Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Are Reshaping the Insurance Industry
Transcript
- Lucas: If you're in your forties or fifties and you've thought about long-term care insurance, you've probably noticed something strange — the companies that used to sell it, don't. Luna: Right, it's almost like the product is disappearing at the exact moment more people need it. Lucas: Exactly. And that's where birth rates come in. We've talked a lot on this show about how fewer kids reshape industries from toys to auto insurance. But long-term care is maybe the most personal, because it's about who takes care of you when you're old. And the math is brutal. Luna: Before we go deep — and I know listeners come here for the numbers — I want to mention something. This show is entirely listener-supported because we don't run ads. A small group of people chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what keeps these episodes coming five days a week. Lucas: Yeah, and it's not a big ask — but if walking through the economy with us has made something click for you, that buy me a coffee page is there. No pressure ever. Luna: Alright, back to the numbers. Lucas, walk us through the long-term care insurance market — what happened? Lucas: So long-term care insurance was supposed to be the safety net for aging baby boomers. In the early 2000s, there were over 100 companies selling it. Today, there are about a dozen. The biggest player, Genworth, stopped selling new policies in 2019. Why? Because they priced policies assuming people would die sooner and need care for shorter periods. Luna: And instead people lived longer and needed care for years. Lucas: Right. On top of that, interest rates dropped to near zero for a decade, so the premiums they collected couldn't earn enough in bonds to cover future claims. So they raised premiums on existing policyholders by huge amounts — sometimes 50 to 100 percent — and stopped writing new policies altogether. Luna: Now, how do birth rates factor in? Isn't longevity the bigger driver? Lucas: Longevity is part of it, but the birth rate angle is about the informal care system. Historically, adult children provided a huge share of long-term care. In 2020, about 38 million unpaid family caregivers were helping aging parents. But as birth rates fall, each generation has fewer siblings to share that load. Luna: So you're more likely to be an only child caring for two parents, or living far away. Lucas: Exactly. A 2023 study from the Urban Institute projected that by 2040, the ratio of potential caregivers aged 45 to 64 per person over 80 will fall to about 3 to 1, down from 7 to 1 in 2010. That means formal paid care becomes the only option for many families — but the insurance product to cover it is vanishing. Luna: So what are people supposed to do? Self-insure? That's a $100,000 a year bill in many metro areas. Lucas: Some people are self-insuring by saving more, but that's hard for median earners. Others are turning to hybrid products — life insurance policies with a long-term care rider. Sales of those have grown about 20 percent annually since 2018, according to LIMRA. But they're more expensive than standalone policies were. Luna: And also, life insurance itself is being reshaped by low birth rates — we did an episode on that. Fewer young people buying policies. Lucas: Right, exactly. The life insurance industry is struggling to find new customers because the traditional pool of young married parents is shrinking. So the hybrid product is a way to cross-sell to older demographics. But it's not a full solution. Luna: Some states are stepping in. Washington State started a public long-term care trust fund in 2023 — the WA Cares Fund. Workers pay a 0.58 percent payroll tax, and they can access up to $36,500 in benefits. California, New York, and Michigan are considering similar programs. Lucas: That $36,500 is a fraction of what care costs — a year in a nursing home averages over $100,000. So public funds can help, but they don't replace the private market. And here's where birth rates matter for the public funds too: fewer workers per retiree means a smaller tax base to support those programs. Luna: It's a double squeeze. The private market retreats, and the public option has less revenue because there are fewer young workers. Lucas: Exactly. Let me give you a number that puts this in perspective. In 2024, total premiums for standalone long-term care insurance were about $270 billion in force, but new annual premium sales had fallen to under $500 million, down from over $5 billion in 2002. The product is essentially in run-off. Luna: So the industry is just managing existing policies, not selling new ones. Lucas: Right. And that creates a big gap in retirement planning. Financial advisors typically say that a 65-year-old couple retiring today will face about $300,000 in health care and long-term care costs not covered by Medicare. If long-term care insurance isn't available, that number becomes a real risk. Luna: Are there any insurers trying to re-enter the market with new models? Lucas: A few startups are trying. One called Kinnect, backed by New York Life, offers a policy tied to an annuity — you pay a lump sum, and the annuity generates income that can be used for care. Another, ClearSpring, uses a partnership structure where the policyholder shares the risk with the insurer. But these are tiny compared to the market size. Luna: And they're still expensive. The fundamental problem is that we're living longer, having fewer kids, and the insurance math doesn't work unless premiums are very high. Lucas: That's the core of it. And I think the economic impact of this — beyond just insurance — is that it changes how people save, when they retire, and even where they live. If you can't rely on family or insurance, you might delay retirement, or move to a lower-cost state, or buy a home that can be retrofitted for aging in place. Luna: That's a big shift from twenty years ago when people assumed either their kids would help or their policy would cover it. Lucas: Right. And one more twist: falling birth rates also affect car insurance and home insurance. With fewer young drivers, auto insurers are seeing lower accident rates, but they're also losing a key customer segment. Home insurers are seeing more empty-nest households, which have different risk profiles — fewer kids means fewer claims from trampoline accidents, but more homes that are vacant during the day for longer periods. Luna: So the whole insurance ecosystem is shifting, not just long-term care. Lucas: Exactly. And for listeners who are thinking about their own planning, the takeaway might be: if you're in your fifties and you can still find a standalone long-term care policy, it might be worth locking in, because the market is only getting tighter. Luna: And if you're younger, consider that you may need to self-insure, which means saving more now. Lucas: Right. The demographic trends are powerful, and they're not going to reverse quickly. The insurance industry is just one more place where the math of fewer children is forcing a reckoning. Luna: Thanks for listening, and as always, we'll be back tomorrow with another angle.