Choosing a Long-Term Care Insurance Policy: Understanding and Improving the Process

Robert B. Friedland and Stephanie E. Lewis

Executive Summary

Policy makers at the state and Federal level have shown a tremendous interest in using public resources to encourage people to purchase private long-term care insurance. More than three quarters of states provide financial incentives to purchase long-term care insurance. At the Federal level, Congress created tax incentives in 1996 and 2003 to subsidize premiums for such insurance. In addition, the American Homeownership and Economic Opportunity Act of 2000 has a provision to reduce the cost of reverse mortgages used to purchase a qualified long-term care insurance policy. Additional ideas on subsidizing private insurance, such as expanding the existing tax deduction for long-term care insurance premiums, have been proposed.

While subsidizing premiums can increase the number of people who purchase long-term care insurance policies, some people might not purchase this insurance for reasons other than cost. Some contend that the structure of the policies is the problem: typically, plans limit the amount that will be paid, and there are few protections in the event that the insurer goes out of business or the policy holder can no longer afford to pay the premium. Confusion about the nature of the product, difficulty in understanding and making an informed choice from an array of critical options, and denial about becoming dependent may be significant barriers that impede widespread purchase of long-term care insurance. As a result, agents and other counselors typically spend a significant amount of time helping consumers understand the cost of long-term care, the importance of the insurance and, if appropriate, the issues in selecting a policy.

The purpose of this paper is to explore the sources of information used in making decisions about whether and what type of long-term care insurance to purchase. We focused on three main areas. First, we examined how state regulation affects the information provided to individuals interested in purchasing a policy. This was accomplished through a review of state regulations. Second, we assessed the three main sources of consumer information: widely-used written consumer guides, required information provided by insurance agents, and the activities of State Health Insurance Assistance Programs (SHIPs) — publicly-funded organizations tasked with broad education of seniors. We reviewed readily-available resources and had structured interviews with six agents. We also undertook a survey of SHIPs to ascertain the extent to which they are currently helping consumers with long-term care insurance issues. Third, we assessed the required and optional education that insurance agents receive by reviewing the courses required by some states and the content for two long-term care insurance certification courses.