The cost of living increases every year, making it more difficult to pay for basic expenses. Long-term care (LTC) premiums are also increasing. This has become a focal point in recent months as rates have increased – rising premiums can adversely affect a person’s quality of life and their continued access to quality care. This is an issue that affects me and my family as my mom has seen her premiums increase by 50% over the past two decades.
According to the US Department of Health and Human Services, a person who is 65 today has an almost 70% chance of needing long-term care and support services. Today, a growing customer base who purchased LTC insurance in the past is now seeing high premium increases.
While a person in their sixties and early to mid-seventies may be able to handle a premium increase, rate hikes are much more difficult for people in their late sixties. The situation may make you think that you need to reduce coverage or even forgo insurance altogether.
However, there are less drastic ways to tackle the problem and maintain premiums while managing rising costs.
Why are LTC premiums increasing?
Premiums have risen sharply in recent years due to many factors. According to a study by the American Association for Long-term Care Insurance, the causes of high premiums include lapse rates, rising costs, lengthening life and low interest rates.
Lapse rates are an important factor. Insurance companies priced policies on the assumption that 4% of policyholders would let their policies expire. Yet, as policyholders aged, only 1% terminated their insurance, resulting in more people claiming long-term care than expected.
People are also living longer. Not only are more people filing claims, insurance companies are paying for longer periods. Companies need to maintain large reserves of cash to ensure they can meet the rising costs of medical care while offsetting the steep interest rate cuts that have squeezed returns.
It is not surprising that insurance companies are feeling the effects and passing the pain on to policyholders.
Five Ways to Manage LTC Premium Increases
As a policyholder faced with increasing LTC premiums, you need to find ways to cushion the blow and maintain the policy while facing the higher costs. Here are five ways to deal with the higher costs.
1. Shorten your benefit period
Carriers generally offer different benefit periods which can range from two to five years. Shorter benefit periods mean the insurance company will have to pay fewer claims, which can lower your premiums.
Keep in mind that the benefit period is not for a limited time. You may be able to stretch it longer than you think.
For example, suppose you buy a two-year policy for $ 100 per day, or 730 days of care. But your benefit period could last much longer than two years if you don’t use the entire $ 100 per day benefit consecutively.
Essentially, the benefit period is the minimum length of time your policy would cover you. If you have a five-year policy, you may want to consider shortening it to two or three years to keep your costs down.
2. Consider a shared care policy
Shared care is a type of long term care insurance coverage for married couples. It allows spouses to take out a plan and add their partners as a “rider”. As a designated rider, you can access your spouse’s plan funds if you exhaust your own policy funds.
A shared care policy can reduce costs by pooling benefits. Then when one of you needs coverage, you can split the coverage between the two of you. It can also extend your coverage. For example, if you and your spouse each have a three-year plan, you have the potential to take advantage of six years of benefits.
3. Think about a longer elimination period
The longer you extend the waiting period before you start receiving payments, the lower your premiums can be. It’s like an auto or home insurance deductible, except it’s measured in time, not in dollars.
Most policies have 30, 60, or 90 day waiting period options. The longer the period, the longer it takes for the insurance company to step in and start paying benefits, and the lower your long-term care premiums can be. The downside is that you could end up paying more out of pocket – you are responsible for the cost of any services you receive during the waiting period.
4. Reduce your daily benefits if you have to
When you purchased your policy, you were probably looking for the best protection available. You may want to consider reducing per diem as a last resort now that premium costs are on the rise. Instead of the maximum daily allowance, you can choose to pay part of the daily allowance yourself. Reducing your benefit amount can automatically reduce your premiums.
5. Contact your supplier for options.
Each operator offers different policy terms and you may have other options to make your coverage more affordable. Contact your provider to ask about ways to lower your premiums before determining that your policy is too high for your budget.
It is also helpful to speak with a financial professional. A financial planner can look at your situation, discuss your coverage needs, recommend an affordable plan, and find ways to lower the cost of your premiums.
LTC premium increase: the result
Rising LTC rates can come as a shock. But remember, you are not alone. If the increase in the price of long-term care makes insurance unaffordable, contact your provider or a financial planner to discuss your options. Reducing the benefit period can help in some cases. However, you will probably want to avoid reducing the daily allowance amount unless it is necessary – this can negatively impact your quality of life and long-term care coverage.
The most important thing to keep in mind is that you have options. It may be possible to lower your monthly premiums and maintain your coverage, so you have help when you need it most.
Each situation is unique. In the case of my own family, in 2000, I recommended that my parents take out long term care insurance. They chose a daily benefit of $ 125 for four years. At the time of purchase, my mom was 54 and my dad 68. I advised my mom to choose 5% compound inflation protection and my dad 5% with simple inflation. Mom’s annual policy premium started at $ 1,224 (I researched the exact amount) and my dad’s was closer to $ 2,242 (I researched the exact amount) due to their differences in ‘age. In 2004 my father was diagnosed with Parkinson’s disease. His condition declined sharply in 2012. He needed help with activities of daily living and started using his benefits. Dad passed away in 2015.
Since my mom bought her policy, she’s had three price increases. His annual premium is now $ 1,865 (I just helped him foot the bill), but his per diem has increased to $ 343. Her own mother lived to be 94 years old. At some point we may freeze benefits, but for now these premium increases are manageable.
Many couples may be able to withstand a long term care event, but I am thinking of the impact of the factor we cannot control: inflation, taxes, and market performance. Ultimately, I wouldn’t want my parents to lose their financial dignity in retirement.
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