John Hancock Financial is retreating from the long-term care insurance market, announcing on Thursday that it will stop selling new policies starting in December.
John Hancock, which is owned by Manulife Financial Corp., a Canadian firm, is one of the largest providers of long-term care insurance and has more than 1.2 million policyholders nationwide.
The move, announced in Manulife’s third-quarter earnings report, is another sign that long-term care insurance market is crumbling as customers face steep rate increases and demand shrinks from their peaks nearly 15 years ago. John Hancock discontinued selling new group policies in 2010.
“Today there are far fewer outlets through which individual LTC insurance is sold, impacting the growth potential for the product,” said Melissa Berczuk, a spokeswoman for the company. “Also, consumer demand for individual LTC insurance has fallen and remains stagnant.”
Long-term care insurance was designed to fill the gap between Medicare, the health insurance for the elderly that covers short-term rehabilitation and recovery services, and Medicaid, the program for the poor that pays for long-term care after a senior exhausts assets and meets income requirements.
The insurance was pitched to baby boomers worried about how to pay for care as they aged. But in recent years, rates have risen rapidly for individual and group plans nationwide, in part because insurers set prices too low when they launched the policies, underestimating how long people would live and need nursing home care. They also overestimated how many people would drop their plans before collecting benefits.
Insurance companies also expected to earn much more in interest on premiums they invest to pay future claims. As a result, several companies have stopped writing new policies.
John Hancock said its decision will not impact existing policies, which remain in effect. But the company has increased prices and asked regulators for further rate hikes to pay benefits, sparking outrage.
The US Congressional Committee on Oversight and Government Reform is looking into the 83 percent average rate increase that John Hancock put in place earlier this year for federal employees with long-term care policies.
While the company will no longer sell stand-alone long-term care policies, it will continue to offer coverage as an option to customers with life insurance policies, Berczuk said.
Under such life insurance policies, consumers can tap into their future death benefits to pay for long-term care.