| Recently I was heartened to hear the news that a drug had been tested and proven to slow progression of Alzheimer’s disease. The online New England Journal of Medicine reported these findings from the Memory Impairment Study. In a study of people with mild cognitive impairment, those who took the drug donepezil reduced their risk of progressing to a diagnosis of Alzheimer’s disease during the first year of the trial. But the effect doesn’t last forever. By the end of the three year trial, there was no benefit from the drug.
In general, I think that we can all agree that news like this is good. Perhaps science is finally on the right track to wiping out the scourge of Alzheimer’s disease. It seems that a cure or a permanent halting of the disease is much closer than it was before.
But, there is a clear implication in the development of miracle drugs in the pricing of long term care insurance. When a drug slows or halts a disease, but doesn’t cure or wipe out symptoms, it can be problematic for pricing long term care (LTC) insurance. The same can be said of any medical breakthrough, especially those that affect the senior population.
Much has been made of the fact that insurance companies do not guarantee that LTC insurance premiums will stay flat. Although, several top rated insurance companies have never raised premiums for in-force policies, spanning ten, twenty and even thirty years. What isn’t often reported is why LTC insurance isn’t available with guaranteed, flat premiums.
Imagine that the aforementioned drug trial found that, instead of delaying the onset of Alzheimer’s disease, donepezil did nothing for mild cognitive impairment, but instead froze progression of the disease in patients who had progressed to what is called Stage 5. At this stage, patients have major gaps in memory and need assistance with day-to-day activities. What would the implication for LTC insurers be when the drug was widely available? Policyholders with lifetime benefit periods could collect benefits for many years.
Almost one in ten people over 65, and almost half of people over age 85 are affected by Alzheimer’s. The actuaries at the insurance companies have figured this into their pricing. Assuming that everything else remained the same, premiums could need to be increased to cover the higher claims expenses that the miracle drug brought to society.
On the other hand, what if a miracle drug was found that cured Alzheimer’s? If this disease were curable (or preventable), it stands to reason that development would be great news for LTC insurance pricing. We might even see price decreases on new policies.
Pricing long term care insurance is a mix of art and science. As the population lives longer, and as medical science advances, assumptions made today may not hold up over time. It’s the only bad news that I can think of in the good news world of medical advances.
Jeff Reilly, LUTCF has been in long-term care insurance planning since 1989, ranking in the top 1{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of insurance agents nationally in 2004 . He can be reached at (413) 526-8989. |
