Long Term Care Insurance

[dgoldenz]

Except--no one is forcing us to buy LTCI (yet). I can put up with all kinds of foolishness if I'm not required t fund it.

Yet is the key word. Who wants to bet LTC is tied in with single payer healthcare within 15 years...

 

[FinanceDude]

Yet is the key word. Who wants to bet LTC is tied in with single payer healthcare within 15 years...

Maybe its in that 2700 page bill that we "needed to pass so we know what's in it"..............

 

[walkinwood]

Ron Lieber of the New York Times writes about Long Term Care. I can't see any good options, and for now, plan to do nothing about it. I am 50 and DW 47 - we'd be paying premiums for years if we start now.

http://www.nytimes.com/2010/11/05/business/businessspecial5/05CARE.html

 

[Khan]

I bought into LTC insurance a while back. I'm seriously considering cancelling it.

 

[Nords]

I bought into LTC insurance a while back. I'm seriously considering cancelling it.

From what you've said about your future expectations, maybe you should spend some time with people like my father's "mild cognitive impairment" shading toward dementia.

One issue is that LTC premiums may be a waste of money yet still keep going up with no end in sight. The other side of that issue is that many philanthropies and beneficiaries would rather not see us suffering on Medicaid as a result of having canceled our LTC policies and exhausting our savings.

Spouse and I don't have LTC insurance either. We're sure hoping that we're self-insured.

 

[FinanceDude]

One issue is that LTC premiums may be a waste of money yet still keep going up with no end in sight. The other side of that issue is that many philanthropies and beneficiaries would rather not see us suffering on Medicaid as a result of having canceled our LTC policies and exhausting our savings.

My FIL was on Medicaid the last 20 years of his life, trust me, it was ugly..............

Spouse and I don't have LTC insurance either. We're sure hoping that we're self-insured.

As long as you can afford about $70,000 a year for in-home care when you need it, and also keep your SWR under 4%, you should be set.........

 

[samclem]

The other side of that issue is that many philanthropies and beneficiaries would rather not see us suffering on Medicaid as a result of having canceled our LTC policies and exhausting our savings.

I'd add "state governments" to the list. States have a full-court press on to get people to buy LTCI, since it lowers their Medicaid costs That's why some allow LTCI premiums to be deducted from income for state tax purposes, and why many have signed on to the "partnership" that allows LTCI policyholders who are receiving care to qualify for Medicaid when their LTCI benefits run out even though they still have large amounts of their personal funds remaining. All of this is to encourage folks to sign up for LTCI, which helps reduce state expenses.

 

[Moemg]

I bought into LTC insurance a while back. I'm seriously considering cancelling it.

Khan , I would keep the LTC . You live alone and are estranged from your family so this is an insurance you likely will need . I have spent years in health care and there is a big difference between older couples and older single people who do not have family or close friends to support them . The older couples seem to be able to boost each other up and keep the partner out of a nursing home where as an alone person is a target for unscrupulous health care workers coming into their home . A close family friend had Alzheimer's and wanted to stay in her house . Health care was arranged but the person in charge was older and lived a few hours away . The house was literally stripped of antiques and valuable silver and the care was awful . We finally stepped in and placed her in a Nursing Home nearby . Where she lived with excellent care for years .

 

[Alan]

As long as you can afford about $70,000 a year for in-home care when you need it, and also keep your SWR under 4%, you should be set.........

We are also going the self insure path. We have a VG Target Retirement fund into which we pay $500/month and is included in our annual expenses budget. (This fund is outside our retirement invstments and not counted in our SWR calculations).

We are both age 55 and the fund has over $21k in it now. If / when we need nursing home care we are hoping that the fund will be by then large enough to supplement our income to afford whatever nursing care we need. Life is a gamble, but we have retired with a planned initial SWR of 2.5%.

 

[chinaco]

... A close family friend had Alzheimer's and wanted to stay in her house . Health care was arranged but the person in charge was older and lived a few hours away . The house was literally stripped of antiques and valuable silver and the care was awful . We finally stepped in and placed her in a Nursing Home nearby . Where she lived with excellent care for years .

IMO - If there is anyway to keep someone in the home... it is the lowest cost method and best option. But it requires the right help. The problem is that even if the right help is found (does the job, dependable and honest)... someone one independently needs to manage it. A family member is the best choice.

However, with some illness (like Alzheimer's Disease) people eventually require a huge amount of hands on care and attention and can become too much for one person... and eventually close medical professional oversight. There are many other situations where the individual requires a lot of hands on help (stroke, physical degradation, neurological conditions, etc).

When it gets to that stage, someone can still be kept in the home (by hiring professionals). But the oversight and management becomes critical... and it is expensive because of the need for round the clock help. But I still think it is less expensive than a nursing home.

