Long-term Care Insurance Goes Uptown

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Is long-term care insurance a luxury product?

Today, most policies covering home care and assisted living and nursing care facilities for the elderly are purchased by people with relatively high earnings, according to a new survey.

Bar chart showing people envisioning needing a nursing home in the futureLong-term care used to be insurance that the middle class would buy – either individually or through an employer, union, or affinity group – when it was more affordable. But the market, which has contracted dramatically, also seems to be shifting, according to retirement experts and new data from LifePlans, a long-term care research firm.

In LifePlans’ survey, 82 percent of the people who purchased long-term care policies in 2015 earned more than $50,000 per year. In comparison, only half of the general older population surveyed separately by LifePlans falls into this income bracket. An Urban Institute study supports this too, finding that the market is dominated by households with more than $500,000 in net wealth.

Eileen J. Tell, who consults on aging and long-term care issues, said the slant toward the higher end reflects the fact that the coverage being sold is more comprehensive – and more costly. Most policies purchased now cover all levels of care, from home care to assisted living and long-term care facilities. This reflects a desire for people to age in their homes, Tell said.  Back in 1995, just two out of three policies had this comprehensive coverage. Another feature that’s more common – and costs more – is inflation protection.

Premiums have increased. Policies sold in 2015 had average annual premiums of $2,727 – 42 percent more than a decade earlier, according to LifePlans.  The majority of non-buyers cited cost as the biggest barrier to buying a policy, and sales of individual policies have declined to their 1990 levels. [Most of the buyers and non-buyers surveyed were identified and supplied by insurers; the non-buyers were people who had investigated a policy but decided against it.]

Tell said another reason premiums have increased is because insurers have accumulated more experience with long-term care insurance payouts, which has improved the accuracy of the actuarial cost projections on which they base their premiums. Rising U.S. life expectancies also mean that people draw on their long-term care coverage for longer periods.

For most older Americans, it’s a complex calculation to determine whether they would be better off financially by forgoing long-term care insurance or having some type of coverage, whether a single or combination product.  Medicaid pays for nursing home stays for lower-income individuals after they have depleted most of their financial assets, often because they paid out-of-pocket for their long-term care. Extremely wealthy people can afford to pay for their long-term care directly, if and when they need it. But individuals buy coverage for various reasons, including to protect income for their spouses and to preserve their assets for their offspring. Another reason is to avoid relying on family members or friends for care.

The industry’s sales strategy has changed in response.  In the 1980s, long-term care insurance was largely a “senior product” that insurers sold to Medicare beneficiaries, along with their Medigap policies.

“The focus shifted in the 1990s to more of a financial-planning orientation, with more of the big-name insurers in that space developing products aimed at younger populations with more income and earning potential,” Tell said.  Indeed, the majority of individuals buying coverage are under 65, according to LifePlans: 52 percent are 55 to 64, and 21 percent are under 55.

Here are other findings from the survey of more than 2,000 adults:

  • About two-thirds of buyers and non-buyers anticipate needing home care at some point in their lives, and more than half believe they will probably need nursing home care. This feeling is much less common in the general population surveyed.
  • There has been an increase in the share people who purchased long-term care policies but feel the coverage is inadequate, though they’re still in the minority. This share rose from 22 percent in 2010 to 32 percent of buyers in 2015. This feeling may reflect the fact that buyers make concessions in the amount of coverage they buy in the face of higher premiums.
  • 61 percent of buyers, as well as non-buyers, underestimate how much nursing home care in their area will cost.

To read the entire survey, click here.

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Michelle Megna

Our coverage has supported this trend, that long-term care is becoming more comprehensive, more expensive and skewing toward those with higher income levels. As with any type of insurance coverage, knowing the basics before you buy is crucial to ensuring adequate coverage at an affordable price. The most crucial factor when choosing a long-term care policy should be its benefit triggers: the set of conditions that must exist before you begin receiving coverage, so be sure to research that.

Scott A. Olson

This statement is true:

“The most crucial factor when choosing a long-term care policy should be its benefit triggers: the set of conditions that must exist before you begin receiving coverage, so be sure to research that.”

The LTC insurance has been in existence for about 40 years. Older policies sold in the 80’s and early 90’s had some very strict benefit triggers and often ambiguous benefit triggers.

In the mid-90’s the LTC insurance industry 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.

That legislation was passed in 1996 and became effective in 1997. Nearly every LTCi policy purchased since 1997 meets the federal guidelines for benefit triggers. In other words, if you compare 10 policies available for sale today, and all 10 are “federally-qualified” policies, the benefit triggers will be almost identical, word-for-word.

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