Don't know about long-term care insurance? It could cost you

A new study looked at how an awareness campaign affected long-term care insurance coverage

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a certified personal finance counselor and former senior reporter at Policygenius, where he covered insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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A lack of awareness may be what’s holding people back from purchasing long-term care insurance, a recent study suggests. People who skip out on long-term care insurance may have to pay out of pocket or rely on Medicaid.

How a long-term care information campaign affected insurance coverage

The study, published in the Journal of Health Economics, looked at the effects of the “Own Your Future” campaign, which encouraged Americans to plan for their long-term care needs.

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A partnership of federal and local governments ran the campaign in three to seven states each year from 2005 to 2010 in a total of 26 states. The campaign highlighted the fact that Medicare does not cover extended long-term care and suggested alternatives, like:

  • Modifying your home so you can say in it longer when you age

  • Making plans with family and friends for future caregiving

  • Eating healthy and exercising to prevent disability

  • Purchasing long-term care insurance

The campaign’s effect was to increase the long-term care insurance coverage rate in the targeted states from 13% to 14% among individuals 50 or older. Long-term care insurance is most beneficial for people with more assets to protect. Among the top 20% by wealth, coverage increased by four percentage points, up from a 24% coverage rate.

The study estimates that this increase in private long-term care insurance coverage will lead to a $483 million savings for Medicaid, which, unlike Medicare, does cover long-term care — but only if you spend down your assets.

The results suggest that people weren’t making optimal decisions around long-term care before the campaign, says Jessica H. Brown, an economics professor at the University of South Carolina’s Darla Moore School of Business.

“The fact that they were more likely to purchase LTCI suggests that there are people out there now who would purchase insurance if they knew more about LTCI and their other LTC planning options,” she says.

Jeff Brown, a professor and dean of Gies College of Business at the University of Illinois Urbana-Champaign, says the study is “consistent with my prior work that the effect would be concentrated in the upper part of the income distribution, as this is the one group for whom buying LTCI makes good financial sense, even after accounting for the impact on Medicaid.”

What people get wrong about long-term care insurance

A survey conducted before the “Own Your Future” campaign found that 80% of individuals believed Medicare would cover at least some of their long-term care expenses. But Medicare only covers nursing home stays for 100 days or less.

Medicaid covers long-term care, but qualifying can be difficult — in most states adults can only make up to 138% of the federal poverty level in income and many states also apply strict asset limits, meaning you’d have to spend down your savings to be eligible .  

Navigating long-term care is complicated and can be unpleasant to think about, which may put some people off from planning for their future needs. 

“You don’t want to think about it, so you just pretend it’s not there, it won’t happen,” Brown says.

But the study shows that once people are forced to think about their long-term health, they’re more likely to plan ahead. The consequences of failing to do so go beyond finances. Research shows that nursing homes that have more Medicaid recipients tend to have lower quality of care.

Could this campaign work today? 

Long-term care has changed since 2010, and one recent report described the long-term care insurance market as a “crisis” because insurance plans offered policies at rates that were too low to recoup their eventual costs.

As a result, many companies stopped selling policies altogether, while others have raised rates significantly. Some states have considered launching their own long-term care insurance programs in response, but Brown says the study suggests a lighter touch can also get more people to plan for their future needs. 

The study found that the “Own Your Future” campaign also led to an increase in life insurance coverage, a sign that the campaign encouraged people to plan for the future in general, not just for their long-term care needs. In July, Washington became the first state to launch its own long-term care insurance program, but it received opposition from residents, businesses, and Republicans. In comparison, Brown found the information campaign led to big Medicaid savings for relatively little cost.

“Looking at the campaign and how it was run and what aspects made it successful could be really useful for policymakers today,” she says.

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