Critics of safety-net programs such as Social Security and Medicare are fond of saying that the private sector would do a much better job of protecting people thanks to the magic of the marketplace.
Mike and Judy Holtzman of Laguna Woods are now experiencing the magic of the marketplace for long-term care insurance.
And it stings.
They were recently informed by their insurer, John Hancock Life & Health Insurance Co., that their annual premiums will almost double.
For The Record
Los Angeles Times Monday, March 31, 2014 Home Edition Main News Part A Page 4 News Desk 2 inches; 68 words Type of Material: Correction
Long-term care: A column in the March 25 Business section about premium increases in long-term care policies said John Hancock Life & Health Insurance Co. raised a Laguna Woods couple's premium 90%. Though the couple live in California, the policy was purchased in New York and thus falls under New York regulations. The California insurance commissioner has approved an average 38% increase for John Hancock long-term care policies.
They're both now in their mid-60s. His rate will jump in May to $3,714.38 a year from $1,954.94. Hers will soar to $4,642.97 from $2,443.67.
Long-term care insurance is intended to address people's needs in their sunset years, such as a nursing home or an assisted-living facility. These costs can top $80,000 annually.
The 90% rate hikes, John Hancock said, reflect "future claims" that the Holtzmans are expected to make, even though they haven't submitted a single claim in the 10 years each has been covered by the company.
Got that? John Hancock, a subsidiary of Canada's Manulife Financial, one of the world's largest life insurance firms, has spent a decade charging the Holtzmans premiums for their long-term care policy.
And even though the couple have yet to miss a payment and have yet to cost John Hancock a cent, the company has decided that it didn't crunch the numbers correctly years ago, so it wants almost twice as much a year in premiums.
"We were told when we first bought the policies that the rates could go up," said Mike Holtzman, 67. "But 90% seems outrageous."
It does, and this isn't an isolated case.
Long-term-care insurers have been notifying insurance regulators across the country that they're jacking up rates because they miscalculated how much coverage they'd have to provide and how much healthcare costs would rise.
Some insurers have deemed long-term care so unprofitable, they've left the market altogether.
There are more than 10 million long-term-care policyholders nationwide, according to the American Assn. for Long-Term Care Insurance.
The Holtzmans were told by John Hancock that if they didn't want to pay 90% higher premiums, they could opt instead for reduced benefits. In other words, they could receive less coverage than they'd originally purchased and spent 10 years paying for.
"This seems unconscionable," Holtzman said. "We bought these policies because this is the only insurance you really need. Long-term care will eat up all your assets."
John Hancock added insult to injury by concluding its recent letter to the couple saying that the company remains "committed to delivering on our promise to provide the most comprehensive coverage, support and service."
Considering it's just nearly doubled the price of that promise, this is a remarkably callous thing to declare.
Melissa Berczuk, a John Hancock spokeswoman, said she couldn't discuss individual policyholders. But she said the company's long-term-care premiums have risen an average of 40% nationwide.
"Because long-term-care claims are generally not incurred for many years after the coverage is issued, certain assumptions are made about expected future claims when the product is being priced," Berczuk said.
Those assumptions don't always pencil out, she said, necessitating higher rates.
"No carrier takes pleasure in raising rates or doing anything that is disruptive to their insureds," Berczuk said. "Any rate increase action is taken only after very careful consideration and exploration of other options."
Perhaps. But it doesn't make things easier to swallow for people like the Holtzmans, who now face nothing but bad choices.
Experts say it would be unwise for the Holtzmans to let their policy lapse. Paying an extra $2,000 a year each would still be cheaper than shouldering the cost of long-term care themselves.
If they choose to keep their rates at the current level but accept reduced benefits as a trade-off, they face not only a greater financial burden down the road but also an inability to reinstate higher benefits later.
Once benefits are cut, they're cut, unless you sign up for a new plan, which can be prohibitively expensive.
Holtzman said he doesn't like any of the options John Hancock has presented him, but it's likely he'll choose to keep his and his wife's rates the same and accept lesser benefits.
"I just can't afford what they want me to pay," he said.
Which brings us back to the question of whether the private sector is the best provider of safety-net programs.
For decades, the United States has relied primarily on private-sector companies to meet Americans' health-insurance needs. One upshot is that tens of millions of people have been left uninsured.
Another is that this country has the highest healthcare costs in the world. The average American pays twice as much for healthcare as his or her counterparts in France, Britain and other developed nations.
Now we face the prospect of millions of baby boomers entering their homestretch and placing unprecedented strain on the nation's senior-care resources -- and potentially not being able to pay for it.
Mike and Judy Holtzman thought they'd protected themselves against uncertainty. They signed up with one of the best-known private-sector insurers. They upheld their part of the bargain.
Now they and millions of others are in the difficult position, through no fault of their own, of having to rethink things at one of the most vulnerable times of their lives.
Could the government have done a better job for them? Maybe.
But it couldn't have done worse.
David Lazarus' column runs Tuesdays and Fridays. he also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to email@example.com.