Long term care insurance (LTCI) is typically purchased by people in their 40s, 50s, and 60s planning for the care they may need decades from now. Although it serves as a very challenging task for LTCI companies and actuaries to create products that will meet the needs of an unknowable future, it’s not impossible.
As an example of how the future may affect long term care, consider a recent story found on the BBC news website: “Japan may pick robots over immigrants,” which included a video of a very realistic-looking robot. The gist of the story is that Japan is facing a population crisis and rising concern over who is going to care for a larger older population, and most Japanese are hesitant to increase their immigrant population in order to pick up the slack. In the United States, however, we have a strong history of encouraging immigration, but economic conditions and political gridlock may mean we’ll face a shortage of available workers in the future.
For a real-life example of how a shortage of caregivers can affect costs, consider that according to the 2010 Genworth Cost of Care Survey, the most expensive home health care is in Alaska, where it can be difficult to attract home health care workers.
The same survey from Genworth also recorded the five-year annual growth in the cost of licensed home health aide services: a growth rate of only 1.7 percent, as high unemployment means that people will look for even modest-paying jobs such as home health care.
Therefore, it is probably prudent to plan for both flexibility in who will provide the care — including the concept of robotic technology — and the effects of low inflation.
LTC coverage that helps plan for the future includes:
- Cash option: More carriers are now offering an option of either taking the monthly benefit as a reimbursement amount or a percentage in cash. For example, if you purchase one of these plans with a $6,000 monthly benefit, you can choose to have actual expenses incurred by a home health care agency paid up to the limit, or take 40 percent of that amount ($2,400) in a cash benefit that can be used for anything — such as leasing a caregiving robot.
- Guaranteed purchase options: Many carriers offer the ability to buy additional amounts of coverage in the future with no additional underwriting.
- Flexible inflation options: There is more flexibility in inflation coverage today than the old (and expensive) standby 5 percent compound inflation. In addition to automatic consumer price index increases, there are options to increase at 3 percent, increase until a certain age and then level off, and increase premiums and benefits.
Next time you are planning LTC needs with your client, considering the factors that go into the cost of care and some of the options that can help plan for it will make it possible to meet their needs now — and in the future.
Tom Riekse Jr. is managing principal at LTCI Partners, a brokerage general agency specializing in long term care insurance. Email him at [email protected].