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Michigan Elder Law Today

Friday, March 30, 2012

Turmoil in the Long-term Care Insurance Market

Long-term care is expensive.  Nursing homes in Michigan cost, an average, $227 per day or $6,816 per month for a semi-private room.  Assisted living in the metro-Detroit area cost, an average, $114 per day or $3,425 per month.  Home health aides cost, an average, $19 per hour.

Long-term care insurance can be a great solution when an older person needs elder care assistance.  Unfortunately, when assisting my clients with long-term care planning, few of them have long-term care insurance.

Reports of recent turmoil in the long-term care insurance market is not good news and may lead to people not obtaining long-term care insurance when they should.

One area of concern that’s been in the news is that insurance companies continue to leave the long-term care insurance market.  First, it was CNA Insurance and then, last year, MetLife stopped selling new polices to individuals.  Now Prudential has announced that they will stop issuing new polices to individuals.  While these insurance companies have to continue to service their existing policyholders, you can imagine that people who own these policies become unsettled when their insurance company “gets out of the business.” People have a legitimate concern about how well a company who is no longer selling new policies will be in honestly paying claims and devoting company resources to service policy holders when they are getting out of the business.  After all, if a company is not worried about selling new long-term care insurance policies, they do not have to worry about their current policyholder’s complaints about bad service or non-payment damaging the company’s reputation, and impacting new sales.

Another area of turmoil is big increases in the cost of the annual premium.  People purchased policies based on it costing $3,500 a month and now, in some cases premiums are being raised to $5,000 a month or more.  Several factors have been reported for the increase in premiums:

More people are using their policies then the insurance companies planned for;

The costs of care have risen faster than what was expected and people are living longer than was projected;

Not as many people let the policies lapse after purchasing it;

The insurance companies’ investment returns have been lower then expected.

All of the above reasons relate to the fact that the long-term care industry is still relatively new and is only now seeing actual usage data which they will use in the future to more accurately price their premiums.  Of course, this means that premiums will be set at a higher amount when people first purchase a policy, but hopefully, this more accurate information may result in premiums not being raised as much year after year.

While it is too late to obtain such insurance after a stroke or diagnoses of Parkinson’s or Alzheimer’s disease, if you are in your late 50’s or in your 60’s, it is still worth looking into long-term care insurance, despite these recent increases in annual premiums.  Even if the annual premium is $6,000, that is still less than the cost of one-month in the nursing home.


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