Long Term Care Update 2010

[Arnie]

I read the LTC/LTCi archive and found a lot of good information there, though most of those posts are several years old. I did find a number of more recent threads, including:

• Giving away assets
• Article/Class
• REWahoo’s surprise
• JH raising rates
• MetLife getting out
• General LTC post

I imagine many are weary of this topic, but there is one thing I am curious on (considering the number of years this topic has been discussed) and have not seen covered: How many of you have actually changed your view on LTCi over the years and why? I suppose it is also fair to ask for comments from those who have had their views reinforced over time by life events and/or experiences with insurers.

For what it is worth, I am leaning – based on my disposition and everything I have read here and elsewhere – on a combination of self-insuring and a “catastrophic” LTCi policy. Self-insuring would involve setting funds aside and expectations on future ability to cover some expenses out of budget. The LTCi policy would include these key factors:

• Well-rated insurer
• Daily benefit around 50-75% of expected cost
• 6-12 month elimination
• 5 year to lifetime benefit
• 5% compound inflation
• Spouse shared care
• Single pay premium

There are ranges on some of those factors because I am still getting quotes. Obviously both the self-insuring and the LTCi policy aspects involve a good degree of guesswork, faith, gambling, or whatever term you want to use. This is my best guess at trying to straddle the fence and get some benefits from LTCi such as covering for the less probable events like an early disabling disease/accident or an extra long NH stay while mitigating some of the risks of LTCI, or at least not putting all my eggs in that basket. By the way, I am told Mutual of Omaha offers a single pay premium. Not sure how many others do – I’m told Genworth does not. MofO premiums are higher than Gen but seem to be rated higher as well. I have not seen any comments here about MofO so would welcome them or anything about my approach. Thanks.

 

[dgoldenz]

The spousal discount offered by Genworth can often make an even bigger difference in premiums between them and other companies. Genworth includes the "shared care" rider as a standard part of the policy, most companies have it as a rider.

Sometimes the difference in cost between a 90-day and 6 or 12 month elimination period can be minimal, so make sure you check out the difference. If you ask me, 5 years to a lifetime benefit is probably overkill - even 5 years would give you a total of 10 years between both spouses. The likelihood of either/both of you ending up in a nursing home for a total of 10 years is very small. A 3-year benefit period is usually more cost effective and a total of 6 years of benefits between two people should be enough, "should" being the key word there....but if you are looking for somewhat of a "catastrophic" policy, a 5-year or lifetime benefit with 5% compound inflation and shared care doesn't really fit that mold. That's about as comprehensive as it gets...

You may also want to consider a life-pay with the survivorship option, which says that if you have had the policy for 10 years and one spouse dies without receiving any benefits, the surviving spouse has a policy paid up for life with no further premiums required.

Also keep in mind that the quotes you get are meaningless without being health-qualified. If you have any health conditions, make sure you find out how they will impact the risk classification and eligibility before applying for anything. Underwriting for LTC can be pretty tough depending on what conditions there are, if any.

 

[chinaco]

I never thought about it much. Then I saw a parent need care (and the expense and the concern about costs). DW had the opportunity to get us into a group plan from work. We jumped on it.

It was a no brainer. Low cost, strong reputable insurer, the plan covers all of the essential needs for LTC including in-home care. There is an inflation provision.


We could self insure... but the premium of our insurance is low enough that it makes sense to shift the risk to the insurer.

 

[Arnie]

Sometimes the difference in cost between a 90-day and 6 or 12 month elimination period can be minimal, so make sure you check out the difference. If you ask me, 5 years to a lifetime benefit is probably overkill - even 5 years would give you a total of 10 years between both spouses. The likelihood of either/both of you ending up in a nursing home for a total of 10 years is very small. A 3-year benefit period is usually more cost effective and a total of 6 years of benefits between two people should be enough, "should" being the key word there....but if you are looking for somewhat of a "catastrophic" policy, a 5-year or lifetime benefit with 5% compound inflation and shared care doesn't really fit that mold. That's about as comprehensive as it gets...

Thanks. Yes, I was thinking of the 5 to life before I thought to add in the shared coverage. Three or four years (doubled to six-eight) is more like what I had in mind to cover "catastrophic" (which I used to mean a significantly longer than average stay). On the cost difference based on the elimination period, for example, I am seeing a 11% increase in the single-pay premium for 90 days versus 6 months, and 22% increase for 90 days versus 1 year.
At any rate, the single-pay premiums I'm seeing are higher than I had hoped - hard not to think about just socking that money away instead of giving it over to the insurance company. Easy to see why so many struggle with this and ultimately come up with different answers.

