Long Term Care Annuity ?????

[chinaco]

Many families anticipate providing this kind of support for aging and/or debilitated parents with all the best intentions. Some pull it off depending on the illness type, finances, location, presence of many other loved ones, etc.

But you never can appreciate in advance the specifics that may come into play. In my decades in health care such spoilers include incontinence, limitations in the health of the main care-giver, disruptive behavior by the aging family member 24/7, occurrence of even trivial illnesses like the flu which change a manageable scenario into one that was not.

My point is not that it cannot be done in some cases, but rather that such a strategy should provide for an "out" which may require "just in case" planning.

Well said.

It is one thing to be around for the last month or two of Hospice in the Home to lend a hand for someone that is dying of cancer. Quite another to care for an elderly person that is bed ridden and can do nothing for 3 or 4 years.

 

[GregLee]

Well said.

It is one thing to be around for the last month or two of Hospice in the Home to lend a hand for someone that is dying of cancer. Quite another to care for an elderly person that is bed ridden and can do nothing for 3 or 4 years.

The other side of this is that you may be able to do better than you thought, or your children may. My mother cared for her father-in-law for several years at the end of his life, and when her turn came, I cared for her, for about 2 years. It's within normal human capacities to do this. Well, I don't know about 4 years ... (This plays no part in my own plans, though, since I have no children.)

 

[rkser]

Thanks for chiming in guys with all this info & education.

" Why would someone buy LTI that only covers, say, 3 yrs when the real danger that needs to be insured against is a long stay?"
- I understand that is the most probable time, a majority of people would need the nursing care at home or at the Nursing Home. Of course some will need the coverage for longer periods.

- About self insuring - the figures quoted for Nursing Home Coverage without the LTC Ins. are not trivial by any means.

In Florida the Nursing Home presently charges $100 to $150 a day depending on either a private /shared room & may not include all the medications & misc charges. These rates are going up/will be going up exponentially as anything else related to the medical expenses. Like other poster mentioned, some may be able to meet the bills say 25 yrs in future but not all. In my case, just saying without any calculations - This may put a serious drag or detriment in the the healthier spouses/ Children's finances.

I am gradually getting to understand, that I may have to eventually buy the LTC coverage if not this year say in the next few years, and the premium (Single premium or monthly) will not be getting any cheaper. I am researching if I combo it with an annuity, maybe I may end up increasing the chances of using the monies either from annuity payments or LTC coverage.
I am aware I will be reducing the benefit amounts of LTC coverage dollars If I go the combo route.

 

[Brat]

I would think an insurer could offer a policy with a 2 year waiting period and a 10 or 15 year term for a reasonable price without recapture of principal. What I think they are afraid of is writing a policy for a MS or similar long lived debilitating disease insured.

Most frail people die within the first two years if they do not have a debilitating disease.

 

[FinanceDude]

I would think an insurer could offer a policy with a 2 year waiting period and a 10 or 15 year term for a reasonable price without recapture of principal. What I think they are afraid of is writing a policy for a MS or similar long lived debilitating disease insured.

Exactly, and how can you blame them? That risk would be tough to reinsure. Maybe brewer knows if it can be done, he's our insurer expert........

The stats say that most people will need to use LTC at some point, but most stays are 2-3 years or less. They would rather write a person who has survived 4 heart attacks than someone who is starting to get "forgetful".........

 

[chinaco]

Here is a 2004 survey of Nursing Home Statistics from the CDC. One of the tables provides some statistics for the length of stay since admission.

http://www.cdc.gov/nchs/data/series/sr_13/sr13_167.pdf

 

[samclem]

There's not an insurance company in the world who could design that product, there would be no profit in it and they would have to promise benefits for 30 years, let's say?

I can't see why not. You can buy (group) LTCi that has an unlimited duration. Here's an interesting way of figuring how an unlimited duration, two year exclusion policy might price:

Under the Federal LTCi program, premiums for a 50 YO buying insurance now:
Benefit: $200/day, NH and in home care, 5% inflation coverage provided.
1) For a policy that covers starting at day 91 and terminates 2 years later, the monthly premium is $132
2) For a policy that covers starting at day 91 and provides an unlimited duration ($200/day for as long as you need it), the monthly premium is $286.

The difference in premiums ($154) reflects the expected LTC costs from year 2 through "as long as needed." The expected cost isn't much more than the cost for just 2 year coverage (because most folks don't need the care for much (past 2 years). Why doesn't anyone sell coverage like this?

