Thousands of long-term care insurance policyholders have received a letter this year they never expected when they bought their policy decades ago: notice of a premium increase, sometimes reaching well over 100 percent, sometimes arriving with as little as thirty days to decide whether to pay it, reduce their coverage, or walk away from a policy they've funded for twenty or thirty years. One carrier initially requested a 315 percent increase on a block of older policies, later negotiated down to a phased 118 percent after regulators intervened. These aren't isolated cases of one company mismanaging a product. They're the delayed arrival of a pricing mistake baked into the entire long-term care insurance industry when these policies were first sold.

Long-term care insurance became widely available in the 1980s and 1990s, priced using actuarial assumptions that turned out, over the following decades, to be wrong in almost every direction that mattered. Insurers underestimated how long policyholders would live. They underestimated how often policyholders would actually use their coverage, and for how long, particularly as dementia-related claims turned out to stretch on for years longer than early pricing models assumed. They didn't fully anticipate how much home-based care, an option many policyholders now prefer and use extensively, would shift utilization patterns away from the assumptions baked into the original premiums.

Why the Policy Can't Just Be Canceled

Most of these long-term care policies are structured as "guaranteed renewable," a feature that sounds like it should protect the policyholder, and in one specific way it does: the insurer cannot cancel an individual policyholder's coverage or single them out for a personal rate increase based on their own health or claims history. What guaranteed renewable does not prevent is a class-wide rate increase applied to an entire block of similar policies at once, filed with and reviewed by state insurance regulators, when the insurer can demonstrate the block as a whole is running at an actuarial loss. That regulatory review is a real check, it's why the initial 315 percent request in at least one recent case got negotiated down substantially, but it doesn't change the underlying reality that once an insurer establishes the numbers no longer work for a group of decades-old policies, some kind of increase is coming for everyone in that group.

The Mechanics of a Choice With No Good Option

Here's what makes receiving one of these letters uniquely difficult compared to almost any other insurance premium increase: the policyholder facing it is, by definition, decades older than when they bought the policy, which means walking away and shopping for a new one isn't a realistic alternative. A new long-term care policy purchased today, at a much older age with whatever health conditions have developed since, would either be dramatically more expensive or simply unavailable through medical underwriting. That leaves most policyholders choosing among unattractive options: pay the increased premium, which for someone on a fixed retirement income may simply not be sustainable; reduce the policy's daily benefit amount or the number of years it will pay out, keeping the premium closer to its original level but shrinking the actual protection; or let the policy lapse entirely, losing the value of every premium paid in over the prior decades with nothing to show for it.

The scale and repetition of these increases across the industry has started generating real legal consequences, including a 25 million dollar class action settlement tied to allegations about how one insurer handled its rate increase process. These cases tend to focus less on whether an increase was allowed at all, which regulators generally do permit under the right actuarial showing, and more on whether the insurer followed proper notice, disclosure, and regulatory procedure in imposing it. That's a meaningful distinction for anyone facing one of these letters: the increase itself may be difficult to challenge, but the process behind it isn't automatically beyond scrutiny.

What to Actually Do With a Letter Like This

None of this means every long-term care policyholder should expect a dramatic increase, and policies purchased more recently, priced with decades of better claims data, carry meaningfully less of this risk. But a long-term care policy priced in the 1990s wasn't wrong when it was sold, it was priced on the best information available at the time, and the bill for everything that information got wrong is arriving now, at the exact stage of life when a policyholder has the least flexibility to absorb it. For anyone holding a decades-old policy, requesting a detailed breakdown of benefit-reduction options directly from the carrier, rather than simply paying the new premium or letting the policy lapse by default, is the step most likely to preserve real value out of a policy that's already been paid into for years.

— John Stone