 

[dgoldenz]

Thanks. Yes, I was thinking of the 5 to life before I thought to add in the shared coverage. Three or four years (doubled to six-eight) is more like what I had in mind to cover "catastrophic" (which I used to mean a significantly longer than average stay). On the cost difference based on the elimination period, for example, I am seeing a 11% increase in the single-pay premium for 90 days versus 6 months, and 22% increase for 90 days versus 1 year.
At any rate, the single-pay premiums I'm seeing are higher than I had hoped - hard not to think about just socking that money away instead of giving it over to the insurance company. Easy to see why so many struggle with this and ultimately come up with different answers.

You also have to think that if you are let's say...60 years old now, the cost of self-insuring for an extra 90 days or extra 270 days 15, 20, 30 years down the road could be pretty substantial. What might save you $5-10k now could cost you $100-200k down the road. It would really depend on what the difference in total premium is, but I'm sure the single-pay premium is pretty high.

I've never been an advocate of single-pay premiums for any type of insurance. I think when you look at the cost difference of a single-pay versus a lifetime pay with a survivorship benefit, the lifetime pay will make more sense, even with the potential of a rate increase. Genworth even has a 7-year enhanced survivorship benefit as an optional rider. The 10-year benefit is built into the policy.

 

[Brat]

We went to a 10-year premium paid up policy which we purchased in our late 50s. Opted for a 90-day self insured period, joint policy with compound 5% 'inflation' rider. Not cheap but affordable. After watching each of our mothers and my father suffer an extended period of frailty it was a risk we wanted to insure against.

 

[Arnie]

FWIW, we decided to skip the policy and self-insure.

 

[MooreBonds]

I'm only 34 (single) at the moment. I had thought of getting a policy a while back, and looked at preliminary pricing (maybe $2,000/year for a healthy 30-something).

Given the recent price hikes by many LTC policies - the size of the % increases and comments that there were more claims and more people keeping their policies than originally projected - as well as the possibility/ability to have further significant premium increases and the actual value of the daily benefit x years down the road, I just feel uneasy about paying all that money for the next 30 years....and possibly having to pay a LOT more than even current forecasts indicate.

When I get married, I'd re-run the numbers w/ my spouse and see if a catastrophic-like policy makes sense....but initially leaning towards self-insuring and living a healthy life.

 

[Birdie Num Nums]

Vanguard has a recent podcast about LTCi.

 

[ziggy29]

I've thought about it, but when the insurers sell the "buy when you're young and LOCK IN lower rates for life!" and then frequently jack up the premiums when their underwriters and actuaries underestimated the cost of future benefits, it seems like the main selling point for LTCI for us relatively young folks is null and void. And add in the fact that an inflation rider makes it 3-4x as expensive at my age, and it looks even less attractive.

Plus I suspect the gummint will be involved in it to some extent by the time I turn 65 (in 20 years), and it's highly unlikely that LTCI will be used before that time, so I wonder if the premiums would go for naught.

Having said that, my parents had LTCI (my mom still does) and it paid off for them when my dad became ill as it paid for months of home hospice care.

 

[dgoldenz]

I'm only 34 (single) at the moment. I had thought of getting a policy a while back, and looked at preliminary pricing (maybe $2,000/year for a healthy 30-something).

Given the recent price hikes by many LTC policies - the size of the % increases and comments that there were more claims and more people keeping their policies than originally projected - as well as the possibility/ability to have further significant premium increases and the actual value of the daily benefit x years down the road, I just feel uneasy about paying all that money for the next 30 years....and possibly having to pay a LOT more than even current forecasts indicate.

When I get married, I'd re-run the numbers w/ my spouse and see if a catastrophic-like policy makes sense....but initially leaning towards self-insuring and living a healthy life.

You could always buy a 10-pay policy. Also, that being said, I would buy the best disability insurance policy available before buying LTC at your age.

 

[Independent]

I've thought about it, but when the insurers sell the "buy when you're young and LOCK IN lower rates for life!" and then frequently jack up the premiums when their underwriters and actuaries underestimated the cost of future benefits, it seems like the main selling point for LTCI for us relatively young folks is null...

If I've changed my opinion recently it's due to the decision by MetLife to get out. Up until then, I thought that recently priced business was realistically priced and rate increases were unlikely.

