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Long-Term Care Policies Unpacked

The typical, elderly couple spends about $260,000 on health care and long-term care services during retirement – for the unlucky ones, the amount can be double.  No wonder sales of long-term care policies this year will increase nearly 10 percent, according to the American Association for Long Term Care Insurance.  At the same time, major insurers are pulling out of the market in droves, and premiums are surging due to higher demand by aging baby boomers, record-low interest rates, and rising medical costs.

Larry Minnix

To help navigate this increasingly treacherous market, Squared Away interviewed Larry Minnix Jr., chief executive of LeadingAge, a non-profit consumer organization in Washington.

Q: Is there anyone for whom long-term care insurance does not make sense?

A: Not many.  I’ve seen too much of the consequences for too many age groups and too many families – long-term care just needs to be insured for. A majority of the American public is going to face the need for some kind of long-term care in their family. The only people it doesn’t make sense for are poor people – they have Medicaid coverage, mostly for nursing homes.  And for people who are independently wealthy, if they face a problem of disabling conditions they can pay for it themselves. You find out at age 75 you have Parkinson’s or Alzheimer’s, but it’s too late to insure for it. Think about it like fire insurance. I don’t want my house to burn down, and very few houses do. But if mine burns down, I do have insurance.

Q: The Wall Street Journal reported that GenWorth Financial next year will charge 40 percent more to women who buy individual policies. Why?

A: Among the major carriers, private long-term care insurers have either limited what they’re doing or backed out of the market entirely. You’d have to get GenWorth’s actuarial people [to explain], but let me venture a guess. I’ve had private long-term care insurance for 12 to 15 years, but my wife couldn’t get it. She’s got some kind of flaw in the gene pool, and she was denied coverage. She may be the bigger risk, because I’m more likely to stroke out and die, but she’s more likely to live with two to three conditions for a long period of time.

Q: Your wife wasn’t healthy enough to get coverage?

A. She had some problems when she was 35 that stayed on her medical record. Insurers drew conclusions about that, and she couldn’t get insurance. She’s as healthy as I am. She’s got her problems, and I’ve got my problems. But she’s a woman. Women are at risk to live longer, and insurance companies look closely at when you’re going to die. If you die younger, they’ve done better [financially] than if you die older. She’s more likely to be 95 years old and have five conditions, while my two boys and long-term care are trying to help her stay at home.

Q: What is the best age to buy coverage?

A. They usually suggest in your 40s, but I say the sooner the better. For example, traumatic brain injury peaks in the late 20s and again in the late 70s. For young people, it’s driving and sports and ski accidents. In the late 70s, it’s auto accidents, bumps on the head and other things that create brain injury.

Q: How does someone get started shopping for policies?

A: I would call your financial planner. There are a lot of the affinity programs today.  If you’re a government employee, they’ve got a long-term care insurance program. AARP has one. Find out what they cover, what they don’t cover. What you’ll find out is that Medicare and Medicaid don’t pay, and the only [non-insurance] option you have is to pay out of your pocket or impoverish yourself and become Medicaid eligible. Like many nonprofits, LeadingAge offers retirement benefits through TIAA-CREF. Or try wherever you buy your auto and home insurance. Triple A.

Q: Describe the basic policy features on the market.

A. The policy you want to look at today, depending on your pocketbook, would be one that would cover institutional care at its most expensive, with an inflation escalator. With the most expensive you’re likely to need, you better have coverage. If you go to a tertiary-care institution, you don’t want a policy that denies coverage if that’s where the ambulance wheels you in. I bought a Cadillac program 15 years ago, and it has an inflation escalator. If I had a $150 a day benefit, the inflation escalator increases that 5% per year to cover the inflationary costs of health care. Finally, I would also look for a policy today that covers non-medical services at home, such as meals, bathing, dressing and those things that are not particularly health-care oriented but could mean the difference between your staying at home or not staying at home. I believe you can get that now in the same policy with the long-term care insurance.

Q: I won’t ask you to quote premiums, but do they depend on age?

A. There’s no question about it. My premiums started out 12-15 years ago at about $70 a month. When I turned 62, they jumped 60 percent , and now they’re $129 a month. The paradox is that the older you get your income goes down, and your potential need for this goes up when you’re able to afford it the least.

A: Long-term care insurance is a complex product, so what do boomers need to know about  how it works?

