Q. Last week my friend, Patty, received notice of a substantial increase in her long-term care insurance premiums. She was so upset that she fired off an email to the Virginia Insurance Commissioner, Scott White, exclaiming how appalled she is that he gave his okay to such an egregious increase. Patty and her husband, Frank, 74 and 77, have been paying for their policies for the past 14 years and were just informed that they will be experiencing a 90% rate hike!
I know that Patty and Frank took these policies out to do the responsible thing, to not be a burden on their children, should they need care. Patty knows that Medicare does not cover long-term care, and how exorbitantly expensive long-term care is in the DC Metro area. The long-term care insurance policy seemed like a way to stretch her dollars.
But now, the increase in premiums is just too much for them. Seeing this happen to them, I am wary about purchasing long-term care insurance coverage for myself and my husband. Is what is happening to her typical, and what alternatives do you recommend?
A. Long-term care insurance is intended to help aging people who develop health problems that prevent normal activities. It covers a range of medical, personal, and social service costs associated with daily treatment at home, in assisted living facilities, or in nursing homes.
Similar to what you described, premiums for long-term care insurance have been going up drastically for years, and are continuing to skyrocket, and consumers are getting blindsided by the increases. In a 2016 survey, the consulting firm Milliman found that regulators approved rate increases of 40% or more on about half the requests that insurers made. A quarter of their requests resulted in premium increases of 20% to 39%.
In recent weeks, Blue Cross Blue Shield of Florida policyholders have been notified by mail that annual premiums for their coverage will increase by an average of 94% through 2021. And, it could have been worse. The company originally requested a 280% hike but state regulators refused to grant that! The consent order required the company to phase in the 94% hike over three years. This occurred in Florida, but it is similar to what is happening all over the country. In 2016, Federal employees and retirees who participated in the Federal Long Term Care Insurance Program (FLTCIP) had their premiums increase by a whopping 126%!
Why are Long-Term Care Premiums Skyrocketing?
There are several reasons why long-term care insurance premiums are skyrocketing. First of all, financial shortfalls have resulted in most companies simply no longer offering traditional long-term care insurance. In addition, as people live longer, the number of individuals with conditions such as Alzheimer’s and other types of dementia, diabetes, and obesity has exploded, and their care is more expensive.
Lastly, insurance executives say that their companies were paying out more in benefits than they were collecting in premiums. Fewer customers let their plans lapse than originally projected, while policyholders have been using more benefits and living longer. Also, lower-than-expected interest rates in the investment market have cut into expected income from reserves.
Still Weighing the Options? How You Can Learn More
The Shopper’s Guide to Long Term Care Insurance is a comprehensive resource from the National Association of Insurance Commissioners that gives you all the basic information you need.
Aging expert, Carol Marak, suggests that after reading the guide, you should sit down with your spouse, a close trusted friend, or a sibling and discuss your feelings.
- How healthy are you today?
- Do you predict that your health will worsen?
- How many chronic illnesses do you have?
- Can you afford to pay for long-term care out of pocket?
Use the answers to these questions as a guide to whether you should consider long-term care insurance. If you still think long-term care insurance should be considered, take a look at these questions, as well:
Is Long-Term Care Insurance Right for You?
You should NOT buy long-term care insurance if:
• You can’t afford the premiums.
• You don’t have many assets.
• Your only source of income is a Social Security benefit or
Supplemental Security Income (SSI).
• You often have trouble paying for utilities, food, medicine, or other
important needs.
• You’re on Medicaid.
You SHOULD consider buying long-term care insurance (or better yet, a hybrid policy) if:
• You have significant assets and/or a good income.
• You don’t want to risk losing most or all of your assets and income to pay for long-term care.
• You can affors the insurance premiums, including possible premium increases, without a problem.
• You don’t want to depend on support from others.
• You want to be able to choose where you receive care.
A Better Alternative is often a Hybrid Policy
Skyrocketing costs for traditional long-term care insurance policies have prompted many insurance carriers to exit that market, but more and more life insurance companies now offer hybrid policies that provide life insurance (or an annuity) combined with long-term care coverage. These hybrid policies have lowered the cost for consumers dramatically, while lowering risk just as starkly for insurers. So, hybrid policies are a win-win!
Hybrid LTC insurance policies typically combine permanent life insurance with an accelerated death benefit rider that pays long-term care benefits. They have been rapidly gaining popularity in addressing some of the shortcomings of traditional LTC insurance policies. Over the last several years, the LTC insurance industry has seen a substantial growth in hybrid policies, which include expanded carriers, products, and riders.
The primary advantages of these hybrid policies are that they offer tax-free reimbursements for qualified long-term care expenses; tax-free death benefits to your heirs if your LTC benefits are not fully used or needed; and a potential return of your premium if you change your mind down the road.
Interested in Learning More about Hybrid Policies? Look no further. . .
Besides being a Certified Elder Law Attorney, I am also an experienced retirement planning advisor and long-term care insurance advisor. Through my financial company, Lifecare Financial Services, I have been helping clients since 2006 use hybrid LTC insurance policies to assist in paying for long-term care, especially home care and assisted living, before the need for the nursing home level of care arises. Some hybrid policies are purchased using a traditional annual premium, while others, particularly for people over 50, are paid for using a one-time single premium. These latter policies are often called asset-based long-term care policies. In addition, I advise my clients about using tax-free money (money in your IRA, 401(k), 403(b), or Thrift Savings Plan) to help pay for long-term care. Learn more here.
Hybrid asset-based long-term-care insurance is not right for everyone
Hybrid long-term care insurance is a great idea for many people, but may or may not be right for you. Please know that there are many other asset protection strategies to protect your assets from the potentially devastating costs of long-term care. To explore all your options, please call us at one of the numbers below to make an appointment for an initial consultation:
Fairfax Long-term Care Insurance: 703-691-1888
Fredericksburg Long-term Care Insurance: 540-479-1435
Rockville Long-term Care Insurance: 301-519-8041
DC Long-term Care Insurance: 202-587-2797
About Evan H Farr, CELA, CAP
