Long-term care insurance paper

[AtlasShrugged]

Since I retired three years ago, I found that I enjoy researching financial and retirement related topics and writing short papers that summarize my findings. I share them with friends and family who seem to find them useful. In fact, Jonathan Clements has published several condensed versions of my papers on his Humble Dollar website.

I thought I'd try an experiment to see if any of you would be interested in reading my stuff. I recently completed a paper on Long-term Care Insurance, so I thought I'd start with that.

Here's a link to it. (I hope the link works, because I haven't tried this before.)

https://www.dropbox.com/s/cof13s70a45sgam/Long-term care insurance.pdf?dl=0

Best,
Rick

PS1: By the way, I make no recommendations as to whether you should or should not buy this insurance. I simply list the things you should consider and provide profiles that help you decide if you are a good candidate or not.

PS2: I'm a former CPA and CFO with an MBA in Finance. I'm not an insurance expert, so take that with as many grains of salt as you wish.

 

[RunningBum]

The link works. I found it well-written and informative, and as far as I know about the topic it seemed to cover the options well.

 

[Finance Dave]

Wow, that's cool Rick! We bought LTC about 4 years ago and I had studied quite a bit before buying...so I was reading to see if the info matched my experience, which it did.

We originally looked at buying one of the state partnership policies, but found out they must include inflation adjustments or they do not qualify in our state. Adding the inflation protection proved EXTREMELY expensive, so we opted for a different approach. Instead, we "overbought" coverage....about 15 times what we otherwise would have bought. The cost doing this was about 60% lower than with an inflation adjusted policy. We do get the option of buying more coverage in the future.

 

[street]

Very interesting data numbers and well wrote, thank you.

I seen first hand how LTC policies helped in both of my parents lives. In the end they run out of their own money also but what they spent on premiums it paid out hundreds of thousands of dollars above what they ever paid in. What it did was prolong them from using all their money, but they eventually had to spend everything they had also.
Had their stays were less years, there would of been plenty of money left in their name. They had to pay 10 plus years for both in nursing homes.

 

[racy]

Very good. Interesting and well written. Yes, I'd be interested in reading your stuff.

 

[Chuckanut]

I thought I'd try an experiment to see if any of you would be interested in reading my stuff. I recently completed a paper on Long-term Care Insurance, so I thought I'd start with that.

Thanks for an interesting read. I have avoided LTC insurance due to many of the disadvantages you mentioned. Also, what I really want that fits my needs is not available.

[-]What I want is a comprehensive LTC policy that kicks in after 2-3 years of care and goes on for at least 5 more years. My feeling is that since 2+ years of care is unlikely, the premiums should be far lower. And that should protect me and my heirs from being 'wiped out' financially. [/-]

After writing the above I reread your article and realized I had missed what is the most important part for me - the stop loss section. Maybe I'm closer to needing LTC than I thought.

 

[Deej]

We have LTCI so I am quite familar with how it works after doing much research myself before purchasing. I found your article very informative for those who may be considering such insurance. I always appreciate when I find articles that are well written with ALL of the information attainable within it and easy to understand.

I would certainly read your articles. Thanks.

 

[Happyras]

I really appreciate such well written contributions. I look forward to more. This one helped me reconfirm our decision to self insure. We have a nice fat HSA account to carry forward for a last cash need....

 

[harllee]

Very good article. DH and I have decided to move into a CCRC and self insure. My mother has a LTC policy and it has not worked out well for her financially. She is now 89, in a CCRC and is in good health physically and mentally so she fortunately has not been able to use the LTC benefits. She took out the policy when she was in her 50s. The premiums started low but have substantially increase. I did the computations and it appears she has paid in substantially more than she could ever receive at this point. At her age it does not make sense to termintate the policy or take less benefits but she has declined the last couple of inflation increases because they were too expensive. I have not told my mother this but I feel like she is in a "LTC trap." In my opinion, she would have been better off self insuring but who could have know this when she first took out the policy almost 40 years ago.

