Planning Ahead

By Karen Purze

Karen Purze is an author based in Chicago, IL. She writes about end-of-life planning and family caregiving at lifeinmotionguide.com.

lifeinmotionguide.com

Understanding changes in long-term care insurance

We’re two years into the Covid-19 pandemic, and it’s hard to find an industry unaffected by change. The long-term care insurance industry is no exception.

As a result of the pandemic, insurers have seen higher death rates and lower long-term care claims, according to a survey by Milliman, an actuarial firm. Looking forward, local agents anticipate changes to long-term care policy benefits, qualification criteria, and costs as more becomes known about the far-reaching health impacts of Covid-19.

Because older adults are at increased risk of health complications from Covid-19, it’s important to think about how you’ll pay for potential needs, such as home health aides or a move to an assisted living facility, if you get sick.

There is no widely available federal support for long-term care. Medicare only covers short-term needs, and Medicaid only covers long-term care in a skilled nursing setting for the neediest Americans.

Long-term care insurance is designed to help pay for costs in assisted living communities, skilled nursing facilities, and home care. Because it can be harder to qualify for private long-term care insurance if you are older or are in poor health, it’s important to plan ahead.

The impact of uncertainty

Typically, the best time to buy long-term care insurance is before age 60, though some recommend buying it as early as you can afford it. Your health is typically better when you are younger, so premiums often are lower.

Long-term care insurance coverage is not guaranteed, which is another reason it’s best to apply early. In 2019, 28.7% of applicants between the ages of 60 and 64 were denied coverage, according to the American Association for Long-Term Care Insurance. And the percentage of denied applications only increases with the age of the applicant.

While no one can predict the long-term impacts of Covid-19, Lori Lewis, an independent agent with Senior Benefits Chicagoland, has already seen tighter underwriting, meaning that companies are being more restrictive about who they accept for coverage.

“Carriers are not rushing through the process of approval, as they are looking to bring on stable business,” she says.

Lewis expects to see changes in plans due to Covid-19. “For example, there may be a question on applications in the future asking if one has been vaccinated. A prior Covid-19 infection might put someone in a higher-risk category,” she says.

Rates may also increase due to the pandemic, says Gail Steingold, a long-term care specialist with Burling Insurance Group. “One of the highly rated insurance companies we work with has reduced certain benefits and increased premiums both for women and men on newly issued plans,” she says.

Even without Covid-19, rates for insurance can change from one year to the next. Ask your agent for historical rate increase information and talk to them about strategies for dealing with rate increases, which can be in the double digits.

Given the cost of nursing care and home care, some choose to keep their policies despite rate hikes, while others reevaluate, changing coverage terms or waiting periods to help manage the policy cost. You may also have the option of purchasing an inflation rider, which can adjust policy benefits over time to allow for inflation.

A social option?

Although there is no comprehensive federal support for long-term care, some states have begun setting policies to provide support by developing mandatory long-term care insurance programs (sometimes referred to as “social insurance”). In May 2019, Washington state became the first to enact such a program with the Long-Term Services and Supports Trust Act, funded by payroll taxes. The law, which goes into effect in 2025, established the WA Cares Fund to provide state residents with up to $100 per day toward long-term care services, up to a lifetime maximum of $36,500.

A federal law, called the Well-Being Insurance for Seniors to Be at Home (WISH) Act, has also been proposed. This type of public, or social, program could change the types of policies private long-term care insurers offer. For example, if a public option is available, private companies might offer supplemental products, similar to how Medigap policies exist to complement Medicare.

“Long-term care insurance is incredibly important to plan for, as it provides where Medicare leaves off,” Lewis says. “The question is not whether you will need long-term care in your lifetime. The question is: If you do need care, will you be okay with the consequences to your loved ones and financial plan?”

Annual premiums are expensive, and the cost adds up year after year. Yet, the cost of not having long-term care coverage and having to pay for care out of pocket may also be formidable. Despite the uncertainty that Covid-19 brings to the long-term care market, if you are considering buying a plan it’s important to act early.

Don’t Wait: A Buyer’s Story

Diane and Chris Roberts of Deerfield, who asked that their names be changed for privacy, recently shopped for long-term care insurance. Diane shared their story and her advice.

I’ve known about this type of insurance for a long time. My mother had a long experience with dementia. Luckily, she had a lifetime policy. She started with home care for several years and then a community for nine years. Her claim was active for most of that time. I wanted long-term care insurance because I’ve seen it work.

I’m 63, my husband is 60, and [last year] we decided it was time to try again. We’d done research in the past and are starting it again. My husband has some health conditions that might make policies more expensive, so we’re shopping around. We’d like a four-year policy, but we’ll take what we qualify for. Premiums are around $4,500 to $10,000 a year, depending on the policy.

I wish I’d done this before we turned 60, but we couldn’t afford it at the time. I’d advise people to get it earlier, when they’re even younger. The policies change, your health changes, and the prices go up.