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Long-term Care Insurance – Crisis in the Making?

Wed Nov 24th, 2010 on     Insurance Claims,    

When people talk about soaring insurance rates, they’re usually talking about health insurance or – particularly in Florida – property insurance. Another type of coverage has found its way onto the list lately: long-term care insurance.

Long-term care insurance covers the cost of caring for a person has a chronic illness or disability and is unable to manage on his or her own for an extended period of time. The insurance pays for care received in a nursing home or assisted living facility – even in the patient’s own home.

Most people start to think about long-term care insurance when they are caring for a loved one. For example, a retired federal employee and her husband cared for his father for several months. The father had been diagnosed with Alzheimer’s disease, but it was 18 months before a Veterans Affairs nursing home had room for him. The couple saw the emotional and financial toll is took on all of them and determined that they would do all they could to spare their children the same experience.

Long-term care insurance was the answer. At 55, though, they were surprised at how high the premiums were. A few months later, they saw that their insurance company had asked the state to approve a 40 percent long-term care rate hike for non-federal employees. Their own rate hike couldn’t be far behind. They started to wonder if the coverage was worth the investment.

The graying of America is taking its toll on the long-term care insurance market. Initially a good investment for companies and individuals alike, the same problems that have plagued property insurance now plague this market: too many claims and not enough income.

Insurers say that the hikes are necessary not only because the cost of care has increased, but also because they (like the rest of us) aren’t earning enough on their investments. Even factoring rate increases in, some companies have abandoned the long-term care market altogether.

Without the coverage, though, the cost of care will likely be shifted to the Medicaid system. Can that system support the estimated 12 million older Americans who will need long-term care in ten years, though? Regulators, insurance companies, and consumers may want to put on their thinking caps now.

Resource: USA Today “Long-term Care Insurance Worries Baby Boomers” 11/22/10

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