LTC - Yet another article

[chinaco]

A nice overview of LTC issues.

Retirement: 11 questions on long-term care insurance - Apr. 7, 2010


The new Healthcare bill has a provision for LTC for $50/day. Not sure of the cost... but that amount would be helpful to offset in-home care costs.

Healthcare Reform Will Impact Long-Term Care


We have a low cost LTC plan through mega corp. Not sure how the distant future will turn out in terms of premium cost on the policy. But for now it provides some protection against an unexpected event. Although...I am praying we never need it and someone else (unfortunate soul) can use our contribution to the LTC fund. This is one of those benefits one hopes they never collect.

 

[samclem]

The provision for Long Term Care in the recent health law is known as "CLASS." Catchy, huh? It stands for "Community Living Assistance Services and Supports". Details are still being worked out, but here's what a recent John Hancock info sheet had to say about it:

Enrollees will:
• pay a monthly premium, through payroll deduction, that has yet to be determined, but most recent estimates indicate that the average premium will be $180-$240/month; that premium could be increased yearly to ensure that the CLASS fund is actuarially sound.
• be covered on a guaranteed-issue basis;
• be eligible for benefits for their long-term care needs after paying premiums for the first 60 months of coverage (i.e., a 5-year waiting period) and have worked at least three of those five years;
• receive a lifetime cash benefit after meeting benefit eligibility criteria, based on the degree of impairment, which is expected to average about $75/day or more than $27,000 per year and is payable as long as the claimant remains disabled.

This might be a good deal for some people (esp folks who are older or can't pass the underwriting for a private policy). It will be a bad deal for taxpayers because of the adverse selection problem. Also, every penny of payments into the program is counted as government revenue right now, which is one of the screwy accounting tricks used to artificially drive down the apparent cost of the recent health care bill. The huge upcoming later costs for all the promised LTC didn't show up in the calculations, since they are mostly beyond the timeframe used by the CBO. So, another ticking timebomb has been created, to match SS and Medicare.

 

[stephenandrew]

Also, every penny of payments into the program is counted as government revenue right now, which is one of the screwy accounting tricks used to artificially drive down the apparent cost of the recent health care bill. The huge upcoming later costs for all the promised LTC didn't show up in the calculations, since they are mostly beyond the timeframe used by the CBO. So, another ticking timebomb has been created, to match SS and Medicare.

If this is true, then it is just another example of the poltical class lying to justify how a new social policy is also one that makes economic sense. If you want to debate having the federal government (the taxpayers) provide LTC Insurance, we can have that debate. But be honest about it, and state what the real cost will be---don't ignore costs that are too far down the road to project.

 

[chinaco]

... So, another ticking timebomb has been created, to match SS and Medicare.

I suppose we will see how it turns out.

But this was not a political thread...

It is about retirement prep and risk mitigation. Many people are concerned about needing assisted care at some time in their life... especially as they age.

 

[youbet]

The provision for Long Term Care in the recent health law is known as "CLASS." Catchy, huh? It stands for "Community Living Assistance Services and Supports". Details are still being worked out, but here's what a recent John Hancock info sheet had to say about it:
This might be a good deal for some people (esp folks who are older or can't pass the underwriting for a private policy). It will be a bad deal for taxpayers because of the adverse selection problem. Also, every penny of payments into the program is counted as government revenue right now, which is one of the screwy accounting tricks used to artificially drive down the apparent cost of the recent health care bill. The huge upcoming later costs for all the promised LTC didn't show up in the calculations, since they are mostly beyond the timeframe used by the CBO. So, another ticking timebomb has been created, to match SS and Medicare.

It seems that what this "CLASS" program actually does is allow folks to pay premiums for LTCI that increases the odds of dieing with some estate funds still intact. That is, you might avoid going on Medicaid by participating in "CLASS." To the extent that "CLASS" is not 100% funded by premiums and needs tax dollar supplementation, it's simply a scheme to have tax payers partially foot the bill so other tax payers can leave estates behind.

If "CLASS" turns out to be voluntary and 100% self-funded by premiums, I have no problem with it. If it turns out to be just another wealth transfer mechanism, then the money would be better spent shoring up Medicaid programs.

 

[samclem]

But this was not a political thread...
It is about retirement prep and risk mitigation.

Right, that's why I provided the specific info on the projected premiums, waiting period, and payouts. And the observation that it might be a "good deal" for some people. But, that "good deal" has to come from somewhere (unless we are talking loaves and fishes), so it's important to know whence comes the "free money." TANSTAAFL.

 

[samclem]

To the extent that "CLASS" is not 100% funded by premiums and needs tax dollar supplementation, it's simply a scheme to have tax payers partially foot the bill so other tax payers can leave estates behind.
. . . If it turns out to be just another wealth transfer mechanism, then the money would be better spent shoring up Medicaid programs.

