Home > Articles, News > Long Term Care Insurance Rate Hikes Explained

Long Term Care Insurance Rate Hikes Explained

Costs for long term care insurance in 2012 have risen compared to the prior year and several insurers have filed for rate increases raising concern among consumers and consumer groups.

“No one likes to pay more so concern is understandable,” explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance, an industry trade group representing several thousand specialists who market LTC insurance.  “But there is quite a bit of misinformation surrounding what’s taking place.”

To address the issue, the industry executive has been speaking with reporters, consumer representatives and making available association staff to discuss the matter with consumers.  Slome appeared today on Martha Stewart’s radio network to explain what’s taking place.

“Historic low interest rates are the primary culprit and the Federal Reserve has indicated it plans to keep rates this low for the foreseeable future,” Slome notes.  For every one-half percent drop in interest rates, a long term care insurance company needs a 15 percent premium hike to build up the needed capital to pay future anticipated claims.

Regarding the need for rate increases on existing long term care insurance policies, Slome explains it is never a take it or leave it proposition for the consumer.   Insurers always offer an option by which the policyholder can continue to pay the same amount.

The Association executive points to a recent request for rate hike from a leading insurer.  Policies affected are those offering a five percent automatic compound or simple inflation coverage, where benefits automatically increase by five percent each year for the life of the policy.  “The company offers an option to reduce their future inflation percentage which allows people to avoid the rate increase altogether,” Slome says.

This is a prospective reduction in inflation; so all inflation additions previously applied to the policy will remain in place.  “There is no reduction of their current benefit level,” Slome points out.  “Only future inflation increases would be at a rate lower and the new inflation percentage offered as an option to customers will be in the range of 2.7% to 3.9%.”

Slome advises consumers with long term care insurance policies to speak with their agent regarding their concerns.  “The protection is still incredibly important for people to have and valuable to those who need it,” Slome points out.   “Last year, insurers paid over $6 billion in benefits to some 200,000 individuals who own long term care insurance.  The largest open claim has surpassed $1.5 million and the policyholder paid less than $2,500 for their protection.”  Some eight million Americans currently have some form long term care planning protection.

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