Forty percent of Americans over the age of 65 suffer from a physical or cognitive disability and the number of those requiring long term care is growing sharply. However, buying insurance that will pay for long-term care a decade or two from now involves actuarial calculations and is an area of personal finance where professional guidance can be particularly important. This is an alert about long-term care insurance (LTCI).
LTCI policyowners have been forced for many years to accept lower benefits or pay more to keep their policy’s current benefits. Even though the insurance business is regulated by state government authorities, and insurers are required under the law to request approval before changing a policyowner’s benefits or raising premium prices, most rate hike requests by insurers receive full or partial approval.
To be fair, rising health care costs and changing medical technology have made LTCI policies difficult for insurers to price. According to a study published by Milliman, the actuarial services firm, in March 2022, the average increase approved by state regulators was 29%, and price hikes ranged from 5% to more than 60%.
In addition, pricing what it will cost to pay for a policyowner’s nursing home, home-care, and other benefits 10, 20 or 30 years from now depends on complicated statistical modeling. Insurers customarily require health records to assess an individual’s risk of heart disease, dementia, cancer, and other chronic diseases before providing a policy proposal. Thus, the actuarial math involved in selling LTCI is much more complicated for insurance companies than selling a life insurance policy. Life insurance involves one risk: mortality. In contrast, long-term care insurance involves two risks – bad health as well as mortality.
In addition to price hikes, according to the Milliman report, LTCI insurance carriers also often were approved to reduce benefits on policies, lowering the maximum benefit allowed daily, shortening the length of the period benefits will be paid, lengthening the time you must wait before benefits begin, and reducing inflation protection. Only about 11% of policyholders elected a reduced benefit option; the majority accepted the price hike to keep their benefits the same.
Many LTCI companies also offer a reduced paid-up benefit, with no further premiums due, but fewer than 5% of policyholders elected this option, according to the Milliman study. Negotiating a cash buyout of an LTCI policy is an uncommon option, but it can be negotiated with some insurers, which should be a consideration if you are hit with an unexpected LTCI price hike.
For consumers, evaluating long-term care insurance policies makes it wise to get access to actuarial software tools like those used by insurers to price LTCI policies. Fortunately, there is an app for that. Using software, we can help you determine the relative value of the options that your insurance company is offering to you. If you would like to access software factoring in health, age, and other risk variables personal to you to help you price LTCI, please contact us.