I’d be willing to spend a few million dollars buying or leasing whatever technology is available to allow me to remain in my home. But once I need to move into any kind of facility managed by Private Equity, I’m doing euthanasia.
{{ “Demand is rising at the same point that supply is decreasing, and both are happening at a very rapid pace,” said Mr. Shah, chief executive of CareScout, a company that publishes an annual study on the cost of long-term care.
On the demand side of the equation is an aging population. In 2026, the oldest baby boomers will start turning 80, an age when the odds of needing care grow. The U.S. Census Bureau forecasts that the number of people 85 and older will nearly double by 2035 (to 11.8 million people) and nearly triple by 2060 (to 19 million).
At the same time, the care industry has a shortage of workers that is driven partly by low wages. The median hourly wage for all direct care workers was $16.72 in 2023 — lower than the wage for all other jobs with similar or low entry-level requirements, according to an analysis by PHI, a nonprofit research and policy organization. }}
That much money will hire round-the-clock home nursing care as has been done by wealthy people since time began. If you offer double the prevailing wage you will have plenty of applicants.
Wendy (DH and I have long-term care insurance that will cover up to $250,000 apiece of either home or institutional care)
The biggest problems with LTC insurance are the high skim rates on the polices, and the fact that the insurer will fight you on the claim.
It’s much cheaper to cut the insurer out of the transaction and save for this on your own (that’s why I have a few million available for this purpose, if necessary. I wasn’t paying any insurance company overhead & profit over the years.) Then you will be in control of the money rather than an insurer who’s financial interests are opposed to your own.
I’ve watched close up how someone who had LTC insurance ended up “using” it. First of all, I think most policies have an elimination period, in the case that I witnessed, it was 90 days. That means that you are on your own for care for the first 90 days. Second of all, it pays a fixed amount per day, and sometimes a different fixed amount for at-home care. And that amount is usually low and needs to be supplemented with cash. Third, as previously mentioned, usually not indexed to inflation, so the daily benefit effectively goes down with every year that passes.
The case I saw up close was 2 elderly parents, in their mid 90s, both had separate LTC policies. And they had the policies in place for about 30 years. The elderly couple was fine, with very few health issues, and were still somewhat active, but mild dementia had just started recently. The man fell and broke his hip and spent 2 weeks in the hospital until they agreed to repair it (at first they proposed just leaving it because he was over 96 years old already). They repaired his hip. That’s when the LTC elimination period started. Meanwhile the woman (his wife) was at home and deteriorated during those weeks and needed some care, so care was started at 4 hours morning and 4 hours evening for a total of 8 hours, or about $160/day. So her elimination period was also started. Each of their benefit amounts was $120/day which was enough for 6 hours of care. Once the man got home, they got permission to jointly use their $120 (after the elimination period) for joint care, in other words, $240 a day for one person to care for them together for about 12 hours. A week later, the woman dies at their kitchen table during breakfast. So her elimination period never ended, and her LTC policy never paid out anything. The man, due to weakness and mild dementia, was moved to his daughter’s home, and he made it through the 90 day elimination period, and died a few days later. His LTC policy paid for less than a week of care (up to $120 a day).
I don’t know the statistics, but I have to wonder if this elimination period “eliminates” all or most payments from the LTC care policies of many people?
Note that Medicare covers up to 90 days in a nursing facility if you can’t be discharged back to your home after a hospitalization, so I imagine some if not all of the first 90 days could be covered by that. You’d just need your doctors to write the discharge papers in the fashion that maximizes your benefit.
You also need to be careful if you have Medicare Advantage where they have a history of putting their customers on the Do Not Resuscitate list to increase the chances they’ll die as soon as possible and improve excessive Executive Compensation. Some operators won’t even pick you up off the floor after a fall, instead calling the Fire Dept to do it. It’s really a disgraceful business model.
As with all insurance, you hope you don’t need to use it. On the other hand, my father-in-law was in assisted living for a bit over four years and his LTC policy definitely helped.
No, but like with most insurance, you buy it not to cover the common (as Intercst states above, 2/3 stay less than 90 days), you buy it for the uncommon.
If you are in that 1/3 that need care for longer, then it might provide you some value. Note, many policies these days offer in-home care as well so that might provide value too.
I can see that. I can also see intercst’s point earlier about the costs of such a policy over many years, if invested in the S&P instead, might well generate more income overall than these policies would lay out at the time they were needed.
