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Long-Term Care Insurance Rate Increase Creates Big Headache

What can you do when you’re hit with a steep rise in your annual premium?

spinner image Terry Koplan, 69, photographed in his home
Lauren Justice

In this story

The problemThe adviceThe outcome

The problem: A premium that triples

Thirteen years ago, retiree Terry Koplan, 69, a woodworking and radio-control airplane hobbyist in the Los Angeles area, bought long-term care insurance for himself and his wife, Claire, 64.

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The policy had an inflation-protected benefit, currently $270 a day, for an unlimited time. Last May, however, the Koplans learned that their annual premium would triple in 2024 to $14,315.

The insurer gave them options if they chose not to pay up, such as losing their inflation protection or canceling their policy in return for a partial refund of past premiums. Terry didn’t like any of the choices.

The advice: 4 choices

Terry’s letter was one of several I received from readers with a similar complaint: After years of paying premiums on long-term care insurance policies that are meant to cover many of the costs of late-life in-home or nursing home care, they’d suddenly been hit with big rate increases, along with a menu of alternatives if they couldn’t or wouldn’t pay the higher amount.

This has happened because insurers that have sold long-term care policies have been getting the math wrong:

  • They’ve overestimated the number of people who would drop their policies.
  • They underestimated how long people would live.
  • They faced unexpectedly low interest rates that reduced returns on the investments intended to cover claims.

As a result, insurers are going to state regulators, who largely oversee the insurance industry, saying they won’t be able to pay claims unless they raise rates. And state regulators are granting permission.

So if you get the same sort of letter the Koplans got, what do you do?

You can, like Koplan, complain to the insurance company. Instead of satisfaction, that got him a response reminding him that when he bought his policy in 2009 he received, and acknowledged, several statements along the lines of “Premiums are subject to change.”

You can also hope that someone has filed a class action suit related to your particular policy, in which case a lawyer likely will get in touch with you and fight for a better deal. Unfortunately, rate increases alone don’t appear to be a strong basis for lawsuits.

Here’s how to work through your other options.

1. If the increase is manageable, consider paying it. A 2014 analysis from Marc Cohen, a professor of gerontology at the University of Massachusetts in Boston, found that 22 years of average long-term care premiums cost the same as a five-month stay in a nursing home.

It’s important, however, to carefully check correspondence from your insurer to see whether your state has already granted future rate increases. You’ll have to decide whether you can afford them, too.

2. If you can’t manage the increase, study your insurer’s options for premium-reducing concessions.

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Cohen suggests reducing the number of years you have benefits. Another analysis he did showed that “in a large majority of cases, people died or went off claim before using all of their benefits.”

A 2017 Rand study, the most recent available, looked at 18 years of data and estimated that older adults who spent any time in a nursing home stayed about eight months on average, and the lifetime chances of an older adult staying more than 100 days in a nursing home was about 27 percent. For 90 percent of those studied, the total was less than three years.

Another option is to reduce your daily benefit. Bonnie Burns, a consumer advocate who has counseled hundreds of people through rate increases, advises cutting daily benefits, years of coverage or both instead of giving up any inflation-protection rider, especially for people in their 60s or early 70s.

“Their benefit can still grow because they have time,” she says.

3. If you are married, think about who is more likely to need paid care. Does one of you, for example, have a family history of Parkinson’s or Alzheimer’s disease?

All other things being equal, keep in mind that a wife will likely live longer than her husband of the same age, spending her latest years alone. Cohen’s wife has five years of coverage; he has three.

4. If none of these work, you can either convert the premiums already paid into a smaller paid-up policy or take a cash buyout, if one is offered.

“That paid-up benefit is a consumer protection, a serious one,” Burns says. That’s partly because you may not be able to qualify for a replacement policy.

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On the other hand, if you bought a policy at age 50 and now you’re 60, you may be young and healthy enough to find a new policy, he says.

“Taking the cash might be a good decision,” Burns says.

The outcome: No miracles

Unfortunately, I could work no miracles for Koplan, who decided to take the cash. His reasoning was that he bought the policy to protect against a worst-case long-term care cost scenario — say, expenses totaling $500,000.

On the other hand, he explained, he and his wife luckily have enough money that if they had caregiving costs in the neighborhood of $61,607 — the amount of the policy benefit they could retain without paying more premiums — they could cover that expense comfortably with cash on hand.

So instead of the benefit, he’d rather have the cash, which he plans to set aside for caregiving and add to over time.

And he’s contacted his state’s insurance department to complain about what he considers an unfair deal.

This column, originally published Feb. 7, 2023, was updated with additional information from the Rand study.

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