Op-ed: How to navigate premium increases for long-term care insurance

Supporting elderly parents is an extremely difficult situation that involves both emotional and financial complications.

The cost of long-term care insurance is a good example.

Essential to cover costs not typically covered by standard health insurance or Medicare, such as nursing home stays or home support, this insurance can be a financial lifeline. However, it is not without its challenges, especially when faced with an unexpected premium increase.

I know this situation all too well, having purchased long-term care policies for my parents in 2000.

For my father, who was 68 at the time, I bought simple 5% inflation protection, which only accrues interest on the original benefit. When my father needed home care starting in 2014, his daily benefit had grown from $125 to $212.50.

Given our family history of longevity and because my mother bought her policy when she was 54, we selected 5% compound inflation protection. Daily profit with compound inflation grows quickly because interest earns interest.

Now, with this compound inflation protection, your daily profit has increased from $125 to $403.

But their costs have also risen, in part because this compound inflation protection costs more. Since 2000, my mother’s long-term care insurance premium has increased 54%, from $1,224 to $1,885 per year. Along the way, we’ve experienced three rate hikes.

While rate increases can be expected, most people are surprised by how much rates can increase over the long term, specifically for policyholders who have had their policies for a decade or more. It’s not unusual for rates to go up 50%. However, the National Association of Insurance Commissioners has reported rate increases of up to 500%.

For those with limited financial resources, a significant premium increase can be overwhelming and devastating, often forcing people to choose between financial security and compromising their parents’ quality of life and access to quality care.

We all want the best for our aging parents. Here are some ways I recommend customers navigate premium increases to protect their long-term care coverage.

A significant premium increase can threaten your or your parents’ financial stability, but so can not having adequate insurance coverage. It’s a catch-22 that often leaves people feeling trapped. I don’t think people should be forced to choose between simply accepting the increase or leaving the policy.

The good news is that you have options that don’t result in an all-or-nothing choice.

As a certified financial planner professional, I often encourage my clients to start by exploring three options by accepting the rate increase, freezing the benefits, or adjusting the policy terms.

1. Accept the rate increase

In some situations, the best course of action is to do nothing. If your parents’ financial situation allows them to comfortably absorb the higher rate, accepting the premium increase can ensure continued coverage without sacrificing any benefits.

From my personal experience, this was the best option for my mother’s situation. Despite a premium increase of 54%, we chose to accept the rate rather than settle for fewer policy benefits. I know all too well the cost of home care, as my father had Parkinson’s disease for nine years and required 24-hour care for the last four months of his life.

2. Freeze profits

If you have financial concerns about a higher premium, you may be able to eliminate or reduce the rate increase by choosing to freeze your benefits. When this happens, you agree to pause the inflation protection benefit for a predetermined period of time in exchange for a lower rate. Freezing benefits helps reduce premium costs without losing coverage altogether. It may be a good option for parents in their early to late 80s, especially if the premium increase is more than 20%.

I recently advised one of my clients to freeze his benefits when he was faced with a 22% premium increase because he is 70 years old and the cost difference was not a good fit for his situation. This change allowed them to keep the current daily benefit amount but forgo future increases, helping them manage costs while still providing some coverage.

3. Find a middle ground

Sometimes the full premium increase isn’t manageable, but you’re not ready to freeze benefits entirely. If you can accept some, but not all, of the premium increase, it’s best to call your insurance company to negotiate your rates.

For example, if the cost increases by 15% but you can only afford 10%, discuss this with your insurer. You may discover alternatives that an adjusted premium may offer, such as a shorter benefit period, a longer elimination period, or a reduced daily benefit amount. However, reducing daily benefits should be a last resort because it lowers your insurance payout and can increase your out-of-pocket costs for your parent’s care.

Age is just a number, but so is the cost of long-term care insurance. Start by having open conversations with your parents and siblings, so you can work together to make sure everyone’s needs and concerns are met. This discussion should cover everyone’s financial perspectives and considerations, especially the needs and preferences of your elderly parents.

It can be a difficult conversation to navigate.

If you feel stuck weighing the long-term implications of your available options, it’s important to seek the guidance of a financial professional for more clarity and insight. A financial expert can review the details of your situation, offer personalized advice, and even suggest alternatives you may not have considered.

In the end, the decision should balance financial planning with the care and comfort of your loved ones.

By Marguerita (Rita) Cheng, Certified Financial Planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. He is also a member of CNBC’s Financial Advisory Board.