Seniors May Be Unable to Buy Long Term Care Insurance

JULY 29, 1996 VOLUME 4, NUMBER 5

Many political and public policy analysts argue that an important component of the funding for long term care in the future will be the private insurance industry. The cost of long term care continues to rise, and the share of the federal budget devoted to such care is expected to increase dramatically in the next few decades.

In order for insurance to be an effective tool for payment of long term care costs, purchasers will need to begin buying policies in larger numbers and at younger ages. Currently, long term care insurance pays for a tiny fraction of the total cost of care.

A new study published by the Agency for Health Care Policy and Research brings the need for younger customers to purchase long term care policies into stark relief. The study considered whether current insurance underwriting practices permitted substantial numbers of seniors to acquire such policies.

According to the study, 65-year-olds should expect to be rejected for long term care insurance between 12% and 23% of the time. At age 75, the rejection rate rises to between 20% and 31%. In other words, at least one out of ten concerned seniors who wait to purchase long term care insurance will find that they are unable to secure coverage at any price.

The study assumed that insurance companies would apply their current underwriting policies to all applicants, even if the pool of potential customers were to increase dramatically. Specifically, the study found that an applicant would be unable to purchase a policy if he or she was already in a nursing home, or if he or she suffered from cognitive impairments (such as Alzheimer’s Disease), cancer, cirrhosis, diabetes, chronic obstructive pulmonary disease or other major illness. Those applicants who were unable to perform activities of daily living, regardless of the cause of their disability, were also found to be uninsurable under present standards.

While it begins to be difficult to purchase long term care insurance at age 65, that is precisely the age group currently buying policies. As Elder Law Issues reported last February, a recent study by the Health Insurance Association of America found that half of new long term care policy purchasers are over age 70, and only one in five of those over age 55 even consider long term care insurance.

When Can You …

Some important ages for seniors to know:

55–You can withdraw funds from IRAs, 401(k)s, Keoghs, SEPs and other retirement plans without paying the 10% tax penalty if you retire, quit or are fired.

59½–You can withdraw funds from retirement plans without the tax penalty in any event.

60–You are eligible for Social Security benefits if you are a widow or widower.

62–You are eligible for early retirement (at a reduced rate) for Social Security; many private pension plans permit retirement.

65–You are eligible to retire with full Social Security benefits. You are eligible for Medicare. Most private pension plans provide full benefits. (Note, however, that the age for full Social Security retirement will increase gradually to 67 over the next quarter century; Medicare’s eligibility age is likely to change as well, though it is not presently scheduled to do so.)

70–You can receive full Social Security benefits regardless of how much you earn from employment. Until this age, your benefits are reduced if you have earned income over certain threshold amounts.

70½–You must begin withdrawing money from your IRA or other tax-deferred savings plan. The minimum required withdrawal is calculated by dividing the present value of your IRA by your life expectancy, taken from IRS actuarial tables.

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