More on long term care insurance....

[ziggy29]

Thoughts appreciated. I just got a letter about a new employee benefit for long term care insurance which, if we sign up in the initial offering period between now and February 29, offers guaranteed acceptance. Megacorp is offering this new group benefit through John Hancock, which as I understand it is as solid as they come in the field of long term care insurance.

The most attractive aspect of this is that in the initial offering period there is guaranteed acceptance. For that reason if nothing else, I'm inclined to at least consider it. I don't want to be at a point where it's worth considering 10, 20, 30 years from now and one of us is uninsurable. If we decline it now (open enrollment is through 2/29 for coverage beginning April 1), we'd need to provide proof of insurability which may or may not be a problem at the time.

But at the same time, I'm considering the cost of it and how much I could save and invest if I either don't take it or decline the automatic inflation protection. Looking at the option for $150 a day for up to 6 years, for both of us (I'm 42, DW is 39) it's $50 a month with no inflation protection...but $196 a month with an automatic 5% annual inflation rider. Using a spreadsheet it looks like 30-40 years from now, if I invested the difference between the inflation rider and not having it would take about 250-300 days of paid coverage to "break even" before I would have been better with the inflation protection, assuming I invested the after-tax difference in premiums at 8-9%. Without an inflation rider I could still purchase additional coverage annually to keep up with inflation (with no POI), but that wouldn't result in lifetime level premiums and they'd likely rise by 5% or more each year if I bought more. Yeah, $150 a day will be almost nothing in 30 years, but as I said, we can buy more and at least we have something while we can't be turned down in underwriting.

Then there's the uncertainty of what will happen in the next 20, 30, 40 years in terms of the industry, in terms of how it's insured and (if we keep increasing the nanny state) if long-term care will eventually be taxpayer-funded. And even if I didn't think that was a possibility, my concern with the inflation rider is that even though this policy is fully portable if I lose my job, I don't think I can eat $200 a month while unemployed or if I get a new job later with a huge pay cut. Right now $200 a month isn't a huge deal -- in the future it could be, especially if I lose this job and/or become FIREd.

My inclination is to take it, but without the inflation rider just to get my foot in the door while we don't need to worry about being insurable...especially since it has a nonforfeiture clause which means that if we are continously insured for at least three years we will always be entitled to at least some benefits. Plus I like that it's through Hancock which is probably the most solid name in this particular field. And through a cafeteria benefits plan with payroll deductions, the $50 per month is more like $33 after tax since the amount is exempt from income tax and SS/Medicare taxes. I just have a feeling that over the next 20 years or so, how long term care is funded (and what is covered) will change enough that paying up now for the inflation rider is a bad deal compared to investing the difference myself.

Have any of you experienced this lately? What do you think? Is there anything else I need to consider? We do have adequate insurance elsewhere -- life, health, disability and umbrella liability are all covered.

 

[Alan]

It may sound affordable now but premiums on LTC do increase as you get older and have increased dramatically this last few years from what I understand. Any penalties if you change jobs?

What I do is put $200/mo into the VG Wellington fund, ear-marked as LTC and not counted in my retirement nest-egg. At 42, if you did something similar you should expect quite a pot of money by the time you or DS need a nursing home or care at home. (at 8%/yr that would be circa $300K by age 72)

 

[Rich_by_the_Bay]

Hope you do lots of due diligence on that decision. If ultimately you decide the rising premiums are out of hand, you will have thrown all prior premiums away. And bear in mind that legislative changes regarding that aspect of health care may occur over such a long period (again, making all your premiums to date worthless).

In addition, the average stay in a skilled nursing home is somewhere in the range of 3 years (with extreme exceptions). At today's average of $75K per year your real world exposure may be in the range of $225-$300k over a lifetime. And not everyone ends up in a NH.

It's not an easy decision, and I don't have the best answer, but every time I consider it I decide that the best protection is to grow my nest egg and if/when it hits the fan I will probably be able to weather it. The would-be premiums not paid (but invested instead) will help to ease that strategy.

I may change my mind, but so far nothing has convinced me to do so.