A. Investigate the rating and how strong the company is. The devil is in the details around how eligibility kicks in and whether you can be covered at home or in assisted living versus nursing home care. You want to be sure you can be covered in assisted living, because nursing homes tend to be much more medical. Assisted living is much more residential and is less expensive than nursing home care. Your dollars will go farther.

Q: What are consumers’ biggest mistakes?

A: The biggest mistakes are 1) not buying long-term care insurance at all and 2) not understanding the definitions of what long-term care means. It has its own jargon. For example, how does the policy define long-term care? If it only defines it as skilled nursing, and you don’t qualify for skilled nursing, yet your doctor says you’ve got to put your mom someplace, you may not have coverage. But if the fine print says that if you have two or three or four more deficits in activities of daily living, and we’ll cover you so many dollars a day – whether at home or in the assisted living or nursing home – then you have a policy that can help you.

Squared Away readers, will you share the minutiae of what you learned when shopping for long-term care policies?  You can do so in the comments section below!

10 Responses to Long-Term Care Policies Unpacked

  1. Michael Waggoner says:

    It might be useful to consider long-term care insurance, not just for daily amount and years of coverage, but as a total. ($X per day) TIMES 365(Y years) is the total coverage. Ask where you will get the resources to cover that amount, if needed. Perhaps you are independently wealthy, expect a large inheritance, or have a generous pension or 401(k). If not, either you purchase long-term care insurance, or you risk impoverishing your family.

  2. Chuck Miller says:

    If you have any influence with the HR/benefits department where you work, please have them take a hard look at group long term care coverage. Like other healthcare plans, it’s much more affordable and is guaranteed issue like group life.

    And if you do buy long term coverage, make sure it covers all the settings where care is provided. A significant amount of care in the future will be done at home, not in a facility.

  3. Joe Tomlinson says:

    Stats do indeed show significantly higher claim incidence for females and longer duration claims. It’s a bit of a mystery why companies have traditionally priced males and females equally.

    Some argue that mid-50’s might be a good time to purchase.

    If the financial planner does not have LTC insurance expertise, it’s worth bringing in a specialist.

  4. Mike says:

    One premium remaining to be paid on a 10 pay front-loaded policy. 5% inflation guarantee may be the best financial decision I ever made. Although I hope I never need it.

  5. mike dalton phd cfp says:

    Article is weak on facts.

  6. Kim Blanton says:

    Does anyone else have personal experiences to share that illustrate the roadblocks/ failings of long-term care coverage?
    Please keep those comments coming in readers! Debate and sharing information is what this blog is all about.
    To receive one-per-week emails of the week’s headlines, click here: http://bit.ly/ymcZO7

  7. Murray Gendell says:

    The magazine Kiplinger’s Personal Finance had a very useful article in its May 2009 issue titled, “Make Sure Your Insurer Pays Up,” with a subheading “Long-term Care Paperwork Can Be Overwhelming. Here’s How to Cut Through the Red Tape.”

    http://www.kiplinger.com/magazine/archives/2009/05/how-to-file-long-term-care-insurance-claims2.html?kipad_id=x

  8. Dave G. says:

    I read this kind of article and wonder what experience the expert cited has with long-term care insurance, other than anecdotal or out-of-date examples.

    For example, he talks about being sure your policy covers not just nursing homes but coverage at other settings or at home. Fair enough, but the major LTC carriers stopped selling nursing home-only or home care-only about 10 years ago. And use of ADLs to define eligibility as a chronically ill person is not fine print as the expert claims, but is instead the standard for coverage since the advent of tax-qualified long-term care insurance.

    Another tip off: We were advised to look for a policy that paid for “non-medical” services including “meals, bathing and dressing…” He got two out of three right here, but meals are never covered. Perhaps he meant assistance with eating, as a covered ADL?

    He also made no mention of linked benefits or hybrid coverage, like Universal Life or annuities with LTC benefits or triggers that turn these turn these insurance plans into real LTC benefits. These directly address the #1 concern of anybody considering LTC insurance: The premiums and what those premiums will be in the future.

    Looks like the suitcase made it into the house, but there remains plenty of unpacking left to do!

  9. erik321 says:

    Sorry, but I think that the facts are not really strong.

  10. The cost for long-term care is astronomical and it is only going to get more expensive. This is why it is important to talk about long-term care options and financing while you and your family members are still well. When engaging in this discussion, talk about what type of long-term care each person wants and then determine the pros and cons of each option. Pinterest can be used as a resource for identifying long-term care options and costs.