Insurance companies began offering long-term care policies in the 1960s. The idea behind these policies is straightforward. People buy policies before they need nursing home care or help with daily tasks like cooking and bathing. The insurance company keeps the paid premiums if they die without needing long-term care. Policyholders that need long-term health care services have some or all of their costs covered by the insurance company.
Long-Term Care (LTC) Insurance Basics
For insurance companies to make money on LTC, they must take in more premiums than they pay out for care. They also make money by investing money from paid premiums, and that comes with some risks.
Insurance actuaries use a lot of statistics to understand the balance of premiums paid and costs for care so they ensure a profit. No one has a crystal ball about specific individuals. However, certain factors indicate probabilities on the number of people needing long-term care, the duration, and the type of care. These factors include:
- Life expectancy – The longer you live, the more likely you will need help one day. The life expectancy of women in the US is currently 81.6 years old. Men’s life expectancy is 76.6.
- Health and wellness – Physically fit and healthy people are more likely to be able to age in place rather than need a residential facility.
- Age and likelihood of needing LTC services – According to Longtermcare.gov, a 65-year-old person has a 70% chance of needing some long-term care. Therefore, older people will pay higher premiums than younger people. Of course, younger people pay premiums for much longer.
Why Insurance Costs Increase
A lot has changed since the 1960s. People live longer because of better access to medical care, advancements in disease treatment and management, and more knowledge about healthy lifestyles. The life expectancy of someone born in 1925 was less than 60 years old. Life expectancy was affected by high infant and child mortality, but people today still live much longer than those who survived childhood in the past. That means more people who buy LTC Insurance today will use it than those who bought it in the 1960s. They might also need care for more years. People who develop conditions that require care may live for many more years with modern treatment and therapies. The progress is good news for individuals and their loved ones, but more people using benefits for longer means that insurance companies need to receive higher premiums to profit.
| Type of Care | Average Years of Care | Percent (%) Using this Type of Care |
| Any LTC Services | 3 | 69 |
| At Home Care | ||
| Unpaid Care Only | 1 | 59 |
| Paid Care | <1 | 42 |
| Any Care at Home | 2 | 65 |
| In Facilities | ||
| Nursing Home | 1 | 35 |
| Assisted Living | <1 | 13 |
| Any Care In Facilities | 1 | 37 |
Many insurers stopped offering LTC Insurance completely. In 2004, over a hundred companies offered LTC policies; now, there are only about a dozen. Don’t worry if you bought and maintained a policy from a carrier that no longer offers insurance to new applicants. They still have to serve the people who bought policies. Almost all insurance companies are viable and solvent, even if their LTC divisions are not profitable.
Insurers reduce the coverage whenever they can. They do this by:
- Decreasing the maximum benefits
- Increasing the threshold required to receive care
- Reducing care benefits
- Increasing premiums
Is Long-Term Care Insurance Worthwhile?
With rising premiums and decreasing benefits, many seniors question whether they should buy LTC Insurance. Your decision about whether or not to buy it will depend on many personal factors. Your age and health will determine whether you are eligible for a policy. Many conditions make people ineligible for coverage, and some of those conditions become increasingly common as you age. Therefore, don’t delay the purchase if you are thinking about getting it.
LTC Insurance in estate planning can help protect assets for your heirs but will likely impact your cash flow. It may not be worth buying if your assets and cash flow are minimal. There are many different types of policies with varying costs and benefits, so LTC Insurance doesn’t have to be an all-or-nothing decision. Maybe you settle for a less expensive policy that covers the worst-case scenario instead of paying for top-tier benefits.
You might decide to rely on Medicaid, but be aware that applying for Medicaid benefits may mean you have to spend down your assets to meet eligibility requirements. An estate planning or elder law attorney provides legal strategies to protect your assets while still qualifying for benefits if you choose to go this route.
Purchasing LTC Insurance should be part of a larger plan for your estate and family legacy. Let our elder law attorneys help you determine how LTC Insurance fits in with other parts of your estate plan, including your living will, trusts, and other health and asset protection plans. We do not sell insurance ourselves and have no reason to encourage you one way or the other. We help you think about how to align your financial and healthcare strategies to match your goals and situation. For legal advice, please contact our Albuquerque office at (505) 830-0202.