If the Long Term Care Insurance Market Collapsed, How are Seniors going to Pay for Care?
In 2000, there were over 100 Long Term Care Insurance Companies and today there are maybe a dozen
What happened? In less than 15 years the long term care insurance market has almost disappeared. Major insurance companies such as MetLife, Prudential, UNUM, and the Guardian have quite the market and no longer sell policies. The only companies left have been forced to raise premiums on families that bought policies years ago. This has backed people who bought policies planning for the future to make a choice between dropping their policies or negotiating reductions in coverage in return for less drastic rate increases. The problem is that the insurance companies that sold these policies underpriced the premiums in a scramble for market share and it came back to burn them because they miscalculated two important factors:
Two Factors the Long Term Care Insurance Companies Miscalculated
- Seniors are living longer and the cost of long term care is rising higher than had been expected
- Insurance companies expected seniors to abandon a high percentage of these policies before ever paying a long term care benefit, but the owners who are counting on these benefits refuse to let go after making premium payments for years
The insurance companies assumed that since 88% of life insurance policies purchased never pay out a death benefit because they are either lapsed or surrendered– the same would happen with long term care insurance policies. Instead the opposite happened, and the vast majority of policy owners held onto their policies despite numerous rounds of rate increases and benefit reductions. In the recent Wall Street Journal article (7/1/13), Long Term Care Insurance Leaves Customers Groping, the story of the Deane family is a cautionary tale. They were forced to battle with their insurance company about rate increases and benefit reductions to keep even a portion of the policy they have been paying premiums on for a decade. Rob and Katherine Deane had to contend with a rate increase of 77% on the policy they bought for Mrs. Deane ten years ago. After much distress and haggling with the insurance company, the increase was reduced to “only” 46% in exchange for reducing the time that she could receive coverage from 10 years to 6 years—a 46% rate increase in exchange for a 40% benefit reduction! Her husband, a doctor, said in the article, “Seniors are really getting hammered!” The insurance company refused to comment for the article…..
Also, as the Wall Street Journal reported in this story, in today’s market many insurance agents and financial planners are steering clients to new “hybrid” coverage, basically life insurance with a rider providing long-term-care benefits. One appeal: The policyholder can leave something to heirs even if the long-term-care benefits don’t get tapped. But the long-term-care benefits often are less generous than those in conventional policies, and policyholders typically have to write one big check upfront to obtain the coverage, rather than paying premiums each year, says Nancy Courser, the Deanes’ insurance agent. “We have no way of knowing if these policies will self-destruct in the future,” cautions Mary Ahearn, a financial planner in Arizona.
There was a time when long term care insurance was thought to be the “silver bullet” private market solution that would pick up the financial slack for the costs of Senior Care in America. Obviously, that is no longer the case, but another insurance based solution has stepped forward and is getting a lot of support from consumers, providers and advisors of Senior Care services, and from political leaders across the country. Converting a life insurance policy’s death benefit into a living benefit that can be used to pay for Senior Care which is known as a Life Care Benefit or a Long Term Care Benefit Plan is recognized as a preferred form of private pay for Senior Care in every state and for every form of care services. Families struggling with the costs of care now have a better option than lapsing or surrendering a life insurance policy because they can convert it into an irrevocable, FDIC-insured account that will protect their funds and make sure the payments are being made on a monthly basis to cover their choice of Homecare (Private Duty and Skilled Medical), Assisted Living, Nursing Home, Memory Care, and Hospice Care. Seniors abandon more life insurance every year than there is long term care insurance in-force in the entire country. Now that seniors have an outlet to convert life insurance policies into a dedicated and protected account that will cover their choice of Senior Care services; there is another well regulated, private market solution to fund senior Care Services and help fill in the widening gap being created by the long term care insurance industry.