Purchasing long-term care insurance policies has been one way seniors could create a safety net, filling the large gap in Medicare and Medicaid coverage for long-term, or skilled nursing facility care. Although it can challenge older adults’ budgets, long-term care (LTC) coverage has been a relatively inexpensive choice when compared to paying for LTC out-of-pocket. Because Medicare will only pay for a very limited stay in a skilled nursing facility or home health care services, seniors reason that the private LTC policies will give them peace of mind.
Unfortunately, betting on LTC coverage policies is turning into a losing proposition. An article on Seniorhousingnews.com reports an extreme jump in the insurance premium costs. Recently, many insurance industry providers of LTC have raised their premiums, in one case as much as 75% for a subscriber. The reasons for these exorbitant rate hikes are a combination of insurance companies’ miscalculations, a rapidly growing senior population, and an increase in healthcare utilization by aging adults.
Insurance companies use actuarial predictions and formulas to forecast insurance subscribers’ usage of their insurance coverage. According to the article, they also factor in that a certain percentage of subscribers will cancel their policies without ever using their benefits. Counting on 5 to 7 percent canceled policies; the LTC insurance industry did not predict the actual 2 percent cancellation rate. If the predictions had been accurate, cites the article, seniors’ initial premiums would have been calculated 35 percent higher.
As a result of these miscalculations and difficulty of making a profit without severe rate hikes for subscribers, many top insurance companies, like MetLife, are no longer offering LTC policies. Other companies continue to offer coverage, but at a much higher rate when seniors first subscribe.
Despite the steep rates, many seniors who are able to afford high LTC premiums prefer it to the thought of having to spend down their assets to afford cost-prohibitive skilled nursing care.