It's not great either way. But this idea that taxpayers shouldn't fund any program that might allow people to leave a bigger estate can be penny-wise and pound foolish. For example, the state partnership programs for LTCI were intended to encourage people to buy their own private LTCI policies. If people bought qualified policies, the state (with Federal blessing) would allow them to go onto Medicare once they'd spent their personal assets down to the benefit level of the policy they had. For example, if you had a $200K LTCI policy and went into a LTC facility, you might burn through the policy benefits in a few years. Then, after you got down to just $200K remaining of your own assets, you'd qualify for Medicare.
These programs cost the government very little (since most folks died before using up the policy limits as well as their own money), but the whole arrangement was fought by Henry Waxman because it allowed people to "keep their huge estates while going onto Medicare." He successfully killed the program for many years (except for 4 states that got in under the wire), and it was only resurrected within the last 2 years. States ended up paying higher overall Medicaid costs, since fewer people bought LTCI policies, and therefore just went onto Medicaid much earlier.

 

[youbet]

. States ended up paying higher overall Medicaid costs, since fewer people bought LTCI policies, and therefore just went onto Medicaid much earlier.

I guess it's just a matter of whether I want to pay tax dollars to subsidize my fellow citizens having LTCI to allow them to leave bigger estates while I'm self-insuring.

No tax subsidy or little tax subsidy, I guess I don't have a problem paying to help others buy LTCI. But it's hard to get comfortable with making significant tax contributions towards plans geared to saving estates.

I'll have to mull this over. Of course, it's not like I'll have a choice or anything like that.......

 

[samclem]

No tax subsidy or little tax subsidy, I guess I don't have a problem paying to help others buy LTCI. But it's hard to get comfortable with making significant tax contributions towards plans geared to saving estates.

Yes, the existing "partnership program" to encourage people to buy private LTCI has very low government costs. There's far more uncertainty about the cost to taxpayers of the new CLASS program. The legislation requires that no taxpayer funds be used to prop it up, that it must be self-sustaining through increases in premiums if necessary. Still, the program might easily enter a "death spiral" as the premiums start going up, causing fewer "less sick" folks to sign up, causing premiums to rise further, etc. The program's premiums are already anticipated to be much higher than a private policy would be--for a healthy person. As fewer folks enter the pool, who will pay the benefits for those already in it? You can probably guess.
I have to look into this more, but here's one way an ER-type could abide by all the rules and get some benefit from this program. You have to pay in for 5 years to get a benefit, and 3 of the 5 years must come from employment income. So, a 40 year old who is near ER could sign up and have the premiums deducted from his pay for 3 years (ths could also come from a small self-employment income). After that, he can pay the premiums for 2 more years without having a job. Now, depending on how the final rules are written, it might be possible for the person to pay nothing else after that. Forever. He's earned the benefits of CLASS, he's paid in for the minimum of 5 years, and if he needs LTC at any time, he'll have those benefits.
I can't find info detailing whether an individual who is retired has to continue paying in to CLASS after he's met the 60 month requirement, and if benefits would be indexed for inflation after that, etc. It could be a sweet deal (paid for by others--but, hey, if that's what the law would provide for, a person would be foolish not to crowd up to the trough with all the others ).

 

[Nords]

It will be a bad deal for taxpayers because of the adverse selection problem.

Sounds like the same "pay now or pay later" debate-- subsidizing long-term care or subsidizing Medicaid. Same as letting low-income citizens pay lower taxes so that they have a little more money in their pockets instead of placing a little more demand on unemployment, food assistance, and other subsidized welfare programs.

One interesting aspect of new legislation is that it allows lawmakers to attempt to start with a clean slate. That way everyone has to get aboard the shiny new bandwagon or get left behind. Meanwhile the prospect of "fixing Medicaid" is probably doomed to apathy and aggressive lobbyists. So while a "new" LTC may not really change the basic cost of care, it might close a lot of Medicaid loopholes and fraud opportunities.

 

[chinaco]

LTC for the elderly is going to be a costly problem. Medicaid will wind up picking up the tab for many. Depending on the state one lives, the spouse will be able to keep some assets if Medicaid has to pickup the bill.

I think LTC is as much about protecting the surviving spouse as providing care for the person needing care.

 

[meierlde]

Just a comment about Medicaid. before cleaning out assets look at buying an insurance policy to pay burial insurance, so that the heirs or the county don't have to pay. In a lot of states at least some burial insurance is allowed when qualifing for medicaid.

 

[chinaco]

Right, that's why I provided the specific info on the projected premiums, waiting period, and payouts. And the observation that it might be a "good deal" for some people. But, that "good deal" has to come from somewhere (unless we are talking loaves and fishes), so it's important to know whence comes the "free money." TANSTAAFL.

I think the waiting period is a way to deal with some aspect of anti-selection.

Of course, insurance companies will generally not insure at all if the insure has much of any medical history that could lead to someone collecting.

$50 per day is enough to possibly get someone in the home to help out... a Nursing Home will cost about 4 times the amount available by the Class Act.

How are you dealing with LTC concerns?

 

[Rustic23]

Chinaco,
We are self insured. Our total exp + expected cost of LTC per year is less than our cola'd income plus swr withdrawal. As I would expect our expenses to go down if one of us were in LTC, and for saving to go up until one of us does go into LTC improving the right side of the equation.

