Today, deciding whether to buy long-term-care insurance feels a little like trying to hit a moving target. Change is the only constant. But that’s not necessarily a bad thing.
“There are more types of LTC insurance solutions than ever before,” says Marc Glickman, an actuary and CEO of BuddyIns, a Calabasas, Calif.-based community of long-term-care insurance specialists.
The industry has certainly gone through growing pains. About 50 years ago, when long-term-care policies first became widely available, there were as many as 100 carriers; today there are only about a dozen. One by one, they exited the business as customers lived longer and healthcare expenses grew.
But those that remain may be better and stronger than ever.
Pricing Improvements
“The policies today are priced realistically,” says Brian Gordon, president of Murray A. Gordon & Associates/MAGA Ltd., a long-term-care specialist firm in Bannockburn, Ill. “The carriers have learned from their past missteps of underpriced, benefit-rich plans.”
In fact, he says, rates may be coming down. That’s partly because of rising interest rates. Insurance companies typically park their assets in fixed-income instruments. When rates were low, the companies had to raise premiums to make up the difference. Not any longer.
“With the higher interest rate environment,” says Gordon, “we are just starting to see some carriers lower their premiums slightly on new business.”
Tougher Underwriting Requirements
Yet Gordon concedes that the coronavirus pandemic has affected the industry, too. “I’ve found the underwriting to be a bit tougher,” he says, referring to the standards used to determine who can qualify for coverage.
Besides coming up with a longer list of policy exclusions for people with pre-existing conditions, some carriers have temporarily restricted coverage for anyone who has lived in or recently traveled to high-Covid areas.
On the other hand, the pandemic has contributed to higher demand as awareness of the devastating effects of protracted health problems has grown.
Another recent demand driver: stock market volatility. “Those who felt confident that they could pay for LTC out of pocket are no longer as confident and therefore are looking at LTC insurance,” says F. Michael Zovistoski, a managing director at UHY Advisors NY in Albany, N.Y.
State Mandates
Politics has played into rising demand as well.
First, in 2019, the state of Washington passed the Long-Term Services and Supports Trust Act (also called the Long Term Care Trust Act). The first of its kind in the nation, the payroll-tax-funded program was supposed to go into effect in January 2022, letting anyone who owned private long-term-care coverage before November 1, 2021, opt out of the tax.
The program has been delayed, however, while legislators iron out issues such as how to handle self-employed people or those who work in the state but live and/or retire elsewhere. Consequently, payroll deductions won’t actually start till July 2023, and benefits won’t become available till July 2026.
Still, in the six months before the November 2021 deadline, more than 450,000 people in the Evergreen State reportedly purchased coverage.
California, New York and a few other states are weighing similar programs.
Federal Legislation
More recently, in the nation’s capital, senators have been debating the Long-Term Care Affordability Act. If passed, it will permit long-term-care insurance premiums to be paid directly from 401(k), IRA and other retirement accounts without a penalty for early distributions.
“This would be game-changing,” says Howard Sharfman, senior managing director at NFP Insurance Solutions in Chicago. It would “allow clients to pay for LTC [coverage] with before-tax dollars and would significantly change the customer’s mindset in a positive way,” he says.