Prices Rise for Long-Term Care Insurance
But without it, families may face extremely high bills
by: Jane Bryant Quinn, from: AARP Bulletin, June 6, 2012
Long-term care insurance is becoming a luxury buy. The middle class increasingly finds itself priced out of that market as premium costs rise, not only for individual coverage but for many group policies, too. The number of new individual buyers dropped by 43 percent between 2004 and 2009 and has recovered only slightly since, reports LIMRA, a group that provides insurance research. So, should you stretch your budget to own a policy? Can you afford not to?
Planning Your Retirement
A good long-term care (LTC) policy helps pay for personal care if you can’t manage by yourself. It should cover services at home or adult day care, assisted living facilities and nursing homes. Many employers offer group LTC insurance at your expense and with no medical exam. Individual policies cost more and are sold only to people in reasonably good health.
Prices going up and up
Your pocketbook also has to be in good health. For people 55 to 65, prices for new policies are up an average of 30 to 50 percent compared with five years ago, says Jesse Slome of the American Association for Long-Term Care Insurance. A single person, age 55 and in “standard” health, would pay an average of $2,000 a year for a policy with middling benefits. A couple at 65 might pay $5,000. Many insurers are raising prices on existing policies, too.
This cost uncertainty reveals an industry in turmoil. Insurance companies are paying more claims than expected because people tend not to let their policies lapse. Better medical care extends the lives of the chronically ill. Low interest rates have slashed the returns that insurers get from their investments. In the past five years, at least 14 companies quit selling new individual LTC policies, LIMRA reports, and seven dropped out of the employee-group business. They still service those policies but can raise rates.
Insurers are not allowed to hike premiums on particular individuals but can go after policies by type. For example, take policies with inflation protection that raise benefits by 5 percent a year. That’s great for you — the increase just about matches the five-year average increase in national nursing home and assisted living costs. But it’s costly for insurers. Some might let you avoid a price hike if you’ll reduce your inflation protection to only 2.7 percent a year.
Some policyholders give up. AARP recently heard from a 90-year-old whose premiums had soared by almost 200 percent over the past eight years. This year, she had to let the policy lapse.
If you file a claim, read the fine print. Attorney Frank Darras of Ontario, Calif., has seen some companies reject or drag out payments for obscure reasons. They might pay for home-care workers only if they keep detailed notes of all services, or they might trim days of coverage because they object to your doctor’s “plan of care.” Fragile seniors are in no shape to fight long paperwork battles, Darras says. “They die, and I wind up with a son or daughter trying to collect what was owed.”
Also, check the fine print on deferred annuities that promise fee-free access to your money to pay for long-term care. Financial planner Bill Houck of Westwood, N.J., says that some annuities pay nursing home fees but not assisted living facility fees.
What are your alternatives to insurance, for bills that can run $80,000 or more per year? Forget the Class Act, the proposed federal LTC program for the middle class. It’s been sidelined as too expensive. Medicaid, for people who have gone through most of their savings, is also under threat. It is the primary payer for an estimated 64 percent of all nursing home residents, according to Families USA. Nevertheless, its budgets are being cut by some states, and many members of Congress want to slash billions more. The health reform law expands Medicaid, but that’s being challenged in the U.S. Supreme Court.
Without private insurance, access to Medicaid or a barrelful of money, you’re depending entirely on good health, good luck — or if that fails — good relatives. More families will have to shoulder the costs of elder care. Fewer children will inherit anything after the bills are paid.
My view: Buy, or renew, long-term care insurance if you can possibly afford it. But for increasing numbers, that protection is out of reach.
