Making the jump. Buying LTCI

[youbet]

We share this view and approach. I would just include one other reason we carry health insurance, which is the multi-tiered pricing scheme most providers have that results in preferred prices for insurance carriers vs punitive prices for self-pay.

Actually, and unfortunately, a similar situation is happening with NH's in Illinois. High tier NH's who accept only the required number of Medicaid patients receive more from private pay residents than the state pays them (if they ever pay them) for Medicaid patients.

Apparently it isn't an issue of having two separate prices, one for Medicaid and one for private pay, but rather that the NH frequently receives less than billed from the state (if they receive anything at all, it's a real mess here with billions in unpaid bills) and has little recourse.

I'm relatively comfortable self-insuring for LTC, for the same reasons you and Audrey put forth. But I'm sure if the time comes, I'll be ticked paying the NH more than the state does for the same services.

 

[youbet]

+1 All insurance comes down to whether or not you want to assume the risk. I also have all the other types of insurance Audrey listed as well as Umbrella. The premiums I pay for those policies gives me peace of mind as well as peace of pocketbook. I would rather pay premiums and cost-shift the financial risk to my insurance company.

With my family history, I have an excellent chance of collecting under my LTC policy, for which I currently pay $1,500 a year. Just doing the math - a semi-private room in San Antonio currently costs about $50k a year. It's $58k in Austin. A private room in San Antonio is almost $70k and about $2k more in Austin. Because of my LTC policy I would be able to move into an upscale facility when the time comes for that change. Even if my premium doubles I'm ahead because the odds are I'll spend at least a couple of years collecting LTC. LTC is just another component of my insurance premium budget. Just on a side note - my auto and homeowner premiums have gone up every year while my LTC has stayed the same for the past ten years.

I've noticed many holders of LTC policies believe they'll be money ahead by having the policy and that belief is an important part of their decision making. But, LTC policy issuers must take in more than they pay out. Therefore the majority of policy holders will pay in more than they receive. Or at least the group of policy holders will pay in more than they receive. This is despite insurance salesmens' emotional stories regarding families wiped out by LTC bills that are an important part of the sales pitch.

I'm NOT saying that having a LTC policy is not the right decision for you. Rather, I'm just pointing out that the reason for having it shouldn't be that you think the odds are on your side. In your case, since you point to a family history of relatives needing NH care which is likely in your genes, perhaps this does skew the statistics. But the real reason should be because you need/want to pay a fee to have a possible risk partially shouldered by the insurance company.

IOW, for today's LTC shopper, I accept your first statement (bolded above) but not your second.

 

[Sun456]

Therefore the majority of policy holders will pay in more than they receive. Or at least the group of policy holders will pay in more than they receive.

Isn't this true for all types of insurance? Otherwise no one would offer any type of insurance at all. They are in business to make a profit. They have employees to pay, overhead etc.

 

[pb4uski]

I've noticed many holders of LTC policies believe they'll be money ahead by having the policy and that belief is an important part of their decision making. But, LTC policy issuers must take in more than they pay out. Therefore the majority of policy holders will pay in more than they receive. Or at least the group of policy holders will pay in more than they receive. This is despite insurance salesmens' emotional stories regarding families wiped out by LTC bills that are an important part of the sales pitch......

This is true for all insurance.

 

[youbet]

Isn't this true for all types of insurance? Otherwise no one would offer any type of insurance at all. They are in business to make a profit. They have employees to pay, overhead etc.

Exactly!

 

[audreyh1]

I have all the insurance coverage you have and I also have LTCi. I can also budget and save for long term care, as well. I'm somewhat puzzled by your bolded statement because traditional health insurance might not cover a devastating or long illness that's chronic, disabling or leaves you incapacitated. LTCi would cover that risk up to certain limits.

I'm talking about the costs of treating illnesses like cancer - $3M for stage 4 colon cancer treatment, for example. I imagine diseases or a terrible accident that require many surgeries/rehab will also ring up the bills. These expenses are covered by health insurance, as is any incapacitating or chronic illness that requires constant medical care.

If you can set aside $500K (or double) for LTC, then you are likely more than adequately covered. You can't say the same about the above illnesses.

 

[ronocnikral]

heard a story on NPR on the way into my labor camp this morning. Just thought I'd share. Story is about Oregon, but mentions many states are starting to "regulate" the claiming of a LTCI. It seems complex and reminds me of when I was shopping for disability insurance, as LTC will mean different things to different people and probably not all policies are created equal.

