Inflation protection in long-term care insurance policies

The rising costs of health care coverage exceed average earnings increases and inflation costs for U.S. households by approximately 4 times. To illustrate, health care inflation since 2002 has averaged approximately 11.42% per year in comparison to the estimated average U.S. inflation rate of 2.78% since 2000.

Due to the rising cost of health care, long-term care insurance coverage is subject to inflation risk, and $100,000.00 of coverage at the start of a long-term care insurance policy may greatly decline in purchasing power within 10 years as the cost of health care rises. For these reasons, being protected for inflation in a long-term care insurance policy is a legitimate concern.

Inflation protection methods in long-term care insurance

Insurance care providers, employers and insurance policy holders hedge for inflation in a number of ways. Insurance providers are well aware of the rising cost of health related services and take steps to accommodate these price increases into their budget models.

Unfortunately this can lead to the passing on of costs in the form of premium inflation. However, in some cases the insurance premium may increase at a lower rate than the inflation adjustments in which case the policy may be worth considering. Some of the ways inflation is dealt with by the aforementioned parties are the following.

• Premium increases
• Annual inflation adjustments in coverage
• Policy provisions allowing for coverage increases
• Increases in deductibles
• Cost shifting by employers
• Reductions in coverage timeline
• Insurance related Tax adjustments
• Multiple insurance discounts

It is widely known that purchasing a long-term care insurance coverage policy at an early age greatly reduces the premium costs of the insurance and in some cases provides greater policy flexibility in terms of coverage amounts, deductibles, length of coverage etc. If these benefits outweigh the costs of purchasing a policy at a later age and the policy includes automatic adjustments for inflation, it may be worth considering especially if one has a negative prognosis or expectation as pertaining to health future health care coverage needs.

Aspects of long-term care insurance

Choosing a long-term care insurance policy that protects against inflation but not necessarily at the expense of an increased cost of living can be difficult. However, reducing the gap between health care inflation and core inflation may be achieved by considering different health care coverage options and being aware of the various possibilities of coverage and coverage needs.

Long-term care coverage includes some of the most expensive of health care services including but not limited to nursing home assistance, hospice care, and long-term inpatient hospital services. A few practical factors someone considering this type of insurance may consider are the following:

• Age and health prognosis
• Likelihood of long-term care needs
• Awareness of long-term care options
• Availability of family care and/or private in home assistance
• Amount and length of coverage protection
• Alternative insurance options
• Lifestyle related activities and expectations

These factors can influence the cost of and potential need for long-term care insurance coverage and could assist one in making a wise and/or reasonable decision regarding the assumption of a long-term care policy.

The more unfavorable the factors are in terms of health care needs, the greater the likelihood long term care coverage may be needed. Additionally, differences in the policies, premiums and coverage of different long-term care insurance providers may vary enough to make shopping around for long-term care insurance worthwhile.

Selecting inflation adjusted long-term care insurance

Once the decision to purchase a long-term care insurance policy is made, several options exist depending on one's employment status, age, coverage requirements etc.

Online quote services can be of assistance in getting a general awareness of prices in terms of age and coverage and/or one's employer may have a long-term coverage plan. It is important to note however, that COBRA i.e. the Consolidated Budget Reconciliation Act may only allow continuation of a policy for upto 18 months after cessation of employment after which a new policy with a potentially higher premium may be required.

Additionally, one's health prognosis may worsen or improve over time and federal policies pertaining to long term coverage could also adjust. Such being the possibilities, what is a good policy one day, may not be another day, making the potential for these changes another factor to consider in the policy acquisition decision. Providers of such are listed below:

• American Association of retired persons (AARP)
• Federal long term care insurance program (FLTCIP)
• Auto insurance providers ex: State farm, American family insurance
• Life insurance companies: ex. New York Life, Prudential
• Health insurance providers: Kaiser Permanente, Humana

Summary

Inflation's affect on long term health care costs can and has been higher than average annual inflation and earnings increases. This has led to concerns about inflation protection in long-term care health insurance.

Several mechanisms are in place and may be implemented in the future to deal with this financial obstacle. Becoming aware of the possibilities, choices and circumstances surrounding long term care health insurance can be useful in making better insurance decisions, hedging for inflation and being prepared for health care needs in the future.

This article has discussed and outlined some of those possibilities. The choice to continue with or purchase a long-term care health insurance policy may be a supplemental or primary need and can also be factored into one's overall financial plan. Consequently, the long-term care health insurance policy decision is a dynamic one touching on many financial and health related factors.

Sources:

1. http://www.inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp
2. http://tinyurl.com/4w53qvj
3. http://tinyurl.com/2ukw6q
4. http://tinyurl.com/ht5oh
5. http://www.opm.gov/insure/ltc/
6. http://www.pueblo.gsa.gov/cic_text/health/ltc/guide.htm
7. http://www.irs.gov/taxtopics/tc502.html
8. http://www.opm.gov/insure/ltc/topten/release.htm