Long Term Care, Real Cost , Real Inflation

[H2ODude]

The basic concept of LTC makes no sense to me. You start off buying it in your 50's when you are very unlikely to need it, but you buy it then because they scare you into thinking it won't be affordable if you wait until your 70's. But it has to cost more if you wait, because you didn't spend money for the last 20 years investing into the fund.

But what makes even less sense to me is that if you do start to take it in your 50s under the theory that it will cost less, why would you then agree to a contract where the insurance company can raise rates as much as they want at any time? They have all the leverage and you can only choose to continue to pay the high rates or drop out and lose all the money you spent so far. It seems very lopsided toward the insurance companies to me. I would never agree to a deal where the company I'm doing business with can raise rates any time they wish and my only options are to suck it up or forfeit everything.

My sentiments exactly. If the rates were locked i could perhaps understand it, but to have the ability to raise your rates, especially as you get closer to cashing in on the need, seems absurd. For those who are "young enough to afford it" why not start your own fund to accumulate for the need if it ever materializes? It just seems like a permit to scam to me. I'm sure it's worked out for some, but what about all those who paid it for years, the rates went up and they dropped it?

 

[samclem]

The basic concept of LTC makes no sense to me.

The basic concept of LTC insurance is fine: Spread risk over more people so that you can buy coverage against a catastrophic event for a reasonable price. It's the implementation of the concept in actual practice that has proven to be a mess.
Where's the true insurance? (maybe a policy with a 1-2 year elimination period?)
Where's the price stability? (We're not talking about a service with unforeseeable high daily prices that are causing an escalation: The insurance company's costs are capped at whatever daily limit you choose when you buy the policy).
Where's the accountability? When insurance companies guessed wrong about future lapse rates, interest rates, and investment returns, why are policyholders left holding the bag? Regulators seem to have no leverage to hold down rate increases, as the insurance companies just threaten (or do) leave the market.

Self-insuring is not a great answer. The potential costs of LTC are very high, and to have enough money to cover 5 years of care requires a very big stash that will probably never be needed, and could have been spent on fun stuff during healthier years. It's a very good scenario for a true insurance product, but we don't seem to have one available.

 

[youbet]

Self-insuring is not a great answer. The potential costs of LTC are very high, and to have enough money to cover 5 years of care requires a very big stash that will probably never be needed, and could have been spent on fun stuff during healthier years. It's a very good scenario for a true insurance product, but we don't seem to have one available.

Just as a point of reference, I've sent agents out multiple times looking for a LTC product that had a long (2 yr) elimination period and correspondingly low premium since statistics say few would use it. The most recent agent involvement was just last month. In all cases, they came back saying there was no product available.

BTW, I'm getting very good at booting them out quickly after the requested information was presented and not having to listen to them try to sell me an existing product.

It is to bad there is no real LTC insurance with a long elimination period. I'd like to be able to hold as little as two years of NH payments out of our FIRE portfolio but know we're covered in case one of us needs many yrs of NH care.

We currently have MIL in a NH and we learned:

In Illinois it's important to be able to private pay for a year or two before going to Medicaid so you can get into a "better" place.

If you require hospitalization before your NH stay, Medicare pays for the first 100 days. If you leave the NH for hospitalization , Medicare may pay again depending on the particulars. This happened with MIL and stretched her private pay time out considerably.

MIL is now approved for Medicaid which will begin in a few more weeks and she will be staying in the NH we picked for her as a private pay. We are satisfied with the place and feel fortunate it's working out the way it has.

MIL is a widow so there is no issue with impoverishing a spouse. This has greatly simplified things.

The private pay portion of her NH stay was funded by withdrawing all remaining equity from her reverse mortgage and delivering the keys to her condo to the mortgage company. For someone without a reverse mortgage, simply selling the real estate would have achieved the same results.

 

[OrcasIslandBound]

We have had LTCI for 20+ years, having bought it in our 30s. It is with John Hancock. ~$225 a day benefit for an unlimited amount of time if we need it. Cost: $105.36 month for 2 people until about 1 year ago when it suddenly jumped to $178.26, a 69% increase. I had no idea they could do this. It is good insurance, and we might need it due to family medical history. Would we do this again? Not sure. With these kinds of cost increases, we now have to budget something like $4k to $8K/year, even though we will have had the insurance for 25+ years by the time we retire at ~ age 59. Long term care can wipe people out, but insuring for it sure seems to slow down one's ability to retire early.

 

[tmm99]

The possible HUGE hike in rate that seems to be happening makes me reconsider not getting the insurance. It seems ridiculous to me that they are allowed to do this. It makes no sense to start early.

