“As a voluntary plan consisting of typical employees, this is a most representative group,” states Jesse Slome, executive director of the American Association for Long-Term Care Insurance (www.aaltci.org), one of those interviewed by GAO staff  preparing the study.  “Instead of hyperbole, we now have facts to prove that the majority of consumers understand the value of their long-term care insurance protection and do not drop or reduce their coverage even when faced with a rate increase.”

In 2009, some 146,415 participants in the Federal program, about two thirds of the enrollees at the time, were notified that their premiums were subject to an increase of up to 25 percent.  All of these enrollees had selected a particular inflation protection option – the 5 percent automatic compound inflation option (ACIO).

The majority of FLTCIP enrollees facing the premium increase made no change to their benefits.  Specifically, 46 percent or 67,511 individuals maintained their coverage with the 5 percent compound inflation option and elected to pay premium increases. 

An equal percentage of individuals chose to reduce their future inflation growth protection benefits to 4 percent (ACIO) by either switching to the new FLTCIP II plan (26 percent) or retaining the original plan (20 percent).  The new benefit plan provides enhanced coverage.  For example, it covers 100 percent of the cost of home care and adult day care.  The prior plan covered these costs up to 75 percent. 

All plan enrollees who decreased their ACIO protection to 4 percent retained their (current) accrued daily benefit amount that would then increase at the reduced ACIO rate.

Only 1.6 percent of enrollees facing the premium increase, or 2,344 individuals lapsed their coverage and are no longer enrolled in the program.  “We have long attempted to counter the perception that rate increases caused large numbers of people to drop coverage,” Slome acknowledged.  “People understand the risk they face when they purchase long-term care insurance and the protection becomes even more valuable as they age themselves.” 

“What may surprise many is that 23 percent of policyholders actually experienced up to a five percent  decrease in their premium,” Slome adds.  Some 18 percent had a decrease between 0.1 percent and five percent.  

The Federal Long-Term Care Insurance Program currently has 268,200 enrollees (as of June 30, 2011).   In 2009, a 7-year contract for the program was awarded to John Hancock Life Insurance Company. 

Established in 1998, the American Association for Long-Term Care Insurance (http://www.aaltci.org/) is the national trade organization committed to increasing consumer awareness and support of insurance and financial professionals offering long-term care solutions.

Chart 1

Benefit Selection Of Federal Lontg-Term Care Insurance Program
Enrollees Facing Premium Increases

46.1%       No Change (FLTCIP 1.0 plan with 5% ACIO)
25.7%       FLTCIP 2.0 plan with 4% ACIO
20.0%       FLTCIP 1.0 plan with 4% ACIO
5.6%          FLTCIP 2.0 plan with 5% ACIO
1.6%          Lapse
0.5%       Other benefit changes (changing a benefit amount)
0.4%       No selection (many died or became claimants before rate increase took effect)

Chart 2
 
Premium Change

Decrease more than 5%       5%
Decrease 0.1% to 5%          18%
No change                          2%
Increase up to 5%               17%
Increase 5.1% to 10%          6%
Increase 10.1% to 15%       2%
Increase 15.1% to 20%       1%
Increase 20.1% to 25%       43%
Increase more than 25%       6%

REPORTERS AND OTHER MEDIA WHO WOULD LIKE ADDITIONAL INFORMATION OR TO ARRANGE AN INTERVIEW WITH JESSE SLOME, PLEASE CALL THE ASSOCIATION OFFICES AT (818) 597-3227.

“As a result of increased longevity and medical advances, the need for long-term care is a new phenomenon for a generation of Americans,” said Jesse Slome, Executive Director of the industry trade group. “The pervasive concern about purchasing long-term care insurance is will I ever use it?”

According to Association data 180,000 Americans received benefits from their long-term care insurance policy and some $8.5 billion in claims was paid in 2008. “This is a significant increase in benefits paid compared to the prior year,” Slome explains. “Long-term care insurance is not the lottery. This is not something you really want to win; but having protection in place can certainly pay off and for thousands of people it increasingly is.”

The organization collected data on claims including the largest open claims (still being paid as of December 31, 2008) paid by six of the nation’s leading insurers. The second largest claim is by a woman who purchased her long-term care insurance policy at age 72, paying an annual premium of $12,766. Three years later her claim began and has continued for almost nine years ($1.02 million in benefits has already been paid for her nursing home care).

The largest claim being paid to a man exceeds $690,000. The individual purchased long-term care insurance protection through his employer at age 54, paying an annual premium of $2,560. The coverage was designed to pay benefits for five years. Two years later his claim began and has continued for almost seven years.
Nearly one in 10 (8.9%) of new individual claims initiated during 2008 prior to age 70 the study revealed. “While most long-term care insurance claims begin at older ages, typically in ones late 70s or 80s, accidents and illnesses are a common reason younger people need this care,” Slome notes.

