What to Make of MetLife's Exit from the Long Term Care Market

MetLife’s recent decision to exit the U.S. long-term care market can be seen as a relatively minor decision by the largest U.S. life insurance company to pull-out of a small, slow-growth market and forgo what is a very small part of their overall business.

After all, while MetLife has a roughly eight percent market share of the current eight million long-term care policyholders in the United States, the line of business represents a drop in the bucket when compared to MetLife’s 90 million strong customer base.

At the same time, however, the decision can be viewed as a confirmation that pricing future healthcare liabilities is an inherently risky and complex endeavor.

Several long-term care insurers have been burned over the past several years because of inadequate pricing—stemming from either overly aggressive pricing meant to buy revenue and market share, or an underestimation of future claims expenses.

Assuming (safely) that MetLife was not buying market share in the long-term care market, the remaining dominant factor is the difficulty of predicting future health spending patterns and rates of healthcare inflation with any degree of confidence.

Retirees and those set to retire soon can draw some lessons from MetLife’s decision:

1. Do not underestimate the importance of accounting for healthcare spending in retirement—health expenses could be the dominant liability or spending requirement during retirement.
2. Incorporating health expenses into one’s financial plan is critical.
3. Retiree health expenses will likely be much higher than currently imagined.
4. Avoid making overly conservative (too low) or simply assumptions about future rates of healthcare inflation.

There are similar lessons for the federal government and state governments that have recently committed to funding all manner of long-term healthcare liabilities with what is already an extremely precarious balance sheet.  The difference, of course, is that these promises are funded with taxpayer dollars or additional debt.