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LTCI choices
Old 04-13-2017, 08:33 AM   #1
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LTCI choices

I know LTCI has been discussed many times in this forum. However, our situation has become somewhat unique. My DW and I have had LTCI coverage for the last 10 y that was partly subsidized through her employer (she is a teacher). Budget considerations have forced the termination of that benefit. If we do nothing, our LCTI coverage will be 169K, but there will be no inflation protection and consequently no participation in the state LTCI partnership program. However, we have been given some options to improve the coverage by prepaying the premiums that were originally expected under the program. We could pay 50K in a lump sum this summer for 169K of coverage with 5% inflation protection (and the 169K protection of our assets under the state partnership program); similarly pay 65K for 338 K of protection, or 75K for 507K of protection. There would be no premiums due after the lump sum payment. To pay the lump sum we would need to mostly rely on some combination of a HELOC (we own the house out-right) and pulling some money from a tax deferred account (as a loan that would settled upon my retirement exit next year).

If we chose to not pay into the program we could supplement with insurance from another company. I have quotes for LTCI (3% inflation protection) with another company of 3.3k annual premiums for 162K of LTCI; and 2.2k premiums for108K LTCI.

We are getting close to retirement, and currently have only about 725K in tax-deferred funds for retirement. However, we both have pensions that together with social security (at FRA in 9 yrs) will cover our expenses. The main function of the 401/IRA funds is to supplement the pensions until we reach FRA at 67, house upkeep and emergencies, and travel money. I think issues of impoverishment of a surviving spouse might be somewhat mitigated by the pensions and social security that would probably cover most expenses for the survivor.

I apologize for the long post. I would be grateful for any wisdom you might provide us as we contemplate our options.
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Old 04-13-2017, 08:58 AM   #2
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The problem is that you'll likely STILL be subject to further cuts in the future - LTCI appeals to my inherent "need" for belts and suspenders, and I signed up for it many, many years ago in order to "lock in low premiums". Well, it didn't work out that way! I got a 150% premium increase notice and decided to take a pared back benefits, instead of the higher premium. I see a real possibility that these benefits will be cut back further in the future, eventually reaching the tipping point where I'll have to drop it altogether.
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Old 04-13-2017, 08:59 AM   #3
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I'm no expert, but paying 50k now for a possible 169k (restricted) sometime in the future if you happen to need long term care does not sound like a good deal. You'd have to run numbers at your real ages and expected age to need LTC, but it seems like 50k in hand, invested, would come out ahead.
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Old 04-13-2017, 09:23 AM   #4
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Originally Posted by growing_older View Post
I'm no expert, but paying 50k now for a possible 169k (restricted) sometime in the future if you happen to need long term care does not sound like a good deal. You'd have to run numbers at your real ages and expected age to need LTC, but it seems like 50k in hand, invested, would come out ahead.

Given the recent past, I am guessing that LTC is likely to increase at a greater rate than regular inflation. The 169K LTCI coverage would increase at 5%. Not sure whether my investments would keep up. It's a gamble whether we would even need LTC, but my spouses father did suffer from dementia the last few years of his life.

Thank you for the input!
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Old 04-13-2017, 09:29 AM   #5
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Quote:
Originally Posted by euro View Post
The problem is that you'll likely STILL be subject to further cuts in the future - LTCI appeals to my inherent "need" for belts and suspenders, and I signed up for it many, many years ago in order to "lock in low premiums". Well, it didn't work out that way! I got a 150% premium increase notice and decided to take a pared back benefits, instead of the higher premium. I see a real possibility that these benefits will be cut back further in the future, eventually reaching the tipping point where I'll have to drop it altogether.
Thanks for your thoughts. Perhaps this would be a point in favor of pre-paying the lump sum? The company that administers the program is the same as the one that administers the state's pension program. It is one of the few in the US that is in good financial shape. This makes me think they might do a good job meeting their LTCI commitments.
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Old 04-13-2017, 10:01 AM   #6
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First, I have to stipulate that I am not a LTCi fan; DW & I have chosen to not purchase LTCi because we have concluded that, for policies available to us, it is really just "prepayment" of LTC costs at a not so good rate. That's our situation.

