In August 2020, the U.S. Department of the Treasury released the report of the Federal Interagency Task Force on Long-Term Care Insurance.
This is a fancy way to say that the federal government gathered a bunch of different people to put out a report with recommendations on how to improve on the current state of long term care insurance in the United States.
This task force was created because what is currently being done with long term care insurance is obviously not working.
The task force found out that about 10% of people who can purchase long term care insurance actually hold it. Over half of people turning 65 are going to need some form of long term care. This leaves a big coverage gap.
The report made many recommendations, noting that the implementation of these recommendations would remove barriers consumers and insurance companies face, potentially making long term care insurance more affordable and accessible.
Long Term Care: Report from the Federal Interagency Taskforce on Long Term Care Insurance Summary
The main recommendations from the report were:
1. Create better, more affordable long term care insurance policies
The task force’s biggest recommendation is that long term care policies need to be easier to understand and more affordable.
The number one reason that consumers do not purchase long term care insurance is because policies are too complicated and too expensive.
Currently, premiums can increase on policies as consumers age. If you have a traditional policy, you generally don’t get back what you paid in if you don’t need long term care services.
While this specific issue has been solved with hybrid long term care insurance, which combines life insurance and long term care insurance into one product, many people can still not afford the initial higher premiums on these policies.
The task force recommends insurance companies come up with products for consumers who are not able to afford what is currently on the market.
One more affordable product does currently exist to meet this demand, short term care insurance, which we will talk about more below.
2. Offer more benefits to policyholders before they need long term care services
Another recommendation from the task force is to allow insurance companies to offer some benefits to policyholders before they qualify for the full benefits.
Currently, with most long term care insurance policies, benefits cannot be paid out until the policyholder cannot complete 2 out of the 6 activities of daily living. At that point, significant long term care assistance is needed.
The task force is recommending insurance companies allow consumers to have access to some benefits before they get to this point. This could include payments toward home modifications to make homes better suited for home health care or even caregiving training for family members.
In the end, it is more affordable for everyone to be able to receive care in their own home. The task force recognizes this. They want the insurance companies to be able to offer preventive benefits to allow people to stay at home as long as possible.
Listen to learn about the report:
3. Offer a variety of inflation options
For a long term care policy to qualify for special tax breaks, it must carry a certain level of inflation protection. For most, that is currently at 5%.
While inflation protection is a great addition to long term care insurance policies, the task force suggests that 5% is a little high, since inflation has been much lower than this in recent years.
Inflation protection, especially at 5%, costs a significant amount of money to add to policies. The report notes that 5% inflation protection can “increase premiums by four or five times over a policy with no inflation protection.”
They propose that inflation protection requirements are lowered, which would make long term care insurance more affordable for consumers.
4. Educate the public about long term care insurance
Long term care insurance can be confusing, expensive, and sometimes restrictive to apply for.
The task force recognized this and suggested that the federal agencies create more resources to educate the public about long term care, long term care insurance, and financial literacy as a whole.
Helping consumers understand the impact that long term care can have on their finances could encourage more purchases of insurance to protect against this risk.
5. Encourage short term care insurance
Short Term Care Insurance is one solution to the problems addressed in this report.
While these policies are currently not available in all 50 states, they are available in many states.
Short term care insurance is affordable and gives consumers coverage for about a year of care, many times at home.
While these policies are not comprehensive enough to cover years of care, it does provide a great benefit at a more affordable price. It also gives your loved ones a year of covered care to figure out the finances going forward.
Hopefully, from the task force’s recommendations, the states that do not currently sell short term care insurance will start offering this product to their residents. Short term care insurance products could also be expanded and start providing more benefits to policyholders.
At Cardinal, we have helped clients come up with long term care plans since we opened. We believe you cannot have a comprehensive retirement plan without accounting for how you are going to pay for long term care.
For many people, this means buying some kind of long term care insurance policy. For others, it means planning for self-insurance or planning for Medicaid coverage.
Whatever path you want to take, Cardinal can go over all your options so you and your family are protected.