About 7.2 million Americans currently own traditional long-term care insurance policies, a number that’s held steady for the last seven years. But who are they? And what does it say about the future of long-term care insurance?
Overall, the share of older adults who own long-term care insurance (LTCi) has barely changed since 2002, according to new research by my Urban Institute colleague Rich Johnson. In 2002, about 10 percent of those 65 and older had coverage. By 2008 that share had ticked up to 12 percent, but in 2014, it dropped back to 11 percent. Among those aged 55-60, the share of policyholders slipped from 7 percent in 2002 and 2008 to just 5 percent in 2014.
Not surprisingly, the wealthier you are, the more likely it is that you have coverage. About one in four of those 65 and older with assets of at least $1 million have this coverage. By contrast, just one in 25 of those with wealth between $50,000 and $99,999 have private long-term care insurance.
The Troubled Middle-Market
Most troubling, the industry remains unable to attract large numbers of middle-income buyers—the key to building a successful product. For many years, insurance companies targeted what they call the middle-market, those whose wealth (including home equity and retirement accounts) at age 65 hovers around the median of about $215,000. But despite decades of marketing, the share of policyholders with household wealth between $100,000 and $499,999 has been falling.
Rich estimates that in 2002, about 10 percent of those consumers owned long-term care policies. By 2009, that share had slipped to 9 percent, and by 2014 it had fallen to 8 percent. The industry’s inability to market to this group is critical because it represents about 40 percent of all older adults.
At the same time, there has been little new interest in the policies among millionaires, who are about 12 percent of all older adults. The share of those 65+ with wealth exceeding $1 million who own the insurance has hovered at around 25 percent for the past dozen years. Among those in the $500,000-$999,999 range, the share of policyholders ticked up from 17 percent in 2002 to 20 percent in 2008, but has been flat ever since.
Rich also found noticeable differences in coverage by race. About 13 percent of non-Hispanic whites aged 65 and older owned policies in 2014 (up a bit from 2002 but down slightly from 2008). But only about 2 percent of older Hispanics and about 3 percent of older blacks have long-term care insurance.
This may have some important effects on long-term care financing since African-Americans are more likely to become disabled in old age, and to suffer disability for longer, than whites. In other words, blacks are less likely to buy long-term-care insurance even though they may be more likely to need it. An interesting Health Affairs article by Brenda Spillman, another of my Urban Institute colleagues, along with Vicki Freedman of the University of Michigan shows the dramatic differences.
Few Buyers, Few Sellers
In a chapter of a very large report issued last spring, Marc Cohen of the consulting firm Lifeplans described in more detail what is happening to the long-term care insurance industry. Sales of individual stand-alone policies plunged from a peak of 754,000 in 2002 to 129,000 in 2014. At the same time, sales of group policies have also collapsed. Marc estimates that less than 0.5 percent of all employers offer group long-term care insurance and that less than 7 percent of employees who are offered coverage accept it (Typically, workers must pay all premiums for employer-sponsored long-term care insurance, in contrast to health insurance where they normally pay only about one-third of the costs).
Marc estimates that only about a dozen insurers are actively selling stand-alone long-term care policies , a decline of 90 percent since 2000.
Insurers have had better luck selling so-called combination products, which link long-term care insurance with whole life insurance or annuities. Industry reports show a steady increase in sales and in-force policies, though they still represent a small fraction of total LTC insurance.
These studies show how difficult it has been for private insurance companies to sell long-term care insurance, especially to those middle-market consumers who are most likely to need it. The question is: Can they turn around this dismal trend in the face of high, and rising, premiums; continued consumer confusion about what Medicare does and does not pay for; and the reluctance of Americans to plan for the high likelihood they’ll need long-term care in old age (there is a 50/50 chance they’ll need a high enough level of care that LTCi would pay for it). So far, at least, the answer is no.
I think it would be smart to get long term insurance because then you a protected for a long time. I can see how it would help out a lot but it must be something that would be cheaper to use long term than to do a short term plan. I didn’t know that there was short term insurance plans.