Long-Term-Care Insurance: Not Going According to Plan

Fewer Choices • Higher Premiums • Limited Coverage

Insurance companies and consumer advocates say you should consider long-term-care insurance for your later years. However, ever-increasing premiums, combined with fewer insurance companies that are willing to provide such policies, make long-term-care insurance a tough buy.

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Kenneth Ribyat, 64, has sold long-term-care insurance for 2 decades. He and his wife own policies, and he believes that the coverage will benefit them down the road if they need assistance around the home or have to move into a nursing home or an assisted-living facility.

Nevertheless, Ribyat is dismayed by the long-term-care insurance industry. He says that in the past 5 years, the industry jacked up premiums by at least 50 percent on average for consumers who bought coverage 1–2 decades ago.

Rate changes are common in the insurance world, but Ribyat says the extreme increases in long-term-care insurance recently are instances of insurance companies taking advantage of consumers.

“They really screwed up,” he says of insurance companies.

A number of financial mistakes, combined with low interest rates since the recession began in 2008, caused insurance companies to anticipate that they would become unprofitable on their long-term-care insurance policies, Ribyat explains. To increase their bottom line, he says, they held the longest term owners of long-term-care insurance responsible for their own bad math. The result is that consumers who are age 80 or older are in danger of being priced out of their long-term-care insurance at the time that they expect to use it.

“How can you come in and undo that, when the whole idea of insurance is to be able to plan?” Ribyat says.

An estimated 7 million U.S. consumers own long-term-care insurance, which covers people in the event that they become unable to perform basic daily functions. However, it’s becoming more expensive not only for consumers who have it but also for those who want it. According to America’s Health Insurance Plans (AHIP), which is a trade association, the average long-term-care insurance premium in 2005 for a consumer who was age 55–64 (the age group that’s most likely to buy coverage) was $1,877. By 2010 (AHIP’s most recent data available), the cost for the same age group jumped by 20 percent to $2,255. Meanwhile, benefits are being scaled back. Although long-term-care insurance can be a good investment, the group of people that can afford it is shrinking.

WHY BUY? Long-term-care insurance is a significant expense, but everyone from insurance-industry watchdogs and regulators to the 10 experts with whom we spoke agree that it’s worth having in many cases.

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Most people require long-term care at some point, says Joe Caldwell of National Council on Aging (NCOA). According to a 2012 report from Department of Health and Human Services (HHS) that cited a 2005 study, roughly 70 percent of people experience sufficient functional disability that requires assistance with daily living skills after they turn 65. On average, they require about 3 years of help. However, only about 10 percent of people who are older than 60 have long-term-care insurance, Caldwell says.

Typically, long-term-care insurance kicks in when a beneficiary can’t carry out at least two basic activities of daily life—eating, getting in or out of bed or a chair, getting dressed or using the toilet. A policy that provides, for example, a $200-per-day benefit can pay a home-care worker to assist with those activities at home. The policy also could defray the expense of therapy, hospice care, a nursing home or an assisted-living center.

Such services can be quite expensive. For example, according to a 2012 survey by insurer MetLife, a private room at a nursing home cost an average of $248 per day, or $90,520 per year. A semiprivate room averaged $222 per day, or $81,030 per year.

These expenses generally aren’t covered by standard health, life or disability insurance. Medicare and Medicaid don’t take up the slack, either. Medicare pays for some long-term care at home or in a nursing home but only under stringent rules and when a person also needs skilled medical attention.

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