More than 8 million Americans have purchased long-term care insurance with the expectation it will pay for expensive health care services that Medicare doesn't cover. But if you stop paying the premiums, you could lose all your benefits just when you need them most.
The total number of people who lose their coverage because of nonpayment of premiums is unknown. But a new study from Boston College's Center for Retirement Research suggests that more than 30 percent of long-term care insurance holders lapse on their payments at some point over the life of the policy, potentially losing both the money they paid in premiums and any benefits the plan pays.
Senior research economist Anthony Webb, of the Center for Retirement Research who worked on the report, says there are two main reasons people lapse. One is financial, mainly because the premium becomes too expensive. The second is more worrisome. These are typically people who are suffering cognitive decline and forget to pay their premiums, often just as they are about to need costly medical services. "Cognitive decline causes two things," Webb says. "It increases your risk of going into care and it puts you at elevated risk of not paying your premium."
Insurance companies will not cancel a policy immediately after nonpayment of a premium. The companies generally send three notices, about 30 days apart. If the premium is not paid by the end of this 90-100 day period, the policy can be canceled.
The long-term care industry disputes the Boston College findings. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says researchers "sensationalized the facts" and that half of all lapses occur during the first five years after the policy is written. "These are not people who are dropping because of cognitive impairments," Slome says. Slome also disputes the finding that 30 percent of people lapse their policies. He says newer policies have added considerable safeguards, such as allowing the policyholder to name another person to get copies of bills and nonpayment notices. Slome says lapse rates have declined over the past decade because of these safeguards.
Whatever the actual number of older adults who forget to pay their premium may be, the take-away from the research is obvious for adult children and healthy spouses of seniors with long-term care policies. "If you spot cognitive decline you really have to keep an eye on their finances and make sure the bills get paid," Webb says.