Terry’s Columns Long Term Care Insurance & Inflation

Long Term Care Insurance & Inflation

By Terry Savage on May 17, 2023

A recent survey from the Senior Citizens League detailed the impact of inflation on the items senior consumers purchase most often. Over the past 23 years – from 2000 to 2023 – they point out that Social Security increased benefits by 78%, averaging 3.4% annually. But during the same period, the cost of goods and services bought by typical retirees shot up by 141.4%, averaging some 6.2% per year.

As reported by ThinkAdvisor, included in those fastest-rising costs in that 23 -year period were gasoline (up 167%); pet services, including vet costs, (up 190%); homeowner’s insurance (up 193%) and total annual medical expenses (up 177 %), rising from $5844 in 2020 to $16,192 in 2023!

The impact of inflation is truly hitting home for seniors – especially if home is an assisted living facility or nursing home. The Centers for Medicare & Medicaid Services’ Office of the Actuary updated its projections of healthcare spending across provider types last month.

For nursing homes, they predict a 5% increase in spending on nursing home and CCRC care for 2023, slightly under the current 6.04% inflation rate, and a 5.2% spending increase in 2024.

The annual Genworth cost of care index forecasts the daily cost of care in a private nursing home bed will be $365/day in five years – or roughly $11,000 per month! At an assisted living facility, you’ll spend $182/day or $5500 per month in 5 years. In large cities, the costs could be at least 50% more.

The Rising Cost of Care
That’s why so many people are purchasing at least some Long Term Care Insurance to cover enough of the cost to get into the facility of choice. But insurers fear inflation too. That’s one reason premiums on the traditional policies are rising every year.

Here’s an incredible example. A long term care policy purchased 20 years ago carried an annual premium of $1890 for many years — expensive but affordable. Then when interest rates declined, insurers raised premiums on the policy, nearly doubling the annual cost to $3600. In the past few years, the premium rose to over $8,000. And this year, the premium rose to over $11,500!

Most people would give up. But after sinking all those premiums into the policy this senior asked for alternatives. I sent her to Brian Gordon of Gordon Associates, the long term care experts (800-533-6242).

In exchange for giving up the 3% compound inflation protection in future years (which had already nearly doubled the basic daily benefit over the past 20 years), the annual premium dropped back to a much more affordable $2150 per year.
That huge reduction is a clear example of just how much the insurance companies fear the cost of care will rise in future years. And why you should fear it, too.

The Two Morals of this Story
1. If you have an older Long Term Care Insurance policy and the premium jumps, ask an expert to evaluate your options, which may include giving up inflation protection or shortening the coverage period. But, if possible, don’t just drop your coverage, letting the insurance company have a windfall of the premiums already paid.

2. Look into a new “combo” life/long term care insurance policy, where premiums can never go up and where the coverage can never decline. With one large payment, or a series of payments over 5-15 years, you can lock in coverage <> a death benefit for your heirs if you die without using the care coverage.

Pricing a Combo Life/LTC policy – And Paying for It
A 63 year old woman, could lock in $5,000 per month of coverage for 6 years of care, along with a 3% compound inflation adjustment – plus a $120,000 death benefit.

The cost is a steep one-time payment of $99,000. Or $12,600 annually, if paid over 10 years. Or $10,500 if paid over 15 years.

Where would anyone get that money just to cover the possible need of long term custodial care, which is not covered by Medicare or supplements? According to Brian, many people are exchanging cash value life insurance policies to buy these combo life/ltc policies. Others are using an annuity to convert IRA money to an annuity that will pay these annual payments.

In the expensive future, using insurance to buy your way into the best care may be an appealing tradeoff against Medicaid-funding nursing homes. And that’s The Savage Truth.



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