For situations that are terminal... even ones that are longer term (several years)... Hospice will often help.

But most do wind up being placed in a nursing home.

IMO - The more help one needs, the more likely one is going to be neglected (to some degree or not get the attention needed/wanted). Why? Because that person takes much more effort.

 

[chinaco]

We are also going the self insure path. We have a VG Target Retirement fund into which we pay $500/month and is included in our annual expenses budget. (This fund is outside our retirement invstments and not counted in our SWR calculations).

We are both age 55 and the fund has over $21k in it now. If / when we need nursing home care we are hoping that the fund will be by then large enough to supplement our income to afford whatever nursing care we need. Life is a gamble, but we have retired with a planned initial SWR of 2.5%.

Using this method would mean that you would will need a large fund.

In the most extreme a large fund for both of you.

It really depends on your plan.

IMO - at a minimum, you want to have a plan and assets such that the surviving spouse is not deprived during the period and after the death of the failing spouse.


Self-insured vs using insurance. I believe the insurance route is still lower cost... even in the face of rising rates (assuming it does not actually cost the same or close to the same as the nursing home or care itself).

Today the average nursing home cost (not including other medical needs). This illustration for New Jersey indicates a semi-private room (ranges from $131/day - $331) Average of $277. That is about $99k/year


Nursing Home, Assisted Living, Home Health Care Costs 2010 : New Jersey Estate Planning & Elder Law Blog


This is 1999 data (a little stale)... indicates an average stay of about 2.5 years.

About Nursing Homes


Just using that information, you would would need to have an average of about $250k today to fund it. And we know that an average is just that.. an average. The cost per day could be more or less and the stay shorter or longer. Since this situation for the elderly is often the last stop (end of life condition), you almost have to hold a reserve fund till the end (forgo spending).

There is too much detail and issues to sort through for this post... Many of those details are individual circumstances.

This type of insurance winds up being catastrophic insurance in terms of finances. It obviously pays for the care.

It is not unlike insuring your house (but the cost is different and the risks are different). You could set back a reserve for say $500k to rebuild your house (assuming it cost that... maybe not) and invest it conservatively to keep up with inflation.

Would you set back a $500k reserve fund today (half for you and half for your spouse) that will either wind up in the estate (since it deals with end of life care) or pay for care? You would need to invest it conservatively to make sure it is available (and liquid)... much less not lose the investment, yet beat a fairly high medical inflation rate.

I have heard of many clever ways to try to deal with the issue. But they often result in the insured taking on more of the risk or forgoing spending. The math is complicated... but it is worthwhile to figure out an optimal decision (that maximizes your personal benefit from your resources).

Even if you wind up paying $250k for your premium and another $250k for your wife over your life and do not collect... because of the time-value of money it is still less than setting aside a full $500k reserve today and investing it yourself (assuming you will either leave it on the table for inheritance or spend it for care).

Trying to grow an investment to acquire a rising fund pool to meet need will be difficult and require much risk to be taken (which means it could be lost).

The advantage of the LTC is access to a pool of money.

However, like all insurance, if one waits till they need it to try to get it... they are uninsurable.

As might be expected, it really takes a lot of planning. Most do not plan, and if they do... funding seems to be all that is done. You need to create a plan. It does not have to be extremely detailed. And things will probably turn out in ways that do not match your plan. But going through the exercise will make you and your spouse better prepared.

You really need to sharpen the pencil and fully outline your circumstances and situation to understand the best decision. As is the case with life, things change and the optimal decision may look different over time. But there is no way to understand how your future will play out.

 

[chinaco]

Those were a couple of long posts.

We have LTC insurance. It is in a group plan (thankfully).

I know the rates will rise as we age. Right now they are really low (which reflects the probability of us making a claim).

We intend to keep the insurance. The only way we will drop it is if it becomes so unrealistic that the solution is as bad as the problem (financial ruin).

In the mean time, things change. New funding options could be enacted into law, new insurance products could be design to redistribute the risk differently and make the premium more affordable.

But the decision to self-insure or buy an LTC policy... That is a decision that at some point is not reversible.

IMO - If you are contemplating self insuring... your starting point should be to set aside a reserve pool for the full amount of money for each insured for the average stay/cost. That should cover the average situation... not the extreme... and perhaps not your situation. Even with the reserve it will need to be invested conservatively, yet kept liquid and beat LTC inflation costs. If you cannot afford to do that... then you are not really self insuring... you are really just taking your chances and accepting the risk of needing care and full financial impact if it occurs.