 

[megacorp-firee]

We had struggled with the LTCI question and have chosen to self-insure.
I don't know what the current statistics are, but at the time, they were quoting that
1) a bit less than 50% of us would need LTCI. I guess for the 2 of us, that would mean 1 of us might end up needing it.
2) Average time LTC would be required was less than 2 years
3) depending upon where you live it could cost between 30K and 60K/yr,
3) premiums would go up as we grew older (and some companies had substantially raised them so far)
4) there was still not enough experience and history to know what costs would be.

So the plan is that we would probably hire someone in to take care of who ever needed it and the other would try to live as normal a life as possible. We don't want to make a martyr out of each other (i.e. full time care keeper, wiping each others butts, ...etc.). If the time came for a full time facility then so be it. After all, you can't take it with you.

 

[tangomonster]

I haven't even done the math, but I'm not going to buy it. I'm just assuming it must be a better deal for the insurance companies than the consumer since I am flooded with offers, even from AARP and my stock broker. Funny how no one is sending us offers for health insurance since we are viewed as undesirable. So obviously it works out for insurance companies at least at this point before most will need the actual long term care. I'd rather invest my money myself than giving it to an insurance company and expecting them to be there however many years down the road...

 

[EngineeringMyFinances]

Not an expert on LTC insurance. Still debating whether to get a policy for myself or self insure. But I don't have the option that you do.

Here's what I suspect. The price of this policy is somewhere in the middle, underwriter is assuming average health. So if you/DW are below average health, it may be a good deal. OTOH, if you & DW are in great health, you may do better on the open market. But a month doesn't give you much time to shop around. And at your age, might not be a good deal in the long run. (Generic advice is to get it 50's or 60's, IIRC).

 

[grumpy]

If ultimately you decide the rising premiums are out of hand, you will have thrown all prior premiums away.

I find this to be a specious argument. If your car insurance premiums are rising but you don't have any claims, have you "thrown all prior premiums away"? If your term life insurance premiums are rising but you don't die have you "thrown all prior premiums away"? Not everyone who requires nursing home care is elderly. Suppose you get hit by a car and are completely disabled or have a paralyzing stroke at an early age? The point of any type of insurance is to mitigate the risk of a catastrophic event. I consider the LTC premiums I have paid for the past 10 years to have been a good investment in that they protected us from an expense that we could not have covered out of current assets. If you can stomach the small risk of a huge expense then you may chose not to purchase LTC insurance. At some point in the future we may decide we can self-insure but if we do, I will not think that the prior premiums were thrown away. In the meantime, the LTC premiums have no material impact on our lifestyle or the long term survival of our portfolio but the uninsured impact of either of us requiring a significant nursing home stay certainly would. I worked too long and too hard to get us to FIRE and I will not risk that for cost of LTC premiums.

Grumpy

 

[Purron]

I bought the LTC insurance for my DH and I from the federal goverment (through Metlife) when they first rolled out the plan. Same deal with guaranteed acceptance. I was about 49 at the time. It's gives us a lot of peace of mind knowing it's there. My DH's mother has been in a nursing home for years so we understand how much decent care costs. We got the inflation protection so the premiums are guaranteed to stay the same. The insurance is not cheap and I know that money could grow quickly if it invested it. However, being the risk adverse person I am, I like having the security. One other feature I like is the policy would pay for in home care. If anything happens to either one of us, we would rather stay in our home, with professional care, than end up in a nursing home.

 

[Rich_by_the_Bay]

I bought the LTC insurance for my DH and I from the federal goverment (through Metlife) when they first rolled out the plan. Same deal with guaranteed acceptance. I was about 49 at the time. It's gives us a lot of peace of mind knowing it's there. My DH's mother has been in a nursing home for years so we understand how much decent care costs. We got the inflation protection so the premiums are guaranteed to stay the same. The insurance is not cheap and I know that money could grow quickly if it invested it. However, being the risk adverse person I am, I like having the security. One other feature I like is the policy would pay for in home care. If anything happens to either one of us, we would rather stay in our home, with professional care, than end up in a nursing home.

Purron, do you really mean the premiums stay the same, or just that the benefits get inflation-adjusted? That would be unusual, and good for you if you got it. Of course, there may well be 30 more years of premiums but let's hope you never need it.

