Call Us 248-469-4261


The Challenges of Traditional Long-term Care Insurance

Posted by Andrew Byers | Nov 30, 2020 | 0 Comments

Routine estimates predict that about 50 percent of older adults will require long-term care at some stage of their lives. If you are an adult 65 or more, the percentage moves up to 70 percent. However, the demand for long-term care far outnumbers an affordable or even existing supply. For years, insurance companies have been leaving the long-term care insurance marketplace. Americans who currently carry long-term care insurance are a small fraction, about 7 percent of adults over 50 years of age. There is a private sector inability to meet Americans' overwhelming long-term care needs at an affordable price. With nursing home care costing on average of $8,600.00 per month in Michigan, a senior's $100,000 nest egg can be depleted in about one year. The US healthcare system's long-term care options are rapidly faltering as it is impossibly expensive, inefficient, and a poor performer for both seniors and industry.

Long-term care provides a broad array of supports and services to elderly patients and the disabled in daily life activities. These activities include bathing, toileting, dressing, transferring, and eating. Long-term care is also support for patients who have Alzheimer's, dementia, diabetes, and other chronic conditions. Providers of long-term care operate in nursing homes, assisted living facilities, and private homes. Fewer than one in thirty Americans own a long-term care (LTC) insurance policy, and only about seven percent are adults are over the age of 50. Despite the aging US population, the raw figure of 7.5 million LTC insured has barely moved since 2008.

The main reason for so few people having LTC is the premiums have consistently risen why the average policy benefit has decreased. For example, the average LTC insurance annual premium for someone ages 55 to 64 has risen from $1,900 per year in 2005 to $2,600 per year in 2015. Meanwhile, the average policy benefit decreased from $270,000 in 2005 to $235,000 in 2015.

When long-term care became part of the health care insurance industry in the 1970s, there was a wild mispricing error due to poor estimates of the future costs of care, which severely underestimated the cost of such plans. Subsequently, some insurers have abandoned the market altogether. In the year 2000, there were 100 policy providers; there are fewer than a dozen today, and it is harder than ever to become qualified.

The American Association for Long-Term Care Insurance (AALTCI) finds that between 44 to 51.5 percent of applicants aged 70 or more are declined coverage. Nearly one-third of adults between 60 and 65 are refused. Even those in their 50s experience a 21 percent rate of application refusal. Rejection is prevalent because any combination of two or more chronic conditions is a basis for near-automatic disqualification. Certain diseases are also grounds for denial, such as diabetes requiring insulin shots, stroke history, and cardiac disease, to name a few.

Despite large premium increases and increasingly difficult qualifications, long-term care claim losses still exceed expectations and have since 2008. Under current market conditions, insurers find it impossible to structure a profitable long-term care program. Moreover, many insurance coverages for the senior living industry are experiencing increases in their rates and premiums. Some insurance brokers report that even accounts with a clean loss history are experiencing premium increases at a minimum of 12 to 15 percent. Additionally, in the next year to two years, assisted facilities' insurance costs could double or triple. Average policy benefit payouts will find it difficult to address the future long-term care needs. Carriers are consolidating to remain profitable, but this is shrinking senior living market coverage. Facilities have fewer options, and remaining insurance carriers increase premiums as they continue to restrict coverages and limits. The situation is bad news for seniors and near seniors, as rising business costs are generally passed on to the consumer.

Elements of sticker shock, denial of need, and wishful thinking keep most Americans from purchasing a long-term care plan even though they will most likely need one in their later years. By denial of need, I mean people think they will never need long-term care or do not even want to think about it. By wishful thinking, I mean people think long-term care will not cost that much, they may only need it for a short period of time, or their family will take care of them. Meanwhile, private long-term care insurance is in jeopardy as a result of industry non-profitability. With larger expenditures for Social Security and Medicare due to the increasing amount of older people and increased deficits due to Covid-19, it seems unlikely there will be a government solution to this problem.

While the traditional LTC insurance situation has problems as outlined above, asset-based LTC policies have developed as a viable alternative option. With asset based LTC, you purchase a life insurance or annuity policy with LTC benefits, if you need them. If you do not need the LTC benefits, the policy can provide for a death benefit to be paid to the individuals of your choice. As such, asset based LTC avoids the use-it-or-lose-it problem of traditional LTC. Since these policies tend to be funded with one, larger premium, such as $50,000 to $100,000, they also avoid ongoing, increasing annual premiums.

For seniors for whom traditional LTC or asset based LTC is not an option, irrevocable Medicaid Asset Protection Trusts can be used in Michigan in order to protect some assets from a Medicaid spend-down. For married couples, revocable living trusts with special long-term care planning provisions can also be utilized to protect against a Medicaid spenddown.

If you are concerned about how you or a loved one will pay for long-term care, as an elder law attorney I can help. Feel free to call me or use the form at the upper right or below to contact me to discuss planning opportunities that may be available to help lessen the financial burden of long-term care.

About the Author

Andrew Byers

Andrew Byers' elder law practice focuses on the legal needs of older clients and their families, and works with a variety of legal tools and techniques to meet the goals and objectives of the older client. Under this holistic approach, I handle estate and longevity planning issues and counsel cli...


There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

How I Can Help

I help seniors and their families to prevent the devastating financial effects of long term care. I assist and represent clients in and from the entire metro Detroit area, including all communities in Oakland, Macomb, and Wayne Counties. In-person meetings with Andrew Byers are available at his office Monday through Friday. Video conferences over Zoom or Microsoft Teams are also available.

Office Location