Long-Term Care Climate Changes…Weathering The Storm
(An informational review for fee-only financial advisors and their clients)
Americans are faced with new challenges surrounding the care of family, friends and themselves in the later years of life. Many people have either had a personal experience or know someone who has in caring for an elderly individual. There is a wide range of options available to provide care for these people. Often the option chosen is based on financial resources available for this help.
Several publications have surfaced over the past decade dedicated to the subject of long-term care. These publications range from books offering emotional support for caregivers to detailed plans on how to provide care for the elderly. Until recently there has been little publicized data that offers clarity of what the long-term care experience in America has been. The data compiled and released within the past 12-months provides a wealth of knowledge related to the who, what, when, where and why of both the long-term care insurance (LTCi) market and long-term care claims experience.
Who is buying long-term care insurance?
Men and women both single and married are purchasing LTCi at an alarming rate. The number of lives covered at the end of 2006 was 6,626,602(1) . This is an increase of 295% since 1996. Of the people who purchased individual LTCi in 2007, 76% were between the ages of 45 and 64, with a majority (50%) being between the ages of 55-64(2) .
Today’s consumers are purchasing benefit rich policies. Of the individual LTCi policies sold in 2007, 83% had a 90-100 day elimination period, 55% had a 5-year or longer benefit period, and 42% had 5% compound inflation protection included(2) .
LTCi policies are available on an individual basis or potentially through an employer on a group basis. About 15% of 2007 actual insurance company earned premium was derived from the sale of group insurance available the workplace(1) . Premiums are often lower in group LTCi and the benefits are often reduced. As a result, consumers are still looking for high quality individual LTCi policies.
What do long-term care claims look like?
The average nursing home stay for a male is 2.3 years and 2.6 for a female(3) . The data also illustrates that married people stay in a nursing home less than single and widowed people(3) . 74.5% of nursing home stays were less than three years, 44.2% of stays were less than 12- months(4) . The unisex average stay is 876 days, or 2.67 years(4) .
For years claims data has been unclear within the LTCi industry. Several recent studies and organizations have begun to offer substantial information related to the claims filed and paid by LTCi policies.
The data on individual policies show 12.5% of LTCi claims began before age 70, 32.3% between age 70-79, and 55.2% after age 80(2) . 43% of claims were for home care, 32.9% for assisted living, and 24.1% for nursing home care(2) . Over 75% of people on claim required assistance with bathing, dressing, toileting, and transferring5 .
What does this mean?
The baby boomer demographic demonstrates an increase in the overall amount of care that will be required in the coming years. Recent reports indicate that 18% of the baby boomer generation will develop Alzheimer’s in their lifetime(6). This illness alone will have a great impact on long-term care in general. Alzheimer’s is just one piece of the long-term care puzzle.
Existing data suggests that the demand for qualified long-term care service will increase at a faster rate than ever before. This is due in large part to increasing life expectancies and increasing numbers of people who will require care. In contrast, the number of long-term care facilities does not seem to be keeping pace with future demand. This supply and demand affect has lead to long-term care cost increases that have outpaced inflation in recent years.
The climate has changed! It has become clear that individuals must plan for long-term care. It does not matter if the plan is for self-insurance, co-insurance or full risk transfer, it only matters that a plan exists.
I believe that long-term care insurance plays an integral part in many of today’s financial plans that address long-term care. My experience is that many LTCi consumers would like more detailed guidance as to what policy and policy design best meets their needs. Because many individuals have the ability to self or co-insure, LTCi must be adapted to each individual situation. This is the only way an insurance professional can offer advice that is consistent with past claims experience, clients financial resources, clients emotions surrounding long-term care, and financial advisor recommendations.