Long-term care planning: How to handle insurance hikes and alternative options

Long-term care (LTC) is a growing concern for aging Americans. Studies show that around 70% of seniors will require some form of LTC during their lifetime. This includes in-home assistance, assisted living, or nursing home care. While long-term care insurance was designed to help cover these costs, many policyholders are now facing steep premium hikes.

As the cost of care continues to rise, seniors and their families must plan carefully. This article explores the reasons behind long-term care insurance premium increases and strategies to manage them. It also looks at alternative ways to cover LTC expenses for those who may not have insurance or are struggling with affordability.

Understanding long-term care and rising costs

Long-term care refers to services that assist individuals with daily activities such as bathing, dressing, and medication management. Many seniors need LTC due to chronic illnesses, disabilities, or cognitive decline, such as Alzheimer’s disease.

Unlike Medicare, which only covers short-term rehabilitation services, long-term care insurance is specifically designed to help with extended care costs. However, recent premium increases have made coverage less accessible for many policyholders.

The impact of premium hikes

LTC insurance providers have significantly raised premiums over the years due to several factors.

Underestimated costs: When long-term care insurance was introduced, insurers miscalculated how much care people would need and how long they would require it. This led to policies being priced too low, forcing companies to adjust premiums.

Longer life expectancy: Advances in healthcare mean people are living longer, leading to higher insurance payouts. As more policyholders need care for extended periods, insurers must raise premiums to cover increased costs.

Low interest rates: Insurance companies rely on investment returns to offset costs. With historically low interest rates, insurers have struggled to generate enough returns, leading to premium hikes.

Some policyholders have seen their premiums double or even triple, making coverage unaffordable. This forces difficult decisions: pay the higher costs, reduce benefits, or let the policy lapse.

Strategies for managing LTC premium hikes

Instead of dropping coverage, seniors can explore various options to make long-term care insurance more manageable.

Adjust policy benefits

If long-term care insurance premiums become too expensive, modifying coverage is often a better option than canceling the policy altogether. One way to reduce costs is by lowering the daily benefit amount. For example, reducing coverage from $300 to $250 per day can lead to significant savings while still providing financial protection.

Another option is shortening the benefit period. Instead of opting for lifetime coverage, switching to a 3- to 5-year plan can make premiums more affordable, as many people do not require long-term care for extended periods.

Additionally, increasing the elimination period, the waiting time before benefits begin, can also help reduce costs. Choosing a longer waiting period, such as 90 or 180 days instead of 30 days, may lower premiums while still maintaining coverage for future needs.

Hybrid LTC policies

Hybrid policies combine long-term care insurance with life insurance, offering a death benefit if care isn’t needed. This ensures policyholders’ investments aren’t wasted.

They come with fixed premiums that don’t increase, providing financial stability. The cash value can also be used for care expenses if needed. Though they require a larger upfront payment, hybrid policies offer more predictability and security than traditional LTC insurance, which often faces premium hikes.

Utilize Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) provide a tax-efficient way to save for long-term care expenses. Contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses, including LTC. Unlike Flexible Spending Accounts (FSAs), HSA funds roll over indefinitely, making them a valuable long-term savings tool.

Exploring alternative long-term care solutions

For those who cannot afford long-term care insurance or prefer other options, there are alternatives to help manage LTC costs.

Self-funding long-term care: Some seniors self-fund long-term care using savings, investments, or retirement accounts, offering flexibility but requiring careful planning. Estimating future LTC costs based on family health history helps predict expenses. Investing in growth-focused accounts like IRAs can provide added security.

Setting up a dedicated LTC fund ensures funds are available when needed. However, unexpected health issues can deplete savings quickly, making self-funding risky without a solid financial plan.

Medicaid planning: Medicaid covers long-term care for low-income seniors but has strict income and asset limits. Planning ahead can help protect assets while ensuring eligibility. Since look-back periods prevent last-minute transfers, working with an elder law attorney can simplify the process.

Life insurance with long-term care riders: Many life insurance policies now include LTC riders, allowing policyholders to use part of their death benefit for care while keeping unused funds for beneficiaries. These policies are often more affordable than standalone LTC insurance and offer predictable premiums, avoiding unexpected rate hikes.

Planning for the future

With 70% of seniors likely to need long-term care, early planning is key. Start by assessing your finances to decide between long-term care insurance, self-funding, or other options. If you already have a policy, review it and adjust benefits to keep premiums manageable.

Rising premiums make it essential to explore alternatives. Options include modifying coverage, switching to a hybrid plan, or considering Medicaid planning. Consulting a financial advisor can help tailor a strategy to fit your needs. By planning ahead, seniors can make informed choices that protect both their health and finances.