 

[rothlev]

Very good article. DH and I have decided to move into a CCRC and self insure. My mother has a LTC policy and it has not worked out well for her financially. She is now 89, in a CCRC and is in good health physically and mentally so she fortunately has not been able to use the LTC benefits. She took out the policy when she was in her 50s. The premiums started low but have substantially increase. I did the computations and it appears she has paid in substantially more than she could ever receive at this point. At her age it does not make sense to termintate the policy or take less benefits but she has declined the last couple of inflation increases because they were too expensive. I have not told my mother this but I feel like she is in a "LTC trap." In my opinion, she would have been better off self insuring but who could have know this when she first took out the policy almost 40 years ago.

see if she qualifies for any type of assistance, whether she needs it badly or not. (eg. bathing ). once she starts using the policy at least from my understanding she doesn't have to pay premiums any more.

 

[harllee]

see if she qualifies for any type of assistance, whether she needs it badly or not. (eg. bathing ). once she starts using the policy at least from my understanding she doesn't have to pay premiums any more.

She's in better shape than I am--lives very independently, still walks miles, drives her car, she's the one that helps out everyone else in her building. No way she would accept help at this point and she does not need any. Of course at age 89 things could change any time.

 

[pb4uski]

Good article. I have casually looked at LTC a couple times in the last 10-15 years and couldn't gin up much enthusiasm for the value proposition... especially given the history of insurers jacking up premiums for policies that have been paying premiums for years... sort of creates a heads I win, tails you lose situation for the insurer but at the same time the insurers that do offer it are struggling.

If the premiums were fixed then I might be able to get a bit more enthused.

P.S. I once worked for a guy who went on to be one of Genworth's many CFOs.

 

[Koolau]

I think the paper is well written and seems to cover most of the issues involved. What I still find myself asking is "Was my decision to purchase LTCI a wise decision? Should I maintain my coverage?"

IOW The paper helps you ask the right questions but doesn't necessarily help you answer those questions - especially not when you've found a lot of this info (admittedly well organized in one place in the paper) yourself over the past 20 years. No criticism intended. I think it just proves that this subject is complicated and there may be no one right answer - except in the rear view mirror. Unfortunately, this is true for many forward-looking decisions (Rent or buy, pay off the mortgage or not, 60/40 or 40/60, paper or plastic, etc.) Thanks for the paper. We NOW have the definitive place to send folks when the question of LTCI comes up - again. YMMV as always.

 

[walkinwood]

After a cursory look (at best ) at LTCi policies, we decided to self-insure.

I liked the comprehensive and concise treatment of the subject and would greatly appreciate you sharing your other papers on this forum. Thanks for sharing.

A question: When you say a policy will pay $100/day say 20 years from now - is that inflation adjusted $100? I sure hope so.

Do you have a blog where you publish these? Easy enough to subscribe to it there.

 

[AtlasShrugged]

After a cursory look (at best ) at LTCi policies, we decided to self-insure.

I liked the comprehensive and concise treatment of the subject and would greatly appreciate you sharing your other papers on this forum. Thanks for sharing.

A question: When you say a policy will pay $100/day say 20 years from now - is that inflation adjusted $100? I sure hope so.

Do you have a blog where you publish these? Easy enough to subscribe to it there.

Thanks everyone for the positive comments.

In answer to your question about the $100/day benefit, it's $100 in 20 years unless you pay extra to adjust it for inflation.

I would like to make my other stuff available on a blog, but I don't know how to set one up. If anyone can tell me how to do that, please do.

 

[Dash man]

After a cursory look (at best ) at LTCi policies, we decided to self-insure.

I liked the comprehensive and concise treatment of the subject and would greatly appreciate you sharing your other papers on this forum. Thanks for sharing.

A question: When you say a policy will pay $100/day say 20 years from now - is that inflation adjusted $100? I sure hope so.

Do you have a blog where you publish these? Easy enough to subscribe to it there.

