4 ways to cope with soaring rates on long-term care

December 8, 2010

FRANCE/If you have long-term care insurance or have been shopping for it, 2010 has been a year of unnerving sticker shock. Major insurance companies have been seeking rate hikes as high as 40 percent on existing policies, and many carriers are reevaluating their products and pricing. One major carrier – Metlife – decided to stop writing new policies altogether.

The long-term care (LTC) insurance industry is under pressure, but it’s still a product worth keeping in your retirement plan. One-third of Americans will need LTC at some point in their lives, according to the Center for Retirement Research at Boston College, with a semi-private nursing room costs hitting $77,000 per year.

Medicare covers only a small portion of long-term care needs. The federal government will launch a new public option for LTC in 2013 under the new health care reform law — the Community Living Assistance Services and Supports Act (CLASS). But the benefits under CLASS will be modest, and the program might not survive an expected assault on health care reform in Congress.

“No one wants to see rate increases, and they are unfortunate,” says Dawn Helwig, a principal with Milliman, an actuarial consulting firm that works with the LTC insurance industry. “But the alternatives for policyholders aren’t great. You either self-fund, which will take a lot of cash. Or you get rid of assets and qualify for Medicaid and that care is inferior and not somewhere you want to go.”

How can policyholders and prospective buyers cope with LTC rate shocks? Here are four strategies to consider.

1. Don’t re-shop your coverage. If you’ve had your LTC coverage for a while, the premium almost certainly is much lower than what you’d pay on a new policy at an older age–even with a steep rate hike thrown in.

What’s more, the risk that coverage will be denied due medical condition rises with age. Just 9.5 percent of buyers under age 50 are denied, according to the American Association for Long-Term Care Insurance (AALTCI). But 14 percent of applicants in their 50s are denied coverage, and 23 percent of those in their 60s are turned down.

2. Reduce your benefit. The most expensive and comprehensive LTC polices offer lifetime benefits with 5 percent compound inflation riders. But price pressures are driving the industry – and consumers – toward less comprehensive, cheaper policies that still provide solid coverage.

Your options include cutting back the daily benefit amount or increasing the elimination period – the amount of time you wait before benefits begin after filing a claim. Another option is to cut the length of time that benefits are paid.

For example, a 55-year-old couple could buy a policy with an unlimited lifetime $150 daily benefit and a five percent inflation protection for about $4,000 per year, AALTCI says. Cutting back to three years of coverage with the same daily benefit would cost only $1,500.

If you’ve got the unlimited coverage and face a big rate hike that you can’t afford, consider dropping back to less coverage. Likewise, anyone shopping the market will do well to consider the less comprehensive coverage.

The LTC market has been moving in this direction in recent years. The percentage of insured policyholders with lifetime benefits has fallen from 36 percent in 2002 to just 15 percent in 2009, according to Helwig.

Three years of benefits will be enough to cover all but 13.1 percent of policyholders, according to a recent Milliman study based on the claims history of four large insurance companies; just 7.6 percent will need more than four years of benefits and only 4.5 percent require more than five years.

“There’s a lot of room for more affordable, flexible products,” says Anne Tumlinson, senior vice president of Avalere Health, a consulting firm that has done extensive research on LTC products, including CLASS. “People tend to buy very expensive products, but at end of day, what you really need is enough cash flow to allow you to stay home and get whatever level of care you need – it’s not always an institutional care need.”

3. Consider the policy’s current value. About 40 percent of LTC policies have compound inflation riders that boost the value of daily benefits and total dollars available to policyholders. If you have that kind of coverage, a big rate hike may not seem so bad. If a 55-year-old couple bought a policy in 1995 with a $150-per-day LTC benefit and a five percent compound rider, the benefit would be worth about $400 by 2015, according to AALTCI.

4. Research rate hike histories. If you’re shopping for a policy, ask carriers or insurance agents for the track record on previous rate hikes. State insurance departments can provide records of consumer complaints against carriers.

Photo: A pensioner drinks a glass of water during a hot summer day in a residential home for the elderly in Marseille July 9, 2010. REUTERS/Jean-Paul Pelissier

3 comments

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[…] can policyholders and prospective buyers cope? I offer up four strategies for coping with LTC rate shock this week at […]

Posted by How to cope with soaring long-term care rates | RetirementRevised | Report as abusive

Much of the pressure on insurers offering long0-term care insurance has been historically low interest rates. Between 40-and-60% of the dollars accumulated to ultimately pay claims comes from investment return (the rest from premiums paid by poliyholders).

When interest yields rise again, it will be more costly to refinance a mortgage. But for long-term care insurers, well, it will remove that pressure.

But before anyone uses that as an excuse to delay planning, don’t forget you need to health qualify for coverage.

Finally, don’t overlook discounts that can make this coverage affordable. Read our free online description http://www.aaltci.org/free-guide/

Jesse Slome
Executive Director
American Association for Long-Term care Insurance
http://www.aaltci.org

Posted by jesseslome | Report as abusive

Some good information about the CLASS Act is on AAHSA’s Health Reform site: http://aahsa.org/HealthReformHub.aspx

Posted by CCollinsYoung | Report as abusive

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I think one of the biggest things that people can do is to plan ahead for asset based ltc. If you have time to prepare, it’s a lot easier than all of a sudden having to shell out $70,00 plus a year.

Posted by BruceDyson | Report as abusive