 

[samclem]

About the rate increases: I think in most cases the insurance companies do offer a chance to continue the policies at the same rate, but with reduced benefits (maybe a reduced daily benefit or a cut to the inflation bump-up every year). This is still a raw deal, but at least it can allow a person to retain some of the coverage they already paid for in earlier years and doesn't force them to pay any more each month in premiums than they had originally planned. If the change occurs early enough it can be possible to keep some resources available to pay for the difference in coverage.
Again, this is far from optimum. But if I'd paid on a LTC policy for many years I would think pretty hard before dropping it entirely if I could salvage some of what I'd already paid for.

Also, for the record, most agents now say that the earlier underfunded policies are a thing of the past, that policies issued now have the lower lapse rates and reduced investment performance built into the price. Well, the polices sure are pricy, so maybe that is true, but it's hard to trust them at this point.

 

[REWahoo]

About the rate increases: I think in most cases the insurance companies do offer a chance to continue the policies at the same rate, but with reduced benefits (maybe a reduced daily benefit or a cut to the inflation bump-up every year). This is still a raw deal, but at least it can allow a person to retain some of the coverage they already paid for in earlier years and doesn't force them to pay any more each month in premiums than they had originally planned. If the change occurs early enough it can be possible to keep some resources available to pay for the difference in coverage.

Again, this is far from optimum. But if I'd paid on a LTC policy for many years I would think pretty hard before dropping it entirely if I could salvage some of what I'd already paid for.

+1

We took out separate LTC policies 14 years ago when in our early 50's and paid the same premiums until this year, when they increased by 50%. We had the choice of canceling the policies, paying the new premium, or paying the same premium for reduced coverage. Due to the relatively low initial premium cost we elected to retain the policies at their full benefits. The new premiums are still under $75/mo which doesn't appear to be out of line for the ~$100,000 in annual benefits the policy will pay if we should be unfortunate enough to have to tap the policy - and the benefits increase 5% per year.

 

[braumeister]

We decided long ago to self-insure. It probably makes sense in our case, but wouldn't for many others.

A couple of points I always like to mention in this context:

1. Be aware that the "standard" five-year look-back provision isn't chiseled in stone. A good friend ran into this with his mother, and learned that if they opted for half-time home care, the look-back period was only 2.5 years. So they cared for her 12 hours a day and the gummint took care of the other 12. Unusual, but it worked for them.

2. Adding to what a couple of others have said, please do your homework and make sure you have your living will/advance directive/durable healthcare power of attorney paperwork up to date and available. That can be a huge help.

My father didn't take care of that, so when he wound up in the hospital they ignored his expressed wishes (because there was no documentation for it) and did a lot of heroic procedures that only had the effect of prolonging his life (at great discomfort) for a few months.

My mother saw that, and got her paperwork updated and into my files. When she had her last hospital visit, the ER doc saw the DNR paperwork on file and allowed her to have a smooth, painless, fairly quick exit from this world. What a remarkable difference!

 

[Gearhead Jim]

The basic concept of LTC makes no sense to me. You start off buying it in your 50's when you are very unlikely to need it, but you buy it then because they scare you into thinking it won't be affordable if you wait until your 70's. But it has to cost more if you wait, because you didn't spend money for the last 20 years investing into the fund.

But what makes even less sense to me is that if you do start to take it in your 50s under the theory that it will cost less, why would you then agree to a contract where the insurance company can raise rates as much as they want at any time? They have all the leverage and you can only choose to continue to pay the high rates or drop out and lose all the money you spent so far. It seems very lopsided toward the insurance companies to me. I would never agree to a deal where the company I'm doing business with can raise rates any time they wish and my only options are to suck it up or forfeit everything.

Isn't most insurance like that? The company needs to take in more money from premiums than they pay out in benefits, and has to figure out how to make that happen.

Our home, umbrella, auto, and health policies; all allow the company to raise the rates virtually at any time. And health coverage, like LTC, can become more expensive as you get older.

Those issues don't tell us whether LTC insurance is a "good deal" or not, that will vary considerably from one person/couple to another. But to cry "foul", seems unfair and unrealistic.

 

[Carlos2]

LTC is fine with me

I have LTC for my wife and me. It's $200/day and increases every year compounded by 5%. It is mostly the compounded interest policy that are experiencing the increases.

I bought the policies mainly to ensure my wife would not be impoverished by such cost of care as we have an age difference exceeding ten years. Depending on the illness, $10,000 to $12,000 month could put a strain on one even when they do well financially if it is needed for an extended amount of time.