 

[FinanceDude]

I can't see why not. You can buy (group) LTCi that has an unlimited duration. Here's an interesting way of figuring how an unlimited duration, two year exclusion policy might price:

Under the Federal LTCi program, premiums for a 50 YO buying insurance now:
Benefit: $200/day, NH and in home care, 5% inflation coverage provided.
1) For a policy that covers starting at day 91 and terminates 2 years later, the monthly premium is $132
2) For a policy that covers starting at day 91 and provides an unlimited duration ($200/day for as long as you need it), the monthly premium is $286.

The difference in premiums ($154) reflects the expected LTC costs from year 2 through "as long as needed." The expected cost isn't much more than the cost for just 2 year coverage (because most folks don't need the care for much (past 2 years). Why doesn't anyone sell coverage like this?

Private LTC is INDIVIDUALLY underwritten, you can't compare that to a group plan. You also can't compare a fed employee LTCi policy to individual coverage.......

 

[jIMOh]

I would hope to consider my family as my LTC. Everybody in my family helped out when an elder was sick or needed help. Basically LTC is for the children of older folk. It takes the burden off of them. That being said I am in my mid 50's and still considering it. Currently I am in pretty good shape for my age and would only get it for myself. I will be there for my wife.

LTC is as much about the CAREGIVER as it is about the person receiving the care.

If you become forgetful, you will receive care, the question is at what price to those around you (spouse, kids, friends, siblings). The price is more emotional than monetary- an LTC policy gives monetary support and allows care to be given by a third party, not a spouse, child, sibling or friend.

Consider 2 other factors-

1) Most long term care is administered in the home (not in a nursing home). Medicaid does NOT pay for in home care (medicaid claims for nursing care must be administered by a state approved facility). If you want the choice of WHERE you get care, you need to self fund, or have LTC. Medicaid will not pay for in home care.

2) There is a benefit to protecting a spouse and their financial situation. If the cost of care is upwards of $100k per year, what money is other spouse supposed to live off of if the self funded care pile of money runs out in 4-5 years. Add the costs of long term care (self funded) to your monte carlo simulations (100k/year for 5 years)... and then show spouse living for 15 years after that. Most examples I see show long term care breaking even (benefits received exceed premiums paid) within 2-3 years.


A poster mentioned something about rate increases, two points on that.

1) Rates can only increase on a "class" of individual. If you and I are white males at age of 55 with same risk factors, if your premium goes up, mine must go up too.

2) Make sure any LTC policy you get has an inflation factor. If your annual premium at age 50 is $3000 and then at age 60 your rates increase to $5000, you could reduce the inflation factor at age 60 and reduce your premium some. Once you decrease it, I do not believe you can increase it, so tread lightly there.

 

[FinanceDude]

I would hope to consider my family as my LTC. Everybody in my family helped out when an elder was sick or needed help. Basically LTC is for the children of older folk. It takes the burden off of them. That being said I am in my mid 50's and still considering it. Currently I am in pretty good shape for my age and would only get it for myself. I will be there for my wife.

While noble in thought, would they do that if you had an accident, were in a vegetative state and would live for 30 more years?

 

[samclem]

Private LTC is INDIVIDUALLY underwritten, you can't compare that to a group plan. You also can't compare a fed employee LTCi policy to individual coverage.......

Of course private LTC insurance is INDIVIDUALLY underwritten.
1) Group policies: The example I gave shows the premium to be expected for the additional risk being insured. Why don't insurers sell group policies like that?
2) Individual policies: These are widely available, and use underwriting. Somehow the actuaries who compute premiums for group policies have figured out how to price the (2 year) vs (unlimited benefit) policies. Seems unlikely that with the additional information provided by underwriting these actuaries couldn't come up with a number. After all, they somehow have figured out the difference in expected costs between, say, a 2 year benefit and a 5 year benefit.

 

[BLS53]

In my community, there's one big nursing home.Everyone goes to the same place. It doesn't matter if you've got a LTC, self-insure, or are on Medicaid, the care is still the same. I've seen it first hand with relatives who have been of various financial categories. No differences.

Everyone ends up dying. If you want to prepay for a 5-star hotel experience and a platinum plated wheelchair, knock yourself out. I've got other more timely financial needs. Worst case scenario, I'll pay off a nurse to shoot me up with a Kervorkian solution.

 

[jIMOh]

Interestingly, I had another chance to deal with an agent on this subject just this morning......

DW will be turning 65 and we've been looking at Medicare supplements and Part D plans. We had an agent/salesman representing Blue Cross / Blue Shield of Illinois over and listened to his pitch. Afterwards I brought up the subject of LTC insurance and he jumped to attention obviously anxious to get onto that subject.

