Long-term care insurance was never priced incorrectly, Jesse Slome maintains. In fact, he is almost annoyed at that nearly universal misperception.


"There were assumptions that were made that turned out not to be correct," said Slome, executive director of the American Association for Long-Term Care Insurance. "But when someone says 'Oh, they were incorrectly priced,' it's typically said with a tone that they set out to do that."

In fact, the assumptions stood on a quite reasonable foundation, Slome explained. But two things did not play out as insurance executives and actuaries expected: the changing dynamics of long-term care, and the lapse rates.

Fast forward a few decades, and LTCi is a perplexing product landscape. The need for the product is overwhelming, yet, insurers are busier trying to maintain old blocks of business that are actuarily unsound.

That means repeated rate requests in states across the country. It means reduced benefits. It means denying coverage to nearly half of applicants who most need it. Finally, it means some insurers have gone insolvent. Many others have left the LTCi business entirely.

LTCi began as nursing home care insurance in the 1970s. "It was a very simple product," Slome recalled. "You priced it. You sold it to elderly people. And if they went into a nursing home, you would pay benefits."

As time went on, however, people began turning to home health care, and various assisted living options. Insurers responded in kind, adding "bells and whistles" to LTCi products to cover these alternatives, Slome said.

And the products proved very popular. Insurers sold 500,000-plus policies each year from the mid-90s through the early 2000s. Over time, however, the trends worked against insurance companies.

"Other products that they thought would be comparable had significantly high lapse rates, meaning people would drop the policies," Slome explained. "So they started long-term care with lapse rates that averaged about 4%, which, by comparison to other products that the actuaries were looking at was conservative, but it wasn't conservative enough."