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A significant portion of long term care insurance premiums are for inflation riders, providing increases in benefit amounts.
The importance of having adequate benefits for a clients future LTC costs goes without saying. But questions are surfacing regarding the current methods, now considered standard, of achieving this goal.
Most LTC policies offer benefit increase options (BIOs) at 5% simple or compound annual growth.
But are actual costs rising at those rates? Some studies indicate yes. But others suggest no, citing growth in the 3% range for the past five years.
No one knows, of course, what we will face in 20 years or more. We may "do the math" and project 5% compound increases for 30 years. But is that realistic or fair to the client? Annuity illustrations in past years reflected 14% compounded growth to age 100. That didnt happen.
Going forward, several factors will impact on the projected need for ever-higher LTC benefits.
Market economics. Throughout the history of our economy, whenever the costs of goods or services have increased to unaffordable levels, lower-cost alternatives have been developed.
That can be seen now with LTC services, with more patients in assisted living facilities than in nursing homes. Ten years ago, none of us were talking about assisted living. In many states, a still-lower level of facility has recently come to the market, with even lower costs.
The message: As the greater portion of LTC services are for custodial care, the market demand will assist in helping these services to be made available at cost levels affordable to the majority.
Low influence of LTC insurance. We are all aware of the small percentage of seniors who have private LTC insurance, and the even lower penetration of the pre-retired community. In view of the demographics of our population, it is obvious that LTC volume could increase many times over, but the coverage could still remain a minor player as regards paying for LTC services.
The "800-pound gorilla" that most influences these cost factors is Uncle Sam, and that is not likely to change.
The message: The "math" may reflect nursing home costs at $800 to $1000 per day, but Uncle Sam wont be paying. As stated by one executive representing the American Health Care Association: "It is meaningless to project those numbers. The system will collapse long before that point–the beds will be empty."