Bottom line - when I told him what I was looking for, catastrophic coverage with a long waiting period, at least 10 years of coverage and correspondingly low premiums, he said he had nothing to offer from any of the six companies he represented.

It seems strange that most plans insure the 90 day - 3/5 yr range. That's the period many of us on this board could self-insure. Where DW and I could use some protection is the unlikely event one of us spends many years in a NH. We could easily self-insure for the more probable event of a 2 year or less stay.

Why would someone buy LTI that only covers, say, 3 yrs when the real danger that needs to be insured against is a long stay?

backtrack on the length of time, and focus on a few other variables, I will bring it back around to "time" in the end.

Most policies give a "daily" benefit- for example $50/day or $200/day. Where I live in Ohio there is a skilled care facility which costs about $5000/month which is about $164/day. LTC in this example would be a "co-pay", covering first $50 of costs (or $100 or $150, whatever the daily benefit was), with patient paying the balance per day, generally billed monthly and reimbursed by insurance carrier monthly.

I would like to give a specific example, this does not represent any specific policy or person.

Assume a person paid $1500/year for 10 years for an LTC policy which started at $50/day benefit with 5% compounding. Assume there is a max benefit of 3 years on the policy (max benefit is $50*365*3=$54750) the year policy is issued.
Then assume premiums went up in year 11 to $2300/yr and that premium was in effect for 7 years. In year 18 assume premiums went up to $3200/year and in year 20 a claim is filed for an LTC.

Add up a few things...
premiums paid are $1500*10+$2300*7+$3200*3=$40,000 in premims
$50 compounded at 5% 20 times (20 years) is a daily benefit of $132
The new max policy payout 20 years later is $132*3*365=$144540


There are two possible claims
1) the claim is in insureds own home, by someone which helps them get dressed, might cook a meal, might do a load of laundry. Assisted care. This person is in the house for 3 hours and costs $20/hour now, and in 20 years I am assuming that wage increased to $40/hour.

2) the claim is for a nursing home stay which costs about $250/day 20 years later.

In 1) where care is at home, focus on the $144,540 benefit amount. As long as the $40/hour the $120 is less than the $132 max daily benefit, so as long as the care is given, it can be sustained for $40*3 (hours per day)*1204 days=3.3 years=just short of $144,540 max policy benefit.

At this point medicaid kicks in, which means move patient to nursing home, and remember the $144540 max policy benefit for below.

In 2) where case is in nursing home, focus on the daily benefit. If a day costs $250/day the policy covers $132 and insured co-pays the $118 balance. Meaning when analyzing break evens, realize that $40,000 in care was paid up front, but the next $118*3*365=$129,210 is being depleted from assets.

The $132/day exhausts in 3 years because the original policy was $50/day compounded at 5% for the 20 years the person paid into the policy. This total amount is $144,540. After 3 years the person goes to medicare, which is going to pay the nursing home a fraction of the cost ($250/day) from that point forward.


This means the spouse or significant other can keep $144,540 and exclude it for the medicare benefit calculations. Whether in situation 1) or 2), that number is used for the medicare calculation, the length of time (3 years) is only relevant if the full daily amount is being used. Generally in home care is a fraction of the cost of nursing home care.

Here are a few other bits of information.
Statistics show that most LTC claims start in the insureds home. Could be respite care (so primary caregiver can run errands for 2 hours), could be help showering, bathing, cooking (any ADL act of daily living) as defined in the policy.

When you get the policy focus on 4 factors
what you expect your premium costs to be, consider this "co-pays" paid in advance
what the inflation factor is
what the max daily benefit will be
what you expect cost of care to be for a person entering your home

I think it's easier to think a care assistant will make $40/hour in 20 years than it is to guess what the cost of the nursing home will be.

Measure with a micrometer, mark with a paint brush and cut it with an axe.

It might be better to calculate what spouse needs to live on (like $400,000 portfolio using 4% rule=$16k+$24k SS=40k income, so the LTC benefit needs to be $400k/(365*3)=$365 daily benefit for 3 years, or $400k/($365*5)=$219/day for 5 years. Then ask for a policy for that specific daily benefit for that specific time period. This technique protects the assets so the second spouse can live off them after first person to pass does the sporting thing.

 

[brewer12345]

Owing to professional considerations, I really cannot coment as extensively as I would like to. That said, it is clear to me that the companies offering this product have yet to really figure out how to price it for even the limited duration coverage. The unlimited duration variant is significantly more difficult to figure out. As more insurers realizethis, they have been exiting the market and substantially raising prices for both existing and new policies. Given all that, I fail to see how this is a product I would want to buy as it presently exists.

