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Genworth, industry search for way forward in troubled long-term care sector

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Genworth, industry search for way forward in troubled long-term care sector

Genworth Financial Inc. faces an uphill climb with its plans to create a new long-term care insurance business as the industry continues to struggle to find a way to stay financially viable for policyholders and insurers alike.

At the core of the Genworth's vision for a new LTC business is a plan to only sell coverage in states where regulators will allow for the annual re-rating of policies if actuarially justified pricing adjustments need to be made. Although the pricing and other aspects of the coverage are not yet set in stone, Genworth CEO Thomas McInerney told S&P Global Market Intelligence he expects yearly premiums would fall somewhere about $2,000 and policies would have benefit caps, perhaps at the $250,000 mark.

CreditSights analyst Josh Esterov said that buyers for these types of products tend to be a more middle class or affluent individuals. In an interview Esterov said Genworth's proposed $2,000 price point is "not nothing" for a lot of people, particularly for those nearing retirement and switching to a fixed income.

"We're not expecting them to have any level of sales that are sufficiently significant to really alter the credit story for the foreseeable future," Esterov said.

California Health Advocates' Training and Policy Specialist Bonnie Burns said it is difficult to know whether the average person looking for coverage could afford a policy.

"There are so many calculations that go into that, including having some idea of that person's own risk assessment and their risk tolerance," she said.

Burns did have questions about why a company looking to offer insurance policies with maximum payouts would find it difficult to set and maintain stable pricing.

"Tell me why you can't come up with a price that for $250,000 across that person's entire lifetime," she said. "What does it take to price that?"

Looking for answers

The insurance industry as a whole has had very little success in addressing the demand for LTC assistance and the rising costs associated with that care, leading some to believe that an arrangements between the government and private entities may be a way forward. McInerney has pointed to legislation, such as that introduced by Rep. Thomas Suozzi, D-N.Y., as among those solutions.

Suozzi's Well-Being Insurance for Seniors to be at Home, or WISH Act, would create a new federal long-term insurance trust fund to pay for the "catastrophic" period of long-term care for those who need many years of coverage, with the idea that it would enable private insurers to offer affordable coverage plans.

Esterov said something like the WISH Act could potentially benefit Genworth and give the company more options in figuring out how to play in the LTC space. Although the legislation has not progressed much since it was introduced, Burns said she was heartened that stakeholders are at least discussing possible answers.

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Meanwhile, the state of Washington is piloting another approach to the LTC problem by mandating that workers to pay up to 58 cents for every $100 in wages they earn into a recently established public LTC fund, starting in January 2022. Eligible individuals will be able to access up to $36,500 in LTC services and support beginning in 2025.

Washington workers can apply to opt out of the tax by obtaining their own LTC policies by Nov. 1. Most insurers recently ceased writing policies in the state because of an overwhelming number of requests for coverage, leading the executive director of the American Association for Long-Term Care Insurance, Jesse Slome, to believe that the industry will see a noticeable one-time bump in policies written for the year.

As the industry searches for answers, the price of caring for aging and disabled Americans continues to rise. According to Genworth's latest cost of care survey, the median annual cost for adult day care is $19,240, while the median price for a private room in a nursing home facility is nearly $106,000 per year.

Different outlooks on rate increases

Although the National Association of Insurance Commissioners is working via a task force to bring state regulators together to find a more uniform approach to handling rate increases for LTC policies already in play, states continue to have varying views on rate-hike requests.

Delaware Insurance Commissioner Trinidad Navarro in an interview said rate increases generally have to be "actuarially justified" and cannot be excessive, inadequate or unfairly discriminatory, though sometimes there are other factors that states will take into account.

Once Genworth launches its new LTC business, it will not sell policies in states where regulators insist that the insurer make assumptions up front that will have to last over several decades, instead of allowing for the annual re-rating of policies.

"We'll do a full actuarial report, and there's still an opportunity for regulators and insurance companies to argue over what's actuarially justified," McInerney said. "But I think when there's an agreement that something needs to change, they can't do what they've done for the last 40 years."

Slome suggested that Genworth demonstrate that its new approach will work in a handful of states and then try to take it to a bigger state. If any company is going to have success in the LTC arena, it will be Genworth, Slome said, adding that the company is without "many other options" and has the talent pool, experience and passion for the business.

"There's nobody else out there that would spend a minute worth of time focusing on long-term care insurance 2.0," Slome said. "They have the resources, including the money and the manpower. But that said, it takes a lot to be successful."