From time to time we have written (or talked) about long-term care insurance (LTCI). The industry has undergone big changes in the four decades we’ve been writing Elder Law Issues. But it’s been several years since we last wrote about one of the largest changes: the biggest provider in the industry leaving the business.

The problem facing seniors

Everyone knows that the cost of long-term care is high. Most recognize that it has increased even faster than the general rate of inflation. And the aging of America has famously been a concern for Social Security, Medicare, and the looming cost of long-term care. LTCI has occasionally been touted as one possible solution.

But there are problem with the general concepts. Life expectancy continues to increase. Well, it did until 2020 and 2021, when the life expectancy for a 65-year-old woman in the U.S. dropped by just over one full year (to 19.7 years). In that same time frame, life expectancy for a 65-year-old man fell by slightly more — but had started at a lower number already. According to these latest figures, a 65-year-old man might expect to live another 17 years.

But those small drops don’t change the larger picture. When long-term care costs began to be a large concern (and the LTCI industry was born) in the mid-1970s, the life expectancy for all 65-year-olds was about 16 years. Men at that age might expect to live 14 years, and women 18 years.

Assuming that the life expectancy of older Americans continues to increase, while health care costs go up and dementia increases dramatically, LTCI becomes a chancy proposition for the insurance industry. And that means premiums must increase and underwriting must become more stringent.

In fact, that’s exactly what has been happening

And it’s actually worse than that. Seniors who bought LTCI sometimes let their policies lapse. The industry counts on that. But the lapse rate was lower than expected in the early days of the industry.

As America ages, it has generally been more healthy than earlier generations. The incidence of smoking, cancer, and many illnesses have decreased. But the frequency of disabilities has increased over the years — and that can lead to increased claims on LTCI policies.

As long ago as 2016, the American Academy of Actuaries wrote about the problem of increasing premiums and the factors included in their evaluation. But they predicted that price increases would slow as the industry got better at pricing the risks. But that hasn’t been the experience of most consumers.

There are so many ways to look at LTCI statistics that it becomes difficult to tease out trends or threads. But one interesting source for real-world data is the American Association for Long-Term Care Insurance, which posts a slew of statistics on their industry. Those statistics include claim amounts, premium costs by year of enrollment, denial rates by age (unsurprisingly, nearly half of applicants in their 70s are denied coverage) and more.

So what does that mean for LTCI trends?

Another development over the past twenty years or so has been the rise of hybrid LTCI and life insurance policies. With this type of policy, premiums are typically much larger but only last for a decade or so. The benefits include a life insurance policy and the ability to tap into the life insurance for long-term care if needed. We read a particularly good (and fair) explanation of these hybrid policies recently, and pass it along to you for more detail and some good illustrations (but not pictures).

And that has been the trend in LTCI policies in recent years. We see fewer and fewer clients with new LTCI policies, but more with hybrid policies. As is frequently observed, the hybrid policies are designed to do two (or three) different things, and so aren’t the best at any one thing. But they give comfort for people who are anxious about future long-term care costs and have sufficient resources to help protect against those costs.

But isn’t there a state government approved LTCI plan?

Well, sort of. In an attempt to encourage individuals to buy LTCI plans, Congress created Long Term Care Partnership Programs. Arizona participates. Here’s how the Partnership Program works:

  1. You buy a qualified LTCI policy
  2. Later, if you require long-term care, your policy pays before the state (in Arizona the program is called ALTCS) kicks in
  3. As you use up your LTCI benefit, you can qualify for ALTCS without having to spend down to the usual $2,000 asset limit. In fact, you can keep the amount of all your insurance payments plus the $2,000.
  4. On your death, though ALTCS might have a claim against your estate for benefits you received, that LTCI benefit is protected and can be distributed to your heirs. In the meantime, you have resources that can pay for extra care and comfort.

Arizona does honor Partnership Program policies purchased in another state. In fact, most such plans are portable — they can move to a new state with you. You can read more about Arizona’s Partnership Program rules at the ALTCS website.

So do most people buy LTCI to protect against care costs?

No. Only a small fraction of seniors purchase LTCI. And insurance pays only about 5% of the total cost of long-term care.

But should YOU purchase LTCI? Maybe. You might be able to qualify for ALTCS (Medicaid) benefits to cover your long-term care costs without having to spend down very much in assets. Or you might be able to pay the cost of long-term care from your accumulated assets (and income) for an extended period.

But here’s the most important rule: if you are planning on buying LTCI, do it early. Eligibility and pricing favor those who buy while in their 50s rather than their 70s.