 

[chinaco]

I can't see why not. You can buy (group) LTCi that has an unlimited duration. Here's an interesting way of figuring how an unlimited duration, two year exclusion policy might price:
....

You are in the ultimate group plan... Medicaid. But it tends to insure the last dollar (within the state guidelines... the spouse of the patient gets to retain a certain amount of assets and income).


Several State have an LTC partnership program. If ones LTC policy qualifies, the state will let the person exclude a certain amount of assets for Medicaid qualification purposes. An example for my state is... if the policy was approved by the state (met guidelines and approved) and the person used up the policies benefits which totaled $X then $X could be exclude from the persons assets for Medicaid qualification purposes. Each state has different rules. So it is important to verify which policies would be covered and how the program works in the state. So one can completely protect a certain amount of assets from Medicaid. But these are still last $ assets.

If someone is purchasing a traditional LTC policy... a policy that qualifies for the LTC partnership (if it is available in the state) should be a consideration.

 

[donheff]

it is clear to me that the companies offering this product have yet to really figure out how to price it for even the limited duration coverage. The unlimited duration variant is significantly more difficult to figure out. As more insurers realizethis, they have been exiting the market and substantially raising prices for both existing and new policies. Given all that, I fail to see how this is a product I would want to buy as it presently exists.

+1 Even the Federal provider was allowed to raise rates after a few years as data came in altering initial assumptions. We held on to the insurance but that change was unsettling.

 

[chinaco]

+1 Even the Federal provider was allowed to raise rates after a few years as data came in altering initial assumptions. We held on to the insurance but that change was unsettling.

It is because of the small pool and concentration of risk.

Some say that the Medicaid safety net causes many people to not purchase LTC that would do it otherwise.

We are stuck between wanting to provide a safety net and Moral hazard. The only people that purchase LTC (mainly) are people that expect to need it (anti-selection) or fear they might need it and are protecting assets.

The whole situation would be different if the person had no place to turn. If people were turned away the behavior would be different.


What should really p!ss you off is that premium increase (most of it) is due to other people gaming the system! Essentially putting all of their personal LTC risk onto Medicaid!

 

[grumpy]

DW and I got straight LTC policies at age 50. $100 per day with 5% escalation, no lifetime limit, etc. etc. Premiums remained unchanged for the first 12 years. This year there was a modest increase in premiums. Assuming the same rate of increases, I did the calculation that showed that if either of us needed 1.3 years of LTC after age 75 we would recoup the full cost of all the premiums paid.

For the peace of mind this seems like a bargain to me.

 

[donheff]

The whole situation would be different if the person had no place to turn. If people were turned away the behavior would be different.


What should really p!ss you off is that premium increase (most of it) is due to other people gaming the system! Essentially putting all of their personal LTC risk onto Medicaid!

What do you propose if Medicaid was dropped? I like having a safety net for everyone. I don't want old folks left to die on the streets.

I don't really see falling back on Medicaid as "gaming" the system. What basically happens is that people become disabled, burn through every penny they have saved, go broke and are left with Medicaid (essentially "the poor house"). Do you think large numbers of people are faking being unable to care for themselves so they can live in a Medicaid facility?

 

[Nords]

Has anybody had any experiences - good or bad when the Ins. company had to pay the benefit ?

http://www.early-retirement.org/for...l-management-and-asset-allocations-55688.html

It's like any other high-volume, low-margin business: customer service sucks.

Every month I still have to fax the care facility's bill to John Hancock, because JH "doesn't do" e-mail or websites for HIPAA reasons. Every month they cut a paper check because they "don't do" electronic payments (for no apparent reason). We'll keep this up until they reach the policy limit in 3-3.5 years. You would expect that they could both automate and avoid fraud, but they don't seem willing to spend the capex on it.

I would hope to consider my family as my LTC. Everybody in my family helped out when an elder was sick or needed help. Basically LTC is for the children of older folk. It takes the burden off of them. That being said I am in my mid 50's and still considering it. Currently I am in pretty good shape for my age and would only get it for myself. I will be there for my wife.

You're exactly right-- what you have is hope, not a plan. And by the time you've been carrying it out for a few years, you're all going to hate each other for putting yourselves in the situation.

I look at the burden my grandfather placed on my father, and the burden that my father has placed on us sons. LTC is the only way to effectively relieve us of that burden. I also believe that a group-care environment (like a care facility) is far better than the social isolation of one's home, even if it's a big loving family.