 

[kaneohe]

I find this to be a specious argument. If your car insurance premiums are rising but you don't have any claims, have you "thrown all prior premiums away"? If your term life insurance premiums are rising but you don't die have you "thrown all prior premiums away"? Not everyone who requires nursing home care is elderly. Suppose you get hit by a car and are completely disabled or have a paralyzing stroke at an early age? The point of any type of insurance is to mitigate the risk of a catastrophic event. I consider the LTC premiums I have paid for the past 10 years to have been a good investment in that they protected us from an expense that we could not have covered out of current assets. If you can stomach the small risk of a huge expense then you may chose not to purchase LTC insurance. At some point in the future we may decide we can self-insure but if we do, I will not think that the prior premiums were thrown away. In the meantime, the LTC premiums have no material impact on our lifestyle or the long term survival of our portfolio but the uninsured impact of either of us requiring a significant nursing home stay certainly would. I worked too long and too hard to get us to FIRE and I will not risk that for cost of LTC premiums.

Grumpy

I think I agree w/ Grumpy. I once read an article in one of those airline magazines on a long flight..........talking about insurance in general. You can either go naked and take the risk, self-insure, or do the insurance.

It said that if you self-insure, that means piling up a huge reserve that may never be used and so could end up effectively not useful for you because it had been locked away for safekeeping. You also could run out of luck before the huge reserve had been accumulated.

Or you could go the insurance route, share the risk by pooling w/ others and yes pay the insurance co. some profit but not have to accumulate that huge reserve yourself.

I guess that article had a big effect on me...........chose to buy the LTC
and have the peace of mind that others have mentioned and no risk that the kid would have to worry about us either.

 

[Purron]

Purron, do you really mean the premiums stay the same, or just that the benefits get inflation-adjusted? That would be unusual, and good for you if you got it. Of course, there may well be 30 more years of premiums but let's hope you never need it.

Rich, Here is the clause I was thinking of copied directly off the OPM website:

Automatic Compound Inflation (ACI)
An inflation protection feature that helps premiums remain constant while benefits increase by a fixed percentage each year. Under the FLTCIP, benefits increase automatically by 5% compounded annually with no corresponding increase in premium.

 

[brewer12345]

My beef with LTC is that I am not convinced that a policyholder is really offloading the risk to the insurer. I am quite happy to pay up for insurance coverage, and I spend thousands of dollars a year on auto, home, life, umbrella and business coverage that I dearly hope will never return a single dollar to me or my heirs. But in all of those cases, I know for a fact that I am offloading every conceivable liability and mortality risk to my counterparty, so I am getting something of value for my dollars.

With LTC, the insurer has the unilateral ability to jack premiums by any amount they like at any point in time, and there appears to be no limit to how many times the premiums can increase. The pool of companies selling this coverage has also declined, so one also has a reduced set of insurers from which to choose.

I am a lot happier investing in a company that sells this product than buying it myself.

 

[Rich_by_the_Bay]

Automatic Compound Inflation (ACI)
An inflation protection feature that helps premiums remain constant while benefits increase by a fixed percentage each year. Under the FLTCIP, benefits increase automatically by 5% compounded annually with no corresponding increase in premium.

Hmm, interesting. Sounds like the premiums are calculated to include a fixed 5% increase in benefits starting the day they get distributed. Does the potential initial benefit amount grow at 5% in the background during all those years of premiums, or only after you start collecting?

If you're comfortable sharing you approximate age and the premium amount, that would be helpful for comparison. Sounds like a good deal if the carrier is solid and the premiums manageable.

 

[Purron]

Hmm, interesting. Sounds like the premiums are calculated to include a fixed 5% increase in benefits starting the day they get distributed. Does the potential initial benefit amount grow at 5% in the background during all those years of premiums, or only after you start collecting?

If you're comfortable sharing you approximate age and the premium amount, that would be helpful for comparison. Sounds like a good deal if the carrier is solid and the premiums manageable.

Rich, I'm 52 now and was 49 when I purchased the policy. The premium is $255/month for my husband and I. Here is the link from the OPM website with all the details: Federal Long Term Care Insurance Program Home Page

I get annual updates showing the 5% increase in coverage under the Automatic Compound Inflation (ACI) option I selected. I believe Metlife is solid. However, I also thought Citibank was solid so there is always default risk. My hope is, since this is through my employment with the federal government, the LTC program would be transferred to another insurance company in the event anything happened to Metlife.

