Unfortunately, as Americans are growing older, there is a lack of support when it comes to long-term care (LTC) options. Over 70% of adults who surpass 65 years old will require LTC, according to the U.S. Office of the Assistant Secretary for Planning and Evaluation, but the options for financing such support are becoming increasingly scarce.

Although many seniors receive unpaid care from family, many more will require formal assistance at prices that far outpace typical retirement income. LTC insurance helps pay for costs, be it a nursing home, assisted living or home caregiving.

However, after years of negative press coverage and dwindling coverage numbers, LTC insurance finds itself at a crossroads.

Causes of the LTC Crisis

Understanding how the LTC insurance market got into such a mess is vital for agents and brokers looking to steer clients in the right direction. Fundamentally, the challenge lies in the inherent difficulties in pricing and regulating a product that would barely be used in the first few decades of its existence.

When LTC insurance was first introduced in the 1980s, according to the American Association for Long-Term Care Insurance, carriers significantly underpriced LTC policies. The underpricing was partly due to ill-fitting regulations requiring minimum loss ratios when claims rates were yet to mature. Unanticipated life expectancy gains, which brought the need for additional care, also contributed.

As the LTC market began to mature in the 2000s with large cohorts of policyholders moving into senior care, carriers had no choice but implement hefty renewal premium increases, oftentimes by as much as 40%, according to the National Association of Insurance Commissioners. At the same time, plenty of other carriers decided to take a loss and call it a day, withdrawing completely from the LTC market.

Over the last decade, the result has been a market with very limited choice and very high premiums, locking many consumers out of coverage altogether. It's little surprise, then, that only 11% of adults have a private LTC insurance policy, including 14% of those 65 and older, according to a 2022 study from KFF.

Aside from sky-high premiums acting as a deterrent, a lack of awareness of LTC costs among consumers is leading to poor financial planning. Many people mistakenly believe that Medicare will cover these costs, but it doesn't. Twenty-three percent of adults—rising to 45% of those ages 65 and older—assume that Medicare would pay the bill for their own or a loved one's time in a nursing home if they had a long-term illness or disability, according to the KFF study. 

Medicaid serves as a policy of last resort but relying on this all but guarantees an individual will leave nothing to pass on to their loved ones. In most instances, a Medicaid user must spend down their assets to the last $2,000. There's also a good chance it won't provide the quality of life many are hoping for in old age, given the many exclusions and the fact it can be hard to find an assisted living facility that accepts Medicaid. 

A quick look at the sums makes for sobering reading. In California, for example, annual assisted living costs in some of the most desirable locations can cost between $72,000 to $109,000 annually, according to Mirador. And while the average retirement salary in California is just $38,243, according to U.S. Census data, even the most affordable location can cost between $26,000 to $58,000. 

Finding Solutions

For agents, the reality of LTC presents a unique challenge—and an opportunity. As more insurers leave the traditional LTC market, agents can guide their clients through a range of alternative solutions that can better fit their needs.

One of the most promising avenues for insurance agents to explore is hybrid or linked-benefit policies. These policies combine LTC coverage with either life insurance or an annuity. A growing number of Americans now have hybrid policies, which are increasing in popularity due to the relative affordability and flexibility they offer.

These policies can often offer clients more value for their premium dollars. In the event LTC isn't needed, the policyholder still has a life insurance benefit to leave behind for loved ones or an annuity to draw from. Agents should familiarize themselves with these newer products and their benefits to help clients see the bigger picture.

Carriers are also getting more creative with premium payment windows. Seeing as mid-50s is often the period in life when consumers take out LTC coverage, this can mean that day-one premiums are too expensive for many. To offset this, some policies now offer payment windows up to age 100, which can significantly lower monthly premiums for consumers. 

It's fair to say that the LTC insurance market is at a crossroads. Increased awareness among consumers, continual policy innovation among carriers and the client-centric work of brokers and agents will all help in turning the tide.

Dharam Khalsa is co-founder of Mirador, an assisted living platform with a mission to remove barriers and increase transparency for consumers within the assisted living industry.