Are you all set if you have long term care insurance?

Long term care planning is complicated.  When we help guide our clients through that process we must consider many factors, including things like amounts of current and future assets and income, likely expenses, health conditions of various family members, and other family dynamics.  So when a client has a long term care insurance policy it can make the planning process a little simpler.  You can be reasonably confident you can preserve your assets longer if you know you will be able to rely upon a long term care benefit to offset potential long term care expenses.  But how confident are you that your policy will operate the way you planned?  What if your insurance carrier itself runs into financial difficulties?  Or what if you never get to use your planned benefit before the policy premiums rise so high you can no longer keep your policy?

Penn Treaty American Corp. is long term care insurer headquartered in Allentown, Pennsylvania.  Penn Treaty currently has approximately $4 billion in liabilities yet only $700 million in assets.  So its failure is inevitable.  But the impact of that failure will not be limited to Penn Treaty policy holders.  That is because there are organizations known as state guarantee associations which are set up to help pay claims and satisfy policies in the rare case of an insurer’s failure.  And since long term care insurance is categorized like health insurance there will be many other health insurance companies that will together be required to help bear the financial burdens that Penn Treaty cannot handle.

Analysis conducted by the Long Term Care Group for the National Organization of Life & Health Insurance Guaranty Associations reports that California’s guarantee association will face a liability of $400.6 million, with other states like Florida, Pennsylvania, Virginia, and New Jersey each being liable in excess of $125 million.  Looking at the perspective of particular guarantor insurers, Anthem will be looking at $253.8 million and Aetna $231 million in liability.  And those guarantor companies will inevitably seek to pass those costs onto their policy holders through increased premiums.  

The long term care insurance industry has suffered a number of major setbacks over time.  Many insurers have left the industry, the victim of higher than anticipated claims, poor premium pricing, and low investment returns.  And some policy holders have seen tremendous increases in the price of premiums.  For example in California, more than 130,000 people who bought long-term care policies from the state workers’ retirement system received 85 percent rate hikes in recent years.  

 To be fair, failures of insurance companies are exceedingly rare.  But as Penn Treaty shows, they can happen.  And when they do happen the effects of the failure can be reached well beyond the failing insurer.  And like the California example above, policyholders can sometimes find their policy becomes cost prohibitive over time.

Ultimately we hope your long term care insurance policy will be there when you need it to help pay for long term care.  But you cannot always be sure of that.  And that is why even if you currently have a long term care policy you still need to engage in comprehensive long term care planning.

If you have any questions about the issues presented above or care to discuss any other planning issues, please call us at 860-769-6938, visit our website at or email us at


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