Purchasers of long-term care insurance have faced a combination of rising premiums and changes in both the types and dollar value of the benefits offered. On the positive side, policies have become more standardized. On the negative size, the duration of policies has declined and the growth in daily benefit coverage for nursing home care has lagged premium growth. These observations are based on an analysis of nearly 8,800 policies by LifePlans Inc.
Between 1990 and 2015, average annual premiums for purchased policies rose from $1,071 to $2,727. This equates to an annualized 3.8% increase. More recently, premiums rose at a 3.6% rate between 2010 ($2,283) and 2015 ($2,727).
The daily benefit amount for nursing home care has risen at a 3.3% annualized rate, from $72 in 1990 to $161 in 2015. Daily home health care benefits have risen at a faster 6.0% annualized rate, but the increases are based on a much smaller starting number: $36 in 1990. The daily benefit for home health care in 2015 was $155.
The increases in benefits do not tell the full story. The average duration for which nursing home benefits are paid has shrunk from 5.6 years in 1990 to 4.0 years in 2015. At the same time, the nursing home policy elimination period (the number of days a person must be in a nursing home before benefits are paid) has widened to 49 days in 2015 from 20 days in 1990. A more comprehensive number, however, is the integrated policy elimination period (the number of days care must be provided before benefits are paid.) This period has nearly doubled from 46 days in 1995 to 91 days in 2015.
LifePlans attributes the rise in premiums to more conservative assumptions used by actuaries in pricing policies. These assumptions include fewer purchasers letting their policies lapse and interest rates. LifePlans blamed the post-financial crisis interest rate environment for leading to “significant premium increases.” Consumers have responded by opting for shorter benefit durations (60% of policies bought in 2015 provided three or fewer years of nursing home care) and somewhat less inflation protection. LifePlans does think premiums could be more stable going forward, given the changes in how policies were priced over the past several years.
Source: “Who Buys Long-Term Care Insurance? Twenty-Five Years of Study of Buyers and Non-Buyers in 2015–2016;” LifePlans, January 2017.
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