An Insurance Agent's Case for Buying Long-Term Care Insurance
A rebuttal to the recent article by Next Avenue's Money Editor
When making a big decision, it’s important to: gather the facts, base your decision on the facts and keep your emotions in check. As an independent insurance agent specializing in long-term care insurance, I’d say that when it comes to long-term care insurance, none of these steps is easy.
It took a lot of guts for Next Avenue’s Money & Security Editor Richard Eisenberg to share his experience in, “Should I Buy Long-Term Care Insurance?” The article is a compilation of what I believe are the most common misconceptions consumers have about long-term care insurance. If long-term care insurance was anything like what he describe, I would never buy it.
Addressing Next Avenue's Misconceptions
In this rebuttal, I’ll address each misconception one-by-one in a series of questions and answers, sharing as many facts as possible:
Why are so few companies selling long-term care insurance?
The insurance industry has consolidated. In the 1980s, about 100 companies sold disability insurance. Today, fewer than 15 do. In the 1990s, over 400 companies sold medical insurance. Today consumers have to choose from only a few that do. In the 1990s, over 100 insurance companies sold long-term care insurance. Today, 14 do and most of them have very high financial ratings. Two companies that had stopped selling long-term care insurance several years ago are now selling it again. Recently, a 106-year old insurance company that has never sold long-term care insurance began selling it.
Haven’t all the big companies stopped selling long-term care insurance?
No. Some of the largest and most respected insurance companies in the country sell long-term care insurance including John Hancock, Massachusetts Mutual, Mutual of Omaha, New York Life, Northwestern Mutual, State Farm, Thrivent and Transamerica.
If a company stops selling long-term care insurance policies will it pay my claim in the future?
Yes. All of the insurance companies that have stopped selling new long-term care policies are still paying claims on their old policies. They have no choice! They are legally obligated to pay all claims. You can view every insurance company’s claims data (for 2014) on the National Association of Insurance Commissioners website.
If the long-term care insurance company goes bankrupt will my claims be denied?
No. Every state has a guaranty association to make sure that claims are paid when an insurer goes through financial difficulty. State guaranty associations have maximum benefit levels that can vary from state to state, but most provide coverage of up to at least $300,000 in long-term care insurance policy benefits.
How do I know the insurance company will pay my long-term care claim when I get older? I’ll be too sick to fight them.
It’s true that many of the older long-term care insurance policies had provisions that restricted access to benefits. Many older policies only paid benefits if you first had a three-day hospital stay. Other policies excluded care for Alzheimer’s. Some policies would only pay for home care if you needed “skilled care.”
The federal government and all 50 states outlawed these restrictive provisions in the mid-1990s for all new policies, but not the old policies. Essentially, the government required the insurers to install “airbags” in all new long-term care policies to protect policyholders when they needed it the most.
In 2010, the federal government commissioned an audit of the seven largest long-term care insurers to see how well these new laws protect policyholders at the time of claim. They concluded that the claims were being paid and the “airbags” were working.
A more recent study by America’s Health Insurance Plans, in 2014, found that only 4 percent of claims had been denied. Claims are denied when the policyholder does not meet the federal guidelines for benefit eligibility.
Why don’t most people own long-term care insurance?
Currently, over 7 million people in the country own long-term care insurance. However, about half of all retirees have less than $40,000 per year in household income. That means about half of all retirees do not need long-term care insurance; Medicaid will pay for their care. The only people who should consider owning long-term care insurance are those who have income levels that would prevent them from qualifying for Medicaid.
Should everyone own long-term care insurance?
No. But everyone should have a plan for extended care.
Is the main reason to own long-term care insurance to “protect some inheritance for heirs?”
No. Readers of Next Avenue are likely to live a long life. If you do live a long life, it’s reasonable to conclude that you may need extended care. Extended care is not a place or a condition. It is a life-changing event.
If you need extended care over a period of years, your life is not going to end. Someone else’s life (lifestyle) is going to end. What would the consequences be to your loved ones if you needed extended care? The worst consequences of extended care are not to the person who needs the care, but to the family member that provides the care.
You may say that you don’t want your spouse or your child to care for you. What choice will they have? The main reason for having a plan for extended care (which may or may not include long-term care insurance) is to mitigate the physical, emotional, and financial consequences your family would bear if you were to need extended care.
Does the average long-term care policy cost $3,000 per year?
No. Including all rate increases, the average long-term care insurance premium is $1,591 per year, based on my calculations from a 2015 National Association of Insurance Commissioners report with 2014 data.
Because of new consumer protections designed to prevent rate increases, policies purchased today do cost more than older policies. In 2015, the average premium for a new policy was $2,532 per year, according to a LIMRA survey of most companies selling long-term care insurance. (Couples can get discounts as high as 30 percent when purchasing policies at the same time.)
Do long-term care insurance premiums go up every year?
With most policies, long-term care insurance premiums do not go up every year. However, you must be aware that there are two different types: some policies have premiums that go up every year as the benefits go up. Other policies are designed to have level premiums even though the benefits increase each year.
When you compare policies, make sure you understand which policies have annual premium increases and which policies have premiums that are designed to remain level.
Did one insurance company nearly quadruple monthly premiums over the past two years?
No. Although Mr. Eisenberg quotes from a Kaiser Health News article saying that, the story is false. No long-term care insurance company has ever quadrupled its premiums.
The woman who was the subject of the article purchased her policy in California in 1999. Over 17 years, everyone who purchased that same policy form in California had a 13 percent increase, a 41.6 percent increase and a 58.6 percent increase. This is one of the largest cumulative increases of any long-term care policy form ever sold. However, to say that her premium “nearly quadrupled over the past two years” is completely false. The writer of the article did not verify the accuracy of the statement.
Are there any regulations to protect me from future premium increases?
Yes. To protect consumers purchasing policies today, 41 states have passed strict pricing regulations. (I call these regulations “anti-lock brakes.”)
Consumers purchasing policies today are protected from the pricing mistakes of older policies. More importantly, the new regulations have removed the insurer’s profit incentive from rate increases. By removing the profit incentive, these new regulations have resulted in fewer rate increases.
For example: California passed these strict pricing regulations on July 1, 2002 (over 14 years ago). Every long-term care insurance policy approved by California since then must comply with these strict pricing regulations.
There are 16 insurance companies that have issued over 80 percent of long-term care policies in California. Based on rate increase data published last December, of those companies, 93.64 percent of their rate increases in California have been on policy forms not protected by these regulations. Only 6.36 percent of the rate increases in California have been on policy forms protected by these regulations. In fact, 12 of the top 16 companies have not had any increases on any of the policy forms they’ve sold in California since July 1, 2002.
Why hasn’t the government created an affordable solution for the middle class?
It has. In cooperation with the federal government, 44 states have launched an affordable solution for the middle class: a public/private partnership called The Long Term Care Insurance Partnership Program.
It encourages the middle class to purchase government-approved long-term care insurance policies with an amount of benefits equal to their net worth. If their Long-Term Care Partnership policy runs out of benefits, they can apply for Medicaid to pay for their care and all of their assets will be protected from Medicaid now and after they pass away.
For example, a married couple who are both 61 and in good health could share a Long-Term Care Partnership Policy with $400,000 of benefits. Their premium would be about $137 per month per spouse. If they used all $400,000 in the policy, they could apply for Medicaid and protect $400,000 of their assets from Medicaid. The middle class can now target how much coverage they need based upon how much of their assets they want to protect from Medicaid. (A caveat: Rates for long-term care insurance vary greatly between insurance companies based on your health history. An independent long-term care insurance specialist can help you find the best Long-Term Care Partnership policy based on your health history.)