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The rising costs surrounding aging and long term care pose significant financial concerns for high net worth investors, according to research conducted by Millionaire Corner in the first quarter of 2012.
The concerns reflect an environment of rising costs for both health care and insurance. According to data released today by the Bureau of Labor Statistics, health care costs continue to rise faster than the overall rate of inflation. Medical care services rose at an annual rate of 3.5 percent for the 12 months ending in March 2012, compared to an overall 2.7 rate of inflation for all goods and services. Nursing home and adult day services rose at an annual rate of 3.3 percent, while hospital care rose 5.2 percent.
As the costs of care rise, so do premiums for insurance policies addressing the issues of aging and long term care, according to a statement from the American Association for Long-Term Care Insurance, an industry trade group. Historic low interest rates are the primary factor in the rate increases, according to Jesse Slome, executive director of the association. For every .5 percent drop in interest rates, a long-term care insurance company needs a 15 percent premium hike to accrue funds to pay future claims.
Some insurance companies are requesting rate increases, while others – most recently Prudential and MetLife - are exiting the individual long term care market altogether. Some eight million Americans currently have some form long term care insurance protection, said Slome, who noted, “Last year, insurers paid over $6 billion in benefits to some 200,000 individuals who own long term care insurance. The largest open claim has surpassed $1.5 million and the policyholder paid less than $2,500 for their protection.”
Prices for long-term care insurance policies are currently between 6 percent and 17 percent high than comparable coverage a year ago, according to the 2012 National Long-Term Care Insurance Price Index published by the association. According to the study, the average costs for a 55-year-old single individual who qualified for preferred health discounts is $1,720 for between $165,000 and $200,000 of current coverage. Last year the same coverage would have costs an average of $1,480 annually, said the association.
The insurance and health care scenario has exacerbated concerns over aging and long term care among high net worth investors, who have saved adequately for retirement but rank health-related concerns among their top personal financial concerns. Sixty-five percent are worried about the financial consequences of a spouse’s health issues, up from 59 percent last year, according to Millionaire Corner research. Sixty percent are worried about the financial consequences of their own health issues, up from 56 percent last year. Nearly half are worried about the financial consequences of a family health catastrophe. Concerns about aging and long term care are also reflected in the fact that 44 percent of the high net worth are worried about “having someone to care for me in my old age.”