States Iron Out The Kinks In Long-Term Care Insurance : Shots - Health News : NPR

Long-term care insurance provides money for care when you're too old or sick to wash yourself and cook, though few American use it. Many who do have found that some insurance companies are slow to pay up or deny payments completely.
Oregon is one of several states that's adopting new regulations to improve the industry.
It used to be that the only way to appeal a long-term care decision in Oregon was in court, an arduous process for a person who may be elderly, sick or in a nursing home.
Oregonians now have the right to get an undisputed claim paid within 30 days, thanks to new legislation. They also have a right to an appeals process, says Cheryl Martinis with the state's consumer services department

 

[East Texas]

<snip> But, LTC policy issuers must take in more than they pay out.

That's true in any business. Income must be greater than expenses to be profitable.

<snip> .....the majority of policy holders will pay in more than they receive. Or at least the group of policy holders will pay in more than they receive.

You can say the same for homeowner's insurance, auto insurance, boat insurance, Umbrella insurance, PAF insurance..... it's all about the risk and risk avoidance. If you like risk, cancel your homeowner's policy (if you don't have a mortgage). You can self-insure under a bond in most states if you don't want to pay for car insurance. I didn't mind people not carrying health insurance, when they could afford it, as long as they don't become a financial burden to me as a taxpayer.

The same consideration goes for LTC. I don't care whether or not people have it as long as they have the financial assets, not government provided, to take care of themselves. I don't believe the government should birth you or bury you or have to care for you in-between.

Insurance, like underwear, is a personal choice. You want it to fit comfortably, you don't want it to itch, you don't want to pay a high price for it, one size does not fit all, and you're darn glad to have it as a buffer.

 

[JoeWras]

Just read this fascinating discussion. I think a lot of it comes down to our personal experience.

I was scarred for life after seeing what my Granddad went through in the early 80's on Illinois medicaid provided nursing care. I can't even being to describe how horrible it was.

Secondly, we have a friend in her 50s who is now mentally gone with a form of early onset dementia. Her DH is struggling to provide for her and put off full time care as long as possible. She could last many years in LTC when she gets there.

So, Granddad's experience woke me up to the hideous nature of some care, and my friend's experience really got me and my DW to buy it through the group plan at work NOW, for the possibility of early life issues.

It is more for our peace of mind today, not for when we are 80+. Depending on how the premium goes, we may eventually drop it. Current price is $1200/yr covering both of us, with some fairly strict lifetime limits. Can't remember how much now, but the idea was to cover the typical 3 years or so. Beyond that, well, it is risk we must take.

 

[rodi]

This thread is relevant to me since it's not just about LTCi... it's about nursing homes and medicaid. I posted a week or so about the issues we're going through with my in-laws. Because of this I've become the family expert on medicaid rules in 3 states. I've also become the family expert in prices for nursing homes in 3 cities. I've had my family members out visiting nursing homes in 2 cities, while I check out the local ones.

Price does not equal quality. And accepting medicaid does not equal a substandard home. The biggest cost differential is geography. For some reason - Philadelphia is about $50 more per day than San Diego or Lexington. About $8000/month for a bed in a 3 person room.

As far as perks - all the nursing homes we've looked at have hair cuts and things like that. The difference is that on medicaid the resident is only allowed $30 per month - all other income goes to the nursing home, and medicaid picks up the balance. That $30 can be used for haircuts, manicures, whatever.

As far as protecting vs depleting assets... I'm of the mindset the care for the living should come before the inheritance. So I'm perfectly fine with depleting assets of the person entering a nursing home. It gets more complicated for the "community spouse" - but they can keep $1800-2100/month of the couple's income streams, any IRAs in their name (though RMDs are part of the income stream - so excess goes to the nursing home.) They can keep the house they live in - no matter the value. And they can keep up to $116k of the shared assets, or 1/2 of the shared assets - whichever is less.

However lookback laws do look at "hiding assets" by buying a more expensive house. You can't do that. But you can pay off the house you've lived in for 5 years or more - and that will take those $ out of the spend down.

The biggest issue I have with LTCi is the variability of costs without much inflation protection, and the lack of price control on future premiums... They could price you out just as you get close to needing the insurance.

 

[Brat]

rodi, it is probably too late for your in-laws but after reading the Oregon Insurance Commission website there is such a thing as 'partner LTC policies' where if a person has such a policy and goes on to Medicaid the amount the policy has paid is credited back to the estate when they pass. They appear to be state specific so what works in one state may not in another.

