Insurance costs for long-term health care are skyrocketing, with annual premiums more than doubling in some cases. What’s going on? And, more important, what can you do about it if you have a long-term care policy or are considering buying one?
The rising premiums are evidence that insurance providers gambled on long-term policies — and lost.
The insurers underestimated just how quickly, and how high, the health care costs of aging boomers — their prime market — would increase. To compensate, 10 of the 20 biggest insurance companies have stopped selling new policies; the rest are charging more than ever for coverage.
In order to beat rising rates, you’ll need to lower your coverage expectations and accept some trade-offs. (For the ABCs of long-term care insurance, read this Next Avenue primer.)
If You Own a Long-Term Care Policy
If you already have a policy, here are three possible ways to lower your premiums:
1. Reduce your monthly premiums by lowering the potential daily benefit. A reimbursement or indemnity long-term care policy typically pays $100 to $500 a day, depending on the rate you choose. The lower the policy’s daily reimbursement, the lower your premiums.
2. Decrease the number of years of coverage while slightly increasing the daily benefit. In industry parlance, this is called the “short and fat” approach.
In the past, many policyholders signed up for unlimited lifetime coverage. But with the escalating cost of long-term health care, that’s no longer financially feasible. Experts now recommend cutting your policy’s benefits period to three years — the length of the average nursing home stay. When you do this, you can probably then afford to goose up the size of the policy’s daily benefit.
3. Increase what’s known as your “elimination period.” This is the lapse between the time you initially qualify for benefits and the time the policy starts paying. If your current elimination period is zero days — meaning benefits kick in the moment you’re eligible — switching to 90 days can reduce premiums by as much as 10 to 15 percent.
Trimming Costs on a New Policy
If you’re just beginning to search for a long-term care policy, keep these cost-cutting tips in mind:
1. Wait to buy until you’re 60. By delaying the purchase from age 50, say, you’ll pay a higher premium — roughly $50 more every month — but you’ll avoid 10 years of annual rate hikes. One caveat: If you delay the purchase and your health declines in the interim, you may face even higher premiums or denied coverage.
2. Make premium payments in an annual lump sum, not monthly. By giving the insurer more of your money early, the company may cut your premium costs by as much as 8 percent.
3. Skip or scale back inflation coverage. A hedge against rising long-term costs, an inflation policy rider automatically increases your daily or monthly benefit each year by the percentage you’ve specified. The higher the increase in potential benefits, the more you’ll pay in premiums.
Inflation riders typically provide a 5 percent annual increase in benefits, but you’ll pay higher premiums than you would for a rider that offers a 3 or 4 percent bump in benefits. For instance, Mutual of Omaha charges a 59-year-old in excellent health 23 percent more for a 4 percent inflation benefit than it does for a 3 percent rider — and a whopping 47 percent more for a 5 percent inflation rider.
Once you’ve purchased a long-term care policy, however, “most carriers will not generally let you change the inflation rider,” says Stuart Armstrong, a financial advisor with the Centinel Financial Group.
4. Get married. You can trim as much as 10 to 35 percent off the annual cost of an individual long-term care policy if you have a spouse. This might not be a reason to tie the knot, but it’s nice to know that marriage provides one extra long-term benefit.
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