ElderLaw Answers Blog

According to Broker World Magazine’s Eleventh Annual Individual Long Term Care Survey, the sale of individual long-term care insurance policies dropped 6.7% from 2007 to 2008 in premiums and 8.5 percent in covered individuals. This follows a long-term trend, probably reflecting the increasing cost of premiums as sturdier, more reputable companies have entered the market and weaker companies that offered under-priced policies have left the field.

While overall sales are falling, policies sold through employers or other groups are growing. Interestingly, three companies — Genworth, John Hancock and MetLife — dwarf all others in the the dollar value of sales, accounting for 57% of the market containing 31 companies. They are followed by Bankers Life, New York Life, Prudential, MassMutual and Allianz.

The average premium of new policies in 2008 was $2,200 with 80% of purchasers being under age 65, and almost half between 55 and 64.

In all, the 21 insurance companies that participated in Broker World’s survey, covered a bit more than 3.3 million participants. In 2008, they paid out $1.9 billion in benefits.

While LTCI, is a substantial industry, it only scratches the surface in terms of meeting the needs of today’s and tomorrow’s seniors for long-term care.  There are currently more than 37 million Amercians over age 65 and this number is expected to reach more than 70 million by 2030 when the Baby Boomers all reach this age.

Nicholas D. Kristof, in a recent column in The New York Times, “Until Medical Bills Do Us Part,” writes about a friend — “M” – who has been advised to divorce her husband so that she will not be impoverished paying for his anticipated long-term care needs.  She was advised to do this by a social worker at the hospital where her husband’s degenerative condition was diagnosed.

This is a second marriage for both M and her husband and they have a prenuptial agreement, which is irrelevant to issues of Medicaid eligibility.

Kristof decries a medical system that forces people to divorce “not because of irreconciliable differences but because of irreconcilable medical bills.”  We could not agree more.  This is the sad reality of our dysfunctional health care and long-term care system.

Another sad reality of our system and M’s situation, however, is that M has been getting bad legal advice.  First, in  any second  marriage in addition to a prenuptial agreement, clients should be advised to purchase long-term care insurance. 

Second, in terms of divorcing for Medicaid planning purposes, it sounds like M was getting legal advice from social workers rather than elder law attorneys.  Divorce is certainly an option, but it is not the only long-term care planning strategy available to clients.  In more than two decades of practicing elder law, not one of my clients has sought divorce for Medicaid planning purposes. 

Another sad reality of our dysfunctional system, is that citizens need qualified elder law counsel to navigate it relatively unharmed.

In a recently issued report, the Kaiser Family Foundation analyzes the long-term care insurance industry to determine whether it might fill the long-term care funding gap.  In 2007, long-term care insurance paid for only about 2 percent of the $200 billion spent nationally on long-term care.   

As baby boomers age, the need for long-term care is likely to skyrocket, further straining individual, state and federal budgets which are already at the breaking point.  The question is whether private long-term care insurance can make a significant dent in current and future costs.

Kaiser in its report, Closing the Long-Term Care Funding Gap: The Challenge of Private Long-Term Care Insurance, produced by the Kaiser Commission on Medicaid and the Uninsured, answers the question in the negative.  While it finds that the policies are beneficial to those that own them, the premium costs are such that only the well-off are purchasing them.  It sees the numbers to continue to grow, but not to the point “that the long-term care insurance market will experience the kind of dramatic growth necessary to shift a substantial portion of the long-term care financing burden from Medicaid and individuals to private insurance.”

In its “Wallet” blog, The Wall Street Journal follows up on its article about Conseco Insurance transferring its long-term care insurance business to a trust adminstered by the Pennsylvania Department of insurance.  The blog post contains excellent advice both on what to do if you find that your long-term care insurance compnay is no longer as financially secure as you had originally though and on purchasing new policies.

It also points out some disturbing news:  A number of prominent insurance companies have asked for premium increases, including Genworth Financial, John Hancock and Pudential.  And Penn Treaty is slated to go into receivership next month. 

Unfortunately, these problems undercut the entire long-term care insurance industry.  It’s one thing to purchase insurance to eliminate the worry about your potential future need for long-term care.  But it makes no sense to purchase insurance and to have to worry about the insurance company.

No one, especially in the business community, likes regulation.  And most people feel that government is less efficient than private business.  But this situation seems to cry out for either greater regulation or a government solution.  Long-term care insurance was never a comprehensive solution to the long-term care financing challenge since most people can’t afford the premiums.  But for it to be a significant part of the solution, consumers need to be able to rest assured that their policies will pay out when they are needed and that their premiums will not change over time.  In other words, they should get what they pay for.

As reported in The Wall Street Journal, the Pennsylvania Insurance Commission placing 140,000 Conseco long-term care insurance policies into a trust must be of concern to every owner of a long-term care insurance policy.

The purpose of purchasing long-term care insurance is to eliminate concerns about the ability to pay for long-term care costs without totally depleting one’s life’s savings.  Unfortunately, the Conseco story coupled with reports of some companies refusing to honor legitimate claims for coverage and others raising premiums on existing policyholders makes it difficult for anyone to breathe easily.

So, what should anyone considering purchasing long-term care insurance do?  Here are a few rules of thumb:

1. Purchase only policies issued by companies which Standard & Poors and A.M. Best rank as being the most financially secure.
2. Don’t purchase a policy whose premium is much lower than those of polices offered by other companies.  If it’s not in the mainstream, you have to assume that it will have to raise premiums in the future.
3. Only purchase a policy that you can afford to pay indefinitely.  If you have to give it up after five years, you have helped the insurance company, but not yourself.
4. Almost always, purchase a policy that covers home care as well as nursing home care and which includes an inflation rider to cover increases in the cost of care.
5. If you cannot afford to purchase the full coverage you want, cut down on the length of coverage rather than the daily benefit.  For instance, if you would like a benefit of $200 a day for four years, but cannot afford the premium, you are better off purchasing $200 a day for two years rather than $100 a day for four years.
6. Always use a broker who has experience with long-term care insurance so that you can benefit from her knowledge of the policy provisions and the companies selling the policies.

By following these few rules, consumers can feel more assured that their long-term care insurance will be there when they need it.

While probably not entirely scientific, 28% of those users of the ElderLawAnswer.com web site who answered our July survey said they have long-term care insurance and 3% said they did not, but their spouses did. 

This tells us more about people who use the web site than it does about the general public.  While I haven’t been able to find a statistic, penetration of the market for long-term care insurance is quite small.  Those who use the web site, not surprisingly, are more aware than the general public and more likely to be prepared for potential long-term care costs.

According to the AARP, in 2005 there were 7 million LTCI policies in force and the average age at purchase was 61.  This is a small percentage of those over age 50, meaning that most seniors and soon (or want) to be seniors are covered.  The major reasons for failure to purchase LTCI seem to be cost and lack of perceived need.

ElderLawAnswers.com users are much better prepared than the average consumer, but still almost 70% of them are not covered (making them a good potential market for any long-term care insuance broker who may be interested).