By Joey Casolaro, Analyst
As the world continues to evolve, it comes as no surprise that life expectancy in the United States has vastly increased over the last four decades and will most likely continue to rise as new technological advancements in health care continue to emerge. The U.S. Census Bureau recently conducted a report analyzing the change in life expectancy over the 100 years from 1960 to 2060.
Increasing Life Expectancy
As shown in the figure below, between 1960 and 2015, life expectancy in the U.S. has risen by about ten years, increasing from 69.7 years to 79.4 years. Although life expectancy is on track to increase only about 6.1 years from 2016 to 2060, the fact remains constant that people live longer, which means the need for long-term care will continue to grow.
Need for Long-Term Care in the United States
In a study conducted by the U.S. Department of Health and Human Services, they found nearly 70% of Americans age 65 or older will need some type of long-term care during their lives.
What is Long-Term Care?
Long-term care (LTC), as defined by Medicare.gov, is a range of services and support for your personal care needs and is meant to help with basic personal tasks of everyday life like eating, bathing, dressing, using the bathroom, and mobility.
These tasks are referred to as “activities of daily living” (ADL) and are used to determine when someone qualifies for long-term care insurance benefits. LTC insurance benefits provide coverage for assisted living facilities, in-home care providers, and nursing homes specializing in providing care and services to those who cannot perform ADLs for themselves.
However, these services can be very costly if you do not have long-term care insurance, as Medicare and supplemental plans do not cover these services. Below are the national monthly median costs for different types of long-term care:
History of Long-term Care Insurance
Insurance for long-term care has been around since the late 1970s. However, it did not get popular until the 1990’s when only a few insurance companies were offering the product. During this time, insurance underwriters did not know how much healthcare costs would rise over the next 30 years, and that life expectancy would increase significantly. The lack of foresight caused the underwriters to underestimate their exposure and put the insurance companies at significant risk.
Fast forward to 2018, and you start to see this risk become uncovered when policyholders seeking policy benefits were beginning to get denied. The insurance companies could not handle the cost of all the claims and were ignoring policyholders in the hope they would die before the proceeds be paid. This action made national headlines and caught the attention of many politicians, resulting in Congress investigating certain insurers.
Looking at the industry today, the number of carriers offering traditional LTC insurance has shrunk from over twenty insurance carriers to now only two (Mutual of Omaha and National Guardian Life). Additionally, the cost for a new traditional LTC policy is prohibitive and is why existing policyholders are receiving notice of rate increases.
However, there is good news: insurance companies have started to offer “hybrid LTC policies” that are more cost-effective than traditional policies and have unique features. We will be following up with an article that discusses these new hybrid policies that are now dominating the market.
Should You Buy Long-Term Care Insurance?
So, when does long-term care insurance make sense? Purchasing long-term care insurance may make sense if you are between the ages of 50 - 65, have current health issues, and do not have enough assets to cover future long-term care expenses in addition to your fixed living expenses.
Before deciding, it is essential to perform a proper analysis to see if the numbers make sense for your specific situation. In some cases, self-funding the costs out of pocket may be the better move, especially if you have family members committed to taking care of you, which would minimize the need for LTC insurance.
If you have any questions about long-term care insurance or want to know if it may make sense to you, please schedule an appointment to meet with an advisor.
Joey Casolaro is a CERTIFIED FINANCIAL PLANNER™ at HIGHLAND Financial Advisors, a Fee-Only fiduciary wealth advisory firm that offers comprehensive financial planning, retirement planning, and investment management. Joey graduated from the University of South Florida with a bachelor’s degree in personal finance and successfully passed the CFP national exam in 2021. Joey enjoys working out, spending time outdoors, and hanging out with family and friends in his free time.