Long-term care insurance is a complicated product. Purchasing a new policy in today’s market is difficult, expensive and restrictive as providers scramble to stay ahead of the rising costs of care. Existing policies are impacted, too, with most older policies shifting almost beyond recognition thanks to exclusions, restrictions, inflation and changes imposed by the providers.
When a new bill comes in the mail or a claim is needed, there are five common situations that can catch a policyholder by complete surprise. We hope it inspires you to check details of your own coverage.
The premiums increase faster/higher than expected.
It’s easy to misunderstand or overlook details of a long-term care insurance policy. Many of us make assumptions about what is covered as time goes by and details are forgotten.
The most common overlooked issue is the simple fact that most policies include language that allows for increases in the premiums. It’s forgotten until a new bill arrives in the mail with the adjusted amount.
As the costs of care and inflation skyrocket, premiums are continually evaluated by the insurance providers. For those with policies that allow for increases—which are most policies issued in the last few decades–premiums can easily can rise faster than expected.
Costs also commonly increase with age, jumping as much as 200 percent or more as the policyholder enters their 70’s and 80’s. The increased risk of paying a claim is passed along to the insured.
If the policy doesn’t restrict how much a policy can adjust, the policyholder can be in for a very unpleasant surprise. What starts as a small increase initially can quickly escalate to become unaffordable.
“It’s not uncommon for a policyholder to let their policy lapse when it becomes a financial burden, often when it’s most likely to be needed. It’s scary to see that happen,” says Rachel Collyer, membership counselor for Sun Health at Home – a continuing care at home membership from nonprofit Sun Health created to complement or replace long-term care insurance.
There is a lengthy waiting period before coverage begins.
Details in the fine print can change everything and many policyholders don’t comprehend the impact of a waiting period (also called an elimination period) until something happens. It’s another commonly overlooked aspect of a long-term care insurance policy.
It’s usually explained during the purchase of the policy, but the actual financial impact may not be put in context or thought about.
Here’s what it means in terms of dollars and cents. If a long-term care insurance period has a waiting period, a policyholder must pay all costs out-of-pocket until benefits kick in. Ninety days of care can range from $19,164 to $22,812 in Arizona–an amount painful to any bank account.
Plus, those with short-term care requirements may end up collecting nothing from the policy. For example, a bedridden woman requiring six weeks of care to recover from influenza would need to pay for the entire amount without assistance of any kind. This could easily exceed four or five thousand dollars for home care.
The lifetime cap may not cover current costs of care.
Along with other coverage restrictions, long-term care insurance benefits include a maximum lifetime cap on benefits paid out by the policy. Depending on the age of the policy or amount of coverage purchased, that cap may not be large enough.
“A $300,000 maximum benefit might seem adequate, but the reality is that assisted living and memory care can cost $60,000+ annually, and skilled nursing even more,” mentions Collyer, adding that it’s fairly common for those with a policy to think that an amount covering two or three years of care is ample.
The truth can be very different, according to Genworth, with continual cost increases and a significant percentage of those over 65 needing five years or more of care, especially in the case of an Alzheimer’s or Parkinson’s diagnosis.
Policies without an inflation rider may not go very far.
Not only can the maximum benefit be too small, but the value of the policy can shrink as time goes by if they didn’t purchase the inflation rider.
When someone purchases a long-term care insurance policy, the inflation rider isn’t usually included. It’s an added feature that costs more money, but adjusts the value of benefits periodically, in keeping with costs and inflation.
Without that rider, what originally might have seemed like a generous, even ample policy may not go very far in today’s economy. Costs of care in a facility is far outpacing inflation, outpacing what most Americans can afford to become a growing social concern.
“A policy purchased 25 years ago may cover less than half of what it was originally intended to cover,” adds Collyer. “Did you buy the inflation rider?”
The claim process can be excessively complicated and lengthy.
One last factor to consider is related to the customer service provided by an insurance provider. Some are extremely cautious, even overzealous in their decision to pay out on a policy. The process of filing and claims approval can be extremely cumbersome and slow moving.
“We hear horror stories about denied claims and difficulties working with providers. The basic process to activate a claim can be especially tough on an individual without caregivers or advocates to help smooth the process, says Collyer. “They are at the mercy of their physician writing the order for care correctly, and ensuring they meet criteria for the policy to kick in.”
Finding an approved provider and submitting documentation to qualify can be a major headache, too. It’s so much work that some don’t manage to successfully file a claim, even though they’ve paid a premium for decades.
Some insurance providers even insist on their own independent assessment as an extra precaution, rather than taking the physician’s paperwork as proof a claim is necessary. They leave no stone unturned to find ways to deny a claim in a situation that’s already stressful.
Why continuing care at home is growing in popularity
Continuing care at home (CCaH) plans aren’t widespread in the Southwest yet, with Sun Health offering the first one, but they’ve already gained a foothold on the East Coast.
Most people choose CCaH to replace the need for long-term care insurance, but it can work in conjunction with an existing policy or even the benefits provided by a retirement community.
CCaH is a membership plan for those who choose to remain in their own home, but want support and resources to manage and pay for long-term care without the limitations of an insurance policy. No maximum lifetime benefit, no claims to be filed, and no waiting periods.
Members are assigned a wellness coordinator who understands their health and wellness situation, communicating with the member often to provide continual resources and support to remain independent.
If long-term care is needed, there’s no need to file a claim with most CCaHs and involving a physician may not even be necessary. The Wellness Coordinator has autonomy to provide services and benefits when needed. It pays for care not covered by the member’s private health insurance or Medicare, too, with benefits depending on which plan the member purchased.
Not all CCaH plans are exactly the same—but for Sun Health at Home, there’s no maximum on benefits that are paid out… an attractive feature to those concerned about future memory care or long-term assisted living needs. The member is approved for membership based on health and financial criteria, including the ability to live independently at the time they join.
Continuing care at home plans combine a proactive independent living lifestyle in your own home with resources to obtain and pay for long-term care, should it become eventually necessary. Even if you move or travel, the plan follows you. To learn more, attend an upcoming discovery seminar near you.
Sun Health at Home is the first CCaH program in the southwestern United States and the only one available in Arizona.
(Originally published July 24, 2018; last updated Jan. 6, 2019.)