Are Changes on the Horizon for Long-Term Care Insurance?

As we get older, many of us will need long-term care. In fact, the statistic hasn’t changed — 70% of Americans 65 and over will need some type of long-term care in their lifetime. This could mean a nursing home stay, home healthcare, or a stay at an assisted living facility, or a combination of the three. The fact also still remains that many Americans are unaware of the high cost of long-term care, which can be catastrophically expensive to those who aren’t prepared for it.

Some Americans opt for long-term care insurance as a way to pay for long-term care. However, an estimated 48% of Americans aged 55 to 64 are not familiar with long-term care insurance (LTCI) either, according to the Center for a Secure Retirement® and Bankers Life. This and the need for change is what prompted the formation of a federal task force on long-term care insurance.

After two years of collaboration, the Federal Interagency Task Force on Long-Term Care Insurance released its report reviewing the nation’s LTCI system, titled “Long-Term Care Insurance: Recommendations for Improvement of Regulation.” The report describes the work conducted by the task force and presents recommendations to reform the regulation of LTCI in the United States.

The task force consisted of senior officials from the Department of the Treasury, the Department of Health and Human Services, the Department of Labor, and the Office of Management and Budget. Analysis and recommendations in the report were organized into four subject areas:

1. Product development and other innovation in the private LTCI market;
2. Improved regulatory efficiency and alignment;
3. The federal role in financial literacy and education relating to long-term care (LTC) needs and LTCI; and
4. Additional tax incentives for the purchase and use of LTCI.  

The following are the recommendations that were made by the task force:

More education is needed: The Financial Literacy Education Commission should include long-term care planning among its retirement education topics. “Decisions about [long-term care] are complex, unpredictable, and often made more challenging by social and emotional hurdles to planning for possible disability,” the report stated. “In addition, long-term care insurance can be difficult to understand and easy to avoid. Planning for LTC costs and ways to pay for them should be included as part of other financial education on planning, saving, and investing for retirement.”
Inflation protection to reduce premium costs: The group also suggested that Congress grant the Treasury the authority to lower the level of required inflation protection included in private LTC policies, as a way to reduce premium costs. Currently, policies must offer to increase benefits by 5% annually to qualify for special tax benefits (though consumers can choose less inflation protection or no inflation protection). This, it said, could lower premiums.  
Offering incidental benefits: The task force proposed allowing private insurers to offer incidental benefits to policyholders before they become eligible for full benefits. The idea is that carriers could help support the costs of home modifications, caregiver training, or information services early in a policyholder’s long-term care need. By doing so, it could keep people healthier and safer, and lower costs in the long run. The task force said the idea should be further assessed and suggested Congress could consider changes to allow such a benefit.
No opt-out model: The task force did not endorse an opt-out model for employer-based LTC insurance.
No coverage through retirement plans: The task force rejected proposals to allow consumers to purchase coverage within their 401(k) or 403(b) retirement plans, changes to the way states approve premium increases, or any form of public LTC insurance.
No new tax deduction for premiums: The task force also did not endorse a new income tax deduction for premiums, allowing taxpayers to buy LTC insurance through a flexible savings account or creating a health savings account-type program for LTC insurance.

Note: The task force completed its analysis and recommendations prior to the onset of the COVID-19 pandemic.  In addition, the full effects of the pandemic on LTC and LTCI will continue to emerge over time.  For these reasons, the report does not seek to assess the potential impacts of COVID-19 on LTC or LTCI.

The report notes that implementation of the recommendations made will potentially make LTCI more affordable and accessible. The report also identifies policymakers and other stakeholders it considers well positioned to implement each recommendation.  The Department of the Treasury will coordinate and monitor implementation of the recommendations.

Current Status of Long-Term Care Insurance

According to the American Association of Long-Term Care Insurance 2019 data, Americans bought only about 60,000 stand-alone traditional long-term care (LTC) insurance policies (the type of policy analyzed in the above study) in 2018, down 13% from the previous year. Only about 15 carriers were actively selling policies, and five of them accounted for more than three-quarters of the market, as measured by premiums.

While sales of traditional LTCI policies continue to decline, consumers rightfully remain much more interested in hybrid policies that add long-term care benefits to annuities or life insurance. Issuers sold more than 250,000 such hybrid policies in 2018, according to the data firm LIMRA.

The Advantages of Hybrid LTC Policies

Hybrid long-term care insurance policies most often combine permanent life insurance with an accelerated death benefit rider that pays benefits for long-term care or chronic illness. These hybrid policies have been rapidly gaining in popularity because they address most of the shortcomings of traditional LTC insurance policies. The primary advantages of these hybrid policies are that they offer tax-free reimbursements for qualified long-term care expenses; tax-free death benefits to your heirs if your LTC benefits are not fully used; and a potential return of your premium if you change your mind down the road. For still-healthy individuals, these policies can generally be issued up until age 80.

Besides being a Certified Elder Law Attorney, I am also an experienced retirement planning advisor and long-term care insurance advisor. Through my financial company, Lifecare Financial Services, I have been helping clients since 2006 purchase and use hybrid LTC insurance policies to assist in paying for long-term care, especially home care and assisted living, before the need for the nursing home level of care arises. Learn more here.

Planning Ahead for Long-Term Care

It is always wise to plan ahead for when the need for long-term care eventually arises. Life Care Planning and Medicaid Asset Protection is the process of protecting assets from having to be spent down in connection with entry into nursing home care, while also helping ensure that you and your loved ones get the best possible care and maintain the highest possible quality of life.

To begin retirement planning and/or long-term care planning — whether Medicaid Planning and/or Veterans Planning, and/or planning with hybrid insurance coverage, please call us now to make an appointment for a no-cost initial consultation:

Elder Law Fairfax: 703-691-1888
Elder Law Fredericksburg: 540-479-1435
Elder Law Rockville: 301-519-8041
Elder Law DC: 202-587-2797

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