Part 2: Three Things the New York Times Long-Term Care Insurance Article Omitted

by | Dec 4, 2023

Three Things the New York Times Long-Term Care Insurance Article Omitted

  1. Long-term care insurance policies sold before 1993 were TERRIBLE!

  2. Newer LTCi policies have different pricing rules than the older LTCi policies

  3. 41 States have affordable long-term care insurance policies for the middle-class


#1 “Long-term care insurance policies sold before 1993 were TERRIBLE!”

Everyone knows this: regulators, insurers, consumer advocates, and even most insurance agents. We all know that “pre-1993 long-term care insurance” is nothing like “modern long-term care insurance.”

Comparing a long-term care insurance policy purchased before 1993 to policies available for sale today is like comparing a rotary phone to a smartphone. 

Most things have improved over the past 40 years, even long-term care insurance.

The article does state that older policies “covered only skilled nursing care in a facility,” but that’s not even half of it. Most of the policies sold before 1993:

  • Did not cover Alzheimer’s
  • Used ambiguous claims triggers like “medical necessity.”
  • The insurance company could cancel policies
  • 3-day prior hospital stays were required to qualify for benefits
  • If home care was included, it only paid for skilled care at home, not personal care, and it would only pay for care at home AFTER being in a nursing home

All that was changed in 1993 when the NAIC created the Long-Term Care Insurance Model Regulation.

It required:

  • Alzheimer’s (and other forms of dementia) be covered
  • Clearly-defined benefit triggers (using the Activities of Daily Living as well as clear definitions for cognitive impairments)
  • Policies could NOT be canceled by the insurance company (unless the premium was not paid by the end of the grace period)
  • No prior hospital stay required
  • No skilled care required
  • Benefits could start at home and end at home

In 1996, as part of HIPAA, the 1993 NAIC Long-Term Care Insurance Model Regulation was added to federal law. Any policy that would include these consumer protections would receive special tax treatment from the federal government. This is called a “tax-qualified” policy or a “federally-qualified” policy. Tax-qualified policies have tax-deductible premiums, and, in most cases, the benefits are 100% tax-free. Most importantly, tax-qualified policies have clearly-defined benefit triggers.

The article also fails to mention the two biggest improvements long-term care insurance has had since 1996: Rate Stability and Long-Term Care Partnership Programs.

#2 “New LTCi policies have different pricing rules than Old LTCi policies”

Everyone knows that older long-term care insurance policies have had huge rate increases. That’s not what consumers are asking. What a consumer wants to know is: 

“If I buy a long-term care insurance policy today will I have the same big premium increases like the older policies had?”

The answer is “No”. 

Keep reading and I’ll explain why.

First, here’s the bad news: 

Any long-term care insurance policy purchased today, in any state, is the most expensive long-term care insurance policy ever sold by that company in that state.

Second, here’s the good news: 

Any long-term care insurance policy purchased today, in any state, is the most expensive long-term care insurance policy ever sold by that company in that state.

Go ahead.

Read it again.

There’s no typo.

The bad news is the good news.

The good news is the bad news.

The old (cheaper) policies had big rate increases.

The new (more expensive) policies already include all those rate increases in today’s pricing. That’s why the new policies cost A LOT more than the older policies. 

Insurance regulators do NOT allow any policy purchased today to use the old pricing assumptions. All policies purchased today must use the most current claims data and the most accurate pricing assumptions. That means that any policy purchased today must already include in it all the prior rate increases. That means that every policy purchased today is A LOT more expensive than LTCi policies sold 20+ years ago.

And that’s why new LTCi policies will not have the big premium increases the older policies have had, because those big premium increases are already included in today’s pricing. 

Additionally, 41 states have enacted even stricter regulations regarding rate increases. It’s called the “Rate Stability Regulation”. If a state has passed the Rate Stability Regulation, any policy purchased after that date must conform to these strict rules. 

One of the rules has to do with the profit incentive. Under the old rules, when a rate increase was requested the insurance company could price normal profit levels into the rate increase. In many cases, a rate increase resulted in increased profits for the insurance company. 

Under the new rules, if an insurance company requests a rate increase they must decrease their profit levels to a cap that is predetermined by the new regulation. Even the rate increase itself cannot include normal profits (just a small amount to cover administrative costs). 

The Rate Stability Regulation has removed the profit incentive from rate increases.

#3 “41 States have affordable long-term care insurance policies for the middle-class”

In 2005, Congress passed legislation that gave each state the option to develop “Long-Term Care Partnership Programs.” These programs are a partnership between the federal government, each state government, select insurance companies, specially-trained insurance agents, and consumers who want to plan ahead to protect their assets from long-term care expenses. 

These programs encourage the middle class to purchase long-term care insurance.  If their policy runs out of benefits, they can apply for Medicaid to pay for their care, and some, possibly all, of their assets will be protected from Medicaid (both while they are alive and even after they pass away.)

A consumer can target how much long-term care insurance to purchase based upon how much of their assets they want to protect from Medicaid. 

To protect more assets, buy more benefits for a higher premium.  

To protect less assets, buy less benefits for a lower premium. 

The Long-Term Care Partnership Programs are the equitable solution to our nation’s elder care crisis.  The wealthy pay more to protect more assets.  The “not-so-wealthy” pay less and can still protect all of their assets.  

In all cases, a lifetime of savings can be protected through a Long-Term Care Partnership Policy for those who plan and purchase a policy while they are still healthy.

In Part 3 of our in-depth analysis of the New York Times long-term care insurance article, we’ll discuss what the NYTimes got half-right.