 

[ChrisC]

Rich, I'm 52 now and was 49 when I purchased the policy. The premium is $255/month for my husband and I. Here is the link from the OPM website with all the details: Federal Long Term Care Insurance Program Home Page

I get annual updates showing the 5% increase in coverage under the Automatic Compound Inflation (ACI) option I selected. I believe Metlife is solid. However, I also thought Citibank was solid so there is always default risk. My hope is, since this is through my employment with the federal government, the LTC program would be transferred to another insurance company in the event anything happened to Metlife.

My wife and I have the Comprehensive 150 Plan under the FLTC Program. All plans are jointly underwritten by Metlife and John Hancock. There is the notion that the plan has the implicit backing of the Federal Government, though no one really says that, but I'm confident the Federal Government would not let this plan fail for its retireees. Our dollar benefit coverage has increased every year with the ACI option while our premium payment has been the same since we enrolled. My wife and I are 54 and 56 and we pay $210 per month -- we purchased the policy when first offered and I know many who bypassed the program for cheaper and more comprehensive coverage out in the private market; I just went with the FLTC Program for convenience and security.

Since I recently enrolled in a HDHP with an HSA, I will have the ability to pay all my LTHC premiums from pretax and tax-free compounded dollars through my HSA, which appeared to be a big benefit to me. And the FLTC Program has proven to be a valuable resource to me as I looked for long-term nursing care facilities for my mother. As part of the program, I was able to get the benefit of geriatric social workers and nursing care guides to help me through the process.

 

[Purron]

As part of the program, I was able to get the benefit of geriatric social workers and nursing care guides to help me through the process.

This is good to know.

 

[Rich_by_the_Bay]

It sounds like a very attractive program. My cynical side wonders whether it's too good to be true (but that's me when it comes to LTC).

The only lingering doubt from what you've presented is their language about "helping to keep premiums stable." Makes me wonder if the premiums might go up at some point quite steeply after you've paid up for 25 years.

Anyway, sounds like it is a solid program bringing you the peace of mind you expect.

 

[brewer12345]

My understanding of the federal LTC program is that the economics of the pool are essentially a pass through. So if loss experience turns out to be worse than priced for, the insurers managing the program will jack rates. But it has been a while since I looked at it or poked the insurers involved.

 

[Goonie]

Does the potential initial benefit amount grow at 5% in the background during all those years of premiums, or only after you start collecting?

If you're comfortable sharing you approximate age and the premium amount, that would be helpful for comparison. Sounds like a good deal if the carrier is solid and the premiums manageable.

Rich, I'm 52 now and was 49 when I purchased the policy. The premium is $255/month for my husband and I.......

I get annual updates showing the 5% increase in coverage under the Automatic Compound Inflation (ACI) option I selected. I believe Metlife is solid.

I'm in about the same boat. I'm 50 (soon to be 51) and took out my LTC policy when I was 49. My monthly premium is $184 for single coverage. It also has the ACI option that increases coverage every year, not just after I start collecting. Beside Nursing Homes, it also includes Assisted Living Centers/Homes, as well as home care whether provided by 'professionals' or by a friend or family member (and includes paying the friend or relative too). My policy is with Prudential, and was offered through my pension fund.

As for the premiums raising at the whim of the insurer, they guarantee, in writing.......not even in 'fine print'......that the only way my premium can rise, is if they raise the premiums of ALL of their LTC policy holders. And to raise the premiums they have to take their request before the State of IL Division of Insurance, who are fairly picky about allowing increases.

But whether the premiums stay the same or raise (within reason), I like the peace of mind that I have that if the unexpected happens.....I'm covered. I'm in agreement with Grumpy's post

In the meantime, the LTC premiums have no material impact on our lifestyle or the long term survival of our portfolio but the uninsured impact of either of us requiring a significant nursing home stay certainly would. I worked too long and too hard to get us to FIRE and I will not risk that for cost of LTC premiums.

and Purron's post

It's gives us a lot of peace of mind knowing it's there. My DH's mother has been in a nursing home for years so we understand how much decent care costs........ The insurance is not cheap and I know that money could grow quickly if it invested it. However, being the risk adverse person I am, I like having the security. One other feature I like is the policy would pay for in home care. If anything happens to either one of us, we would rather stay in our home, with professional care, than end up in a nursing home.