I have not experienced any increases as of yet, but one has to remember that the policies that have compounded interests of 5% are benefits to not be taken lightly. A $200/day benefit today is a $400/day benefit in 20 years. That cannot be taken lightly.

Also, many of the policies have home care which is very beneficial for many who want to be home and not a facility. One perk that I do like on my policy is that after ten years if one of us should die the other''s policy is paid off.

I don't know what the future holds, but I want to be ready one way or another without being a financial or emotional burden to anyone.

 

[Independent]

Just as a point of reference, I've sent agents out multiple times looking for a LTC product that had a long (2 yr) elimination period and correspondingly low premium since statistics say few would use it. The most recent agent involvement was just last month. In all cases, they came back saying there was no product available.

I'd like to find something like that, too.

Unfortunately, a 2 year elimination period would be illegal in some states. Here's the MA regulation

Individual policies may not include elimination periods of greater than 365 days, whether services are received within or away from the home.

http://www.mass.gov/ocabr/docs/doi/legal-hearings/211-65.pdf

I have thought that I might buy a nursing-home-only policy if I could get an accurate rate. That's a partial solution for those of us who want to insure just "catastrophic" losses. But I haven't looked at rates in a long time.

 

[SoReady]

I find this discussion very interesting. Is it appropriate to cite the company for those who are posting rates and coverage? Not sure if it is against forum policy or something. I think knowing this would help in understanding which companies increase rates, lower coverage or provide different options.

 

[MichaelB]

I find this discussion very interesting. Is it appropriate to cite the company for those who are posting rates and coverage? Not sure if it is against forum policy or something. I think knowing this would help in understanding which companies increase rates, lower coverage or provide different options.

Not a problem with posting names of institutions, as long as it is by members and not by others to drum up business. A few have already been mentioned in the thread, like John Hancock, Bellmont Village, and State Farm.

 

[Carlos2]

I find this discussion very interesting. Is it appropriate to cite the company for those who are posting rates and coverage? Not sure if it is against forum policy or something. I think knowing this would help in understanding which companies increase rates, lower coverage or provide different options.

The company I am with is Genworth.

 

[SoReady]

Thanks Carlos. I have Northwestern Mutual Life, and I'm trying to determine if any of those discussed is related to them.

 

[Carlos2]

Not a problem

Thanks Carlos. I have Northwestern Mutual Life, and I'm trying to determine if any of those discussed is related to them.

Northwestern Mutual Life is a good company. I have heard that they have not increased rates on their customers. However, I have also read that they are one of the more expensive policies compared to others too even with the rate increases. We will always have to be concerned if there will be a rate increase. New York Life has also not had rate increases, but I understand that they are about to ask, if they have not already, to increase current LTC policy holders's premiums. It seems like no one is safe.

My Genworth policy is a California partnership policy. California has not allowed Genworth to raise the premiums on those policies yet, not that Genworth hasn't asked. They have allowed Genworth to raise premiums on some individual and group policies.

 

[rodi]

We found there were huge differences in costs of nursing home care based on geography.

My FIL had lived with us (in California) for several years. My MIL and FIL returned to Kentucky where they owned a home. But they have family and spent most of their life in Philadelphia. When it was time to put my FIL in a home we researched homes in all three locations.

Surprisingly, California was not the most expensive. Philadelphia was. We paid about $6k/month in Kentucky, and there were similar prices in non-coastal areas of San Diego county - definitely under $7k. Philadelphia had horrid places for $8k - and nice places for closer to 10k.

Since we were dealing with a surviving spouse issue - I did the research on what assets can be set aside for the spouse not in the home if medicaid kicks in. It varied a bit from state to state - but the guidelines are federal. Since it's a federally funded program, managed by the individual states, there is some leeway for how much must be spent down, it varies from state to state. I believe the lookback period for transfer of assets is set on the federal level. Spend down for medical care is one thing. Gifting/ transferring/buying a more expensive house is a different thing. It was a factor when we were looking at the out of state options for nursing home... We'd have had to spend the same or less on the new home for MIL as we got for the old home - or it would have triggered the lookback.

 

[ejman]

My policy with CALPERS went up 85% last year. What I decided to do was to cap the policy at current benefits for a maximum of 10 years ( Previously 5% annual inflation + unlimited time coverage) in exchange for freezing the premiums. (I hope the freeze holds). Like many here I came to the conclusion that since this is really not catastrophic true insurance it didn't make sense to add insult to injury by agreeing to the 85% increase with no assurance that more increases won't be coming. but at the same time since we have paid for the policy for over 15 years it didn't feel right to just walk away.

