Long-Term-Care Insurance Dilemma

The Elder Care Firm can help you manage the cost of long-term-care.

Long-term-care rates continue to increase, leaving many policyholders at a loss.

There is a growing gap in health-care coverage that is putting a number of Michiganders at a loss. Rob and Katherine Deane believed they were doing the responsible thing when they purchased insurance policies to provide care in their later years. But last year the experienced rate increases on both of their long-term-care policies, insurance plans that pay for nursing homes or in-home care.

Manulife Financial Corp.’s John Hancock unit informed Mrs. Deane that the premium on her 10-year-old policy would increase 77% to $6,406 a year. Mr. Deane’s insurer, Unum Group, raised his premium by 25%.

(Related: Health Insurance Scams On The Rise)

After making a fuss, Hancock reduce Mrs. Deane’s rate to 46%. In trade, she agreed to shrink the policy’s benefit period to six years from 10.

The long-term insurance industry is shrinking, premiums are soaring and there is no relief on the horizon. Meanwhile, government safety-net programs, pressured by cost cuts, are preparing for the demand from more of the 77 million aging baby boomers.

Granted, Obamacare is intended to provide insurance for millions of Americans, but his administration abandoned its effort to provide affordable long-term care, ruling it was too expensive.

(Related: Medicaid expansion bill will benefit all in state, Snyder says)

As is, Medicare only pays for short stays in nursing home or in-home care under limited conditions. Generally, seniors who need care have to burn through their savings to cover the cost. It takes being impoverished for Medicaid to pay for a basic level of care.

For decades insurers have sold long-term-care policies, but they vastly underestimated how quickly medical costs would rise, and the number of seniors who would use the benefits. As a result, insurance premiums were underpriced. And worse, some insurers knowingly charged too little at first with the plan to increase premiums later, says Joseph M. Belth, editor of the Insurance Forum newsletter and professor emeritus of insurance at Indiana University.

Five of the 10 largest insurance providers, including MetLife Inc., Prudential Financial Inc. and Unum have curtly reduced or discontinued sales since 2010, according to Moody’s Investors Service. Only a dozen or so companies still sell a significant number of policies, down from close to 100 a decade ago.

(Related: Caregiver Burnout)

Michigan is one of the many states that has adopted “rate stabilization” laws to tighten oversight to reduce the potential of future rate increases by requiring a more accurate initial pricing of policies.

Rate increases are forcing policyholders to dig into their savings, allocate from elsewhere, or drop their coverage. As a result, healthier policyholders may get off the train while sicker, more expensive customers stay aboard.

A number of insurance agents and financial planners are encouraging clients to employ a new “hybrid” coverage: life insurance with a rider providing long-term-care benefits. This allows the policyholder to leave something to heirs even if the long-term-care benefits don’t get tapped.

The downside is that the long-term-care benefits are often less generous than those in conventional policies, and policyholders have to write one large check upfront to get the coverage, versus paying premiums each year.

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