BTW, you don't pay the premiums while benefits are being paid out.

I hope I can pay the premiums until I'm at least 100 years old....and NEVER have to collect the benefits!!!

 

[brewer12345]

As for the premiums raising at the whim of the insurer, they guarantee, in writing.......not even in 'fine print'......that the only way my premium can rise, is if they raise the premiums of ALL of their LTC policy holders. And to raise the premiums they have to take their request before the State of IL Division of Insurance, who are fairly picky about allowing increases.

That is worth roughly the paper it is printed on, as many, many, many LTC policyholders can no doubt tell you.

 

[samclem]

Some states also give a tax deduction/credit for a portion of LTCI premiums (Ohio does, anyway).

For reasons noted above (esp the unstated but hopefully true prospect that that Uncle Sam would do something if the insurers defaulted/quit writing coverage, etc) the federal LTCI program is attractive. Unfortunately, they only write policies on individuals. What we need (as a couple) is coverage for only one of us.

Possibilities:
1) Both in nursing home: My pension continues, we get money from sale of home plus everything else, and we have the use of our portfolio. There's enough there to cover nursing home and a few other costs for both of us--we can self-insure for this.
2) One dead, one in nursing home: Pension amount might be same as now or cut by approx 35% (depending on who is deceased), plus proceeds from sale of home and value of portfolio. It would be possible to cover the nursing home either way--we can self-insure for this eventuality.
3) One alive "on the outside", one in the nursing home: This is the costliest situation. Pension stays at present level, living costs for the person on the outside wouldn't be much less than if there were two people in the house, and the portfolio has to support one person in the nursing home and one on the outside. We can't comfortably self-insure for this eventuality.

I wish the FLTCI program would allow us to insure only for situation #3, as the premiums would be a lot more affordable than two individual policies. I think I can get this insurance outside of the FLTCI umbrella-- but then I'll be giving up the security offered by that program.

 

[ChrisC]

Some states also give a tax deduction/credit for a portion of LTCI premiums (Ohio does, anyway).

For reasons noted above (esp the unstated but hopefully true prospect that that Uncle Sam would do something if the insurers defaulted/quit writing coverage, etc) the federal LTCI program is attractive. Unfortunately, they only write policies on individuals. What we need (as a couple) is coverage for only one of us.

Possibilities:
1) Both in nursing home: My pension continues, we get money from sale of home plus everything else, and we have the use of our portfolio. There's enough there to cover nursing home and a few other costs for both of us--we can self-insure for this.
2) One dead, one in nursing home: Pension amount might be same as now or cut by approx 35% (depending on who is deceased), plus proceeds from sale of home and value of portfolio. It would be possible to cover the nursing home either way--we can self-insure for this eventuality.
3) One alive "on the outside", one in the nursing home: This is the costliest situation. Pension stays at present level, living costs for the person on the outside wouldn't be much less than if there were two people in the house, and the portfolio has to support one person in the nursing home and one on the outside. We can't comfortably self-insure for this eventuality.

I wish the FLTCI program would allow us to insure only for situation #3, as the premiums would be a lot more affordable than two individual policies. I think I can get this insurance outside of the FLTCI umbrella-- but then I'll be giving up the security offered by that program.

Why is situation 3 costlier than situation 1? In either case, the house is available for paying long term health care expenses. In situation 3, you should be able to monetize the house by a reverse mortgage and the financial exposure for the "inside" spouse is limited to her share (if jointly owned) of the house and her share of the portfolio (and her own IRA and 401K). Also, most people will run out of money if the long term care is very long and Medicaid does pick up the tab afterwards. If you privately pay long term care for X years at a facility and then Medicaid takes over, the care doesn't really change.

It seems to me that if you can insure one only, then insuring one is better than insuring none. I'd probably pick the last one who might be standing.

 

[Jeb-NY]

What level of insurance are people getting?

I have looked at getting LTC for at least 10 years and probably should talk to a salesman. The numbers I have seen in ads and articles usually talk about $100-$150/day, well that is only $35K-$55K/year, and they normally have a 3 year limit on coverage. For that level of coverage I can self insure. The problem is I keep hearing about local nursing homes charging $300-$400/day, I could probably still self insure for a few years with out to many problems but I have had two grandparents, one from each side, that spent close to 10 years each in a nursing home.

