The market for long-term care insurance grew even more foreboding for some consumers last year when big insurers announced sizeable premium hikes.
Insurers that provide coverage for a nursing home stay, adult day care or a home health aide have seen higher-than expected claims at the same time their ability to grow a cash cushion has been hampered by low interest rates. Because of the squeeze, MetLife Inc. recently stopped selling coverage and Genworth Financial Inc. and John Hancock raised their prices. That has made shopping for the right coverage all the more challenging.
Here are some things to consider when shopping for a policy.
— What is long-term care and what’s driving up premiums?
Long-term care insurance is used to pay for care if you have a debilitating condition that keeps you from performing daily living activities like eating or bathing.
About half of the money used to pay claims comes from returns on invested premiums. Long-term interest rates have fallen, and that means the invested money isn’t growing at the rates insurers expected when they issued some policies in the early 1990s.
On top of that, more customers are keeping their policies and submitting claims than insurers expected. Insurers had assumed that as many as 5 percent of the people who bought policies would lapse or stop payment, but only about 1 percent have, said Jesse Slome, executive director of the American Association for Long-Term Care Insurance, which represents independent agents and brokers.
Genworth has said it needs an 18 percent increase on some older policies, and John Hancock is looking for an increase of about 40 percent on most of its policies.
Even though MetLife left, Slome estimates that there are still between 20 and 30 carriers in the market.
— Should I buy a policy before more companies leave the market or rates climb even higher?
Not necessarily. The best thing to do is shop around.
The premium increases aren’t a sign that all prices are about to soar. Waves of rate hikes and consolidation have hit the industry in the past, said Anne Tumlinson, senior vice president for long-term care at the private research firm Avalere Health.
Some policyholders will go several years without a rate hike. Aside from insurer assumptions on interest rates or use, increases also depend on the amounts state regulators require an insurer to keep in reserve to pay claims.
— What’s the right age to buy one of these policies?
There’s no magic number. Most people buy these policies between ages 55 and 64, Slome said.
Don’t wait too long to sign up, but don’t start coverage too early. Insurers can’t hike rates individually because a policyholder has aged, but they base your initial premium in part on your age. The older you get, the more expensive that premium becomes, especially if your health deteriorates.
However, people who sign up too early may wind up with a policy that doesn’t cover a new product that hits the market afterward, Tumlinson said.
— What are the biggest keys to finding the right policy?
Read a policy’s coverage definitions to make sure they match what you want. Policies offer dozens of permutations such as different daily benefit amounts, coverage lengths and ways to protect against inflation.
An independent insurance agent, a financial planner or an attorney — or all three — can advise you before you commit to a plan.
— Is long-term care coverage worth it?
It can be a gamble. Customers might pay annual premiums exceeding $2,000 for years before making a claim, or they may never use the coverage.
But skipping coverage can prove costly, too. The most expensive form of long-term care, a private nursing home stay, can run more than $200 a day or more than $70,000 a year.
Health insurance plans don’t cover long-term care. Medicaid, the state-federal program that covers the needy, aged, blind and disabled, pays for most nursing home patients. But Medicaid patients must be destitute to qualify, and their care options are often limited.
— What will the new government long-term care plan provide?
The health care overhaul passed last spring calls for the creation of a long-term care program called CLASS, or Community Living Assistance Services and Supports. Working adults can enroll after benefits and premiums are laid out next year, but they will have to pay premiums for five years before they can make a claim.
Benefits will be at least $50 a day, an amount that would help cover a home health aide. But Tumlinson said the program isn’t expected to pay the entire bill for more expensive care like a nursing home stay.
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