Long-term care insurance is broken

An article in the New York Times by Jordan Rau and JoNel Aleccia explains the broken long-term care insurance system in the United States. Not only are long-term care insurance policies expensive, they often don’t cover some or all of the long-term care services people need. And, though 70 percent of older Americans are expected to need long-term care at some point, only a small percentage of them can afford it.

What’s wrong with long-term care insurance? Long-term care insurance policies can have 90-day waiting periods before they kick in, forcing people to pay thousands of dollars out-of-pocket for care while they await coverage. And, these policies generally only cover care when people need help with at least three activities of daily living, including bathing, toileting, dressing, feeding and transferring. They also generally have caps on the amount they pay out and rarely cover people’s full long-term care costs.

One 91-year old woman profiled in the New York Times story had children who paid into her policy for 35 years. Even though older long-term care policies tend to be more generous than newer policies, this long-term care insurance policy did not cover home health aides. Without home health aides, the woman could not remain in her home.

The reporters make clear that private long-term care insurance is “wildly inadequate in providing financial security” to most older Americans wanting to age in place. But, they claim the issue is poor planning on the part of the insurers as to the cost of long-term care when people cashed in on their policies. As likely, insurers knew full well what the cost would be and got people to sign up for long-term care insurance by misleading them into thinking that their low initial premium would not rise dramatically over time. (The reporters say that insurers lost $2.3 billion in 2019 and then profited $1.1 billion in the following two years during Covid. In 2022, they allegedly lost $304 million.)

The insurers have far less to worry about when they sell a policy that could cost them more down the road than the individuals who buy their policies. The insurers can protect themselves by refusing to cover people with health conditions. And, when they do cover people, they can raise their premiums significantly. “Level premiums,” which people are usually promised, are not what most people think they are. Level premiums can increase significantly to the point where people are forced to drop their policies, getting nothing in return for all their premiums.

One person profiled in the article gets it just right: “‘It’s a giant bait and switch,’ said Laura Lunceford, 69, of Sandy, Utah.” Her annual premium jumped $1,900 to $5,700 in a few years. But, Lunceford argues that the insurers had a bad business model and didn’t realize it. That’s not evident. The insurers had a model that served them well, at least in the short term, with lots of people unable to pay premiums over time and forced to let their policies lapse.

The reporters say that the long-term care insurance lapse rate is only 1 percent. When I was a consumer representative at the National Association of Insurance Commissioners, the insurers refused to disclose their lapse rate. I would like to see the data. It’s hard to believe so many older adults with long-term care insurance, living on fixed incomes, could manage to pay significantly higher annual premiums– sometimes a doubling of premiums–each year.

Long-term care insurance does help some people protect their savings. But, these people are few and far between, generally, the people with a lot of money to spend on premiums. Some, if not many people, who should get benefits struggle to get insurers to pay them in a timely fashion if at all, according to the National Association of Insurance Commissioners. And, some who receive benefits have paid in more in annual premiums than they receive.

Experts say that most people can do better saving money to pay for long-term care on their own than paying for a long-term care policy or spending down to Medicaid and getting government-provided long-term care services.

The big issue is that our government, unlike the Netherlands and Singapore, does not protect most people when they need long-term care. And, care is so expensive that most people are left struggling, reliant on family caregivers whom they do not need to pay. Savings are rarely enough to cover the cost of long-term care services. The luckiest Americans spend down their savings to qualify for Medicaid in states that are able to provide them with home care or nursing care when they need it.

Here’s more from Just Care:

• Family caregiving: Costly, lonely and stressful work
• Caregiving: Keeping Parents Healthy – Water, Walking, Watch out for Delirium
• PACE helps older adults stay in their community
• How to be a good long distance caregiver
• 2023: Five things to think about when choosing between traditional Medicare and a Medicare Advantage plan