Long-term-care insurance provides funds for some of the expenses related to nursing home care and other end-of-life expenses.  Insurance companies saw the massive baby-boomer generation headed into their golden years and smelled an opportunity to sell insurance.

A brilliant marketing move by them to sell insurance was to argue convincingly that financial planners were negligent in their jobs, if they did not counsel their clients about the cost of nursing homes and dying.  Recently, it was announced that a new “best practice” for financial planners is to have each client sign a letter that they did not care about nor want to hear about long-term-care expenses, in order to protect the financial planner from the children of the client.  (My clients can expect such a letter in the near future.)

At the same time, many of the major insurance companies, such as Prudential, are leaving the long-term-care market, because they cannot make a profit, no matter how much they raise their premiums each year.  A sure sign of trouble, I’ve heard of large premium increases from such giants like John Hancock, some as much as 90%, which would be staggering to most people.  The insurers of long-term-care expenses are getting fewer and fewer.  That means the risk of covering more people is becoming more concentrated in fewer companies.

Now, consider what happens to most people as they age, i.e., their income usually drops while their premiums keep rising.  At some point, they cannot pay the premiums any longer and must drop their insurance.  At that point, they are probably no longer insurable, due to normal aging-related health problems.  So, they have paid premiums for years and no longer have any coverage, not even the money already spent on premiums.  Instead of reducing risk for the elderly, it has increased their risk if they cannot keep paying premiums, whose annual premium increases are unknown.

Imagine if a dominant company like Genworth, who is the largest, gets into financial trouble.  Fighting for survival, they raise premiums drastically, causing many policyholders to drop their coverage, and delaying payments to nursing homes, increasing the financial stress of the nursing home operators.  It will be a stinking mess, and it will get lots of press coverage.  Seeing grandma thrown out of the nursing home sells lots of newspapers.

Will the government allow this problem to get out-of-hand?  My pension check from SunTrust Bank is guaranteed by the Pension Guaranty Benefit Corporation of the Federal government, as are most pension checks.  Will the government then step into the role of long-term-care insurance provider . . . or will it let all those elderly voters lose their coverage?  Which alternative stinks the least?

The good news is that it will give liberals and conservatives another reason to paralyze the government, like they really need one.