Report Looks at Why Long-Term Care Insurance Isn't More Popular

June 22, 2009

Price and complexity are major deterrents to purchasing long-term care insurance, according to a new report by the Kaiser Commission on Medicaid and the Uninsured. The report, "Closing the Long-Term Care Funding Gap: The Challenge of Private Long-Term Care Insurance," describes the results of a study of who is purchasing policies, how much they cost, and what features are included.

While long-term care insurance could potentially benefit middle-income individuals the most, current purchasers of insurance have above-average income and assets. People who shop for long-term care insurance and decide not to buy cite cost as the main reason. In 2008, annual premiums for a typical policy for a 60-year-old averaged $2,329 for an individual and $3,096 for a couple. For a 70-year-old, premiums averaged $4,515 for an individual and $6,010 for a couple.

Policy options for this type of insurance are quite complex, and when purchasing a plan consumers have to sort through many different options and insurers. Policies differ in what they cover, the daily benefit, the benefit period, and the waiting period before benefits start, among other things. According to the study, the most popular type of plan is one that pays for a comprehensive array of services with coverage amounts of up to $150 a day for 3 to 5 years, a waiting period of around 90 days, and automatic compound inflation protection of 5 percent.  With nursing homes costing about $212 a day in Michigan, even such a comprehensive long-term care insurance policy would leave the nursing home resident or their family with a large monthly bill they would have to pay themselves ($212 - $150 = $62 per day x 30 days = $1,860).

Lower-income purchasers tended to have lower coverage amounts and smaller benefit periods as well as less inflation protection. The study relied on expert interviews, the collection of 2008 premium data from three major insurers, and a literature review.

Although consumers can choose among 40 to 45 long-term care insurance carriers, three carriers, Genworth, John Hancock, and MetLife, accounted for more than half of individual sales in 2006. Many other companies have stopped offering long-term care insurance policies or have consolidated their offerings.

The report outlines several things that would need to change in order for long-term care policies to grow in popularity. Among others, the report emphasizes the following issues:

§         Cost. Long-term care insurance is expensive. Options for reducing costs could include supplementing policies, additional tax credits, or premium subsidies.

§         Complexity. The report notes that the complexity of long-term care insurance policies requires a sales agent or consumer advisor to guide a purchaser through the options. Simplifying and standardizing policies may help reduce costs.

§         Flexibility. The health care industry is always changing and there may be new long-term care options and assistive technology. Long-term care insurance policies need to be flexible enough to adapt to these changes.

In Michigan, the law allows a married couple to protect all of their assets when one spouse requires long-term care in a nursing home, so long-term care insurance may not be as important for a married couple to pay for nursing home care.  However, Medicaid does not pay for the cost of assisted living residences.  As such, I recommend that married couples consider purchasing long-term care insurance that at least provides coverage for home care and assisted living.  If a single person enters a nursing home, the law allows us to protect about fifty percent of the person's assets and obtain Medicaid coverage.  As such, long-term care insurance that includes nursing home coverage may be more important for a single person.  If a married couple or single person has an Estate and Longevity Plan done in advance, all or most of their assets can be protected from the costs of long-term care.

Andrew Byers is an Elder Law Attorney in Auburn Hills, Michigan.  Asset protection, including long-term care planning and obtaining Medicaid or Veteran's benefits are part of our elder law practice.