Is long term healthcare worthwhile?

[Art G]

I read an interesting article yesterday regarding long term healthcare for the young, and they pointed out that if you are disabled at any age and forced to rehab in a hospital, long term health care will cover it.
With less and less benefits offered from your employer, will this product be yet another expense passed on to us? Thoughts?

 

[brewer12345]

You referring t o LTC or just health insurance?

 

[Art G]

LTC.

 

[brewer12345]

LTC is a questionable/unproven product for the 50+ set. Its utility for the younger crowd is even lower. Better to wait and let the product mature.

 

[ziggy29]

I looked at it when our employer started offering a group plan this year. I decided to pass, mostly because so many different things can happen with respect to how health care is delivered and paid for between now and 20-40 years from now when we're likelier to use it. Plus, the product is still maturing and changing.

 

[ronin]

Timely topic. I just received an informational packet yesterday that I had requested from our pension fund (CalSTRS) which provides access to LTC (actually provided by CalPERS) for public employees. I already have a small amount of coverage thru my employee benefits from UNUM. When I retire in a yr or 2 I can take over payment and increase coverage if I choose.

The CalPERS LTC program is interesting because it is apparently the only voluntary, self-funded, not for profit LTC program in the nation. It is a trust fund that receives income from member premiums and investment returns. It is administered by CalPERS, which I believe is the nation's largest public pension fund. From my investigation, CalPERS has an excellent history of stewardship as a pension fund.

Some concerns are the short history of running the LTC program and a lack of external ratings, as far as I can see (like a Moody's or S&P, for what they are worth). And I haven't been able to find out if the fund is fully funded to meet its actuarial obligations. I'll probably have to call them to find out more.

But it seems to have very good options/coverage and is relatively inexpensive. Still on the fence as to whether we should take the coverage or plan on self-insuring.

Any of those in the business have opinions on CalPERS vs. an insurance company as a LTC provider?

 

[honobob]

Timely topic. I just received an informational packet yesterday that I had requested from our pension fund (CalSTRS) which provides access to LTC (actually provided by CalPERS) for public employees. I already have a small amount of coverage thru my employee benefits from UNUM. When I retire in a yr or 2 I can take over payment and increase coverage if I choose.

The CalPERS LTC program is interesting because it is apparently the only voluntary, self-funded, not for profit LTC program in the nation. It is a trust fund that receives income from member premiums and investment returns. It is administered by CalPERS, which I believe is the nation's largest public pension fund. From my investigation, CalPERS has an excellent history of stewardship as a pension fund.

Some concerns are the short history of running the LTC program and a lack of external ratings, as far as I can see (like a Moody's or S&P, for what they are worth). And I haven't been able to find out if the fund is fully funded to meet its actuarial obligations. I'll probably have to call them to find out more.

But it seems to have very good options/coverage and is relatively inexpensive. Still on the fence as to whether we should take the coverage or plan on self-insuring.

Any of those in the business have opinions on CalPERS vs. an insurance company as a LTC provider?

I've had my CalPers LTC for almost 10 years. I bought the max because it is easier to drop coverage than to ADD. Very reasonable if you don't wait too long to buy.

 

[brewer12345]

ronin, when you call them, ask for financial statements and any ratings they have. That will be a first step. They could be really good (think TIAA-CREF, with its fortress-like balance sheet), or not so good (like some of he dodgier mutuals).

This being CalPERS, I would guess it is solid, without having any data at all on which to base that.

If you have alternatives to Unum, I would avail myself of those alternatives.

 

[ronin]

Issue one, as Brewer has pointed out, revolves around the product. The second question is the value of LTC from a financial planning standpoint. This is where I am undecided.

Some factoids from my reading:

In 2007, the avg cost of care in a nursing home in Calif was $180/day. Care received at home can cost more than $20,000/yr.

