By, Greg Winder, Elder & Disability Law Clinic Student, Fall 2022
Like many end-of-life considerations, long-term care (LTC) is a topic that most people would like to avoid, as it involves confronting the decline of a person’s health and functional abilities. However, it should be an important part of the planning process for middle-aged and elderly individuals. LTC encompasses “medical and non-medical care provided to people who are unable to perform basic activities of daily living such as dressing or bathing.”[1] Ideally, these services help people live independently and safely within the confines of their health limitations.[2] An estimated seventy percent of Americans who reach age sixty-five will require some form of LTC.[3] Thus, LTC is a likely reality that many Americans will face, and affording such care is inherently tied to this reality. One option available is LTC insurance. Typically issued by private insurance companies, LTC insurance guarantees policyholders a fixed monthly cash payment for LTC services.[4] The current market size for LTC insurance in the United States is $32.7 billion, indicating that a considerable number of individuals see this type of insurance as a worthwhile investment.[5] However, LTC insurance also carries several negative aspects that individuals should consider before purchasing a policy. So, is it worth it? A discussion of both the benefits and drawbacks follows below.
Benefits
Many of the benefits of LTC insurance are related to the financial security it provides when the need for such care arises. One noted benefit to purchasing such insurance is simply the lack of alternatives to funding LTC. Medicare’s coverage of LTC is minimal while Medicaid, which can provide more coverage, requires an individual’s income to be below a certain level.[6] Similarly, most employer-sponsored or private health insurance programs cover only limited services.[7] Thus, individuals who purchase LTC insurance face the prospect of self-financing their care, which can quickly rack up costs, especially in cases where they have to move to a nursing home or an assisted living facility.[8]
Additionally, LTC insurance preserves an individual’s estate, which would otherwise be used to pay the potentially high costs of LTC in the absence of insurance benefits.[9] Many elderly individuals desire to provide some level of protection or care to their loved ones upon their passing. Thus, they would likely want LTC insurance to pay for the costs of their care near the end of their lives, allowing their property and other assets to benefit their loved ones, when the time comes. Finally, LTC insurance can provide peace of mind for those worried about funding their or their spouse’s care, allaying concerns about how their financial situation will look when care is needed.[10]
Drawbacks
Despite its noted benefits, LTC insurance has several drawbacks that may make it an unattractive, the most glaring of which is the cost. The 2022 Long-Term Care Insurance Price Index notes that for a traditional policy valued at $165,000 in benefits, a 55-year-old male can expect to pay $950 annually, while a 55-year-old woman can expect to pay $1,500.[11] Additionally, the cost of these premiums increases with age.[12] These costs are a barrier to purchasing LTC insurance, with a particularly negative impact on those who do not qualify for Medicaid but do not have the financial resources available to afford the premiums.[13]
Exacerbating the barriers to purchase, LTC insurance companies provide a list of pre-existing conditions that can exclude a person from receiving coverage,[14] and they also require an applicant to pass a physical exam.[15] These exclusions have grown due to the Coronavirus pandemic, as insurers have added temporary restrictions on people traveling to and from areas experiencing high rates of the cases.[16] So, even for those who can afford LTC insurance and want to purchase a policy, they may find that they cannot qualify and are thus left to self-fund their own long-term care or seek out other alternatives.
A further complication may occur when LTC insurance companies are called upon to pay for a policyholder’s care. Most LTC insurance plans are reimbursement policies, which require the holder to pay the bill for their care first and hope that the insurance company repays them.[17] This upfront cost burdens those who may not have the cash on hand to front the bill. Policyholders may also find that their reimbursements are lower than expected and slow to arrive—if insurers ever process reimbursement claims.[18] A final drawback is that many people may never need long-term care. Traditional LTC policies do not pay out death benefits, so policyholders may pay the high premiums for nothing.[19]
Conclusion
This discussion has laid out the general benefits and drawbacks of LTC insurance. However, the decision to purchase an LTC policy ultimately depends on the circumstances of the individual considering such a purchase. For those with financial means and good health, LTC insurance can provide substantial financial support if they or their loved ones suffer a serious health event later in life. However, the high cost of premiums, restrictions on qualification, and problems with administration of the policy may reasonably deter a considerable number of people, leading them to seek out other alternatives. These can include short-term care insurance, critical care or critical illness insurance, annuities with LTC riders, or deferred annuities.[20] Regardless of the ultimate decision, LTC insurance is an important option to consider when planning for the later stages of life.
