Editor's Note: This article has been changed to reflect that some people with policies are seeing their premiums rise by more than 50% per year, instead of a previous implication that all were. The Fool regrets the error.
As baby boomers age into retirement, concerns about paying for long-term health care in their later years begin to surface. Despite this unease, 90% of boomers do not have a long-term care insurance policy.
Why is this so? There are several reasons – many of which are out of boomers' control.
Fewer insurers offer LTC insurance these days
Low interest rates and increased longevity have caused may big insurers to exit the business over the past few years, leaving fewer than 20 players in a market where more than 100 once existed. With interest rates near zero, insurers were unable to build up the reserves at the same time as policyholders were making more – and more expensive – LTC claims.
Premiums are soaring
Not surprisingly, a marketplace with fewer vendors increased prices. In addition, some of those with existing policies are seeing their premiums rise more than 50% per year. For women, premiums are often much higher than what men pay for comparable coverage.
How can companies defend such increases? In the past, insurance companies seriously mispriced policies, misjudging costs on both ends of the spectrum. While many companies simply stopped offering LTC policies, insurers who are still in the business need higher premium hikes to make up for those losses.
Rejections for coverage are skyrocketing
If boomers are lucky enough to find a company that offers coverage, chances are good that they will be rejected, even if they start shopping when they are only in their fifties. Nearly 35% of applicants are rejected nowadays, according to LTC Tree, as insurers peer ever more closely at health profiles. Boomers are rejected for a variety of chronic health issues, as well as being obese. Some are even spurned for being too thin.
Misconceptions regarding Obamacare
According to a study by Nationwide, over 70% of boomers with incomes of $150,000 or more believed that the Affordable Care Act would cover long-term care costs. Perhaps due to this false impression, respondents projected their average yearly LTC costs to be a meager $36,220 – compared with their 2012 estimate of nearly $79,000. In reality, and, depending upon the type of care, the annual cost can be may times this amount.
What's a boomer to do? With the roadblocks facing boomers in the quest for LTC insurance, it is little surprise that most are doing nothing at all. Although many experts suggest shopping as early as possible for a policy, even a couple in their mid-fifties – providing they get accepted for coverage – will face yearly premiums of $3,275 for a measly $164,000 worth of coverage.
Still, there are options. Some suggest using LTC insurance to cover only part of long-term costs, which seems quite a letdown, particularly with premiums rising by half every year.
Shared benefits are another possibility for couples, whereby the two policies are flexible enough that one spouse, if he needs to, can access part of his spouse's benefits. This would leave the other partner shortchanged, however, not the best situation. Buying two policies together can also trigger discounts of up to 30%, a significant savings.
According to the Department of Health and Human Services, the cost of in-home care in 2010 was $21 per hour, and a semi-private room in a nursing home would set you back a whopping $6,235 each month. Doubtless, those costs have risen over the past four years, and I shudder to think what LTC will cost by 2030, when, as Nationwide points out, the last of the boomers will reach age 65.
If these types of elder care costs continue to spiral upwards, there is little hope that anyone, insured or not, will be able to afford them.
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