For senior citizens and those approaching retirement, long term care insurance is a financial product of increasing importance. According to the Department of Health and Human Services, approximately 12 million Americans will need long term care by 2020, and 40 percent of those age 65 and older are likely to enter a nursing home. While Medicare does not pay for long term care, supplemental health insurance can be purchased to cover these expenses.
Depending on the specific plan, long term care insurance may cover home health care, adult day care or nursing home expenses. Although some speculate the rising cost of long term care insurance premiums may cause consumers to think twice about maintaining this coverage, a recent government study suggests otherwise.
Long term care insurance and premium hikes
To determine how premium increases affect policyholders, the U.S. Government Accountability Office (GAO) studied the Federal Long-Term Care Insurance Program (FLTCIP). The program is the largest private long term care insurance program in the nation.
In 2009, two-thirds of the program’s members were notified their premiums could be subject to up to a 25 percent increase. All those facing the potential increase had selected an automatic compound inflation option of 5 percent. Of those notified, 46 percent elected to continue their coverage without any changes. Another 52 percent choose to switch plans or changed their plan to a 4 percent automatic compound inflation option to minimize the premium increase. Only 1.6 percent of those notified let their coverage lapse.
Interestingly, the GAO found that 23 percent of policyholders experienced a rate decrease instead of a rate increase. For most of those seeing a decrease in their premium amount, declines ranged from 0.1 percent to 5 percent. Meanwhile, 43 percent saw increases of 20-25 percent, and 6 percent had increases exceeding 25 percent.
“We have long attempted to counter the perception that rate increases caused large numbers of people to drop coverage,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), in a statement. “Instead of hyperbole, we now have facts to prove that the majority of consumers understand the value of their long-term care insurance protection and do not drop or reduce their coverage even when faced with a rate increase.”