The avg nursing home stay is 2.6 yrs (3 yrs for those over 65). The estimated cost for this avg stay in 30 yrs, when I'd be 85 (figuring 5% inflation, the current avg), would be $821,770.

32% of adults 65 and over will need 1-5 yrs of LTC. 25% of adults 65 and over will need more than 5 yrs of LTC.

79% of all women reaching 65 will some amount of LTC. 28% will need 5 or more yrs.

3 out of 5 people over age 65 will need some type of LTC over their lifetime. 40% of those receiving LTC are under 65.

3 out of 10 people will never need any LTC, while 2 out of 10 will need some kind of LTC for 5 yrs or more.

I guess I have to ask myself: "Do I feel lucky? Well, do I, punk?"

No one in my family has ever needed it, that I know of. My wife has extreme longevity in her family, and any care has been family provided. But my 94 yr old FIL is cared for largely by his 87 yr old wife. I worry if I croak before my wife who will care for her if needed. And that 30 yr future price tag is very worrisome. The wealth risk protection of LTC could be huge. Or not.

 

[teejayevans]

limits

Are there limits on the policy (either in time or $)?
This might be an important factor.
TJ

 

[donheff]

I picked it up when the Federal government set up a program but I am still on the fence over whether that was a good idea. I viewed it as an insurance policy to make sure a negative event does not cause us to eat up our portfolio. But I don't trust the insurance companies - if we need it there will probably be some catch. On the plus side, the Office of Personnel Management will intervene with the insurance companies they contract with if there is evidence of unfair shenanigans.

 

[FinanceDude]

Better to wait and let the product mature.

John Hancock has offered LTC since 1987, and they pay $400 million a year in claims.....seems mature to me..........

 

[chinaco]

We have it. The policies have inflation protection. We bought them through a group plan. The cost was a fraction of the cost of purchasing an individual policy. I feel fortunate that we got the policies as such a low cost... When I saw the comparative cost of an individual policy, I almost fell over.

The problem with insurance is that if you wait until you need it... you cannot get it. If you develop a health problem you will either get rated or rejected all together.

 

[brewer12345]

John Hancock has offered LTC since 1987, and they pay $400 million a year in claims.....seems mature to me..........

The liability has a duration of something like 15 to 20 years, with actual payouts from a block issued today extending out considerably further. This is NOT a mature product.

 

[FinanceDude]

The liability has a duration of something like 15 to 20 years, with actual payouts from a block issued today extending out considerably further. This is NOT a mature product.

Well, you're the reader of insurer balance sheets........which product is likely to screw an insurer first, promises of guaranteed income streams on VAs or LTC? Seems to me they get more money upfront on an LTC product as it is sold as a future need like LI, rather than a 50-70bp "add-on" that seems severely underfunded from a financial standpoint.........

 

[FinanceDude]

We have it. The policies have inflation protection. We bought them through a group plan. The cost was a fraction of the cost of purchasing an individual policy. I feel fortunate that we got the policies as such a low cost... When I saw the comparative cost of an individual policy, I almost fell over.

The problem with insurance is that if you wait until you need it... you cannot get it. If you develop a health problem you will either get rated or rejected all together.

That is true of pretty much any kind of individual insurance. However, on LTC, I have seen VERY sick folks get it. What LTC companies HATE is dementia and ALzeheimers patients. Many of them linger on for many years, not good for the finances of the insurer if they get too many of those on the books.........

 

[brewer12345]

Well, you're the reader of insurer balance sheets........which product is likely to screw an insurer first, promises of guaranteed income streams on VAs or LTC? Seems to me they get more money upfront on an LTC product as it is sold as a future need like LI, rather than a 50-70bp "add-on" that seems severely underfunded from a financial standpoint.........

Hard to tell. VA guarantees are supposedly being hedged with futures and options by all of the big players after the debacle that resulted from using reinsurance (Annuity & Life Re, anyone?) and going naked. Now that option premia have gotten so big, I have to wonder if the fee covers the cost of hedging. Statutory accounting is much better at catching these exposures, so the incentives to go naked or do a light hedge are much less than they used to be.

