What's the Cost of Long-Term Care Insurance and Who Needs It?
Health insurance rates are rising all over, but perhaps none more-so than long-term care insurance rates. Projected costs for 2017 are set to rise by about 5 percent each year — and are expected to keep rising through the rest of the decade.
Long-term care insurance rates vary from state to state and among insurers. According to the American Association for Long-Term Care Insurance, a single 55-year-old can expect to pay between $1,325 and $2,550 annually for a policy. A couple in their mid-50s with a shared policy can expect to pay between $2,085 and $3,970.
Although rates can vary, there is some hard data that shows the financial risks of delaying long-term care insurance.
Take a 45-year-old male from the state of Pennsylvania. According to LongTermCare.gov, the cost of a monthly adult day care center in 2012 stood at $1,213 in the Keystone State. But if that consumer waits until he retires at age 65, that same care center will cost him, or his family, $2,336 – or almost double the monthly cost from 20 years ago.
Or, consider a 50-year-old woman residing in California. In 2012, the monthly cost of hiring a home health aid was $4,376. But until age 75, when the woman may well need such services, that cost skyrockets to a projected $8,706 per month .
There’s scant evidence the cost of long term will decrease over the next decade or two. According to the Genworth 2016 Cost of Care Study homemaker costs are up 2.56 percent from 2015, marking the highest year over year increase across all care categories.
“Over the past five years, home maker costs have risen 11.1 percent and 6.6 percent for health aides,” Genworth states.
"Although the high cost of long term care in America is considered the 'new normal,' it does not change the reality of what is certainly one of the biggest societal issues of our time — that at least 70 percent of Americans over age 65 will need some form of long term care services and support during their lives," notes Tom McInerney, president and chief executive officer at Genworth.
Yet, while U.S health care consumers recognize the need for good long-term care coverage, they’re significantly underestimating the cost of such care. The Genworth study notes that “four out of five adults underestimate the costs of home healthcare.”
“Despite this being the most popular care option, nearly one-third of Americans (30 percent) incorrectly believe that costs for these services run under $417 per month, when in actuality, the national median rate is $3,861 per month for an in-home aide or $3,813 per month for homemaker care,” the company reports.
Some health care experts say that rising long-term care rates are so problematic, they may wind up scaring people away from buying insurance — which would only exacerbate the problem.
“Rising rates will actually have the opposite effect — it will chase off potential buyers,” says Margaret King, director of Cultural Studies & Analysis, a Philadelphia-based think tank. “Long-term care insurance is really one of the hardest products for the industry to sell, anyway, mainly because of their variable rates over long time frames. With all those variables, in the end, the public may decide that’s not where they want to be.”
Long-term care costs continue to rise
Some medical insurance experts say rising long-term care costs are inevitable, as health care centers have all the leverage over customers.
“With baby boomers and a larger aging population of patients that require greater care, health insurance charges will rise because of supply and demand issues,” says Dr. Reza Bagherpour, chief executive officer at the Medpulse Foundation, and a practicing physician. “Medical billing charges are arbitrary and just because a hospital or facility charges a certain amount it does not make it set in stone for the consumer.”
“So long-term care services, just like any commodities, are only worth what someone is willing to pay for it,” Bagherpour adds. “That’s why insurance companies never lose money. They always make up for it by raising your premiums. It's as simple as a the casino business model: they pay out less than they take in.”
And, if they can’t take in more than they pay out, health insurers will simply leave the marketplace, a trend health care consumers are already seeing with the Affordable Care Act (where Cigna, United Health and Aetna are all either leaving the ACA’s commercial exchanges, or considering leaving.) Now, insurance customers are seeing the same trend in the long-term care insurance market.
CHECK OUT: Will Domestic Partner Insurance Go Away?
“Insurance Companies are bailing out of the long-term care marketplace, and people are seeing big increases in their long-term care insurance premiums, as a result,” notes David Rae, a financial planner with Trilogy Financial Services, in Los Angeles, California. “Some companies that are no longer selling new policies appear to be trying to drive up premiums so high that people will be forced to drop their long-term care coverage before they need it. Essentially, they’re losing all the premiums they have paid in over the years.”
How consumers can lower long-term care insurance costs
So, should health care consumers get long-term care insurance now, and hope it all works out well in the end? Despite instabilities in the market, Rae thinks so.
“Keep premiums in check by getting coverage sooner rather than later,” he advises. “Realistically if you are healthy, your early 50's are the best time to line up the coverage that you may need. If you already have health issues or a family history of health issues, you'll need to start even earlier and can expect to pay more for your premiums.”
Also, choose your long-term care policy based on value, and not just on the price.
“All policies are not created equal,” Rae says. “The value you get for your money can vary widely by policy. While the cost is important if something is priced too cheaply you may face unaffordable premium increases later on down the line.”
You can also cut premium costs by opting for spousal policies and hybrid policies (which combine long-term care insurance with life insurance or annuity policies).
“These can mean as much as 30 percent off the premiums per year, and both increase the odds of getting some benefit from the policy,” he adds.
Another cost-saving option — add a rider on to an existing life insurance policy.
“Many people don’t like buying long-term care insurance because they don't want to pay for something that they may never need,” says is Chris Abrams, owner of Abrams Insurance Solutions, in San Diego, California. “To help combat this issue, many life insurance companies are adding long-term care riders to their policies.”
A long-term care rider will allow access to part of the death benefit to use for medical expenses down the road, explains Abrams. “If long-term care is needed, the insurance company will pay up to the per diem limit (currently $340/day in 2016) to the insured to use for these expenses.
For example, a $1,000,000 life insurance policy with a long-term care rider could work like this: if the insured required $300,000 in long term care expenses, $700,000 would go to their heirs when they passed. If the insured never needed long-term care, then the $1,000,000 would go to their heirs.”
One last tip – get good legal help to cut the best long-term care coverage deal. “An elder care attorney should be integrated into the conversation to best protect the consumer,” says Steven Schwartz, vice president and practice leader of the executive benefits division at HUB International Northeast, a leading global insurance brokerage.
Past that, don’t fret about things you can’t control. Instead, focus on the things you can control.
"Regarding the increasing cost of health care for long-term care issues, unfortunately the consumer has no control over that," Schwartz says. "Financial success is based upon the factors that the consumer can control. Growing their assets, owning long-term care insurance and trying to maintain a healthy lifestyle to mitigate the need for requiring such insurance in the future, are all important factors."