Long Term Care Insurance Evolving As Baby Boomers
Turn 65
When long-term health insurance (LTCI) was first made available, the average buyer was in their mid-70s.
According to experts, today, the average buyer is 63, while in the employer/employee group market, the average age is 43.
Experts agree that to be truly cost effective, the consumer should purchase LTCI at a younger age, when benefits are larger and premiums are smaller. However, they face a period of premium payments where the costs may sky rocket. Indeed, there was a period when premiums did soar in recent years.
Currently, while carriers are tightening their underwriting requirements, it makes sense to obtain coverage while younger and in good health.
Transformation Occurring
According to benefits consultant Murray Gordon, President of MAGA, LT, the LTCI industry is rapidly transforming. What was true one year ago may not be true today, and the years ahead will bring additional changes.
According to Gordon, LTCI carriers are currently reevaluating the way they do business. The industry is in the midst of a philosophical shift, evidenced by new, next-generation policies and tighter underwriting requirements that will affect future policyholders.
Carriers are reexamining their products and practices. Some have already filed for rate increases, adopted more stringent underwriting guidelines, and tightened benefits. Some are even downsizing.
Some trends to consider are:
- At any given time, 100-125 carriers are actively selling LTCI. Yet the top 10 carriers consistently represent 70% of market share, and these heavy-hitters set the trends.
- LTCI sales have skyrocketed in the last few years. Over eight million Americans now have coverage, compared to 815,000 in 1987. This boom is due in part to substantial growth in the group sector.
- In 2002, the federal government added voluntary LTCI to its benefit program. As the nation’s largest employer, the government serves as model for many U.S. employers. Now, companies large and small are adding voluntary programs.
- But remember the adage “Be careful what you wish for!” As LTCI sales increased, so has benefit utilization. According to the Health Insurance Association of America (HIAA), in 2002, annual claims surpassed the $1 billion mark for the first time.
- There are numerous contributing factors. People are living longer; the cost of health care is rising. (Nursing facility care now averages $61,000 annually and will nearly double in the next 10 years.) Roughly half of all Americans will require long-term care at some point over age 50.
- And this need for care will accelerate in the not-too-distant future, as 70 million baby boomers (1946-1964) come of age. As a result, carriers are managing their exposure more aggressively. Pair that with the fact that they—like most of us—have experienced poor investment earnings over the last few years, and it’s easy to see why the industry is pulling back.
A Time for Reassessment
Here are the major changes Gordon is seeing:
Unlimited Lifetime Benefits Are Disappearing. Many LTCI policies still feature unlimited lifetime benefits, but perhaps not for long. CNA was among the first to eliminate unlimited benefits, but won’t be the last. Other carriers are already taking this change into account when designing their new generation of policies.
Tightening Up the Age Limit
A few years ago, many carriers would offer coverage to individuals up to age 99. Now, you have to look hard to find such an offer. Carriers have learned the hard way that exposure increases sharply after age 80.
More Health Conditions Excluded
Although each company evaluates health conditions individually, eligibility overall is becoming more restrictive. Most carriers will not insure insulin-dependent diabetics. Most now require an in-person assessment of applicants over age 70, specifically to weed out those in the early stages of dementia. Despite these tighter underwriting requirements, it still remains much easier to qualify for LTCI than for life or health insurance.
On the Positive Side, Gordon offers the following:
Home Care Is Now Widely Covered
Some people used to call LTCI “nursing home insurance.” Today, a more accurate name would be “anti-nursing home insurance,” because most policies include benefits for home care. That’s good news, since home is where most people prefer to remain. Some companies will even allow family members to qualify as caregivers as long as they obtain a caregiver’s certification.
Limited Pay Plans Growing in Popularity
Under traditional premium payment plans, premiums are collected on a monthly, quarterly, semi annual or annual basis. These days, more policyholders are considering electing limited pay plans—such as “single pay” (i.e., paying premiums in one lump sum) and “10 pay” (i.e., making 10 accelerated payments) and “paid up at age 65.” In some situations, you may find this option beneficial. When choosing a plan, however, be sure the carrier has very strong ratings and billions of dollars in assets and reserves.
Inflation Protection—A Terrific Option
Most carriers offer an inflation protection option, which automatically increases benefits on each policy anniversary. This option is becoming increasingly popular, and with good reason. Consider this: in 1975, nursing facility care cost roughly $20 per day. Now, that same care costs $167 per day. By 2015, costs are expected to top $290 per day.
Yes, the option results in higher premiums, depending on age. However, premiums remain level year after year, so the cost is spread over the life of the policy. As carriers continue to find ways to limit benefits, inflation protection becomes even more valuable.
