Long-Term Care Insurance Crisis: How Insurers Collected Premiums for Decades, Then Left Policyholders to Die Broke

The long-term care insurance crisis is the story of an entire industry that sold Americans a promise — pay your premiums for 20 or 30 years, and we’ll be there when your body gives out — then systematically broke it. More than 7.2 million Americans hold long-term care (LTC) insurance policies. Millions of them have already faced rate hikes of 200% to 300% above what they were originally quoted. One major insurer collapsed entirely, leaving 73,000 policyholders scrambling for benefits that Medicaid — already under historic cuts — may now have to cover. And the largest remaining carrier has literally tied its executives’ compensation to how successfully it can squeeze more money out of people who are already retired.

Key Takeaways

• 70% of Americans who reach age 65 will need long-term care — the average nursing home now costs $111,325 per year for a semi-private room.
• More than 100 insurers sold LTC policies in 2000. Fewer than a dozen remain today.
• Penn Treaty's collapse left 73,000 policyholders holding $4 billion in liabilities against $700 million in assets.
• Genworth Financial — the dominant survivor — still needs annual rate increases to reach break-even, per A.M. Best (2023).
• Some policyholders have seen cumulative premium increases of over 300%.
• When private LTC insurance fails, the bill falls on Medicaid — a program already being cut by $800 billion.
• Younger generations will pay the Medicaid bill, provide the unpaid caregiving, and inherit nothing.

What Is the Long-Term Care Insurance Crisis?

Long-term care insurance was supposed to be the elegant private-market solution to one of aging's most expensive problems. Nursing home care. In-home aides. Memory care facilities. The kinds of services that Medicare doesn't cover and that can bankrupt a family in under two years. Starting in the late 1970s and exploding through the 1990s and early 2000s, insurance companies sold hundreds of thousands of policies annually, promising fixed or inflation-adjusted benefits in exchange for steady monthly premiums. It sounded like a deal. It was a trap.

The crisis unfolded in two phases. First came the market collapse: over 100 insurers competed for LTC business in 2000. By 2014, fewer than 15 remained. By 2020, fewer than a dozen. The mass exodus wasn't an accident — it was carriers discovering, too late, that they had fundamentally mispriced decades of risk. Rather than honoring their policies as written, many either abandoned the market entirely (stranding policyholders with no one to sell them replacement coverage at any reasonable price) or began applying for enormous rate hikes through state insurance commissions. The same political machinery that blocked retirement reform made it difficult for regulators to stop the bleeding in time.

Second came the squeeze: policyholders who paid $150 a month for 15 years suddenly received letters informing them their premium was going to $400 a month. They could keep paying, reduce their benefits, or drop the policy entirely — losing every dollar they'd invested. In Connecticut, one former insurance executive documented his own premium increasing by over 300% over the life of his policy, with more increases approved and pending. He sued. Most policyholders didn't have his resources. In 2021, about 30% of LTC insurance applicants ages 60 to 64 were denied new coverage. For applicants ages 70 to 74, the rejection rate was 47%. By the time someone realizes their existing policy is being gutted, they are statistically unable to get a new one.

How Did Insurers Miscalculate So Badly?

The short answer: they were wildly optimistic about everything, and there was no regulatory force stopping them from selling policies at prices that couldn't possibly work. The long answer involves three catastrophic miscalculations baked into the industry from the beginning.

1. They thought people would quit. Actuarial models for LTC policies assumed a lapse rate — the percentage of policyholders who stop paying and forfeit their coverage — of roughly 4% per year. If enough people quit, the insurer keeps the premiums without paying claims. The actual lapse rate turned out to be closer to 1%. People who bought LTC insurance did so because they expected to need it. They held on to their policies with a grip that makes sense when you realize nursing home care in 2026 costs over $111,000 per year for a semi-private room. The models were wrong by a factor of four. That single miscalculation compounded over 20-year policy terms into a fiscal catastrophe.

2. They misjudged longevity. U.S. life expectancy rose from roughly 68 years in 1950 to nearly 77 by 2000. Actuaries underestimated how long policyholders would live — and therefore how long they would eventually need care. A policy priced for a person expected to need two years of nursing care might end up paying out for seven. The math doesn't work, and the insurers knew it by the late 1990s. They kept selling anyway.

3. Healthcare inflation destroyed every projection. The industry set premiums based on assumptions about future care costs that bore almost no resemblance to what actually happened. Assisted living costs rose 10% in a single year in 2024 alone, bringing the national median to $70,800 annually. Home care costs are running $6,483 per month at median rates for full-time care. Insurers locking in 1990s premiums for claims in the 2020s were essentially pricing 1990s gas for a 2026 fill-up. The American Academy of Actuaries confirmed in formal testimony that the emerging experience was “markedly inaccurate” compared to original pricing assumptions. One insurance executive described the entire model as unsustainable “from the get-go.”

What makes this a systemic failure — not merely an honest error — is that regulators, rating agencies, and the companies themselves had warning signs as far back as the late 1990s. The response wasn't to stop selling underpriced policies. It was to continue collecting premiums, let the problem compound, and then ask policyholders to bail out the industry through rate increases they could barely afford. Annual sales of traditional LTC policies have since fallen 92% from their 2002 peak. The industry essentially imploded, collected the wreckage, and handed the cleanup costs to the people who trusted it.