However, your situation seems markedly different based on the choices you have through your employer; I'm guessing your rates are subsidized in some way (similar to the LTCi that Federal employees can buy). So, in your case, my thoughts are:

1. Don't allow your past premium payments to sway you when analyzing options; they have a value but, are a sunk cost.
2. Value only the options you have going forward
3. Compare options using a Net Present Value (NPV) analysis [see below]

Assumptions:
- You & spouse can comfortably make the monthly HELOC payments within your existing budget (Don't know since you've not shared your budget/expenses)
- There are no penalties or taxes for using tax deferred funds, if you have to do that
- Your premiums & benefits will be locked in with your new contract
- You & spouse are 57 yo & will need to use LTC in 20 yrs @ age 77 (change this assumption if you like)
- The LTCi values you've listed for each of the three 'purchase' options are Present Values
- Use a discount rate of 5% in the NPV analysis (it's the inflation rate of your LTCi value & close to the HELOC rate you'd pay)

Option #1: Do Nothing
NPV = $169k in 20 yrs @ 5% = $64k

Option #2: Spend $50k Now for $169k Real Value in 20 yrs @ 5%
NPV = PV of New LTCi - PV of Existing LTCi Policy - $50k
NPV = $169k - $64k - $50k
NPV = $55k

Option #3: Spend $65k Now for $338k Real Value in 20 yrs @ 5%
NPV = PV of New LTCi - PV of Existing LTCi Policy - $65k
NPV = $338k - $64k - $65k
NPV = $209k

Option #4: Spend $75k Now for $507k Real Value in 20 yrs @ 5%
NPV = PV of New LTCi - PV of Existing LTCi Policy - $75k
NPV = $507k - $64k - $75k
NPV = $368k

Based on this, the highest NPV is Option #4 if my math is correct (I invite others to check it please). If you & DW expect you will likely need this much LTCi, it would be the best choice. But, do not forget that there are many hoops you'll have to jump through to get your LTCi company to begin paying premiums. See other posts on this forum.

Hope this is helpful.
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Are you talking about Calpers?
Old 04-13-2017, 10:34 PM   #7
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Are you talking about Calpers?

If you're talking Calpers as the state program for LTCi, I will share thoughts.
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Old 04-13-2017, 10:36 PM   #8
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Originally Posted by Carlos2 View Post
If you're talking Calpers as the state program for LTCi, I will share thoughts.


I think the Op is in Wisconsin.
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Old 04-14-2017, 05:50 AM   #9
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our partnership plans in ny are pretty good . we bought ours not for the 3 years snf or 6 years assisted living /in home care coverage , but for all the perks after the insurance runs out .

all assets are fully protected and no income cap on the stay at home spouse , no look backs , no spending down and medicaid pays all bills .
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Old 04-14-2017, 09:43 AM   #10
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I am in Wisconsin. I guess I just have some reluctance to pay the lump sum(s) for a couple of reasons. First, coughing up the lump sum from the retirement funds seems somewhat counterproductive (but the analyses from Huston55 helps; thanks!) and the thought of taking out a home equity loan makes me make a sound like having chickenbone caught in my throat since we just paid the house off. Second, I wonder how much insurance we really need since we have the pensions (with survivor benefits) that would likely cover most if not all of the survivors needs. My (admittedly very limited) understanding of the LTC game leads me to think that if we were so unlucky as to need the LTCI, it might be enough to have insurance for couple years to ensure entrance into a decent facility. In the unlikely event that the need was longer then Medicaid would have to step in.
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Old 04-14-2017, 05:16 PM   #11
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Quote:
Originally Posted by Ragna View Post
My (admittedly very limited) understanding of the LTC game leads me to think that if we were so unlucky as to need the LTCI, it might be enough to have insurance for couple years to ensure entrance into a decent facility. In the unlikely event that the need was longer then Medicaid would have to step in.
Whether you could stay after assets are exhausted depends very much on the policy of the care facility. Some will only take you if you have assets to cover at least a year or two of full nursing care and then will accept what Medicaid pays and take the loss on the rest.

Others will not do that and you then will have to find a place that will accept what Medicaid pays. If you or a relative doesn't then they will do it for you, but you won't be staying there.
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