I would really like a policy that takes over after 6 months or even a year and then pays till death. I can self insure for the short term it is the long term I'm afraid of.

Jeb

 

[ChrisC]

What level of insurance are people getting?

I have looked at getting LTC for at least 10 years and probably should talk to a salesman. The numbers I have seen in ads and articles usually talk about $100-$150/day, well that is only $35K-$55K/year, and they normally have a 3 year limit on coverage. For that level of coverage I can self insure. The problem is I keep hearing about local nursing homes charging $300-$400/day, I could probably still self insure for a few years with out to many problems but I have had two grandparents, one from each side, that spent close to 10 years each in a nursing home.

I would really like a policy that takes over after 6 months or even a year and then pays till death. I can self insure for the short term it is the long term I'm afraid of.

Jeb

I got enough coverage to take care of our long term health care needs for 5 years, assuming we're living in Virginia or North Carolina which has LTC costs of around 45% of New York's cost of care. My original daily benefit amount of $150, which has now been inflation-adjusted to $191, would cover the most expensive nursing care in our likely retirement destinations.

Your post peaked my interest and I figured that if I needed, at age 54, LTC in New York City, at a daily benefit amount of $300, unlimited years of coverage and an unlimited lifetime benefit, that my monthly cost would be $366.21 under the Federal program. For my limited coverage of 5 years with a daily benefit amount of $191 and a lifetime benefit cap of $348,575.(inflation-adjusted annually), I'm paying $105.73 per month.

I look at LTC coverage as short-term, not long-term coverage. I'm thinking that the chances are that we will need it only for a 2-5 year period if our health goes south, big-time. But if one or both of us winds up in a nursing home on a long-term basis, we should have enough in our portfolio to self insure after the coverage ends and, if we don't, then we'll wind up on Medicaid. I view LTC coverage as health custodian and legacy planning for my family. I don't want my spouse or children to be forced to take care of me if I need long-term care, and if my children take care of us, I want them to get paid for their care, which these plans permit.

 

[Goonie]

What level of insurance are people getting?

I have looked at getting LTC for at least 10 years and probably should talk to a salesman. The numbers I have seen in ads and articles usually talk about $100-$150/day, well that is only $35K-$55K/year, and they normally have a 3 year limit on coverage. For that level of coverage I can self insure. The problem is I keep hearing about local nursing homes charging $300-$400/day, I could probably still self insure for a few years with out to many problems but I have had two grandparents, one from each side, that spent close to 10 years each in a nursing home.

I would really like a policy that takes over after 6 months or even a year and then pays till death. I can self insure for the short term it is the long term I'm afraid of.

Jeb

The Prudential LTC policy that I have has 10 years of coverage, starting at $150/day plus 5% automatic inflation protection per year (so it's $157.50 this year), 90 day elimination period. It covers nursing home, assisted living center, or home care. For home care it covers professional assistance and/or family member, other relative, or friend. My premium is $184 per month.

The Prudential rep that I dealt with went over a multi-page, 'multiple choice' booklet that let ME tailor the policy coverage to fit MY desires. I had studied up a bit on LTC before I met with him, and I knew pretty much what I wanted. He explained all of the various options to me, one at a time, as we went along. He never said "You might want to increase that amount" or "You might want to add this benefit", etc......there was NO coercion or pressure to get me to buy anything I didn't want. He DID make a few recommendations that would have LOWERED my premiums, but I knew what I wanted, and that's exactly what I got.....nothing more....nothing less.

The nursing homes in my area range from approximately $2900 mo. (<$100/day) to about $5000 mo. (~$167/day). The Assisted Living Centers are about $4300-$5600 mo. (~$144-$187/day). A friend of ours is in one of the best nursing homes in town, recouping from a broken hip/hip replacement, and he said that he's paying $4500/month ($150/day). He said that covers everything including his daily physical therapy sessions.

Everyone has their own opinions, and thoughts about LTC, so it's very much an individual choice. Whether "Yes" or "No" to having LTC.....How much coverage or how little.....How long the coverage should last or how short......How long or short the elimination period should be....etc. My choices may not fit any other person in the universe......BUT they fit ME!

YMMV