Long-term care subsidies aren't working

[Nords]

Interesting-- I wasn't aware that tax deductions were available to offset the expense of LTC premiums. I guess it's considered a part of medical expenses on the federal tax return?

"Study: Elder care insurance incentives don't work"

"But self-insurance for long-term care is bought by less than 10 percent of the populace.
'The way many middle class people are increasingly dealing with this is to spend or shield their nest-egg savings, and then start drawing benefits from the program for the poor, Medicaid,' said Nixon. 'If that pattern continues, state governments will be fiscally unable to copy as Medicaid claims quadruple over the course of only 15 years.'
The federal government allows deductions for long-term care insurance but at a threshold that places the deduction out of reach for most people. Several states have their own deductions but Nixon said most are too meager to spur policy purchases.
'Even the most generous subsidies have been insufficient to induce additional people to purchase long-term care insurance for themselves,' he said."

 

[Rich_by_the_Bay]

Just one more thorn in the LTC situation. Most of us would love to have such coverage, but the idea of paying in for 20 years or more only to have premiums become unaffordable and/or national health care reform change how LTC is paid for is too great a risk for me. All those premiums, then discontinue it and the money is out the window.

Reluctantly, I'm just trying to save my a** off and hope we either don't need it or can afford it out of savings if the time comes.

 

[mickeyd]

I've been looking at this LTC product for over 30 years. I still do not think that the rates that insurance companies charge are reflective of the real risk that they are assuming. I believe that they are over charging but I do not know how much that they are overcharging. There are really very few actual claims that have been paid on LTC policies (compare with life insurance claims history of millions of claims over 100+ years) compared to other kinds of insurance. The bottom line is that the premium rates that are charged are too darn high to support the benefit provided IMHO.

My lawyer still suggests that we get a LTC policy that covers "part" of our LTC needs, but I chose to self insure on this one. She generally appeals to my wife, implying that she will be "stuck" if I'm the one needing it. I think this is called the "divide and conquer" technique , but it has not made a dent in my thinking.

 

[Rich_by_the_Bay]

My lawyer still suggests that we get a LTC policy that covers "part" of our LTC needs, but I chose to self insure on this one. She generally appeals to my wife, implying that she will be "stuck" if I'm the one needing it. I think this is called the "divide and conquer" technique , but it has not made a dent in my thinking.

An advisor can never go wrong advising more insurance, life, LTC, disability. The opposite is not true.

 

[REWahoo]

Interesting-- I wasn't aware that tax deductions were available to offset the expense of LTC premiums. I guess it's considered a part of medical expenses on the federal tax return?

Since most of us (I hope) won't reach the level of medical expenses necessary to get the deduction, there is another way to get a tax benefit if you have a HSA:

"Qualified Long Term Care Insurance Premiums... can be paid, tax free, through an
HSA, even if amounts were contributed to the HSA though a cafeteria plan."

http://www.ustreas.gov/offices/public-affairs/hsa/pdf/hsa-basics.pdf#search="HSA rules"

 

[Bob_Smith]

Approximately 4 or 5 years ago, my wife and I each bought a LTC policy. We paid them off in one lump sum. So there are no premiums (or premium increases). We'll know for sure if it was a good move when we're dead.

 

[Rich_by_the_Bay]

Approximately 4 or 5 years ago, my wife and I each bought a LTC policy. We paid them off in one lump sum. So there are no premiums (or premium increases). We'll know for sure if it was a good move when we're dead.

Bob, how old were you at the time? Can you share the benefit amount and cost? Opportunity cost of the investment may be a big consideration too. It does sound nice to have what is essentially a fixed premium.

 

[samclem]

But wait, there's another change-a-coming. I'll check on the details (no time tonight), but one of the provisions of the newest revision to the tax laws will provide yet another benefit for those purchasing LTC insurance. As I heard it, the new provision will allow folks who buy qualified LTC insurance to protect assets and still qualify for Medicaid. For example, say you purchase a qualifying plan with a total benefit amount of $250K. Years later, you go into a nursing home, and you have $400K in your savings accounts. Under present law, when your insurance benefits run out, you would keep spending from your savings until you qualify for Medicaid (i.e. until you are destitute). Under the new rules, after you exhaust your insurance beneft, you will qualify for Medicaid after you spend down your savings to $250k remaining (the amount of LTC coverage you bought).

This has actually been the law in four states for several years, the new law will extend this same treatment to all the states. As I recall, the states are now working to certify various plans, then the new policy will begin.

Sorry, no link. I got this info from a LTC agent a few weeks ago, so I can't swear to it. The idea is to provide more encouragement to prompt people to take responsibility for their possible LTC needs by buying insurance. Protecting some of the nest-egg would be a nice benefit for the "non-incarcerated" spouse. Heck, it might even improve your QOL in the nursing home--you can afford to buy ice cream for the 20 other folks sharing your Medicaid-supplied room. Also, (if I recall corectly) the agent mentioned a "stick" to go along with the carrot: The look-back period to qualify for Medicare was going to be lengthened to 5 years. So, transferring assets to qualify for Medicaid will be harder.


(post above modified: Changed all refs to read "Medicaid" vice "Medicare". Thanks Rich-in_Tampa!)

 

[Rich_by_the_Bay]

As I heard it, the new provision will allow folks who buy qualified LTC insurance to protect assets and still qualify for Medicare. ... Under present law, when your insurance benefits run out, you would keep spending from your savins until you qualify for medicare (i.e. unti you are destitute).

Do you mean medicaid?

