Looking to kick off the new year with a scary read? You could do far worse than “GE has a long-term care insurance problem.”

This troubling Marketplace Q&A focuses on how GE wildly under-estimated the reserves needed to cover its long-term care insurance bet.

The catalysts behind GE’s multi-billion-dollar catastrophe are hardly a surprise. Medical costs are continuing to escalate and people are living longer.

Both trends have turned out to be far more robust than actuaries predicted in recent decades, when there was a relatively healthy private long-term care insurance market. How healthy?The American Health Care Association was predicting in the 1990s that private insurance would become a key service financier – along with public funding, pensions and other government assistance.

But as the saying goes, that was then, this is now. GE finds that it must set aside about $15 billion in reserves to cover the 300,000 or so long-term care insurance policies it’s on the hook for.

If nothing else, this massive deficit helps explain why you don’t see many insurance companies hawking these policies at trade shows these days.

So what are the takeaways here for senior living operators? I’d submit there are two.

One is that private insurance is not going to be the financial salvation for eldercare services its early backers had hoped for. Going forward, we can expect policies will cost far more and deliver far less. The business may not completely dry up. But it certainly will become more selective in nature. What we are far more likely to see – and in some corners are already beginning to see – is other insurance products offering limited coverage for eldercare services.

The other takeaway is this: Insurance of any kind can be a dicey proposition. That is important to remember as more senior living firms move to eliminate the middle man. To be sure, self-insuring can be a great way to save money. But it can also be a quick path to insolvency, should unforeseen circumstances intervene.

Am I implying that self-insurance is a bad idea? No, not necessarily. But those who might be tempted should proceed with caution.

Put another way, when people who do something for a living are getting their heads handed to them, dabblers had best beware.

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