Getting rates right is nontrivial. Note that historically actuaries estimates of lapse rates and interest rates were probably more at fault than their estimates of claims cost per active insured. But I thought enough experience had developed that pricing had stabilized.

Buying LTCi at a "young" age (I'm thinking under 65) puts me at too much risk for both changing management and changing fundamentals. Right now we've got enough assets to self insure a near-term disability, and we're simply bearing the insurability risk.

 

[Gearhead Jim]

FWIW, DW & I bought 5 yrs-90 day elim-inflation prot that brings our coverage up to ~$500,000 each today. Purchased 10 years ago at ages 55 & 53 from State Farm. Premiums are $104 and $100 per month.

When I hear the rates that friends in their mid to late 60's are being quoted today, the cost really is unaffordable. Glad we got ours back then; even if the premiums double some day I'll still think it's a good deal.

As always, YMMV.

 

[Nords]

If I've changed my opinion recently it's due to the decision by MetLife to get out. Up until then, I thought that recently priced business was realistically priced and rate increases were unlikely.
Buying LTCi at a "young" age (I'm thinking under 65) puts me at too much risk for both changing management and changing fundamentals. Right now we've got enough assets to self insure a near-term disability, and we're simply bearing the insurability risk.

When I hear the rates that friends in their mid to late 60's are being quoted today, the cost really is unaffordable. Glad we got ours back then; even if the premiums double some day I'll still think it's a good deal.
As always, YMMV.

I don't think spouse and I are ready to purchase LTC insurance until we're in our 70s, which is still two decades away.

I don't think insurance companies really have a handle on LTC costs until the leading edge of the Boomer generation gives them more data. Any company selling "affordable" LTC insurance now is at best fooling themselves and at worst risking failure. If the choice is to pay lower premiums for longer years in the hopes that the company got it right or to pay more later for a realistically-priced policy... I'm willing to wait.

I'm willing to wait 20+ years for another reason. Look at how poorly HIV/AIDS was understood in the 1980s vs today's treatment regimes and survival rates (let alone risk-prevention measures). It's possible that Alzheimer's and dementia treatments may make the same progress over the next couple decades. I'd rather save my money to afford those measures.

Finally, saving what we'd spend now on LTC insurance premiums and investing the money for 20 years would be a huge step toward self-insurance. But I suspect that about 99% of the people in their 50s wouldn't have the assets, let alone the financial discipline, to pursue this strategy.

Of course if an insurance company persuaded Ajit Jain/Berkshire Hathaway to reinsure their LTC policy risks (for a suitable fee) then my opinion of the company's credibility would be much improved.

 

[ziggy29]

Of course if an insurance company persuaded Ajit Jain/Berkshire Hathaway to reinsure their LTC policy risks (for a suitable fee) then my opinion of the company's credibility would be much improved.

Though in this case, I'd also add that if Berkshire wouldn't do it (or required an exorbitant premium) because they don't feel they can accurately price the risk, that alone should send up red flags to everyone watching.

 

[samclem]

How many of you have actually changed your view on LTCi over the years and why?

I used to be "slightly in favor" of buying LTCi, but now I'm "slightly against." The instability of insurers and their premiums, together with the unknown future impact of government programs, makes the whole endeavor less appealing.

For what it is worth, I am leaning – based on my disposition and everything I have read here and elsewhere – on a combination of self-insuring and a “catastrophic” LTCi policy. Self-insuring would involve setting funds aside and expectations on future ability to cover some expenses out of budget. The LTCi policy would include these key factors:

• Well-rated insurer
• Daily benefit around 50-75% of expected cost
• 6-12 month elimination
• 5 year to lifetime benefit
• 5% compound inflation
• Spouse shared care
• Single pay premium

This is close to what I wanted to do, too (except for the single-pay premium). I wanted to buy true insurance. Here's my post and associated discussion from a previous thread. I couldn't find a satisfactory policy.

Two other things to consider as you search: Medicaid laws may change, but right now there's generally a 5 year lookback period for qualifying for benefits. So, if you/spouse can shuttle assets into a trust/etc or do some other crafty maneuvering, and then meet the LTC expenses for 5 years, the patient would then look poor enough to qualify for Medicaid coverage of LTC. I've read (not confirmed) that many/most LTC providers will allow a patient to stay in the same facility and accept Medicaid payment as payment in full if the patient has been paying the higher, full rate for a period of time. Also, many states are part of the "partnership" that means the dollar amount of your LTCi policy is shielded from consideration when qualifying for Medicaid, once you've spent that amount. So, if you have a $300K LTCi policy, you'd qualify for Medicaid payments once you'd spent that, even if you still had $300K in your checking account.