The Association’s study revealed that 30.5% of claims start between ages 70 and 79; some 60.6% after age 80. “Almost two-thirds of claimants receiving benefits (65%) are women,” Slome reports, “and the largest percentage of benefit payments (42.0%) are for care in ones own home versus a nursing home (30.5%).”
The five most common reasons for a long-term care insurance claim, according to the Association, are Alzheimer’s Disease, stroke, arthritis, circulatory issues or injury. “One in eight persons age 65 and over has Alzheimer’s,” Slome says. “The number of new cases is expected to increase to 450,000 a year by 2010 and to 615,000 new cases a year by 2030. It’s time for individuals to start planning for care should they need it in the future.” The study shows that planning can certainly pay off.

The complete findings of the study are published in the 2009 LTCi Sourcebook and subsequent issues of the Association’s member magazine available from the American Association for Long-Term Care Insurance. Copies are available free of charge to Association members or may be purchased for $99. Call the Association’s offices at (818) 597-3227 or visit the organization’s website.

Insurance and financial professionals who are members of the American Association for Long-Term Care Insurance have access to the organization’s  Online Learning, Marketing and Sales Center.  To see all the benefits of membership click on this link: Read Our Membership Benefits Guide.

Research conducted by the American Association for Long-Term Care Insurance (AALTCI), the national trade organization, examined 2007 sales data from 10 leading insurers to determine the percentage of long-term care insurance applicants who qualified for preferred health discounts as well as the percentage who did not qualify for insurance as a result of an existing health condition.

“Individuals mistakenly think long-term care planning is something that can wait until after retirement, but because of health changes that tend to occur in our 50s and early 60s, the facts shows otherwise,” explains Jesse Slome, the Association’s executive director.  “Between one-fifth (20%) and one-third (33%) of individuals who submitted an application for long-term care insurance between ages 60 and 69 were declined coverage because of an existing health condition according to the biennial study.”  The industry average for declined applicants between ages 60-to-69 was 22.9 percent.  For ages 50-to- 59 it was 13.9 percent.

While insurers can decline individuals who apply for coverage with existing health conditions, most reward those who apply while in relatively good health.  “Just over half (51.5%) of individuals who applied and were accepted for coverage last year between ages 50 and 59 qualified for “preferred health” discounts,” Slome acknowledges.  These discounts can reduce the cost of long-term care insurance by 10 to 20 percent each year.  “The savings can amount to hundreds of dollars a year for a couple,” Slome notes, “and they won’t be taken away in the future should your health change.”

Some eight million Americans currently have long-term care insurance protection on an individual basis or through their employer, according to the Association’s 2008 Sourcebook data.  “Some 400,000 people obtained coverage in 2007,” Slome states, “and 83 percent of individuals purchased before age 65.  But, clearly, many people still wait too long to start the planning process only to discover they can’t get coverage no matter how much they are willing to pay.”

More Applicants Qualify For Good Health Discounts

The number of individual applicants who qualified for good health discounts in 2007 rose slightly for most age-bands compared to the Association’s 2005 study.  “Just over two-thirds (66.8%) of applicants between 40 and 49 qualified for the discount in 2007, compared to 53.7 percent in 2005.
“Planning for long-term care is similar to retirement planning,” Slome explains.  “There are significant advantages and reasons to start early.  Your health when you apply is probably the most important.”

It is important to understand that each insurer establishes it’s own criteria for acceptable health conditions.  Likewise discounts and insurance rates can vary quite significantly based on your age, your marital status and health.  “It pays to speak with a knowledgeable long-term care insurance professional who can offer coverage from more than one insurer,” Slome advises.  “The difference in cost can be as much as 30 percent or more annually and since it rarely is advantageous to change policies, it pays to get the best coverage for the best price from the onset.”

For smokers or those individuals whose health is less than perfect, begin the planning process with a long-term care specialist who understands which specific health conditions various insurers will accept.   “They’ll want to know what medicines you have been prescribed, even if you don’t take them, and any current conditions before recommending you submit an application to a specific insurer,” Slome notes.  “No one wants to hear they are declined, especially because once you are declined by one insurer, you may find it harder or possibly impossible to get coverage from another.”

A 65-year-old purchasing comparable coverage will pay $1,292 (married) or $1,923 (single) according to the 2007 Long-Term Care Insurance Price Index published by the American Association for Long-Term Care Insurance.  Costs are roughly the same as the prior year.

