How to Manage the Rising Cost of Long-Term Care Insurance

The cost of employing a live-in aide can range from roughly $175 to more than $300 per day, depending on the agency and the clients’ needs. But for several of our clients, the out-of-pocket expense is substantially lower because they have so-called long-term care (LTC) insurance.
 
LTC policies make perfect sense when you consider round-the-clock home care can cost more than $100,000 annually, and a private room in a nursing home can be twice as much. There are tax advantages as well, since the premiums are partially deductible as medical expenses.
 
But as thousands of older Americans have discovered, the cost of maintaining an LTC policy has risen dramatically in the past few years. The headline of a recent New York Times article says it all: “Your Long-Term Care Insurance Spiked. Now What?” 
 
The Times cites the example of Karen Herzog, a retired school teacher who received notice from her insurance carrier that her monthly premium was set to double to $550. 
 
“Many of us will be forced to drop this policy,” Herzog told the Times’ personal-finance reporter, Tara Siegel Bernard. “This was supposed to be my parachute.”
 
Long-term care policies are designed to cover some or all of the cost of a home-care aide when the policyholder no longer can perform at least two “activities of daily living,” including feeding, bathing, dressing and toileting. Studies show that half of all Americans now turning 65 will require long-term care at some point. Most will need assistance for less than two years, but one in seven will need it for more than five years, according to the Times. 
 
That fact helps explain why insurers have aggressively hiked premiums for LTC policies. But there’s more. 
 
“Why are premiums swelling so much? There are several factors, but two of the more serious problems involved the predictions insurers made roughly two decades ago. Not only did they underestimate how long policyholders would live, they overestimated how many people would drop their policies, [in which case] insurers would not have to pay claims.”
 
Many insurers -- including the biggest provider of LTC policies, Genworth -- ran into financial trouble. Genworth has agreed to sell itself to a Chinese company, though a deal has yet to be finalized.
 
There are now only a dozen or so insurers offering LTC coverage, down from more than 100 at the market’s peak. Those that are left have petitioned state insurance regulators to increase premiums for tens of thousands of customers. 
 
“There is an inherent tension as a regulator,” Virginia’s insurance commissioner told the Times. “You want to protect consumers against rate hikes, but you also want to make sure the carriers remain solvent and are able to pay claims in the future.”
 
Meanwhile, rate hikes are forcing policyholders like Karen Herzog to make difficult decisions -- including whether to drop their coverage. As a general rule, experts advise the elderly to maintain their coverage if at all financially possible. That’s because even with the premium increases, existing policies are both cheaper and more comprehensive than those being written now.
 
“It’s technically still a deal relative to what coverage costs today,” one expert told the Times.
 
If policyholders no longer can afford to maintain their existing coverage, they have several options. For instance, they could elect to reduce their benefits and/or cut the inflation rate for calculating benefit increases in the future.
 
“You can call and sometimes [the insurer] will be flexible with giving you other options that were not in the package sent in the mail,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance.      
 
For more information, check out my Q&A with Tinton Falls insurance agent Toby Stark, which covers the basics of long-term care insurance. Another good resource is AARP, whose website includes a fact sheet titled “5 Things You Should Know About Long-Term Care Insurance.”
 
Written by T.J. Foderaro