The Death of Long-Term Care Insurance?

Maureen’s husband is retiring within the next few years, and her family is now planning in advance for long-term care, in case the need should arise in the future. Recently, in doing some research on long-term care insurance, Maureen read that John Hancock is leaving the long-term care market early next year. She couldn’t believe it and was wondering if she was reading the news correctly, since she had heard that John Hancock was one of the largest long-term care insurance carriers. Maureen, and others in her situation, must now consider other options to plan and pay for long-term care (which is a good thing, because there are many other and better options!)

Maureen, in our example, read correctly: John Hancock Life Insurance Company announced earlier this month that it is leaving the long-term care insurance market, just as dozens of other insurance carriers have done before it, and that it will discontinue the sale of individual long-term-care insurance policies starting next year. The company, among the top three in market share for traditional long-term-care insurance, will no longer issue new policies after February 2017, according to a memo sent to distribution partners and producers.

Hancock’s Federal Long-term Care Insurance Goes Up 225%

Not all Hancock long-term care insurance policies will be ceasing. Some group policies are continuing, but premiums are going up by astronomical amounts. According to the Federal Long-Term Care Insurance Program (FLTCIP) Website, a new contract was recently awarded to John Hancock that will result in astronomically larger out-of-pocket costs for Federal Long-Term Care Insurance Program enrollees. The new, seven-year contract retains John Hancock, which last received the contract in 2009. Since the last contract, insurance rates increased annually for enrollees who opted not to pay higher costs up front, at a 4% to 5% annual inflationary increase. In 2009, FLTCIP enrollees saw their premiums jump by as much as 25%. This year, premiums are increasing by a whopping 225%!  This is a previously unheard of increase for the FLTCIP program. Read more about this on our blog.

On another note, another major company (the nation’s largest seller of long-term care insurance policies), Genworth Financial, has agreed to be acquired by a privately-held Chinese investment firm. It announced it will reserve $400 million to $450 million against future long-term care claims, but at this time it is unclear whether the new company will continue to issue any new long-term care insurance policies.

These examples point to the huge trouble being faced by the long-term care insurance industry, and bring into question whether traditional long-term care insurance will continue to exist in the years ahead.

Why is this happening?

Below are some reasons, according to Forbes, why scores of carriers have abandoned the market in recent years, and those that have remained have sharply raised premiums on existing policies and tightened underwriting standards and raised prices on new ones.

• Long-term care insurance companies are struggling with larger-than-expected claims.
• Continued low interest rates have slashed investment earnings.
• Sales have plummeted. Sales of individual stand-alone policies plunged from a peak of about 750,000 in 2002 to only about 130,000 in 2014.

Long-Term Care Costs Are Rising. What to do!

Boomers need to be aware that the national cost of nursing home care is projected to rise from an average of $87,600 per year in 2016 to over $123,000 per year in 10 years and $174,000 per year in 20 years. And these are national averages; costs are much higher in the DC Metro Area! What other ways should people consider to pay these high costs if long-term care insurance is no longer a viable option?

Below are different ways to address your Long Term Care needs:

1) Veteran’s Aid and Attendance Benefits: The VA can help qualifying veterans with long-term care costs. In fact, there is over $20 billion dollars available for long-term care pension money just waiting for veterans to apply for their Aid and Attendance benefits. You must be an honorably discharged veteran who needs assistance in your home, or are living in or considering moving into an Assisted Living Facility or Continuing Care Retirement Community to receive benefits and both you and your spouse could qualify. Read more here.

2) Medicaid Planning: Medicaid Planning can be started while you are still able to make legal and financial decisions, or can be initiated by an adult child acting as agent under a properly-drafted Power of Attorney, even if you are already in a nursing home or receiving other long-term care assistance.  In fact, the majority of our Life Care Planning and Medicaid Asset Protection clients come to us when nursing home care is already in place or is imminent.

3) Living Trust Plus: If you are still healthy and not yet on the “long-term care continuum,” then instead of Life Care Planning and Medicaid Asset Protection Planning you should consider our Living Trust Plus™ Asset Protection Trust, which is a simpler and less expensive method of asset protection for clients who will most likely not need any long-term care for at least five years. For most Americans, the Living Trust Plus™ is the preferable form of asset protection trust because, for purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain an interest in the trust while also protecting the assets from being counted by state Medicaid agencies.

4) Better Financial Planning: The above-described legal strategies are not right for everyone. Fortunately, there are specialized financial planning strategies that are actually better than traditional long-term care insurance, including specialized hybrid products and specialized products that take advantage of the Pension Protection Act. I will discuss this more in next Tuesday’s newsletter.

If you have done your research and decide long-term care insurance is still right for you and your family or if you already have a long-term care insurance policy in place, you should incorporate it as part of your long-term care plan, not as the only form of planning for long-term care.  Keep in mind that there are dozens of long-term care asset protection strategies other than long-term care insurance. If you have not done long-term care planning, estate planning or incapacity planning (or had your planning documents reviewed in the past several years), please call us to make an appointment for a no-cost consultation:

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

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