The annual index measures current costs for top-selling long-term care insurance policies that offer the ability to receive care either at home or in a skilled care facility.  “During the past year, a number of new policies have grown in popularity, some of which provide more affordable coverage especially for younger individuals who qualify for discounts offered to those in good health as well as individuals who are married or residing with a partner,” explains Jesse Slome, Executive Director of the national trade organization that conducted the research.

“Consumers mistakenly believe long-term care insurance protection is costly and nothing is farther from the truth,” Slome explains.  “There are discounts available today to those in good health, for non-smokers, married couples or even domestic partners,” Slome notes.  “You can cut costs paying annually versus monthly, roughly nine percent, and by another eight percent simply by being accepted for coverage before your next birthday.”

The Association’s study compares costs for plans that provide benefits for 3-years, which increasingly is accepted by industry experts as a basic level of protection for many.  “With more people in their 50s purchasing protection, growth options that increase the value of benefits available to keep pace with rising costs of care is important,” Slome advises.  The study priced plans that provide $110,000 or $172,000 in current protection ($100/day and $150/day for 3 years) for someone age 55.   “Benefits increase at five percent compounded annually so the actual benefit by the time an individual reaches 80 would grow to $390,000 or $585,000 respectively,” explains Slome.

Study Demonstrates Savings Benefits Of Planning Early

“I’m often asked the best time to buy long-term care insurance and the honest answer is the day before a change in your health,” Slome says.  “But since no one can predict when that’s going to happen, we try to show people the benefits of planning early, generally in their mid-50s is a good recommendation.”

“Our studies show that more applicants in their 50s qualify for preferred health discounts than those who wait until their 60s to apply (44 % versus 32% ²),” Slome notes.  Using the Association’s example, an individual age 55 considering a policy that currently provides $150-per-day benefit might expect to pay $1,027 (assumes they qualify for spousal and preferred health discounts).  If they wait 10 years, until age 65, to buy the same $150-per-day coverage but no longer qualified for the good health savings, they would pay $1,939 yearly.  “That assumes insurance prices don’t increase over the decade they waited,” Slome adds, “and most likely they will.”

“But, 10 years from now you will actually need to buy a higher benefit amount to keep pace with inflation,” Slome states.  In 10 years, at five percent annual growth, one will need to buy a  $240 daily to be equal with today’s $150-per-day benefit.  The Association’s 2007 Price Index reveals the average cost for $240-per-day benefit will range from $3272 to $4,823.  “It’s never an economic advantage to wait,” Slome says.  “And, more important, a change in your health could make it impossible to health-qualify no matter how much you are willing to pay.”

“People, especially in their 50s, fear they’ll make the mistake of paying for something they’ll never use,” Slome acknowledges.  “Would you rather make the mistake of not having some basic level of protection considering the enormous risk to your retirement savings and family?”

# # #

Compound Inflation Growth Table
Impact of 5% Annual Increases

Age 55   $100   $150
Age 65   $163   $244
Age 75   $265   $398
Age 80   $339   $508

¹ Rate based on $100-per-day (current) benefit; 3-year plan; 100% home and skilled care; 5% compound growth of benefits.  Individual qualifies for preferred health and spousal discounts.

² Source:  American Association for Long-Term Care Insurance Study; Feb. 2006

2007 Premium survey rates provided by LTCI Partners, LLC, Chicago, IL.

2007 National Long-Term Care Insurance Price Index
Source:  American Association for Long-Term Care Insurance
Published June 1, 2007

Average price for a comprehensive long-term care insurance policy (100% home care benefit + skilled care coverage), 90-Day Elimination Period with Compound Inflation Protection Option (benefit increases 5% compounded annually)

Age 55 $100 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $ 665-per-year Individual Qualifies for Preferred Health and Spousal/Partner Discounts

Age 55 $100 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $1,075-per-year     Individual Qualifies for Preferred Health

Age 55 $150 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $1,027-per-year     Individual Qualifies for Preferred Health and Spousal Discounts

Age 55 $150 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $1,524-per-year     Individual Qualifies for Preferred Health

Age 65 $100 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $1,292-per-year Individual Qualifies for Spousal/Partner Discounts  (Standard health)

Age 65 $100 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $1,923-per-year     Individual is single (standard health)

Age 65 $150 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $1,939-per-year     Individual Qualifies for Spousal Discounts  (Standard health)

Age 65 $150 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $2,885-per-year     Individual is single (standard health)

Age 65 $240 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $3,272-per-year Individual Qualifies for Spousal/Partner Discounts  (Standard health)

Age 65 $240 Maximum Daily Benefit x 3 Year Benefit Period
Cost:   $4,823-per-year     Individual is single (standard health)

The American Association for Long-Term Care Insurance is the professional organization serving insurance and financial professionals nationwide.   The Association’s Website maintains a simple online “look-up” listing long-term care insurance professionals in each Zip Code.