LTC policies do have the option of compounding increase riders of 5 or 6% (I can't recall what ours is) to offset inflation.

 

[obgyn65]

Interesting discussion. As the OP, I appreciate everyone's input. Thank you.

 

[gerrym51]

After much consideration and reading a few threads on this topic both here and at Bogleheads, I have decided to make the jump and buy long term care insurance. Looking at Genworth, Prudential, and John Hancock. Only time will tell if this move was wise...

my wife and i bought ge(now genworth) when she 57 me 52.

we are now 66/61 respectivly and i am retiring next month.

to buy now would be astronomical. buy it with guaranteed coverage increasing
by 5 percent each year. it costs more but will give you great peace of mind down the road

 

[gerrym51]

As noted, in the case of my grandad, having LTCI was an impediment to getting the best care.

He'dve been better to impoverish himself on paper and get on Medicaid. At least here in Mass...

marco - i live in mass. massheath does a 5 year lookback-so unless he got
rid of his assets prior to that theye would take it away.

the other advantage of having ltci is this. if you have private money you can get yourself in better nursing home.

then when you run out of money(if you run out) massheakth will pick it up. the current nursing home cannot throw you out

 

[audreyh1]

I'm talking about the costs of treating illnesses like cancer - $3M for stage 4 colon cancer treatment, for example.

Ooops, sorry, that was $300K for the cancer treatment.

 

[JoeWras]

Ooops, sorry, that was $300K for the cancer treatment.

You know what? I didn't blink an eye. Nothing surprises me about the cost of serious disease treatments.

 

[ChrisC]

I'm talking about the costs of treating illnesses like cancer - $3M for stage 4 colon cancer treatment, for example. I imagine diseases or a terrible accident that require many surgeries/rehab will also ring up the bills. These expenses are covered by health insurance, as is any incapacitating or chronic illness that requires constant medical care.

If you can set aside $500K (or double) for LTC, then you are likely more than adequately covered. You can't say the same about the above illnesses.

Yeah, and I was talking about some surgical procedure gone awry or terrible accident that results in someone requiring contant life support, rehabilitative services or constant custodial care because they initially wind up in a vegetative or comatose state. Health insurance does not always cover extended rehabilatative services or custodial care. But why is one's ability to cover the loss a consideration in leveraging risk or shifting it to another party. If you can self-insure up to $500K in property damage to your primary residence, would you do that if the cost of a policy were $1200 a year? (This is about what I pay for LTCi coverage with an inflation adjustment feature.) In all cases, insurance is about leveraging risk or shifting the exposure to someone else for a price. I'm simply baffled by the notion that somehow LTCi is different. Yes, it's a less seasoned insurance product than other policies, but I analyze the situation from a piece of mind and potential risk basis. I'm paying for shifting that risk to someone else even if the event never occurs that I'm insuring against! Of course, there are some insurance products for certain losses or events that I will never buy because I can afford to cover minor losses, the claims process is extended, and I don't think the event I would be insuring against we'll ever happen to me -- so I don't buy new appliance warranties, extended car warranties for new cars, or vacation travel insurance. But I would buy apartment rental insurance even though I believe the risk of loss will never happen to me.

 

[gerrym51]

my philosophy is this. by buying ltci for me and the wife I don't have to worry about self insuring if a problem does arise.

it enables us to spend our money in retirement having a good time as opposed to keeping enough money for nursing home.

 

[audreyh1]

Yeah, and I was talking about some surgical procedure gone awry or terrible accident that results in someone requiring contant life support, rehabilitative services or constant custodial care because they initially wind up in a vegetative or comatose state. Health insurance does not always cover extended rehabilatative services or custodial care. But why is one's ability to cover the loss a consideration in leveraging risk or shifting it to another party. If you can self-insure up to $500K in property damage to your primary residence, would you do that if the cost of a policy were $1200 a year? (This is about what I pay for LTCi coverage with an inflation adjustment feature.) In all cases, insurance is about leveraging risk or shifting the exposure to someone else for a price. I'm simply baffled by the notion that somehow LTCi is different. Yes, it's a less seasoned insurance product than other policies, but I analyze the situation from a piece of mind and potential risk basis. I'm paying for shifting that risk to someone else even if the event never occurs that I'm insuring against! Of course, there are some insurance products for certain losses or events that I will never buy because I can afford to cover minor losses, the claims process is extended, and I don't think the event I would be insuring against we'll ever happen to me -- so I don't buy new appliance warranties, extended car warranties for new cars, or vacation travel insurance. But I would buy apartment rental insurance even though I believe the risk of loss will never happen to me.

