Boomers Be Wary of Long-Term Care Insurance

We know the long-term care (LTC) insurance industry wants to storm America with its expensive and nebulous products, but few "experts" present a complete picture: the economic downsides of LTC insurance, the alternatives, and the possibilities for better insurance products in the future. 

Here's a truer picture of your possible future as an LTC insurance customer:

"The John Hancock Life Insurance Co. just asked insurance regulators whether it could increase premiums by, on average, a whopping 45.9% on some 8,600 long-term care insurance policies now in force in Connecticut. And, if approved, annual premiums on those policies will rise from the current range of $950 to $2,500, to a new range of $1,246 to $3,280. Experts says older policies, especially those that have a lifetime benefit and include a 5% annual growth compound option, are the ones most likely to have rate increases." (USA Today: March 16, 2014)

Consider this hypothetical scenario: At age 90 and now facing deteriorating health, I am aghast at the spurious new LTC insurance rates, which I’ve been paying for almost thirty years. I can no longer afford the premiums, which have been jacked up more than 100 percent during the life of my policy. 

What am I going to do? I can cut policy benefits in half to keep the policy active. 

Or, how about taking the same initiative that I can with inflated health insurance or automobile insurance policies I no longer can afford: I can shop competitive companies in an industry with a lot of competition! The marketplace works for me.

NOT going to happen with LTC. I'm too old at 90. No other insurance company would sell me LTC insurance, certainly with premiums less than I'm now paying. So I'm stuck. My original LTC insurance company holds all the cards and I lose. The marketplace works against me.

An insured faced with spurious LTC rate increases can exercise a non-forfeiture clause or "modify the benefits." What does that mean in insurance lingo? 

"Often a nonforfeiture clause will only stay in effect for a certain time period or it may only become active if the policy has been in force for a certain amount of time."

So these clauses can be full of insurance company caveats and exclusions. 

An insured could lower the policy benefits to keep rates affordable, but at what point do the benefits paid out recompense decades of insurance premium investments, especially when, for economic necessity, those benefits must be reduced late in the life of the policy?

Prospective LTC insurance buyers, you have alternatives to consider. 

Self-fund your possible future LTC needs instead of buying insurance. Allocate some of your savings just for long-term care. You may not need the monies, but if you do you have a backup plan.

For those without savings, there's another option.

Medicaid’s Personal Care Option Program is available in some states to those who qualify and require assistance with activities of daily living, including chronically disabled citizens, whether elderly or not.

Medicaid will compensate caregivers, which can be family members or even neighbors under external supervision, for such services as meal planning, grooming, dressing, feeding, errands, transportation to medical appointments, light housekeeping and more. With supervised and compensated care, beneficiaries remain at home and engaged with their families and communities. 

This is in lieu of a nursing home-only option and actually a smart response to demographic, economic, and socio-cultural facts. 

Many articles about the virtues of long-term care insurance are now appearing in financial media almost daily. Some of these “objective news articles” are actually native advertising, not true journalistic examination. In other words, these articles have been written by independent experts who are actually promoting the LTC insurance industry: incomplete and biased. 

Prospective LTC insurance buyers … be wary. 

Comments

[Scott Olson]

BG: So, the same industry, and many of the same companies that sold older policies, including a policy to my wife, have corrected their misdeeds and miscalculations with the help of new state government regulations and stricter public sector oversight?

SAO: That's correct

BG: That certainly gives me comfort to know my government is acting as a watchdog over the LTC insurance industry.

SAO: It should.

BG: I'm also charmed that bad-faith pricing behavior has now been cloaked in euphemistic language: "Long-Term Care Partnership Programs."

SAO: The original pricing was not made in bad faith. The original LTCi regulations were designed to keep prices as low as possible. The problem was that claims were about twice as high as anyone had expected. The Long-Term Care Partnership Program has nothing to do with pricing. It has to do with the middle-class being able to purchase a policy that protects all of their assets from Medicaid.

BG: I'm curious how much the LTC insurance industry has had a hand in shifting the potential burdens of consumer protection to state governments through lobbying and political influence.

SAO: States have been regulating insurance since 1945. LTC insurance has been in existence for about 40 years. The LTC insurance industry has pushed for federal regulation of LTC insurance particularly to help standardize benefit triggers and to help protect seniors from losing their coverage through unintentional lapses.

BG: Further, your statistic of 7.2 million current LTC insurance policyholders seems impressive upon first glance, but there are 100 million+ consumers over age 50 in the United States, 76 million of whom are Baby Boomers.

SAO: At least half of the 50+ population should not own LTC insurance. Most people aged 50+ can qualify for government-funded long-term care through Medicaid.

BG: LTC insurance has not exactly caught fire with insurance consumers, and I'm guessing it's because of generally perceived deficiencies in all aspects of LTC insurance products, including the spurious costs of premiums and distrust of the industry.

SAO: That's correct.

BG: I have nothing to gain from critiquing LTC insurance or taking an editorial stand against these products as presently conceived. Maybe we should instead examine the benefits you derive financially, Scott, from LTC insurance before we become too reassured by your reassurances.
Thanks for commenting anyway.

SAO: I only commented because I'm sure you don't want your readers to be misinformed. Your hypothetical scenario gives the impression that an insurance company can raise the rates when someone reaches age 90. That's not true.

[Brent Green]

"It is true that most of the older LTCi policies have had large premium increases. To protect consumers purchasing policies today, 41 states have passed strict pricing regulations. Consumers purchasing policies today are protected from the pricing mistakes of older policies."

So, the same industry, and many of the same companies that sold older policies, including a policy to my wife, have corrected their misdeeds and miscalculations with the help of new state government regulations and stricter public sector oversight?

That certainly gives me comfort to know my government is acting as a watchdog over the LTC insurance industry. I'm also charmed that bad-faith pricing behavior has now been cloaked in euphemistic language: "Long-Term Care Partnership Programs."

I'm curious how much the LTC insurance industry has had a hand in shifting the potential burdens of consumer protection to state governments through lobbying and political influence.

Further, your statistic of 7.2 million current LTC insurance policyholders seems impressive upon first glance, but there are 100 million+ consumers over age 50 in the United States, 76 million of whom are Baby Boomers.

LTC insurance has not exactly caught fire with insurance consumers, and I'm guessing it's because of generally perceived deficiencies in all aspects of LTC insurance products, including the spurious costs of premiums and distrust of the industry.

I have nothing to gain from critiquing LTC insurance or taking an editorial stand against these products as presently conceived. Maybe we should instead examine the benefits you derive financially, Scott, from LTC insurance before we become too reassured by your reassurances.

Thanks for commenting anyway.

[Scott Olson]

Fortunately, today, no senior needs to spend down their assets to qualify for Medicaid. To help the middle-class plan for long-term care 43 states have passed landmark legislation creating a “public-private” partnership. These “Long-Term Care Partnership Programs” encourage the middle-class to purchase an amount of long-term care insurance that is equal to their assets. If their long-term care insurance policy runs out of benefits they can apply for Medicaid to pay for their care and all of their assets are protected from Medicaid “spend down” and “estate recovery”.

It is true that most of the older LTCi policies have had large premium increases. To protect consumers purchasing policies today, 41 states have passed strict pricing regulations. Consumers purchasing policies today are protected from the pricing mistakes of older policies.

This year nearly 300,000 people will make claims on their long-term care insurance policies and receive approximately $10 Billion in cash from those policies. The LTCi industry currently serves 7.2 million policyholders and is expected to pay out roughly $700 billion in claims over the life of those policies--the majority of the claims are for care received at home.

Scott A. Olson