 

[LARS]

Current costs in a dementia facility for my father is about $6,700 per month. Generally the yearly increases over the last three years has been in the 3.5% range. This is in CT.

He purchased LTC, and it has been the best investment he made. That having been said, wife and i are self-insuring on this.

 

[Independent]

For people who are interested in how costs vary geographically, MetLife does an annual survey.

They found, for example, that the most expensive state for nursing homes was Alaska, at $687/day. The lowest was Oklahoma outside of Ok City and Tulsa, for $147/day.
https://www.metlife.com/assets/cao/...i-2012-market-survey-long-term-care-costs.pdf

 

[shotgunner]

A prolonged expensive stay in a NH is a greater risk for a woman than a man. Every NH I have visited has a very low percentage of men in residence. Men just don't seem to last very long once they need NH level of care. Truth be told odds are with the LTC insurers as the average stay is brief.

I am thinking for a single male like myself LTC insurance would be a losing bet vs paying for the cost a short stay.

This study says the median length of stay is 5 months and only 3 months for males.

Length of Stay in Nursing Homes at the End of Life | GeriPal - Geriatrics and Palliative Care Blog

This article says 79% of males and 74% die in the first 12 months of being put in a NH.

Average Length of Nursing Home Stay | ElderWeb

If you can afford 1 year in a NH you are probably good. You also go to the head of the line for admission vs. someone who is dependent on Medicaid to fund the cost.

I have had 4 relatives enter a NH, the longest stay was 5 months.

 

[aja8888]

This article says 79% of males and 74% die in the first 12 months of being put in a NH.

Average Length of Nursing Home Stay | ElderWeb

The data in this web site is from 1999. Not very current, but probably close.

 

[Independent]

A prolonged expensive stay in a NH is a greater risk for a woman than a man. Every NH I have visited has a very low percentage of men in residence. Men just don't seem to last very long once they need NH level of care. Truth be told odds are with the LTC insurers as the average stay is brief.

I am thinking for a single male like myself LTC insurance would be a losing bet vs paying for the cost a short stay.

This study says the median length of stay is 5 months and only 3 months for males.

But the next line down says the "the average length of stay was longer at 14 months due to a small number of study participants who had very long lengths of stay".

When I'm buying auto liability insurance, I don't think about the median claim, which might be $5,000 dollars. I don't even focus on the average (mean) claim, which might be $14,000. I know I can handle those out of cash flow. I think about the few unusual claims that are over $100,000. The big gap between the median and the mean tells me something about the distribution.

Note that these statistics are for single periods of stay, and nursing home only. Some of these people had extensive home care or assisted living before entering the nursing home. Some were in the NH more than once.

Here's another source of data SOA - Society of Actuaries - 1984-2007 Long-Term Care Intercompany Report & Tables
The continuance data begins on page 31.

 

[REWahoo]

But the next line down says the "the average length of stay was longer at 14 months due to a small number of study participants who had very long lengths of stay".

When I'm buying auto liability insurance, I don't think about the median claim, which might be $5,000 dollars. I don't even focus on the average (mean) claim, which might be $14,000. I know I can handle those out of cash flow. I think about the few unusual claims that are over $100,000. The big gap between the median and the mean tells me something about the distribution.

While I understand your reasoning, insuring for the worst possible case in terms of length of stay can be cost prohibitive. Looking at the chart below and seeing that the vast majority of NH stays were less than three years led me to choose 36 months as the length of coverage for our policies. Even if that doesn't fund the entire cost, it will certainly cover a large portion of the expenses.

 

[tmm99]

And how is the cost model set up? Is it like health insurance that if you are already on meds for this or that, you are uninsurable for LTC? I am 55 and haven't bothered to look into LTC yet. Do you have to go get a physical and all that?

I just read an article by AARP written June 2012 and it said

http://www.aarp.org/work/retirement-planning/info-06-2012/long-term-care-hikes.html

"The number of new individual buyers dropped by 43 percent between 2004 and 2009 and has recovered only slightly since,"

This may be the reason everyone's rate is going up. Another reason may be (see below.)

Low interest rates have slashed the returns that insurers get from their investments. In the past five years, at least 14 companies quit selling new individual LTC policies,

And this below is some crazy inflation rate.

"For people 55 to 65, prices for new policies are up an average of 30 to 50 percent compared with five years ago,"

AARP recently heard from a 90-year-old whose premiums had soared by almost 200 percent over the past eight years. This year, she had to let the policy lapse.