Traditional Long-Term Care Insurance is Getting Ugly but Explore the Alternatives

Researchers estimate that more than half of today’s 65-year-olds will require long-term care at some point, at an average total cost of $138,000. Most will need help for less than two years. But one in seven Americans turning 65 today will face more than five years of disability, with potentially dire financial consequences. Medicare covers only short stints in a nursing facility. Medicaid can fill the gap, but only after you’ve depleted most of your assets. But to afford an assisted living facility, you’re probably on your own.

And the true impact on the quality of life for caregivers can be compromised very quickly.

77% of caregivers missed time off from work and close to 1/3 of caregivers provided more than 30 hours of care per week.

Enter long-term-care insurance, private policies that cover at least a portion of home, assisted living, or nursing home care. However, per Barron Magazine,

The long-term-care insurance industry has fallen into financial turmoil, causing misery for many of the 7 million-plus policyholders. . . The problem: “Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying,” the Journal writes. “People are living and keeping their policies much longer than expected.” And nine years of ultralow interest rates have left insurers with far lower investment returns than they needed to pay those claims. The result is an exodus from the business and skyrocketing costs for policyholders.

As described in the Wall Street Journal:

Never in our wildest imagination did we consider that the company would double the premium,” says Sally Wylie, 67, a retired learning specialist who lives on Vinalhaven Island, Maine.

In the past two years, CNA Financial Corp. has increased the annual long-term-care insurance bill for Ms. Wylie and her husband by more than 90% to $4,831. They bought the policies in 2008, which promise future benefits of as much as $268,275 per person. The Wylies are bracing for more increases.

Listen to these two long-term care specialists discuss the WSJ article and the changing scene.

The WSJ then failed to fully advise what to do in the face of the changing market. There is still affordable long-term insurance planning to be performed.

If you are someone who has been impacted by spiraling premium increases, you are not helpless, and you do have more options than the WSJ article suggests. In fact, there are things you can do to reduce your premiums according to Bill Borton, Managing Principal of W.R. Borton Associates. Traditional long-term care insurance policies can be modified. You can reduce inflation riders or adjust other features to control premium costs. Mr. Borton still suggests that if you have a policy that experienced rate increases, you should continue to keep the policy in effect if you can afford it. Many of these existing long-term care insurance policies that were sold years ago have more generous benefits than anything that can be purchased today. . .

Today, more products exist than just traditional long-term care insurance. Hybrid-products have been developed to mitigate some of the risks associated with traditional polices, like those unwelcome and unexpected premium hikes. Hybrid policies essentially come in a few different forms, but are typically long-term care benefits attached to a life insurance or annuity product. These hybrid approaches allow for level and one-time premium payments, eliminating the possibility of premium hikes completely. Furthermore, these policies can remove the “use it or lose it” aspect of traditional policies. With a hybrid long-term care and life insurance policy, if you don’t end up needing long-term care benefits, your heirs can still receive the death benefit. This allows people to buy one product that provides two potential benefits, a tool for funding long-term care expenses if needed and life insurance coverage.

Money magazine suggests the following 7 Alternate Ways to Pay for Long-Term Care:

  • People are often confused about how to pay for long-term care. “Resources they think exist don’t exist,” says Laura Troyani who founded the website Most notably, many seniors expect Medicare will cover costs when, in fact, the program does not pay for ongoing long-term care. While Medicare isn’t an option, here are seven alternatives that are.
  • Short-term care insurance. These plans are similar to long-term care insurance policies, but benefits are typically capped at one year. Not only are they less expensive, but they may also be available to older seniors or those who aren’t otherwise eligible for long-term coverage.
  • Life/long-term care insurance. Rosenthal is a fan of combining long-term care coverage with life insurance. Specialty policies, often known as life-LTC hybrids, feature fixed premiums that help consumers avoid the type of rate increases currently being experienced in Pennsylvania.
  • Long-term care annuities. Troyani says long-term care annuities are a frequently overlooked option for covering home health, assisted living and nursing home care costs. These annuities require a hefty upfront payment, but if you need long-term care, your overall cost may be lower than what you’d spend on insurance premiums. However, don’t expect much in the way of interest. “If you’re looking at it from an investment standpoint, it’s not so awesome,” Troyani says.
  • Health savings accounts. For those who have an eligible high-deductible health insurance plan, a health savings account offers a way to put money aside tax-free for medical costs, such as long-term care. Boyles calls them health IRAs and notes that those who have long-term care insurance can pay their premiums with money from a HSA.
  • Home equity. Retirees without significant investments may still own a valuable asset: their house. Tapping into home equity through a line of credit, taking out a reverse mortgage or selling a house outright are some of the ways people can use their property to pay for long-term care.
  • Pensions or Social Security. Depending on the size of your monthly payments and the amount of care you need, paying for services monthly out of a pension or Social Security benefit may be option.
  • Medicaid. When all other options have been exhausted and a person’s income and assets have been depleted, the government will step in to pay for care. Medicaid won’t pay for assisted living, but it will cover nursing home care and many states also pay for home health care services for eligible people. However, states are required by the federal government to recover the cost of long-term care from estates whenever possible. That means, for example, if a parent’s home is sold after his or her death, the proceeds could go to the state instead of heirs.

Consumer Reports summarized some of these new, alternative options here. (I am not a financial or insurance advisor nor sell these services so I recommend you seek separate counsel from persons in these fields as to the best option for you.)

This problem cannot be ignored:

Rather, the debacle illustrates a troubling truth: Private insurance can’t handle this problem by itself.

By 2050, the U.S. will have almost 90 million people aged 65 and over, and more than half will need long-term care at some point. Yet only a sliver of that group can afford the premiums insurers require. As of 2015, private insurance covered less than 10 percent of U.S. spending on long-term care — and the private market has been shrinking.