The house and auto insurance are important for liability reasons. I don't see LTC the same way. We self insure because we believe we have enough set aside to cover custodial care for one of us without bankrupting/causing undue hardship for the other. With accidents involving other people/liability - the sky's the limit in terms of costs. Same potential with extreme life-saving medical care.

 

[Corporateburnout]

marco - i live in mass. massheath does a 5 year lookback-so unless he got
rid of his assets prior to that theye would take it away.

the other advantage of having ltci is this. if you have private money you can get yourself in better nursing home.

then when you run out of money(if you run out) massheakth will pick it up. the current nursing home cannot throw you out

That may not be true. My mother is in an excellent nursing home in MA that serves residents with LTCI, self pay and Medicaid. She is paying from her assets while her roommate is a medicaid resident. From what I have seen they're all getting the same services.

 

[gerrym51]

That may not be true. My mother is in an excellent nursing home in MA that serves residents with LTCI, self pay and Medicaid. She is paying from her assets while her roommate is a medicaid resident. From what I have seen they're all getting the same services.

let me rephrase. depending where you live in mass private pay can get you into a better nursing home.

then when mass health kicks in your still there. I never said private pay gets better service than masshealth. they both get same. I said ability to get into better home.

actually in western mass this is less an issue.

we did not buy ltci for this. we bought it so the spouse at home did not get forced to spend down resoures and would have time to plan . i hope neither one of us ever have to use it.

 

[ChrisC]

The house and auto insurance are important for liability reasons. I don't see LTC the same way. We self insure because we believe we have enough set aside to cover custodial care for one of us without bankrupting/causing undue hardship for the other. With accidents involving other people/liability - the sky's the limit in terms of costs. Same potential with extreme life-saving medical care.

I think you're shifting the grounds of our discussion when you begin to talk about liability insurance as opposed to insurance covering damage to your property or personal health, irrespective of how the damage originates. We tend to insure against liability claims because the exposure is very high and we tend to believe, perhaps in most cases correctly, that we cannot control these risks. For liability exposure, we ensure against the unknown, uncontrollable events giving rise to liability, and we're in a pool where our individual risk is shifted to the insurance carrier. When we begin to think we have some control over these third party liability risks or that exposure might not be potentially astronomical, it's remarkable to me that some begin to think that "self-insurance" is preferred rather than insurance shifting the risk to a carrier. For instance, I know several colleagues who don't have professional malpractice insurance because they self-insure against a risk that they believe is very small (it could never happen to them because they are highly competent and would never commit malpractice) and the exposure, in their view, is not potentially great and they could absorb the loss with current capital. Many simply set-aside money they would pay in malpractice insurance premiums in an account that they would use to absorb any potential claims. I think some of this type of thinking goes into the calculus in deciding whether to take different lines of insurance, including LTCi, as I think your own post might suggest. Not saying that's an unreasonable view; just saying that I'm willing to pay for my professional malpractice insurance even though I think I'll never use my policy. Likewise, I'm willing to pay a reasonable premium to shift the risk of LTC exposure to someone else even though I'm better off if I never use my LTCi policy.

 

[audreyh1]

I think you're shifting the grounds of our discussion when you begin to talk about liability insurance as opposed to insurance covering damage to your property or personal health, irrespective of how the damage originates. .

I was ALWAYS talking about liability exposure with respect to my homeowners and auto insurance - otherwise I wouldn't have brought up my umbrella policy.

 

[Mulligan]

Local financial reporter opined in Sunday business section about long term care insurance today. Key points he mentioned: 1) LTC insurance rose 6-17% this year depending on plan and type of coverage 2) Insurers citing increased cost due to low interest rates sapping insurance company profits 3) quotes a financial officer from an insurance company who says "changes in interest rates have more impact on long term care than on anything else we sell" 4)10 of the biggest 20 players have left the market recently 5) shop around as costs for the same coverage can vary up to 90%. 6) agent said it is much easier to sell a policy to a woman than a man, because women are more likely to have helped in elderly care and don't want to put their children through it 7) recommendations mostly same as what has been proposed here on forum - he said it was mostly a middle class insurance for middle sized nest eggs as poor don't need it, and rich can self insure.

 

[marko]

What's the connection between LOW interest rates and insurance co profitabiltiy?