Americans paid about $55 billion out of pocket on long-term care expenses in 2018, and these costs will keep rising as the country ages. One estimate says long-term care expenses could make up 3% of the U.S. gross domestic product by 2050. 
One way some Americans have tried to plan for these costs is long-term care insurance. But the market for long-term care insurance is in “crisis” according to a recent report from the New York State department of Financial Services. The crisis stems from “pricing errors” made when the long-term care insurance markets first launched in the 80s.
“Simply stated, LTC insurance plans across the country were initially offered at premium rates that were far lower than they should have been,” the report says.
As a result, when people started filing claims, insurance companies took big losses. Many stopped selling policies altogether, while others raised prices.
“Uncertainty regarding longevity is making it increasingly difficult to determine how to price the product,” says Olivia Mitchell, a professor and executive director of the Pension Research Council at the Wharton School of the University of Pennsylvania. Basically, insurance companies have a hard time predicting how much people end up sending on things like home health attendants or assisted living over the course of their lives, making it tough to charge the right amount in premiums.
Demand for long-term care insurance is dampened by a lack of information, Mitchell says.
“Many people erroneously believe that Medicare will cover nursing home costs,” she says. “And some simply don’t understand the risk of needing relatively long periods of care in a nursing home.”
America faces a dilemma in how to provide long-term care for an aging population, but as of now, long-term care insurance is far from an end-all solution — it’s expensive, poorly understood, and many people underestimate their need for long-term care.
“Most of us are not planners,” says Jesse Slome, director of the American Association for Long-term Care Insurance, a trade association for long-term care insurance agents and brokers. “It’s hard enough to get people to plan for retirement let alone plan for the end of their life. We all think ‘it’s not going to happen to me.’”
What are states doing to solve the long-term care insurance crisis?
The federal government has done little to address the crisis, Slome says. One reason is that long-term care costs generally fall on Medicaid, which is partially funded by the states, and not Medicare, which is funded by the federal government. Unlike the federal government, states aren’t allowed to run a deficit, so they can only manage their finances by raising taxes or cutting benefits.
The 2010 Affordable Care Act initially included a public long-term care insurance program for employees, but it was withdrawn after critics questioned whether it was financially workable.  There’s been little appetite for a renewed effort in Congress, leaving states to tackle what should be a national issue on their own, Slome says.
Washington is the state that’s gone the farthest, establishing the Washington Cares Fund, which goes into effect July 1.  It allows beneficiaries to access up to $36,500 in lifetime long-term care benefits, paid for by an 0.58% payroll tax on people who work in Washington state. Even this only covers a fraction of the potential costs. A year of nursing home care in Washington can cost nearly $93,000.  And many people won’t benefit at all if they move out of the state when they need long-term care.
“For many people it will not be significantly meaningful,” Slome says.
Legislators in California are considering creating an even larger long-term care insurance program that could be worth up to $144,00 in benefits. Most states operate guaranty associations that protect a limited amount of benefits if a long-term care insurance company fails.
Should you consider long-term care insurance?
Despite the struggles of the long-term care insurance industry and the fledgling status of state efforts, people are still looking for ways to save for future long-term care — most folks don’t want to end up being a burden to their families as they age. Members of the sandwich generation are especially worried about this burden.
Long-term care insurance isn’t for everyone, Slome says. The people who should consider it are between 55 and 65, with some degree of savings and retirement assets — anyone who doesn’t have some wealth will likely have to rely on Medicaid.
Unlike homeowners insurance or car insurance, you should only shop for long term care insurance once in your life, Slome says. It almost never pays to switch policies because you’d have to go through medical underwriting again, and prices will only rise as you age. It’s best to work with an agent or broker who specializes in long-term care and who represents multiple companies — some people only sell products from one company.
One option is to buy a hybrid long-term care insurance policy, which combines life insurance and long-term care insurance into one policy. But Slome warned that these policies are often more expensive than buying long-term care insurance on its own. In addition, the older you get, the lower your need for life insurance, and the more likely you are to need long-term care, so it doesn’t make much sense to pair them.
Because of the industry’s struggles, premiums are higher than they were in the past. But for the right person, Slome says, long-term care insurance is worth considering. And everyone should have some kind of plan for their future long-term care expenses.
“Everybody hopes to live a long life,” he says, “but we really don’t think about the consequences to ourselves or to our family.”
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