Well, the purpose of insurance (as opposed to investments) is to insure against risks. So if you’re a young person, it might very well be the case that the expected value of a lifetime of investment might generate sufficient return to cover the costs of private self-funded care in your old age and then some. But you also want to protect yourself against a long-tail possibility that you wouldn’t have enough - either because you have an unexpectedly low rate of return on your investments or you need to draw on the policy much earlier than you anticipated.
That’s why it’s insurance. The EV is lower than just investing in the stock market, but the variance is lower as well.
Yes, this is how all insurance works. However, LTC appears to be in the class that is somewhere between “prepaid benefit” and true “insurance”. This is because LTC policies have “elimination periods”, “maximum coverage time”, and “maximum benefits”. For example, it is common for an LTC policy to only start paying out after the first 90 days (as mentioned above), but they usually also have a maximum total period of coverage (of 3 years in this case), AND they have a maximum payout amount (like $165,000).
There are other examples of insurances that is more a hybrid of prepaid coverage and traditional insurance.
Sure, but you also have to evaluate the cost of the insurance vs. the risk/cost of a claim, and the likelihood that the insurance company will fight you on the claim and pay out much less than the cost of the claim. Once you add in the high skim rates on insurance coverage and the poor record on catastrophic claims, it may make sense to retain the risk and go bare.
Latest data shows that 15-20% of Florida homeowners have decided to cut the insurance company out of their risk coverage.
Of course. But most people are willing to pay an amount above the EV of the policy in order to mitigate against the risk of absolute destitution, and lack the resources to mitigate that risk through their other assets.
I agree that once you’ve got millions of spare dollars that aren’t necessary to fund your retirement that you can keep aside to cover the types of expenses that LTC would cover, it probably wouldn’t make sense to have the policy. Because then you can make your decisions based on EV alone. I suspect that most people aren’t in that situation, and need/want to protect themselves against a scenario where they might need LTC unexpectedly soon.
I looked into LTC insurance a while back and concluded it didn’t provide much downside protection. Some of the details are a little foggy, but the jist of it is you have to be in reasonably bad shape to qualify for the benefits. Most people likely would enter some sort of assisted living before they are bad enough that the insurance kicks in so you will already be drawing down assets.
Some of the problems with LTC is that they typically have monthly limits, which might not be enough to protect your assets depending on your level of care. There is also usually a time limit, like five years or something, after which it won’t protect your assets either. You can buy lifetime policies, but they are prohibitively expensive.
If you have a reasonable amount of assets, like say equity from a house, you can buy into an LTC facility. As your care needs increase, they will escalate the amount of care you get. When the buy in is exhausted, you switch to Medicaid and they don’t kick you out. We’re looking into facilities for my MIL, and some of the facilities are quite nice (as in, I wouldn’t mind living there), and the buy-in is negotiable.
So if you have some assets, but not a huge amount, you are protected by Medicaid so you don’t need LTC insurance. If you have a ton of money, also you don’t need LTC insurance. If you want to leave an inheritance, get some of the money out of your name before the five year look back starts, and use the Medicaid backstop.
Yes. Here’s an article from the Journal of Accountancy (Oct 2021) saying that below $200k in assets you don’t need LTC insurance (Medicaid will kick in soon enough) and above $2 MM you’ve got enough to cover the risk yourself. These are high commission insurance products that are sold aggressively.
A net worth of $2 MM doesn’t even get you into the Top 10% (i.e 90th percentile or above.)
I am seriously considering doing so as well. My homeowners insurance (the standard “crappy” policy offered now) is costing me $9000/year for about $530,000 of coverage (minus deductibles, minus pro-rating, etc) so I’m not sure if it’s worth paying that much anymore. The other alternative is to simply sell the house and rent instead but that entails quite a lot of hassle.
OMG, one of my cousins just went through this with his in-laws. They had a ltc policy for a long time and when the dad got sick he was in the hospital for a few weeks and then went home. The ltc insurance wouldn’t pay and only started the 90 days when he got home. After 90 days they reevaluated and gave them a big hassel but finally agreed to pay. They live in NY and care is very expensive but the policy only paid $150 a day, meanwhile with fees they were paying 32-34 an hour so it didn’t even cover 5 hours and they really needed 12 hours or minimum 8. My cousins wife stayed over there a lot to help her dad and even the kids pitched in when possible. In the end he stayed home for a few months and then ended up in a nursing home because he needed full time care. I don’t know if ltc continued to pay but maybe it did. It was reportly a terrible experience.
