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Without major structural changes, long-term care insurance will never play more than a small role in financing long-term care, according to a new report. The report, from the Center for Retirement Research at Boston College, examined the long-term care insurance industry and found major benefits but also major problems.
According to the report, the benefits of long-term care insurance include a greater choice of care settings and providers than under Medicaid and the potential to reduce Medicaid spending by states. However, despite the benefits, long-term care insurance has not been popular and sales of long-term care policies have not been increasing in recent years.
The report identified several reasons for people's reluctance to purchase long-term care insurance. The main reason could be that long-term care insurance is expensive--the average premium for a 65-year-old is $2,000 a year. According to the report, policies may be poorly priced. For a mid-range policy, a 65-year-old will receive about 80 cents in benefits for every dollar paid in premiums. Another reason policies aren't more popular is the confusion over what Medicare covers. Many people incorrectly believe that Medicare will cover a stay in a nursing home.
In order to increase sales, long-term care insurers have tried improving benefits, but this has caused an increase in premiums, according to the report. Carriers may now try to reduce premiums by reducing inflation protection, but this means benefits will cover less nursing home costs. The report concludes that long-term care insurance has a role to play in financing long-term care, but without structural changes and an increase in the pool of buyers, it isn't likely this insurance will ever have a big role in financing long-term care.
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