[1] Long-Term Care, Healthcare.gov, https://www.healthcare.gov/glossary/long-term-care/ (last visited Oct. 16, 2022).
[2] What Is Long-Term Care?, Nat’l Inst. Aging, https://www.nia.nih.gov/health/what-long-term-care (last visited Oct. 16, 2022).
[3] Jo Ann Jenkins, Long-Term Care: The Crisis Everyone Must Face, AARP (May 3, 2022), https://www.aarp.org/politics-society/advocacy/info-2022/jenkins-long-term-care-crisis.html.
[4] Lawrence Frolik & Melissa Brown, 2 Advising the Elderly or Disabled Client ¶ 15.07, Westlaw (database updated Oct. 2022).
[5] Long Term Care Insurance in the US – Market Size 2005–2027, IBISWorld, https://www.ibisworld.com/industry-statistics/market-size/long-term-care-insurance-united-states/ (June 25, 2022).
[6] Who Pays for Long-Term Care?, LongTermCare.Gov, https://acl.gov/ltc/costs-and-who-pays/who-pays-long-term-care (May 10, 2022).
[7] See id.
[8] Costs of Care, LongTermCare.Gov, https://acl.gov/ltc/costs-and-who-pays/costs-of-care (Feb. 18, 2020) (discussing the national average costs for LTC in the United States in 2016).
[9] Frolik & Brown, supra note 4.
[10] Sarah O’Brien, Long-Term Care Coverage: Peace of Mind, at a Price, CNBC (Mar. 15, 2016, 8:01 AM), https://www.cnbc.com/2016/03/15/long-term-care-coverage-peace-of-mind-at-a-price.html.
[11] 2022 Price Index for Long-Term Care Insurance Released, Am. Ass’n Long-Term Care Ins. (Jan. 5, 2022), https://www.aaltci.org/news/long-term-care-insurance-association-news/2022-price-index-for-long-term-care-insurance.
[12] See id.
[13] Jenkins, supra note 3.
[14] Ben Mattlin, New Environs for Long-Term Care Insurance, Fin. Advisor (Sep. 1, 2022), https://www.fa-mag.com/news/new-environs-for-long-term-care-insurance-69380.html.
[15] Frolik & Brown, supra note 4.
[16] Mattlin, supra note 13.
[17] Ruben Castaneda, How to Respond When Medicare Stops Paying for Nursing Home Care, U.S. News (Oct. 7, 2022, 3:38 PM), https://health.usnews.com/best-nursing-homes/articles/when-medicare-stops-paying-for-nursing-home-care.
[18] See, e.g., Angie Ricono & Cyndi Fahrlander, Kansas City Man Urges Buyers Beware When Considering Long-Term Care Insurance, KCTV5 (Oct. 13, 2022, 5:52 PM), https://www.kctv5.com/2022/10/13/kansas-city-man-urges-buyers-beware-when-considering-long-term-care-insurance/ (detailing the story of a couple who experienced difficulties with their LTC insurance).
[19] Ryan Sze, Is Buying Long-Term Care Insurance Worth It?, The Motley Fool (Aug. 3, 2022), https://www.fool.com/investing/2022/08/03/is-buying-long-term-care-insurance-worth-it/.
[20] Evan Tarver & Charlene Rhinehart, 4 Best Alternatives to Long-Term Care Insurance, Investopedia (Aug. 31, 2021), https://www.investopedia.com/articles/personal-finance/100515/4-best-alternatives-longterm-care-insurance.asp.