Long-Term Insurance Coverage Out of Reach for Many Americans
The long-term care insurance industry is rapidly shrinking and premiums are increasing, making it harder for U.S. residents to obtain such coverage, the Wall Street Journal reports.
Underestimated Growth Rates Raises Premiums
According to the Journal, many long-term care insurers underestimated the growth rate for health care costs and the increase in the number of individuals who would use the benefits when they began selling policies in the 1980s and 1990s. Further, the insurers predicted that 5% to 7% of beneficiaries each year would drop their long-term policies before using their benefits; the actual rate was lower than 2%, causing them to underprice their premiums.
As a result, premiums for such coverage recently have increased significantly. For example, a 55-year-old single individual pays about $2,065 annually for $162,000 worth of coverage this year -- a 20% increase from 2012 -- according to the American Association for Long-Term Care Insurance. Such rate increases could cause healthier beneficiaries to drop their coverage, leaving sicker individuals in the insurance pool and further increasing premiums.
Long-Term Insurance Is Hard To Find
In the meantime, it is getting harder to find insurers that offer long-term care coverage. Half of the largest long-term care policy sellers -- including MetLife, Prudential Financial and Unum -- have reduced or discontinued the plans since 2010, according to Moody's Investors Service. According to the consulting firm LifePlans, only about 12 companies still offer meaningful long-term care policies, compared with about 100 a decade ago. Individual sales of long-term care plans have fallen by two-thirds annually over the past 10 years.
Although Medicare provides some coverage, it is only for short stays in nursing homes or in-home care under limited conditions. Individuals who have exhausted their savings qualify for Medicaid coverage for long-term care, but it only pays for "a basic level of care," according to the Journal.
In an effort to tighten oversight of the plans, many states have enacted "rate stabilization" laws, the Journal reports. Insurance agents and financial planners also are recommending that their customers purchase "hybrid" coverage, which is life insurance combined with long-term care benefits. Such plans generally require the policyholder to pay for coverage up front, rather than on a per-year basis, but they also can leave unused benefits to their heirs.
In the meantime, Medicare and Medicaid are bracing for a higher demand from more than 77 million baby boomers who soon could need long-term care at the same time lawmakers are looking at ways to reduce the cost of both programs (Greene/Scism, Wall Street Journal, 7/1).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.