry.
STRUGGLING TO KEEP UP
Gender-based pricing is the latest stopgap measure for an industry that already is struggling. The ultra-low interest rate environment has made it difficult for insurance companies to earn enough on their fixed income portfolios to fund benefits.
Another challenge for insurance companies, ironically, is customer loyalty. Only about 3 percent of policyholders allow their coverage to lapse. It's a smart consumer move to hold onto policies, but it is costly for carriers, who ultimately wind up paying more claims.
The result has already been a wave of double-digit rate hikes on existing customers, and more to come. "In general, prices have and will continue to increase," says Jesse Slome, AALTCI's executive director.
For new customers, policies in 2012 cost anywhere from 6 to 17 percent more than in 2011, according to AALTCI - and they are 30 to 50 percent higher than five years ago. Competition also has been reduced as a long list of major insurance companies have stopped writing new individual policies, including Prudential Financial Inc, Metlife Inc and Allianz Finance Corp.
Gender pricing is just the latest sign that our approach to long-term care isn't working. The private market is limping along as a small niche business - overall penetration remains less than 5 percent of the total possible market, according to LIMRA.
The stressed Medicaid system is the nation's largest insurer, which puts stress on federal and state budgets. Outside of that, family members are the most common source of care.
What can women do to get the lowest rates possible in this new environment?
1. Get started now
If you have been thinking of buying LTCI, this would be a great time to get going. Genworth is applying now for the gender-based rate increases to individual state insurance regulators. The rate increases are expected to be approved over the course of the spring and summer. (If you live in Montana or Colorado, you will not be affected, as both of those states require unisex rates.)
2. Apply as a couple
If you are married, applying as a couple will keep your costs down. Genworth and the rest of the industry apply discounts for couples who apply for coverage together. LIMRA says the average annual industry premium for married individuals in 2011 was $2,131, while single buyers' policies averaged $2,720.
3. Shop around
LTCI rates can vary considerably from company to company, and some are tightening up their underwriting to require applicants to under more rigorous pre-approval medical tests to determine pre-existing conditions.
Rates also vary from state to state - and not all insurers offer policies in all states. "If you have residences in multiple states, work with an agent licensed in both states and be sure to sign the application in the particular state or you risk being ineligible for benefits," says Slome.
4. Buy what you can afford
Three years of coverage is adequate for most people who use benefits, with a 90- to 180-day elimination period (the waiting period before coverage kicks in). But more than half of policies sold in 2011 provided between two to four years of care coverage, LIMRA data shows.
5. Adjust the inflation protection
Most buyers in 2011 (86 percent) purchased some form of inflation protection, LIMRA says. It's a critical feature, but also a big driver of price. The most popular inflation rider is an automatic 5 percent annual increase. But the cost of private-room nursing home care rose at a 4.3 percent average annual growth rate from 2007-2012, (averaging $81,030 last year), according to the 2012 Genworth/Carescout Cost of Care survey.
Some experts think 3 percent provides adequate inflation protection - and some protection is better than none at all. "Too many people take an all-or-nothing approach and price themselves out of the market," says Slome. "Don't base what you buy now on what you did before - its not 2007 anymore."