 

[samclem]

How are you dealing with LTC concerns?

DW and I haven't taken any concrete actions. I'm 49, so I'm not feeling any need to act quickly. We've kicked around a lot of ideas, but the product (LTCI) just has a lot of problems (increasing premiums, speculation about the stability of the companies, at least in this product line, etc). And now the CLASS thing has given us another reason to procrastinate--waiting to see if there's a way to get a bargain despite being in good health.

We qualify for the Federal LTC program (run by John Hancock). Their prices are not as good as we could get elsewhere, and they don't offer a shared benefit for couples--all the policies are strictly individual ones. That's not so good for us, as our most likely/pressing need for LTCI is if one of us is in LTC and the other is "on the outside." For this situation, it makes more sense to buy a shared benefit policy so whoever needs the benefits first can use them. Still, the Federal program has the advantage that I'd be part of a big pool of folks and that the OPM guys would be my advocate against JH is needed.

If we had to buy LTCI today, we'd buy a bare-bones private policy with a long (12 month?) exclusion period on the front (to reduce costs) with 2 years of coverage for each person and shared benefits (thus providing up to 4 years of coverage for the "first to go" into care). Last time I looked at it, it appeared a $150/day benefit policy (with inflation protection) written up this way would cost us a little over $100/month in premiums. This would be "real" insurance meant to pay for a disaster we can't handle on our own. We'd still have to pay for the full first year, and for the difference between $150/day and the actual cost. But, it would allow the "outside the wire" spouse to put assets into trust and protect them, and for the person in the "home" to qualify for Medicare after 5 years. It ain't optimum, and we're still left with some risky possible eventualities, but it would probably be the best bang for the buck.

But, we don't have to buy protection now, so we aren't. The insurance products just aren't very good, and the Feds show signs of again changing the rules, so we'll see what develops.

 

[chinaco]

DW and I haven't taken any concrete actions. I'm 49, so I'm not feeling any need to act quickly. We've kicked around a lot of ideas, but the product (LTCI) just has a lot of problems (increasing premiums, speculation about the stability of the companies, at least in this product line, etc). And now the CLASS thing has given us another reason to procrastinate--waiting to see if there's a way to get a bargain despite being in good health.

We qualify for the Federal LTC program (run by John Hancock). Their prices are not as good as we could get elsewhere, and they don't offer a shared benefit for couples--all the policies are strictly individual ones. That's not so good for us, as our most likely/pressing need for LTCI is if one of us is in LTC and the other is "on the outside." For this situation, it makes more sense to buy a shared benefit policy so whoever needs the benefits first can use them. Still, the Federal program has the advantage that I'd be part of a big pool of folks and that the OPM guys would be my advocate against JH is needed.

If we had to buy LTCI today, we'd buy a bare-bones private policy with a long (12 month?) exclusion period on the front (to reduce costs) with 2 years of coverage for each person and shared benefits (thus providing up to 4 years of coverage for the "first to go" into care). Last time I looked at it, it appeared a $150/day benefit policy (with inflation protection) written up this way would cost us a little over $100/month in premiums. This would be "real" insurance meant to pay for a disaster we can't handle on our own. We'd still have to pay for the full first year, and for the difference between $150/day and the actual cost. But, it would allow the "outside the wire" spouse to put assets into trust and protect them, and for the person in the "home" to qualify for Medicare after 5 years. It ain't optimum, and we're still left with some risky possible eventualities, but it would probably be the best bang for the buck.

But, we don't have to buy protection now, so we aren't. The insurance products just aren't very good, and the Feds show signs of again changing the rules, so we'll see what develops.

We got our policy through Mega Corp. We got in at about age 45. There has been premium growth but only through the increase of coverage option (to cover inflation). Which you can take the increase every 3 years.

However the coverage amount per day is capped (high enough to cover a nursing home) and the total cover is capped.

IMO - NH should be a last resort. Provide the spouse is able to at least manage people and the basic situation, other in-home or adult day care is more affordable. But sometimes it depends on the nature of the illness.

 

[samclem]

There has been premium growth but only through the increase of coverage option (to cover inflation). Which you can take the increase every 3 year.

I considered a similar option under the Fed plan, as it drastically reduces the initial premiums. But when I looked at the costs long term, it didn't look like a good deal for us. The additional coverage needed to keep up with inflation gets very expensive as one ages. The costs accelerate much, much faster than inflation and just reflect the higher costs of buying additional coverage on an older person. Initially I was under the impression that I'd be buying more coverage at my existing rate (e.g. buying a 10% increase in my daily benefit would cost me 10% more in premiums), but I learned it doesn't work like that at all.

I suppose the "future purchase option" works well for some people, but I always urge my friends to get the agent to show them the costs for those later purchases, and to track what the total premiums will be when they get to be 75-80 YO.

Edited to add:
Here's a chart showing how the premiums escalate in later years as you buy more insurance. Paying $800/mo for LTCI when we are 80YO just isn't in our budget.