Penn Treaty and the Biggest LTC Insolvency in U.S. History

Penn Treaty American Corp. is the most dramatic proof that this wasn't hypothetical risk — it was a loaded gun pointed at elderly policyholders. Penn Treaty filed for liquidation in 2017 after eight years of insolvency proceedings, making it one of the largest insurance failures in U.S. history. The numbers: approximately $4 billion in liabilities against roughly $700 million in assets. Penn Treaty had about 73,000 policyholders — roughly 1% of all LTC insurance holders nationally. It was, in one sense, a small slice of the market. In every other sense, it was a preview of what happens when an industry's structural rot becomes undeniable.

When Penn Treaty went under, its policyholders were handed off to state guaranty associations — the insurance industry's version of the FDIC. The problem is that state guaranty funds for insurance are not funded by the federal government and are not bottomless. Most states cap total benefits per policyholder at $300,000. For someone who bought a policy expecting lifetime benefits in a nursing home that now costs $111,000 per year, a $300,000 cap covers fewer than three years. Meanwhile, the collapse imposed massive assessments on every other insurer in the affected states — California faced $400.6 million in Penn Treaty liabilities, Florida $360.4 million, Pennsylvania $269.9 million, Virginia $197 million — assessments that were inevitably passed along to consumers through higher premiums on every other kind of insurance they owned.

The human cost was grotesque. One documented case: a retired nurse named Alice Kempski purchased a Penn Treaty policy in 2004 and paid premiums for 16 years. When she needed care in 2017, the company was insolvent. The Pennsylvania state guaranty fund took over her policy, froze her benefits, and raised her premiums from $180 to $320 monthly. Her claim for assisted living care was denied. She died of a stroke in 2021 having received zero benefits from the policy — despite paying nearly $35,000 in premiums over her adult life. Penn Treaty's collapse wasn't a black swan. It was the logical conclusion of a business model built on promises the math never supported.

Genworth: The Last Man Standing, and What It's Doing to Policyholders

Genworth Financial is the dominant remaining LTC insurer in the United States, holding about 22% market share with approximately 1.2 million policies in force. If Penn Treaty's story is a cautionary tale about what happens when an LTC insurer collapses, Genworth's story is a cautionary tale about what happens when one survives. The answer, for policyholders, isn't much better.

A.M. Best reported in 2023 that Genworth would “need annual rate increases for at least several more years to reach economic break-even.” That is an extraordinary thing to say about a company that has been collecting LTC premiums since the 1970s. It means that even after multiple rounds of increases on existing policyholders, the company still isn't financially stable. Every rate hike application Genworth files with state insurance commissioners is a direct transfer of wealth from retired policyholders — most of them on fixed incomes — to a company whose executives are being handsomely rewarded for executing those transfers. According to a January 2025 investigation by the Connecticut Mirror, Genworth's CEO Thomas McInerney received more than $9.8 million in compensation in 2023, including $3.2 million in incentive pay tied directly to the success of rate increase programs. Executives are being paid bonuses for raising premiums on elderly policyholders.

Policyholders facing another rate increase notice have three unpleasant choices: pay the new premium (which may represent 20% or 30% of monthly retirement income); reduce their daily benefit, benefit period, or inflation protection to keep premiums stable; or lapse the policy — walk away and lose every dollar paid in over decades. For many, lapsing means returning to square one in their 70s or 80s, when the rejection rate for new LTC applications hits 47%. There is no good option. The industry made sure of that when it underpriced its way to dominance in the 1990s, and the pattern rhymes uncomfortably with the public pension crisis — promises made with someone else's future, liabilities deferred until the bill came due.

Who Pays When LTC Insurance Fails? (Hint: You Do)

Here is the part of the long-term care insurance crisis that directly affects people who never bought a policy and never planned to. When private LTC insurance fails — through insolvency, unaffordable rate hikes, or claim denials — the fallback is Medicaid. Not Medicare, which does not cover custodial long-term care. Medicaid, the joint federal-state program designed as a safety net for low-income Americans, which has evolved by default into the nation's primary long-term care financing system. Medicaid currently pays for approximately 62% of all nursing home residents in the United States.

The original pitch for private LTC insurance was that it would reduce Medicaid's long-term care burden by giving middle-class Americans an alternative. Instead, the industry's collapse is doing the opposite. To qualify for Medicaid-funded nursing home care, most states require “spend-down” — you must exhaust virtually all of your assets before the government will cover your care. That means the retirement savings of a generation, the home equity that was supposed to be an inheritance, the modest nest egg that was supposed to outlast the person who built it — all of it gets liquidated to pay for care that was supposed to be covered by insurance that either went insolvent or became unaffordable. The proposed $800 billion in Medicaid cuts would directly impact nursing home residents and home-based care recipients — the same people whose private insurance already failed them.