There is no free lunch when it comes to funding this yourself. Most people that self insure are hoping they will not have to use it. Either way, they have given up the use of the money. The question ends up being which funding mechanism optimizes ones financial situation.

The free lunch only occurs if you do not have any assets (Medicaid)...

 

[keegs]

From WeathTrack Transcript 11/05/2010:

MARY BETH FRANKLIN: And the most important thing, when people are looking at long-term care insurance, aside from going with a solid insurance company that's going to be there 10 or 20 years from now, is the inflation protection. Because, if you buy something with, say, a $200-a-day benefit now, without inflation protection, which can double the price of the premium- 20 years from now, when you use it, it's as if you had no insurance at all. So, the rule of thumb on buying long-term care insurance is short and fat, rather than long and skinny. You want a short, fat policy for about three years, with good protection, including inflation protection. Otherwise, don't bother. And commit to continue to pay those premiums for as long as you need them. Because, if you pay them for 10 years and then drop it because your premium went up, you just wasted 10 years of premiums.

CONSUELO MACK: So that's another thing that we have to think about, in funding our retirement as well, is the ability to actually these, you know, wonderful policies that everyone thinks that we should buy, is to actually be able to maintain them, to the point where we actually need them, right?

MARY BETH FRANKLIN: And sometimes people will buy an annuity, just for the point of having these payouts to fund their long-term care insurance. And that's one strategy, is that, you know this part is covered.

 

[chinaco]

From WeathTrack Transcript 11/05/2010:

MARY BETH FRANKLIN: And the most important thing, when people are looking at long-term care insurance, aside from going with a solid insurance company that's going to be there 10 or 20 years from now, is the inflation protection. Because, if you buy something with, say, a $200-a-day benefit now, without inflation protection, ...

Two practical problems here:

1. The Solid company might exit the market. Once they stop taking on new policies... the only thing that will happen is a shrinking pool of more and more people that are likely to place claims... premiums could sky rocket based on their experience. Many will try to sell of the book and the new company will do the same... increase premium... but the insurance company taking over the book will get the the state insurance commission to agree to certain terms before they do the deal.
2. Inflation! General Inflation is somewhat predictable in the US. Medical inflation is not... and it is bigger than anyone anticipated. Many Insurance companies will cap their exposure by just allowing you to buy 3% or 5% limited period inflation adjustments. This somewhat defeats the purpose of insurance... you are accepting risk.

 

[REWahoo]

I have some issues with this advice.

From WeathTrack Transcript 11/05/2010:

MARY BETH FRANKLIN: And commit to continue to pay those premiums for as long as you need them. Because, if you pay them for 10 years and then drop it because your premium went up, you just wasted 10 years of premiums.

This is the same flawed logic often applied to all types of insurance coverages. If you paid premiums for 10 years then you were covered for 10 years. Just because you were fortunate enough not to have to use the insurance doesn't mean you "wasted" your money.

I see a strategy where LTC coverage is used in the same way many of us use term life insurance. You may have a term life policy while you are growing your nest egg, but once you reach FI you no longer have a need for life coverage. If you drop the term coverage before you die, was it "wasted"? I don't think so.

Similarly, unless you plan on leaving money to your heirs, LTC insurance may no longer be needed once you have a large enough nest egg and reach sufficient age (?) to self-insure.

From WeathTrack Transcript 11/05/2010:

MARY BETH FRANKLIN: And sometimes people will buy an annuity, just for the point of having these payouts to fund their long-term care insurance. And that's one strategy, is that, you know this part is covered.

Wow. Is Mary Beth a shill for the insurance industry? Buying an annuity to fund premium payments for LTC doubles the profit opportunity for the insurers - and effectively increases the cost of the LTC premiums through added annuity fees.

 

[REWahoo]

The free lunch only occurs if you do not have any assets (Medicaid)...

And in this case the 'free lunch' is nothing more than survival rations...

 

[chinaco]

...
Wow. Is Mary Beth a shill for the insurance industry? Buying an annuity to fund premium payments for LTC doubles the profit opportunity for the insurers - and effectively increases the cost of the LTC premiums through added annuity fees.

I didn't notice that. It does not make much sense to me. especially with the disparity between the two inflation assumptions priced into the products. One is priced using lonter-term historical interest rates and assuming no COLA just drops in purchasing power... the other is based on claims paying experience. Even if a COLA was on the annuity, it would be capped too low or tied to some index like the CPI-U.

I would not approach it that way.


The problem today is that the best products available to reduce the risk... LTC insurance introduces a killer inflation risk. Trying to use other products as substitutes or to deal with the various risks of LTC are at best weak (costly and constraining) substitutes that could be worst than the problem one tried to avoid.... which is the cost of LTC insurance.

