New York Estate Planning & Elder Law Blog
According to a new article published by Financial Planning, “How to Fix LTC Insurance” claims that the best way to make long-term care insurance accessible to more seniors, as well as affordable, is to integrate the use of short-term elimination periods. The Director of Research at the Pinnacle Advisory Group is claiming that the use of this often avoided measure may be the key for more seniors to be able to use long-term care insurance for their medical needs.
Purpose of LTC Insurance
Originally, the purpose of long-term care insurance was to guard against the “high-impact but lower-probability risk of needing long-term care assistance at an advanced age.” When this insurance was introduced, the thought was that a small number of seniors would need long-term care, but those who did would face incredibly high medical costs.
However, due to advances in medicine and medical technology, the life expectancy of the elderly has increased dramatically and the chances of needing long-term healthcare are also higher. Researchers estimate that the risk of a person at age sixty needing long-term care in their lifetime is as high as fifty percent, and the chances of a fifty year old woman needing this level of care is as high as 65%.
That being said, research has also suggested that the costs of long-term care may be less than what was originally anticipated. According to the American Association of Long-Term Care Insurance, around 75% of nursing home stays last no longer than three years. What this means is that instead of long-term care being a “high-impact but lower-probability risk” it is actually a “low-impact but higher-probability risk.”
Proposed Solution for LTC Insurance
The solution proposed by Financial Planning is to dramatically lengthen the elimination period for long-term care insurance. Right now, around ninety percent of long-term care insurance policies are sold with a 90-day elimination period. This means that the senior pays for the first ninety days of care on his own, and the insurance covers the rest. However, ninety days does not achieve the intended purpose, which is to carve out high-frequency small claims because insurance companies still consider a year or two is a “small” claim whereas a large claim might be five years of care or more.
By lengthening the elimination periods to as much as two or three years, with benefits covering up to five to ten years of care afterward, would make long-term care insurance a much more effective policy. “With an elimination period that high, even the average stay in a nursing home will fall within the deductible period; the actual probability of ever having a material claim against the long-term-care insurance would fall dramatically. That’s good, as it means the cost of coverage could fall significantly, while policies could simultaneously have richer benefits (after the elimination period) and do a better job of insuring against extreme events when they occur.”
The article admits that it would also force consumers and insurers to rethink other parts of the long-term care equation. For example, policies with a longer elimination period attached would need financial underwriting or “some other process that will reduce the risk that consumers might buy untenably long elimination periods.”