I’m not a fan of insurance companies, though I purchase many forms of insurance. One form I DON’T plan to purchase is long-term care insurance. Moreover, I recommend against it unless you have a patient and persistent advocate willing to fight with the insurance company on your behalf.
Long-term care insurance is not for people without persistent advocates. Michael Wolff reports lengthy interchanges with the insurance company on behalf of his mother for just about every check, and reports show that such experiences are common. Imagine having to argue with a claims agent from your bed in a nursing home!
A New York Times article, Aged, Frail, and Denied Care by Their Insurers, revealed that “some long-term-care insurers have developed procedures that make it difficult — if not impossible — for policyholders to get paid” and quoted a retired senior member of the National Association of Insurance Commissioners as saying: “They’ll do anything to avoid paying, because if they wait long enough, they know the policyholders will die.”
No doubt long-term care insurance has worked out well for many. But if there are problems, those without advocates won’t fare well under the present system.
Who should Buy Long-Term Care Insurance?
In 1994, 7.3 million Americans needed long-term care, with an average cost of nearly $43,800 per year. In 2000, 9 million Americans needed this type of care at nearly $55,750 per year. By 2030, because of the aging baby boom generation, the estimate is that 23 million Americans will need long-term care, and projected costs are as high as $300,000 per year per person. The bulk of these costs will not be covered by Medicare.
Long-term care is an impending crisis. But is long-term care insurance (at it currently exists) the solution?
The wealthy can afford to pay for care services themselves. The poor can’t afford it and will end up covered under Medicaid. The shrinking middle class, if we live long enough, will slide into poverty in the course of receiving long-term care. We will then be eligible for Medicaid.
Long-term care policies are most aggressively pitched to people in their 50s and 60s who are still working. The salesmen will claim that long-term care insurance will “slow the slide into poverty” and “safeguard your assets for your children.” In fact, though it may slow the depletion of your assets, it won’t safeguard them from long-term care costs without additional, expensive, legal arrangements.
Also, most long-term care insurance policies require you to be in good health at the time you buy the policy, so the people most likely to need them will be excluded at the outset.
Insurance salesmen will tell you that buying long-term care insurance makes sense if you earn at least $50,000-$75,000 per year, have assets of at least $150,000 (not including your house and car), have an annual retirement income over $30,000 annually, and want something to be left for your kids to inherit. If you’re able to pay the premiums, including likely increases of 20% to 30% in the future, they’ll beat a path to your door.
How Long-term Care Insurance Works
Long-term care payments are supposedly triggered if you’re deemed to be cognitively disabled with a disease such as Alzheimer’s, or if you can’t perform two “activities of daily living” (ADLs) such as dressing, bathing, eating, using a toilet, moving from the bed to a chair, and remaining continent. (In reality, insurance companies often go to great lengths to challenge claims, delay payouts, and generally make it as hard as possible to receive the benefit you paid for).
Specific policies (and their costs) differ considerably based on factors like the following:
Duration of Payout Long-term care insurance policies generally provide a dollar amount per day for covered care during the benefit period stated in the policy. For example, the policy may pay $150 per day for three years. Payment periods can range from one year to life. The average length of a nursing home stay has been 3-5 years in the past, but it’s been steadily rising as we become better at prolonging life. If you decide to buy long-term care insurance, you’ll need to think hard about the length of the payment period you want.
Coverage A few policies cover the actual expenses that are charged by the care provider, while most policies pay a flat fee per day regardless of the charges. A policy covering actual expenses will cost significantly more than one paying a flat rate.
Most policies cover skilled medical care, intermediate care, and custodial care at a nursing home. Home care may be included or may be offered for a higher premium. Some policies offer coverage options for adult day care, assisted living facilities, and hospice.
Unless you have someone to care for you at home, it’s not worth paying for home care coverage. The amount paid out won’t be near enough to keep you at home with 24/7 health aides and a care manager to ride herd on them.
Elimination Period Most policies include an “elimination period,” which is the number of days you must wait to get payments after you become eligible. This is generally between 0 and 90 days but insurance salesmen may offer you lower payments if you extend the “elimination period” for as long as a year. (If they’re lucky, you’ll die within that year.) Not surprisingly, policies without “elimination periods” are more costly.