We are in a state of transition and it will take a while for the Govt and the Insurance Industry to find a workable approach. In the mean time... each of our personal clocks are ticking. The older one gets, the more likely it is the event will occur (or one is not insurable and locked out of certain types of insurance).

 

[Alan]

I guess I just still feel we are well enough off to go the self insure route. We currently have an income stream of $100k/year using pensions and a 2% SWR. We have a separate fund that we'll continue to put money into for extra income for LTC should we need it, and yes, I'm gambling we won't need until we at least are well into our 70's.

 

[chinaco]

I guess I just still feel we are well enough off to go the self insure route. We currently have an income stream of $100k/year using pensions and a 2% SWR. We have a separate fund that we'll continue to put money into for extra income for LTC should we need it, and yes, I'm gambling we won't need until we at least are well into our 70's.

It sounds like you are on strong financial ground.

I would highly recommend getting acquainted with your states Medicaid laws and keeping tabs on changes. This advice is for anyone.... even people with LTC insurance because most policies have some sort of cap.

If the worst case scenario occurs, how you position your assets and who owns what, etc... could make a big difference in how things turn out.

Developing a plan (or at least an understanding) of how you would deal with a really bad outcomes so the survivor is not financially devastated is really important! DW had a Grandmother that spent almost 10 years in a NH after a devastating stroke left her bed ridden. Somehow she hung on all that time. 8 - 10 years of $100k NH payments would devastate most middle class nest eggs. Especially when the other spouse still has to live and pay expenses. Some states are more liberal than others about what a spouse can retain and they all seem to have a 5 year look back. So pre-positioning your finances one way or the other could be important. Even if you have the assets... getting caught in a liquidity crunch (selling in a down market) could cause problems too if you need to double up on cash withdrawals for 3 or 4 years (e.g. inflation adjusted $160k).

Unfortunately mitigating risk costs one way or the other. However, studying the situation, planning and positioning things may not cost much more than a little time and effort.... probably the biggest ROI you can get is your plan!

 

[youbet]

The mistake I see folks making is when they buy LTCI with short waiting periods and short coverage periods. Say, 90 day waiting period and 3 years of coverage.

The short waiting period makes the policy expensive. And many FIRE'd folks have enough slack in the budget to cover a year or more of LTC without being financially devastated.

The short coverage period, say 3 years, doesn't remove the risk of a truly expensive LTC episode that goes on for 5 - 10 years and could crush even a very extensive FIRE portfolio.

I'd like to look at policies with a 2 year waiting period followed by 10 years of coverage (inflation adjusted). I know we can cover 2 years ourselves. And 5 - 6 - 7 yrs or more would really, really be painful and life changing.

 

[samclem]

I'd like to look at policies with a 2 year waiting period followed by 10 years of coverage (inflation adjusted). I know we can cover 2 years ourselves. And 5 - 6 - 7 yrs or more would really, really be painful and life changing.

Good luck, I couldn't find such a policy (with shared benefits) when I was looking.

 

[youbet]

Good luck, I couldn't find such a policy (with shared benefits) when I was looking.

That's too bad. It seems like that type of policy would be popular with folks who just want to guard against the possibility of "extensive" LTC costs. Oh yeah, thanks for mentioning "shared benefits." That's the direction we'd go too.

2 year waiting period, at least 10 yrs of coverage, inflation adjusted, high daily dollar benefit ($300?), shared benefits. That would leave us on the hook for shorter stays, which we can self-insure for. But we'd be covered for a catastrophic event.

I'm assuming the longer waiting period would result in significantly lower premiums. If that's not the case, well..........

 

[Nords]

I guess I just still feel we are well enough off to go the self insure route... and yes, I'm gambling we won't need until we at least are well into our 70's.

I'm gambling that if my LTC self-insurance fund falls short I'll be too demented to notice the quality of the Friskies being served in the cafeteria.

Spouse keeps smiling, telling me she has me covered, and stockpiling her prescription painkillers...

 

[Alan]

I'm gambling that if my LTC self-insurance fund falls short I'll be too demented to notice the quality of the Friskies being served in the cafeteria.

Spouse keeps smiling, telling me she has me covered, and stockpiling her prescription painkillers...

Sounds like a plan to me.

 

[stephenandrew]

I have never completely understood many of the complaints against long term care insurance. Premiums are not guaranteed, but I do think that competition among the companies that offer LTC helps to ensure rates will be kept down to some degree. The other thing is that people often think of these policies only providing coverage in old age, but they could be utilized much earlier if someone had an accident or illness. If you know for certain that you won't need coverage until you are older, then self insuring might be a better option, but if you need coverage before you have had time to accumulate assets, then you are out of luck. To me, that is a big part of the insurance component of the product.