Price hike of Long Term Care Insurance
As the price for LTC hikes, elderly Americans weigh dropping their policies.
Samuel Fernandez, 72, is holding his LTC policy that he bought 17 years back, even with an anticipated rate hike.
"If you buy your policy at 60, you might need to claim it when you'll be 80," he said. "Life is unpredictable. You don't know what would happen in future."
Samuel isn't alone. Over 7 million LTC policies are now in force, though the LTC insurance industry is quite far different from its heyday in the 90s. At that time, over 100 insurance companies were in insurance business to provide their elderly clients as well as their assets with protection from an expensive nursing-home stay or a stay in a costly assisted living home.
As of now, the number of insurers providing coverage is much down to about only a dozen or so. Lower interest rates, less than expected numbers of consumers who drop their insurance policies and higher-than-expected claims are the factors to be blamed, as reported by Sarah Jones, a fee-only insurance financial expert.
Individuals who purchased coverage today usually are also paying far more for much less generous reimbursements.
Below is a policy comparison from 1990 vs. 2016:
Features of LTC insurance policies in 1990 and 2016
||Average for the year 1990
||Average for the year 2016
|Type of the policy
|Only nursing-home stay
||Less than 1 percent
|Duration of nursing home benefits
||About 5.6 years
||About 3.8 years
|Nursing home and home care
|Only home care
||Less than 1 percent
|Waiting period for benefits
But the question still remains the same - whether or not you should buy a long-term care insurance policy.
Increasing Cost of Care
Irrespective of how you pay, the care isn't getting less expensive.
The nation-wide average cost of assisted living and home healthcare is 3628 USD and 3861 USD respectively as reported by Genworth Financial.
You may have noticed that assisted living and home healthcare - these two services are not same as nursing home care where the patients normally need full-time professional supervision along with room and board. The national average cost per month for a private room at a nursing home is about $7,700 as Genworth has reported.
Women generally spend more time at long-term care facilities. They on an average spend more or less 2.5 years in a nursing home while men don't spend more than 2.4 years.
When it comes to paying for the care, the insurance advisors target 3 tiers of people and their finances.
"With about $300,000 or less in assets, spend that money down and choose a state-funded program as you might not the capacity to purchase a coverage," says Sandra Gomes, a wealth advisor from Minnesota.
Medicaid, the state and federal healthcare program may help you pay for the nursing-home care if you belong to lower income bracket with an asset worth less than $2,000.
But if you have $2 million or more in assets, an argument may be cropped up for self insuring as reported by Sandra. According to her, you'll still be considered as a millionaire in case you incur $250,000 in your LTC costs.
As a suitable substitute to using your hard-earned asset to self-insure, you can go for a deferred income annuity for getting coverage for the care in an advanced age. And if you can't deposit more money into the Health Savings Account (HSA), in case you have one, after you're on your Medicare plan, you can use any balance in that account for LTC and other eligible healthcare expenses.
Retirees who bestride between $300,000 and $2 million asset range are those who are possibly going to lose a good amount of money paying for their health care and so they are the ones who can benefit the most from a LTC policy.
Experts say that LTC insurance provides retired seniors with some sort of peace of mind in case of a catastrophic health incident. But don't forget that you're still subject to various risks if you purchase a policy.
- First, the coverage may not match the health condition that you're facing. Everybody looks for more coverage, shorter waiting period and more protection against inflation. But to get coverage to meet all these criteria, you may have to go beyond your financial capacity and if you can't, you have to compromise. And in such a case, you may wind up curtailing your coverage by doing away with protection against inflation or by using a short benefit period.
- Another risk associated is that you may spend many years of paying toward the premium and finally you may not get the chance to use it. If you don't use or can't get chance to use it, you'll lose it. This fact often turns consumers off. To address the issue, some insurance companies have introduced 'return on premium' riders for an extra cost.
- Finally, if you purchase coverage, you're actually running the risk that your insurer may raise the premium cost over time. Many individuals who purchased insurance policies during 90s are now subject to steep rate hike as the insurance companies raised the premium rates to counter the cost of high claims and lower lapse rates.
Insurance companies considering a rate hike should get approval from respective state regulators. On the other hand the elderly people are in a tight situation - they can either pay according to the rate hike, let the coverage lapse or lower benefits. For some individuals, if they purchased coverage at right time, started collecting coverage and didn't live very longer, they might have had a reasonable deal. It's possible that someone may have believe that they have got a good deal, but the reality is not so. People, who believe this, are likely to be disappointed.
Samuel experienced two rate increases. The first one increased his annual premium from 1154 USD to 1300 USD. And the next one jumped the cost to 1410 USD. In total, the rates overall increased by about 30%. But he didn't drop the policy. The key reason was that her late wife used her coverage when she had cancer and required care in 2012. The policy gave coverage of $10,000 for chairlift at home care as well as a benefit of $220 for a day home care.
The couple purchased their insurance policies as their daughter encourages. According to Samuel, it's good to spend the money as you don't know how difficult it is to care for your loved ones.
Reasonable Costs and Curtails
If you're planning to buy a LTC policy, you should consider the same only as a way to cover a part, not all of the cost of care. Try as much as you can absorb. This makes things a little more absorbable.
But if you've already have got the coverage and facing a rate hike, you may follow the steps mentioned below:
- Visit the office of your insurance provider and tell that if the coverage cost is going to face a hike of 25% but if you can spend only 10%, then what would you get? Get everything from them in writing.
- Freeze your present benefits to keep the premium cost low instead of losing the coverage altogether.
- Don't think about cutting home care. Insurance experts say that senior clients want to receive care in the familiarity and comfort of home.
- Understand where you can make a tweak. A change in your daily or monthly benefit amount can be doable as is switching the benefits' inflation protection.
More Useful Links:
Are Long Term Care Insurance Plans Priced Uniformly Across The USA?