Long-term care insurance—you may have considered it when planning your retirement but now that you’re getting older, you might worry that you no longer qualify for an affordable policy and that you’ve missed the boat. However, the long-term care insurance market has changed over time, resulting in some unexpected challenges and dissatisfaction among policy owners. For those who didn’t purchase plans earlier, there are other options for ensuring some financial security for your future care.
Many retirement communities that offer advancing levels of care, including independent living, assisted living and skilled nursing, also offer a “life care plan,” available to residents when they move into independent living. Life care community plans are emerging as a preferable option for many when compared to traditional long-term care policies. Orchard Cove, Hebrew SeniorLife’s continuing care retirement community in Canton, MA, is a great example. To understand why life care plans have emerged as a successful alternative to long-term care insurance, it’s important to understand how long-term care insurance works and why the product hasn’t delivered as the insurance industry expected.
Long-term care insurance is a relatively new product, introduced in the 1990s to help offset increasing costs for advanced elder care. Policy benefits and premiums were based on assumptions about customer behavior and business conditions that turned out to be faulty. The first was an actuarial assumption about how many policy holders would drop the policy without ever using it. In the case of car insurance or home owner’s insurance, consumers generally hope that they never need to use it. Many people pay for those types of policies and then drop them when they don’t need them anymore, or switch companies for a better deal, never having drawn a benefit.
Long-term care insurance was not regarded in the same way by consumers. Many saw it as an investment— “I’m paying in and I plan to draw out,”—rather like their retirement accounts. This resulted in a much higher percentage of policy holders drawing benefits for larger amounts than projected. For consumers who purchased policies early, very few were interested in surrendering the policy at any point, and most were committed to the idea of filing claims against the policy in their old age.
The second faulty business assumption impacting long-term care insurance industry today relates to interest rates and investment returns. Over the past decade, relaxed monetary policies have led to significantly lower investment earnings on the premiums that were paid, which left less to support benefit payments. Over the same period, long-term care costs have increased significantly. The result is that insurance companies have less money to pay larger payout costs than they expected. The only way to pay all of the benefits owed and stay solvent is to raise premium rates on policy holders. Many insurance companies have chosen to exit this line of business entirely and are no longer offering new policies in the market.
How have life care plans at continuing care retirement communities, sometimes called life plan communities, avoided these pitfalls? At Orchard Cove, residents who qualify medically can choose to pay a one-time fee plus a monthly fee during their residency to lock in significantly reduced rates for higher levels of care when it’s needed. As a nonprofit provider of care, rather than a for-profit insurance company, Orchard Cove is able to offer a life care plan that cover more of the out-of-pocket-costs associated with long-term care at a lower cost to residents since there is no need to pay shareholders or cover the operating costs of a separate insurance business.
Because Orchard Cove is part of an organization that has provided a high quality long-term chronic care program for more than 20 years, future cost increases are more easily projected and managed. Residents who choose this option limit their exposure to financial risks like rising premiums, lifetime caps, or unpredictable costs and coverage without having to plan decades in advance.
For seniors who didn’t jump on the long-term care insurance band wagon years ago, life care plans at retirement communities like Orchard Cove can remain an option and may end up being a better financial decision for you. So procrastinators, rejoice—it may all have worked out for the best!