Also, some states give tax deductions or credits for LTCi insurance premiums. That reduces the effective premiums.

Bottom line--You might only need to buy coverage to see you/spouse through until you can qualify for Medicaid. That would be the insurer of last resort, you'd just be buying a bridge policy so that you/spouse don't go bankrupt while waiting to qualify. Medicaid payment levels might not be great, but if you could be allowed to stay in a nice place you'd been occupying for years and if you had plenty of $$ for extras, it would be okay. This is a fallback-to-the-fallback plan, after all.

I'm not an insurance agent and have very little firsthand experience with any of this--it's provided as grist for the mill only.

 

[GregLee]

I'm not sure all of this discussion takes adequate account of this fundamental principle: there's no free lunch. If an insurance company doesn't expect to get substantially more money from you than you get from the company, it is not going to sell you LTC insurance.

 

[dgoldenz]

I'm not sure all of this discussion takes adequate account of this fundamental principle: there's no free lunch. If an insurance company doesn't expect to get substantially more money from you than you get from the company, it is not going to sell you LTC insurance.

You could say that about any type of insurance...

 

[samclem]

I'm not sure all of this discussion takes adequate account of this fundamental principle: there's no free lunch. If an insurance company doesn't expect to get substantially more money from you than you get from the company, it is not going to sell you LTC insurance.

There's a role for insurance: Paying a fee to protect against an unlikely event with very significant ramifications. Yes, it's irrational for a person to believe he'll likely receive more back in benefits than the value of his premiums (adjusted for likely growth). Self-insurance makes $en$e if you can do it. But, sometimes it's not possible.

 

[GregLee]

There's a role for insurance: Paying a fee to protect against an unlikely event with very significant ramifications.

And disability in old age is an unlikely event?

 

[Bestwifeever]

And disability in old age is an unlikely event?

Most people don't live long enough to be disabled, so yes, I think it's unlikely (unlike death).

 

[Arnie]

We decided to self-insure. We've set aside our Roth's and are planning to dedicate self-insurance funds every month once we are no longer Roth eligible. (Wouldn't have to be the Roth's', its just a way of thinking about segregating it now.) With this approach we will have some funds for that low probability disabling injury and/or for something later in life. Assuming we can keep the discipline, this gives us the most flexibility. If rates are affordable later we can take another look, or use it for the cure like Nords mentioned. Given our track record, if we cannot keep the discipline, its probably because we needed the money for survival so again "flexibility".

 

[Nords]

And disability in old age is an unlikely event?

Yes, although the insurance industry would have you believe otherwise.

After all, they sell "life insurance" to millions of people when we all know full well that every one of them is going to end up dead anyway.

Sort of the ultimate "survivor bias" data skew.

 

[youbet]

We decided to self-insure. .

We did too. But if I could find a policy with a 2 yr waiting period, I might go for that. We're petty well set for covering a year or 2 of LTC without impoverishing one another. We want something that would help if one of us winds up being "in the home" for many years. So coverage that would kick in after 2 yrs would serve us fine. Of couse, I'm assuming that the 2 yr waiting period would mean low premiums since we'd be much less likely to ever use it than a policy that kicks in after a short period, such as 90 days.

I can't find anything like this. I wonder why it's not offered?

 

[SunsetSail]

I'm not sure all of this discussion takes adequate account of this fundamental principle: there's no free lunch. If an insurance company doesn't expect to get substantially more money from you than you get from the company, it is not going to sell you LTC insurance.

A key component of life insurance profit is the calculation that a certain number of policy holders will cease paying their premiums at some point in their policy and the benefit will never be paid out.

I would assume that this is similar with LTC - a certain number of people will die before they are in need of LTC. So you may be oversimplifying the analysis a bit with the statement about getting more money from you than you get from the company unless you are talking about the insurance company's net across all holders of LTC in the aggregate, but that doesn't really apply to this situation.

The problem is that instead of a fixed payout amount, there is an uncertain payout over a period of time. I don't think the insurance companies have figured out how to properly price the policies. I don't see how they can given how many variables there are for costs. If they sell too low a premium, then they go under. If they sell too high, it isn't a good deal. I'm staying away, but I'm young.