As for LTC, there are two problems for the insurers who sell it. One is the extremely long duration of the liability, which makes it very hard to duration match with assets. I have seen companies trying to hedge with exotics (forward starting swaps, etc.), fun and games across the book (go intentionally longer than you fixed annuity book to offset being short on the LTC block), and other approaches (reinsure the reserves t o an subsidiary that is not in the US so that you can back the reserves with bonds plus timber, equities, commodities, etc.). I am not convinced this is an easy thing to hedge.

The second problem is one that really gets laid back on the policyholder: underwriting risk. Underwriting is less of a shot in the dark than it once was, but it is still a much bigger guess than life insurance or SPIA underwriting. If the products are underpriced, the insurer can and many have jacked up premium rates on existing policyholders to compensate. But if you aren't laying this risk off on the insurer, what risk have you shed by paying the premiums?

Having said all that, I have gone long the stock of one of the largest writers of LTC insurance. I would not touch a big writer of secondary guaranteed VAs with someone else's stick.

 

[samclem]

There's good information from previous LTCI threads in the FAQ section.

It's important to do some "what if" analysis, particularly if you are married.

Situation one: Hubby and wife both need care (at home or nursing home
Situation two: One dead (figure hubby and wife separate if the remaining income streams would be different) and one needing care).
Situation three: One staying at home, living with all the expenses that entails, the other in a nursing home.

When I did the math (not an in-depth analysis), situation three was more financially stressful than situation 1 or 2 (because it 1 and 2 allow for sale of the home to meet the LTC requirements, and no expenses that accompany life "on the outside": property taxes, travel, car, etc).

This insurance (if it has the needed inflation protection) is expensive. If your situation is as mine is (above) then it's most economical to buy a policy that would cover either member of the couple (since you probably only need to provide care for one person, but can't tel who it is in advance), rather than buying two individual policies.

I don't know about CalPers or the other group plans, but the federal LTCI only sells individual policies, not ones which provide pooled benefits for a couple.

Even on an individual basis, the federal LTCI is not appreciably cheaper than an individual policy for a person in good health. For someone at higher risk of needing LTC, the federal plan is a bargain.

I agree with Brewer on the immaturity of the product. Medical advances could significantly prolong life, but leave people needing LTC for a longer time, and maybe at even greater expense than today. Heck, even immigration reform could drive up costs (who do you think is mopping those day rooms?). All these costs will eventually be reflected in higher premiums, and the companies will have no trouble getting the higher premiums approved.

The fact that the group plans (esp govt ones) provide an intermediary with some muscle between you and the insurance company. That's probably worth some extra premiums.

Finally (again) this coverage is expensive. It's really worth doing a full exploration of how much you can self-insure before signing on the line. If you could tighten your belt and sell some resources (individually or as a couple) to help pay for care, then it makes sense to buy the minimum insurance needed to cover only the gap between the expected cost of care and what you can contribute. Buying any more coverage is a waste.

Due to some changes in federal laws, LTCI now provides some protection for your assets that didn't exist in the past. I chimed in on this in one of the FAQ threads. Basically, if you have an approved LTC policy, you no longer have to spend down to zero dollars before qualifying for LTC nder medicaid. Soem states also give you a tax break if you by LTCI (Ohio does).

- All that said--I still haven't taken the plunge.

 

[youbet]

I worry if I croak before my wife who will care for her if needed. And that 30 yr future price tag is very worrisome. The wealth risk protection of LTC could be huge. Or not.

That's why they call it insurance. Most people will pay in more than they collect. But some will sadly need to collect from the pool and that will either provide care they couldn't have afforded otherwise or go towards preserving their portfolio or both.