No, it’s not inflation adjusted. We bought into a group policy when my MegaCorp offered it. Every three years we are given an opportunity to increase the coverage for inflation. We chosen the increase all but one time. We feel the policies were worth it since we bought twenty years ago and the increases have been reasonable considering what I’ve read from others. We wouldn’t qualify on our own now, and family history is showing we may very well use it.
We currently have one family member in a nursing home, nearly three years now. She was in assisted living before that. We got her a Medicaid bed fortunately. Another relative is in memory care now and has been for several years. A third was in a nursing home briefly, but is back home with us. He will need Medicaid if he goes in long term.
DW and I want to leave something for the kids and grandkids. At today’s rates in our are our policy would pay for five years full nursing care for each of us. More if assisted living or in home care. We would never qualify for Medicaid. The total insurance premiums we’ve paid wouldn’t pay the first year in a nursing home.

 

[walkinwood]

It is pretty easy. I use blogger.com for vacation blogs to share with friends. Some of my friends use wordpress.com. There are a number of others that give you a free account to get started.

To start with, use the free offering to see if you like it. You will not have your own domain name - rather, it will be atlasshruggedblog.blogspot.com.

Most of the sites have templates that you can use which determine the format of the page.

Give it a shot! Good luck.

 

[RetMD21]

Very well written and informative. Here's my mother's story. She bought a LTC policy at age 70 and ended up getting benefits at age 88. Her final annual premium was $3250 and her benefit is $3100/month with a four year limit. She developed "mild cognitive impairment" but was unable to get benefits when she initially entered assisted living at 84. Documenting disability is relatively straightforward for those that have obvious inability to perform ADLs but it is more complex when the issue relates to cognitive limitations. Policies must cover this but proving the limitation can be difficult. Getting health care providers to make a simple written statement is not necessarily easy. The insured may minimize symptoms when seen by an examiner for the company. Considering the delay in initiation of payments, the limitation to 4 years, the low daily benefit, the 90 day elimination period, the decades of premiums , and her limited projected life span it seems unlikely that she will come out ahead financially
I learned about assisted living facilities by experience. They typically have a "list price" plus add ons for other services. For example help with bathing or medications may not be included in the list price. It is hard to know what they will charge until the resident moves in and is "assessed." The initial facility required a financial statement. I understand that they don't want to be stuck with a resident who can't pay after a couple of months. On the other hand having provided evidence of substantial assets it seemed to me like their goal was to boost charges. I talked with a volunteer from the state long term care ombudsman's office. Her off the record take on this is that if at all possible one should try to avoid assisted living and get paid in home help.

Needless to say DW and I are not getting LTC insurance.

 

[AtlasShrugged]

It is pretty easy. I use blogger.com for vacation blogs to share with friends. Some of my friends use wordpress.com. There are a number of others that give you a free account to get started.

To start with, use the free offering to see if you like it. You will not have your own domain name - rather, it will be atlasshruggedblog.blogspot.com.

Most of the sites have templates that you can use which determine the format of the page.

Give it a shot! Good luck.

Thanks. I'll check it out and see if I can do it.

 

[MuirWannabe]

Well, OP, that was very well done. It summarizes many points spread out thru various threads on here. Plus it added a lot of other information and data. I learned a lot about this subject by reading it. And it’s a topic that weighs on me, as I’m currently self insured by design.

Three thoughts:
- I’m certainly glad you ruled out the suicide option.
- Your statement about in-home care being much cheaper than ALC’s surprised me. I would have assumed in home care would be very costly. Having people dedicated to your service needs 24/7. Are you sure this is correct?
- I understand you rule out the hybrid option, mostly for reasons I fully agree with. Don’t like mixing my insurance with investment vehicles. But you say the cost of hybrids are much greater. Can you elaborate?

Thanks for sharing this.

Muir

 

[AtlasShrugged]

Well, OP, that was very well done. It summarizes many points spread out thru various threads on here. Plus it added a lot of other information and data. I learned a lot about this subject by reading it. And it’s a topic that weighs on me, as I’m currently self insured by design.

