At an alarming rate, owners of long term care insurance policies are getting notices that the premium for their policy is going up.   These letters advise of options to reduce the impact of the premium increases, such as taking a reduction in benefits.  Insurance companies are also warning that these increases will continue in the future.  Policy owners are troubled by the increases and unsure as to whether they should reduce the benefits or just drop the policy altogether.

As many policy owners can attest, these premium increases are substantial. Some policies are increasing at a rate of 70%.   What used to be an affordable investment for retirees, is now a financial burden that affects their lifestyle.

A perfect storm undermined the long term care insurance industry, triggering the latest increase in premiums.  The insurance companies underestimated the cost of paying the benefits as well as the rate at which the insured would drop the policies.  A decade of record low interest rates also affected the reserves insurance companies needed to pay the claims.

So, what are policy owners to do?  As with so many insurance decisions, there isn’t one solution.  The older policy owners who have a potential for long term care in the near future may decide to keep their policy.  Perhaps with reduced benefits, such as shortening the term of coverage, or adding a waiting period (ex. 90 days) before benefits are paid, the policy can still be affordable and logical to keep.

For those younger policy owners who are not facing a long term care need, it may be logical for them to drop the policy.   If the policy is simply not affordable, many retirees will not sacrifice other lifestyle needs for insurance they may never need.

Keep in mind that the average cost of nursing home care in Pennsylvania has reached $10,000 per month.  Long term care insurance policies will rarely pay a 100% of nursing home care.  If policy owners decide to keep their policy, can they realistically expect to recoup any significant insurance benefits given the sizable premium and ever increasing cost of nursing home care?

Another consideration is whether you can benefit from asset protection planning in anticipation of using Medicaid (Medical Assistance) to pay for your nursing home care.  This government program pays for most of the residents in a nursing home.  Although there is no benefit for assisted living and a limited benefit for home based care, the Medicaid program does pay for the majority of the $10,000 per month cost of nursing home care.

Unfortunately, Medicaid is an asset based program.  Not all will qualify.  If you have too many available assets, you will need to spend down those assets before you are eligible.  One way to protect your assets and get closer to Medicaid eligibility is to reduce your asset level through transferring assets out of your name at least five (5) years before you need care.   Outright transfers to children have significant risks.  However, more and more people are using Asset Protection Trusts to shelter their home or other savings from being counted as available for Medicaid purposes.

There is no easy answer for dealing with these premium increases.  For some insured, reducing benefits and keeping the insurance makes sense. For others, dropping the policy and either self-insuring or preparing for Medicaid coverage makes more sense.   I recommend contacting Marshall, Parker and Weber for a consultation to discuss your case and let an experienced elder law attorney help you decide what makes the most sense for you.