Many long-term care insurance customers in Pennsylvania got a shock when their renewal notices arrived this year. Premiums were increasing by as much as 130 percent, and annual rates are on track to reportedly exceed $8,000 for some policies.
The increases have spurred outrage from policyholders and an inquiry by the Pennsylvania Insurance Department. Those familiar with the long-term care industry say the problem isn’t isolated to Pennsylvania and dramatically increasing rates may be expected nationwide in the years to come.
Factors pushing insurance rates higher.
There are a number of factors contributing to the explosive growth in long-term care insurance premiums. “When [long-term care insurance] came out in the 80s and 90s, it was priced wrong,” says Larry Rosenthal, a certified financial planner and president of Rosenthal Wealth Management Group in Manassas, Virginia. Carriers assumed people would drop policies as they got older. However, that didn’t happen in many cases. What’s more, people are living longer and aren’t necessarily living healthier. As a result, Rosenthal says many insurance companies have fled the market and those that remain have increased premiums significantly to keep up with costs.
Compounding the problem is the fact that many people wait too long before buying a policy. “No one buys it at a young enough age for it to be inexpensive,” says Kevin Boyles, vice president of retirement and college-savings-services provider Ascensus. The ideal time to start planning is between 52 and 64, according to the American Association of Long-Term Care Insurance. Those who wait longer face higher premiums and an increased possibility of being denied coverage.
7 Alternate Ways to Pay for Long-Term Care
People are often confused about how to pay for long-term care. “Resources they think exist don’t exist,” says Laura Troyani who founded the website PlanBeyond.com. Most notably, many seniors expect Medicare will cover costs when, in fact, the program does not pay for ongoing long-term care. While Medicare isn’t an option, here are seven alternatives that are.
Short-term care insurance. These plans are similar to long-term care insurance policies, but benefits are typically capped at one year. Not only are they less expensive, but they may also be available to older seniors or those who aren’t otherwise eligible for long-term coverage.
Life/long-term care insurance. Rosenthal is a fan of combining long-term care coverage with life insurance. Specialty policies, often known as life-LTC hybrids, feature fixed premiums that help consumers avoid the type of rate increases currently being experienced in Pennsylvania.
Long-term care annuities. Troyani says long-term care annuities are a frequently overlooked option for covering home health, assisted living and nursing home care costs. These annuities require a hefty upfront payment, but if you need long-term care, your overall cost may be lower than what you’d spend on insurance premiums. However, don’t expect much in the way of interest. “If you’re looking at it from an investment standpoint, it’s not so awesome,” Troyani says.
Health savings accounts. For those who have an eligible high-deductible health insurance plan, a health savings account offers a way to put money aside tax-free for medical costs, such as long-term care. Boyles calls them health IRAs and notes that those who have long-term care insurance can pay their premiums with money from a HSA.
Home equity. Retirees without significant investments may still own a valuable asset: their house. Tapping into home equity through a line of credit, taking out a reverse mortgage or selling a house outright are some of the ways people can use their property to pay for long-term care.
Pensions or Social Security. Depending on the size of your monthly payments and the amount of care you need, paying for services monthly out of a pension or Social Security benefit may be option.
Medicaid. When all other options have been exhausted and a person’s income and assets have been depleted, the government will step in to pay for care. Medicaid won’t pay for assisted living, but it will cover nursing home care and many states also pay for home health care services for eligible people. However, states are required by the federal government to recover the cost of long-term care from estates whenever possible. That means, for example, if a parent’s home is sold after his or her death, the proceeds could go to the state instead of heirs.
Relying on family for long-term care is the one option most experts don’t recommend. “It looks free, but there are huge, huge tolls,” Troyani says. Caregiving can be physically and financially draining, and it may lead to resentment and broken relationships within a family.
Long-term care insurance is expensive, but it’s not the only way to pay for elder care services. Weigh your options to find the right solution for your family, but don’t wait too long. The earlier you start saving, the more secure you’ll be later in life.