Three thoughts:
- I’m certainly glad you ruled out the suicide option.
- Your statement about in-home care being much cheaper than ALC’s surprised me. I would have assumed in home care would be very costly. Having people dedicated to your service needs 24/7. Are you sure this is correct?
- I understand you rule out the hybrid option, mostly for reasons I fully agree with. Don’t like mixing my insurance with investment vehicles. But you say the cost of hybrids are much greater. Can you elaborate?

Thanks for sharing this.

Muir

Thanks for your nice comments.

In response to your three points:

1) I ruled out assisted suicide because it's impractical, not for any other reason. Both my mother and my mother-in-law died of old age this year. It was extremely painful to see them suffer over the last months of their lives. I wish people had the option to end this suffering. If other people are opposed to the option for religious or other reasons, then they don't have to exercise it. In the end my mother was begging to die. It ripped my heart out.

2) As it relates to home care vs assisted living expenses, my comments were based on personal experience. My mother died in assisted living and my MIL died at home. Home care costs were a lot less. Your assumption that they needed 24/7 care was not correct. They only needed help for a few hours a day.

3) Hybrids cost more because they pay out a death benefit. LTCi may or may not pay out anything. The guaranteed payout increases hybrid premiums significantly. I read that hybrid premiums are 3 or 4 times more expensive in several places. One of those places was the Allan Roth article I referenced on page 2 of my paper. Please see Allan's article for his discussion on hybrids. You may find that useful.

 

[donheff]

Thanks for the article. DW and I purchased LTC through the Federal contract when it first came out on the theory that we were protecting our nest egg for the kids. I have vacillated back and forth about whether it was worthwhile. But, as Jeff Bridges tweeted out when he got cancer, "As the Dude would say, new s**t has come to light." I just got diagnosed with Parkinson's Disease. Still no telling what is in my future but my subjective NPV on the LTC policy went way up.

 

[MuirWannabe]

Thanks for your nice comments.



In response to your three points:



1) I ruled out assisted suicide because it's impractical, not for any other reason. Both my mother and my mother-in-law died of old age this year. It was extremely painful to see them suffer over the last months of their lives. I wish people had the option to end this suffering. If other people are opposed to the option for religious or other reasons, then they don't have to exercise it. In the end my mother was begging to die. It ripped my heart out.



2) As it relates to home care vs assisted living expenses, my comments were based on personal experience. My mother died in assisted living and my MIL died at home. Home care costs were a lot less. Your assumption that they needed 24/7 care was not correct. They only needed help for a few hours a day.



3) Hybrids cost more because they pay out a death benefit. LTCi may or may not pay out anything. The guaranteed payout increases hybrid premiums significantly. I read that hybrid premiums are 3 or 4 times more expensive in several places. One of those places was the Allan Roth article I referenced on page 2 of my paper. Please see Allan's article for his discussion on hybrids. You may find that useful.

My in-laws are using in home care on a 24/7 basis. I haven’t done a detailed comparison, but my impression was it was at least as expensive as an ALC. Apples to apples comparison would be around the clock care i would think.

Thanks, I’ll look at the Roth paper.

Also, wanted to add my desire for a ‘stop loss’ policy as you describe it. Disappointed they don’t exist. It seems a very logical option. Just must not be considered profitable by insurance companies.

Again, I appreciate you sharing this excellent summary.

 

[MuirWannabe]

After reading the Roth article you referenced, I found something I think might be a helpful consideration for me. It’s not a stop loss policy, but it gets at similar type thinking I suppose. Here is the quote from his article.

“Of course, it’s not a buy or don’t buy decision. I’ve reviewed two very rich policies, but one could partially self insure by buying a scaled down version with lower benefits. Though I’d consider longer elimination periods or lower daily benefits, I wouldn’t skimp on the number of years the benefit pays out. One should buy insurance on a catastrophic event - a long term stay in a nursing home.”

 

[audreyh1]

I know how expensive 24 hour sitters can be! It certainly adds up. In our case near the end a nursing home would have been less expensive, but who wants to move a failing elderly person during a pandemic? Or remove them from familiar surroundings? Combination of personal care home, Hospice and sitters just trying to make them as comfortable as possible under the circumstances.