How to Manage the Cost of Long-Term Care

A single woman has seen her annual premiums for long-term care rise by more than 60% over the last six years. Her cost in 2018 was $2,721, up from $1,626 in 2013. She’s keeping her policy, reports CNBC in the article “Long-term care insurance costs are way up. How advisors can help clients cope”

For her, the price she is paying is worth the cost. However, these types of increases can take older individuals off guard, especially if they are living on a fixed income.

Last year, Genworth Financial received 120 approvals by state regulators to increase premiums on their long-term care insurance business. The weighted average rate increase was 45%. General Electric said earlier this year that it expects to raise premiums on its LTC policies by $1.7 billion in the next ten years. Insurers hold between $160 to $180 billion in LTC reserves, covering 6 to 7 million people, according to estimates from Fitch Ratings.

Long-term care has also become increasingly expensive. The annual national median cost of a private room in a nursing home was $100,375 in 2018, according to Genworth Financial. The annual national median cost of a home health care aide was $50,336 in 2018.

Insurers entering the business in the 1990s and early 2000s didn’t anticipate that so many policyholders would continue to pay their premiums and eventually file claims. Fewer than 1% of policyholders have let their policies lapse, and this caught many companies off guard.

Low interest rates have also hurt overall profitability for the long-term care insurance companies.

About 40% of the bonds held in insurance companies’ general accounts had a maturity of more than 20 years at purchase, said the American Council of Life Insurers.

There are a few ways to tweak benefits to keep premiums more affordable, while continuing to have this essential coverage.

Daily Benefit. Policies sold in 2015 had an average daily benefit of $259. Paring down the daily benefit could keep premiums down.

Benefit Period. Long-term care insurance contracts sold in the 1990s and early 2000 could pay out for the remainder of a client’s life. Reducing that period to five or ten years could make premiums lower.

Inflation Protection. Inflation riders help stay ahead of the rising cost of care. For older policyholders, this might reduce the inflation protection.

Waiting Period. Most policies have a waiting period before benefits will be received. Adjusting this period of time might reduce benefits.

Policyholders are advised to speak with the insurance company directly, instead of relying on the premium increase notices. This may reveal more options that can be used to reduce the premiums, without sacrificing too much in the way of coverage.

Elder law attorneys can help with long-term care planning.

Reference: CNBC (September 8, 2019) “Long-term care insurance costs are way up. How advisors can help clients cope”