The state Division of Insurance has negotiated rate increases of up to 40 percent spread over four years with more than a dozen long-term care insurance companies in an effort to stabilize the troubled and shrinking market for this coverage.
The state’s top insurance regulator took the unusual step Friday of approving rate increases at once for 16 companies providing coverage to nearly 55,000 state residents. Most existing policyholders will see rates increase 10 percent a year for the next four years.
Most insurers had requested much higher increases — some as much as 300 percent; some of the requests were on hold for years as state officials grappled with how to address consumer shock over the accelerating costs for insurance used to pay for nursing homes, home health care, and assisted living.
The negotiations with the insurers have been tense, Insurance Commissioner Daniel Judson acknowledged. And not all companies have agreed to the rate increases.
Virginia-based Genworth Financial Inc., one of the largest carriers with more than 30,000 customers in Massachusetts, has instead sued Judson in Suffolk Superior Court, arguing he overstepped his regulatory authority by holding up a requested increase for four years. The company has lost more than $2 billion on these policies nationwide, according to the lawsuit.
“These were difficult negotiations,” Judson said. “I was reluctant to even do the 40 percent. But I have to balance affordability with availability.”
Currently the average annual premium for plans nationwide is $1,480.
John Hancock Life Insurance Co., based in Boston, covers more than 17,500 state residents and received among the largest increases: 10 percent annually for four years. The company, which is a subsidiary of Manulife Financial Corp., had requested up to a 194 percent increase.
“As the approved amounts were less than we originally requested, we will work with the Department of Insurance on future filings,” John Hancock said in a statement. “We believe our original rate increase is actuarially justified and appropriate, and we will re-apply again.”
But the company has been increasing premiums on these policies in recent years to cover the costs of benefits. It also stopped selling new long-term care policies in December.
Other insurers have also stopped issuing new policies.
The insurance was designed to fill the gap between Medicare, which 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 paying for care. But in recent years, rates have risen rapidly, in part because insurers misjudged the market initially: prices were too low in the early years, and people are living longer and using more 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.
State regulators across the country are faced with difficult decisions about whether to approve premium increases, said Al Norman, executive director of Mass Home Care, a network of nonprofit agencies.
“The division is trying to thread the line between unhappy consumers and an unhappy insurance company,” Norman said. “And the whole product is getting tarnished.”
The state is also developing new regulations for long-term care policies. Regulators declined to say whether it would also include an annual rate cap.