Regarding your fear that you die first and there is no one to care for your wife........ Are you planning on dieing penniless or would she have your FIRE portfolio? Will there be SS and/or pensions to cover all or part of NH care? Etc.? Have you thought about increasing your life insurance if your main concern is what happens to DW after you die?

In our case, we understand who would pay for NH care for the survivor if one of us dies and the survivor needs it. We are self-insured for either one of us needing care for a long time or both needing care for a short time. Our problem would be the situation where both need care for a long time, say ten or more years, and then somehow recover and need money to continue on with retirement.

 

[ronin]

Hard to do an in-depth analysis with so many unknowns. Wife does have a decent sized pension. Should have a goodly sized investment portfolio and a ton of $ in our So Cal home. I think a short stay for either of us wouldn't destroy us. Health insurance covers the first 100 days at least. There's some altzheimer's in her parent's siblings and they live a long, long time (90s-100s). I'm sort of leaning to a short term minimal coverage for me and a longer moderate coverage for her. But I really need to do this more in-depth. One thing I have been thinking really hard about is that by working 1 extra year (shudder!), the increase in our combined pension benefit would be about triple the cost of moderate, mid-length coverage for us both. We could easily afford it.

 

[cashflo2u2]

I could be wrong, but I think an individual policy for a person in the late fifties (or younger) or even early 60's in GOOD HEALTH should be cheaper than a group policy with all the adverse participants in the group plan. At least mine was.

 

[Brat]

...Health insurance covers the first 100 days at least. ..

As one who has had to deal with parents who needed nursing care, let me assure you that your health insurance does not cover long term care UNLESS you are discharged from a hospital (after a minimum stay of 3 days, I recall) and need skilled nursing care (typically physical therapy) and there only so long as the patient is making documented progress during that 100 days. In my experience anything longer than 3-4 weeks is rare.

Example: if the husband needs help dressing, eating, bathing and toileting after surgery his 80 yo wife with Osteoporosis and Parkinson's is expected to manage that at home or pay for care. [like my Mom].

Most couples can manage to pay for 60 days in a LTC facility. After that the healthy spouse will be likely draining down resources needed to sustain them for the balance of their lives. In my experience men do not live long in a LTC facility [that may be because their wife has been caring for them at home until their condition is really poor so the husband is at death's door when moved]. On the other hand, women often live years in a LTC facility [probably because there is no one left to care for them at home and they enter earlier in their decline process].

We choose a 90 day wait period because that was the sweet point on the costs. We had to choose the same term because it was a joint policy. The Fed program was not available when purchased, but I recommend it for reasons others discussed. In my experience a 1-year term would cover the risks for 90% of the men in LTC, 6-years for women.

 

[FinanceDude]

Having said all that, I have gone long the stock of one of the largest writers of LTC insurance. I would not touch a big writer of secondary guaranteed VAs with someone else's stick.

Based on your analysis and my meeting yesterday, you should stay away from John Hancock, as they are Number One in LTC and Number 2 in VA............

 

[brewer12345]

Based on your analysis and my meeting yesterday, you should stay away from John Hancock, as they are Number One in LTC and Number 2 in VA............

Owned by Manulife, which is a godawful huge insurer with fingers in (seemingly) every pie. They could take a royal beating from these products in the US and still be pretty much hunky-dory. I don't own this one, but I think management is reasonably savvy.

What do you think of their pricing and terms on these products from Hancock?

 

[FinanceDude]

Owned by Manulife, which is a godawful huge insurer with fingers in (seemingly) every pie. They could take a royal beating from these products in the US and still be pretty much hunky-dory. I don't own this one, but I think management is reasonably savvy.

What do you think of their pricing and terms on these products from Hancock?

Their terms and pricing were competitive. I didn't like how hyped up they were on VUL and UL. Seems like if you're not selling boatloads of that stuff, you're an imbecile..........

Seems that $60,000- $100,000 ANNUAL premiums were all the rage, and folks were buying those insurance plans like "hotcakes"..............