The generational implication is not subtle. Millennials who are already facing a retirement savings catastrophe are simultaneously being positioned to absorb the caregiving burden — as unpaid family caregivers, as Medicaid taxpayers, and as the generation that will inherit far less because a parent's estate went to a nursing home instead. The economic value of unpaid family caregiving in the United States exceeds $470 billion per year, according to AARP estimates — a figure that rises every time a private insurance policy fails and a family member steps in as the backup plan. The wage stagnation that compressed Millennial earnings for two decades now collides with an elder care system collapsing under the weight of decisions made before most Millennials were old enough to vote on them.

The Counter-Argument: 'It Was Just Bad Math, Not Fraud'

The insurance industry's defense — and it's not entirely without merit — is that this was a genuine actuarial failure, not deliberate fraud. Long-term care insurance was a new product in the 1980s. There was no historical data on how people would use it, how long they'd hold policies, or how dramatically healthcare costs would rise. Companies made their best estimates with available data and got them catastrophically wrong. The lapse-rate miscalculation wasn't malicious; it was the result of applying life insurance models to a product with fundamentally different behavioral dynamics. Healthcare inflation was unpredictable at the scale it occurred.

There's even a reasonable argument that some of the rate hikes, painful as they are, are preferable to the alternative. A company that raises premiums is at least trying to remain solvent and pay claims. A company that doesn't raise premiums goes the way of Penn Treaty. Regulators in most states impose strict limits — Maryland approved a phased 52.1% increase for one set of policies while the company had requested 280%. The regulatory guardrails exist precisely because of the industry's history.

The counter-argument has real limits. “We didn't know” doesn't explain why companies continued selling new underpriced policies in the early 2000s after the warning signs had appeared internally. It doesn't explain why executive compensation at the largest survivor is structured to reward rate increases rather than policyholder stability. And it doesn't address the power asymmetry: the people receiving 300% premium increase notices are in their 70s or 80s, on fixed incomes, statistically unable to get new coverage elsewhere, with no leverage to push back. The math may have been genuinely bad. The political response to bad math — shaped by industry lobbying and regulatory capture — has been consistently worse for policyholders and consistently better for carriers.

Frequently Asked Questions

Is long-term care insurance still worth buying in 2026?
Traditional LTC insurance policies have largely disappeared. Annual sales fell from 500,000+ at peak to under 49,000 by 2020 — a 92% decline. What remains is primarily “hybrid” products combining life insurance or annuities with LTC riders. These are more expensive upfront but carry reduced rate-hike risk since premiums are typically guaranteed. For most people under 60, a hybrid policy is more realistic than a traditional policy that may not exist at an affordable price when they're ready to buy.

What happens if your long-term care insurer goes bankrupt?
State guaranty associations provide a backstop, but coverage is capped — typically at $300,000 total benefit per policyholder, though limits vary by state (some go up to $500,000). If your policy's projected value exceeds the cap, you lose the difference. You also lose access to claims during insolvency proceedings, which can drag on for years as Penn Treaty demonstrated — eight years from initial insolvency to final liquidation.

What are my options if I can't afford a long-term care insurance rate increase?
Options include: (1) pay the new premium; (2) request a “paid-up” policy — stop paying and receive reduced benefits proportional to premiums already paid; (3) reduce your daily benefit amount, benefit period, or inflation protection to hold premiums flat; or (4) lapse the policy and forfeit all premiums paid. Filing a complaint with your state insurance commissioner is worth doing — many states require regulatory approval of rate increases and cap the size of single hikes.

Does Medicare cover long-term care?
No. Medicare covers short-term skilled nursing facility care after a qualifying hospital stay (up to 100 days, with significant cost-sharing after day 20) and limited home health services. It does not cover custodial long-term care — the ongoing personal assistance with daily activities that represents the bulk of long-term care costs. That gap falls to Medicaid for those who can meet eligibility requirements, or out-of-pocket for everyone else. This is the trap private LTC insurance was supposed to prevent.

Sources & Methodology

This article draws on: KFF Health News investigative series “Dying Broke: Why Long-Term Care Insurance Falls Short” (kffhealthnews.org); Connecticut Mirror “Priced Out” investigative series (January–February 2025, including “Genworth ties executive pay to long-term care insurance rate hikes,” Jan. 27, 2025 and “Long-term care insurance industry's problems are of its own making,” Feb. 11, 2025); A.M. Best long-term care insurance solvency reports (2023); American Academy of Actuaries testimony on LTC insurance rate increases (actuary.org); U.S. DHHS ASPE report “Exiting the Market: Understanding the Factors Behind Carriers' Decision to Leave the Long-Term Care Insurance Market”; Penn Treaty liquidation proceedings, Pennsylvania Insurance Commission (2017); Genworth Financial investor relations disclosures; KFF Health News “Why One Insurer's Collapse Could Whack Insurers, Policyholders Across the Country”; Genworth/CareScout 2024 Cost of Care Survey; AHCA/NCAL Medicaid reimbursement data; AALTCI 2025 annual facts and statistics; KFF “The Affordability of Long-Term Care and Support Services”; U.S. DHHS ASPE “What Is the Lifetime Risk of Needing and Receiving Long-Term Services and Supports?”