 

[samclem]

Do you mean medicaid?

Yes. Medicaid. My bad. I've amended the post.

 

[Bob_Smith]

Bob, how old were you at the time? Can you share the benefit amount and cost? Opportunity cost of the investment may be a big consideration too. It does sound nice to have what is essentially a fixed premium.

Rich, here are the details:

--I was 49 and my wife was 48.
--Coverage was $110 per day, but there's a 5% compound inflation rider, so it's $140 now. At the time we called a care center in a small town that has a good reputation (we have known people there). Their total cost was $110 per day for a large private room with maximum care.
--No limit on years of coverage
--Covers nursing facility, assisted living, and in-home services
--2 ADLs or cognitive impairment triggers coverage

Total cost for both of us was $35,000 and change. My wife was $15,000 and I was $20,000. They went through our health history with a fine tooth comb. There were three tiers of desirability - my wife was top and I was in the middle.

Yes, opportunity cost was definitely a factor. The product was still fairly new at the time and I was more concerned about future price hikes. At the time I was getting close to ER and was totally focused on getting er done. LTC was one of the last issues to deal with, and I decided to lock it down with the single payment option and eliminate a variable.

I hope we never use it.

 

[samclem]

http://www.cms.hhs.gov/DeficitReductionAct/Downloads/BackgrounderPartnership.pdf

Above is a link to a background paper on the new changes, which are part of the 2005 Deficit Reduction Act. Interestingly, the paper notes that only a smal percentage of people exhaust their LTC policy limits. Maybe the insurance companies are making out okay after all.

The states that already offer protection of assets are: California, Connecticut, Indiana, Iowa, and
New York.

I think other states are now working to figure out how to implement the new guidance.

BTW: Ohio offers a state income tax deduction for LTC premiums--it's not much, but is like getting a 5% discount on 'em. Every little bit . . .

 

[Dawg52]

LTC insurance is a tough call for most. My company has a group plan that is affordable,
so I got it. No increases over the 4 years I have had it but who knows what the future brings. I will have to play it by ear. It's basically the same coverage Bob Smith has except the coverage is good for 6 years. Cost $480/year.

 

[Rich_by_the_Bay]

I hope we never use it.

Amen.

It sounds like a good deal to me. Biggest concern would be the solvency of the insurer over such a long period, and whether there were any provisions for them dropping the policy as you approach the age of greatest vulnerability. But overall, the cost seems pretty reasonable to me.

 

[Rich_by_the_Bay]

http://www.cms.hhs.gov/DeficitReductionAct/Downloads/BackgrounderPartnership.pdf
Interestingly, the paper notes that only a smal percentage of people exhaust their LTC policy limits. Maybe the insurance companies are making out okay after all.

It may also be the sad fact that many who enter a skilled nursing faciility are dead within 2 years, not the long drawn-out stays we tend to fret about.

 

[FinanceDude]

Amen.

It sounds like a good deal to me. Biggest concern would be the solvency of the insurer over such a long period, and whether there were any provisions for them dropping the policy as you approach the age of greatest vulnerability. But overall, the cost seems pretty reasonable to me.

The only LTC policies I have confidence in are from NML and GE. The guy who started GE's program moved to NML, and NML funded the LTC policy reserve with $140 million dollars before they started selling it. That IS a commitment to pay claims.............

 

[Bob_Smith]

Amen.

It sounds like a good deal to me. Biggest concern would be the solvency of the insurer over such a long period, and whether there were any provisions for them dropping the policy as you approach the age of greatest vulnerability. But overall, the cost seems pretty reasonable to me.

Yep, solvency is the biggest concern. They're a big outfit, but you never know for sure. And decent ratings today can change on a dime, or be too optimistic to start with. It's a roll of the dice.

When it comes to LTC, there was nothing we could have done that would have left us without doubts. We didn't want to leave it to chance - we both had family who required many years of care, and seeing that as kids and young adults affected our attitudes, I'm sure. This seemed the best of the options we had available, and I was hell-bent on getting it done and checking it off the list.

But they can't cancel for any reason, so unless they go under, they're stuck with us.

 

[Martha]

My understanding is that the single premium paid up LTC insurance has about disappeared. I also know some people who bought paid up LTC insurance but when others have inquired they have been told that it is no longer available.

 

[HHCS]

For LTC insurance, there are plans available which can be specifically written for "your event", as noted earlier with respects to nurshing home, assistant living and in home care. If you are concerned about the cost, then seek out a plan, or have one designed, to meet your specific requirements.

Also, lock into your plan. Though lump sum payment plans may not be available now, it is possible to obtain a plan with a set premium. However, if you decide to change the plan at a later date, mostly with an upgrade, understandably the premium will increase.

When deciding upon LTCI, to purchase or not, ensure you have thought about what the ultimate goal is - to ensure care for you without sacrificing assets or to cover yourself because your assets have been depleted. Some will purchase an LTCI plan to ensure they can leave an inheritance to their children or grandchildren. Others because they plan to have no remaining assets.

LTCI can further cover those "gap" areas. Medicare will pay for recovery in a nursing facility if you have to have some form of hospital treatment. However, if your desire is to recover in your home, Medicare may not pay for all that is needed, or wanted. LTCI can ensure that these "unknowns" of Medicare are covered. Medicare may not cover all recovery treatments in a nursing home, such as certain medication. Again, LTCI can address.

Whatevere you decide, ensure that LTCI is part of your ER planning. It would be a shame if everything was wiped out by one hospital stay and recovery.