"Helping" is one thing. "Primary caregiver" is a hard time with no parole for good behavior. "Home help" and "respite care" just don't cut it.

I'm still looking for a LTC policy which has a 2 year waiting period. We can self-insure for the typical 2 - 3 year stay but would like to have inexpensive catastrophic coverage that would kick in if one of us winds up in a nursing home for many years.
I've checked with three different agents and all say that what I'm looking for is not available.

FWIW, you may both be using different words for the same thing.

My father showed Alzheimer's symptoms for at least 18 months before he was truly no longer capable of independent living. I'm sure that at least 12 of those 18 months would have scared the heck out of us if we'd been living with him. But unless you spent literally thousands of dollars ($3670 in my Dad's case) for an in-depth assessment, you wouldn't be able to prove that he needed assistance with the criteria necessary to qualify for the insurance claim.

When many people end up in a care facility for the long term, they easily qualify for the insurance claim-- at first. With proper care & nutrition, socialization, and some medications they may actually improve in cognition to the point where the LTC insurer will suspend benefits.

So although you're still paying premiums, for Alzheimer's & dementia there may effectively be a two-year waiting period anyway.

My grandfather spend 14 years in a full care facility. That's way out past six standard deviations on the bell curve. In his case he'd used up his LTC benefits long ago, and he steadily drained his pension & assets toward Medicaid. He would've qualified about six months after he died. His spouse had died before he entered the care facility (in retrospect she was covering for him) so there was no family hardship caused by his "private pay" finances.

Same for my father-- his LTC benefits will last for ~3.5 years but his assets would last for another 15. Self-insuring worked out OK.

I admit that I don't know how the Medicaid spend-down is handled with spouses.

 

[M Paquette]

It is because of the small pool and concentration of risk.

Some say that the Medicaid safety net causes many people to not purchase LTC that would do it otherwise.

We are stuck between wanting to provide a safety net and Moral hazard. The only people that purchase LTC (mainly) are people that expect to need it (anti-selection) or fear they might need it and are protecting assets.

The whole situation would be different if the person had no place to turn. If people were turned away the behavior would be different.

What should really p!ss you off is that premium increase (most of it) is due to other people gaming the system! Essentially putting all of their personal LTC risk onto Medicaid!

Thats a heck of a safety net. I don't know about other parts of the country, but here Medicaid only picks up long term care if the persons assets are under $2,000, and they back check five years for things like giving away large sums to others. I suppose giving up almost everything and living on SS checks alone for five years is an alternative to covering long term care, but it's not a very appealing one.

Now, I don't have LTC insurance, but I've made other arrangements that cover us without any problem, and won't be relying on Medicaid.

 

[chinaco]

What do you propose if Medicaid was dropped? I like having a safety net for everyone. I don't want old folks left to die on the streets.

I don't really see falling back on Medicaid as "gaming" the system. What basically happens is that people become disabled, burn through every penny they have saved, go broke and are left with Medicaid (essentially "the poor house"). Do you think large numbers of people are faking being unable to care for themselves so they can live in a Medicaid facility?

No... I like the idea of a safety net too.

My point is a little more complicated than that.

Put it like this... you took the time to accumulate the money and to fund it. You are using insurance to do it. You have taken reasonable steps to budget for it (making an effort).

There is someone else out there (actually many many people) who had the means to do it... even when they retired. But decided they would rather spend that money on something else (discretionary spending).

Bottom line is they raise the overall cost for everyone (cost shifting for LTC services because Medicaid pays very little and higher LTCi premiums in insurance pools because of lack of participation) and will jeopardize the safety net program.


There is a little more to it than that... but for the sake of brevity.

 

[GregLee]

There is someone else out there (actually many many people) who had the means to do it... even when they retired. But decided they would rather spend that money on something else (discretionary spending).

But that course was open to you, too, wasn't it? Do you envy those other people for having made more fortunate choices than you did? If you don't, you have nothing to complain of. If you do envy them, why is it their fault that you chose foolishly? In that case also, you have nothing to complain of.

 

[FinanceDude]

I suppose giving up almost everything and living on SS checks alone for five years is an alternative to covering long term care, but it's not a very appealing one.

Actually, Medicaid takes a big chunk of your SS check, but leaves you a small "stipend" that you can use for stuff. In my FIL's case, he got $1037 a month from SS and he got $77 a month from that check to use for what he wanted to buy.........that happened because he was a widower, it doesn't happen with married couples.........

 

[bubba]

Edited because I probably shared too much here, and I'm feeling monitored by the word police.