Inflation Protection If you buy a policy in your 50s or 60s, as you’ll be urged to do (to “save” by “locking in” lower premiums), by the time you need it, the cost of care will have increased due to inflation. Policies offer what’s called “inflation protection,” which ties increases of the benefit to the consumer price index or adds a fixed sum or fixed percentage (compound protection) each year. A 5% compound rider is the industry standard.
Forfeiture Protection Most policies are guaranteed to be renewable, but the premium rates are not guaranteed. These can increase substantially over the years. Since long-term care insurance (like other forms of insurance) covers you month-by-month as long as you pay the premiums, if you eventually can’t afford them and have to cancel the insurance, the company will generally keep everything. To recoup some of your money, you can pay a higher premium (usually by around 30%) to have a nonforfeiture clause in your policy. This allows you to collect a daily benefit when you need long-term care based on the amount you paid in, even if you stop paying at some point However, inflation protection won’t be included, even if you paid for this option while you were still paying premiums.
Cost of Long-Term Care Insurance
The amount of the premium is based on all factors listed about: the amount of the daily benefit, the length of the elimination period, the number of years benefits will last, your age when you buy the policy, and whether you purchase the home health care option, the inflation protection rider, and/or the nonforfeiture clause.. The older you are when you buy the policy, the larger your premiums. If you’re in your 70s, you could be paying twice as much as people in their 50s. (Of course the 50-year-old will be paying for many more years).
If you’re in your 50s or 60s and considering long-term care insurance, ask yourself if you can afford that monthly premium when you’re eighty and on a fixed income. Unless you have a great retirement package or hefty savings, the premiums may be too expensive as you age.
Insurance agents will tell you that your premiums may be partially tax-deductible. Tax-qualified plans (more expensive) that meet federal standards allow you to deduct your annual premium up to a limit determined by your age. However, the amount you can deduct only applies to medical expenses that exceed 7.5% of your adjusted gross income. For most people, the tax savings aren’t worth the costs.
Four states – California, Connecticut, Indiana, and New York – allow you to buy “partnership” plans under which you become eligible for Medicaid while retaining some or all of your assets In the first three states, you can get coverage equal to the amount of the assets you want to shelter. In New York, you can buy a policy with three years of nursing home coverage and six years of home health care. You become eligible for Medicaid after you exhaust these benefits, without needing to “spend down” more of your assets.
Recommendations if You Decide to Seek Out Long-Term Care Insurance
Never buy from an agent who shows up at your door or cold-calls you! Use a local independent agent or broker who’s been recommended by someone reliable.
For protection against your company going belly up before you need the care, purchase from a company that has an A+ or A++ rating from A. M. Best or an A, AA, or AAA rating from Standard and Poor’s. Most public libraries can give you this information. In addition, your state insurance office can tell you how long a company has been licensed to sell long-term care policies and whether existing policyholders have been hit with premium increases. Look for a company that has at least 10 years’ experience and hasn’t substantially raised their premiums.
Approach marketing literature skeptically and compare policies from different companies before making a decision.. Read the policy from cover to cover and make sure you understand what you’re buying. In most states, you have 30 days after you’ve purchased the policy to change your mind and get a refund.
Pros and Cons
Insurance agents enumerate the following pros:
- Protects your assets
- Gives peace of mind
- Can control how you’re cared for later in life
- Can help you get into the nursing home of your choice
- Can offer flexibility with different options
- Allows you to avoid Medicaid
Here are the cons they don’t tell you about:
- Policies are expensive
- You may lose everything if the insurer goes out of business
- Coverage may be inadequate, excluding drugs, medical supplies and special services
- Large premium rate hikes are possible
- Some companies routinely delay and deny payments
- Some insurers have made the claim process cumbersome and complicated
My Opinion: Long-term care is the kind of thing that should be covered by insurance, since there’s potentially a huge risk pool that would drive down individual costs for everyone. One way or another, the costs of long-term care are borne by all of us, so I believe that a universal, mandatory, well-designed, non-profit, insurance-type system would be the fairest. President Obama tried but was unable to make provision for a much less socialistic, affordable long-term care option within the Affordable Care Act.