This information is Macroeconomic because millions of people are impacted by the need for long-term health care. Many believe that Medicare will cover it but Medicare only covers a short term, not the potential years of long-term care.
DH and I bought Long-Term Care Insurance when we were in our early 60s. He pays for his by a tax-exempt transfer from his whole-life insurance policy (which he bought before we met). I pay for mine out of pocket - $1,666 per year. It covers in-home as well as facility care after a 90 day exemption period. (Medicare covers 100 days.) The policy pays up to $7,000 per month, topping out at $250,000.
Every situation is different. It’s worth knowing the terms on the graphic above to understand the options.
Wendy
They left "Activities of Daily Living (ADLs)’ off the list. That’s where the insurance company has the biggest opportunity to cheat you out of the coverage you paid for.
This is a difficult one. On one hand, outside of the Medicaid Waiver program or VA coverage, Long term care is not a covered item and it is often the cost that can become the most expensive and quickly depletes the individual’s assets.
We’ve had both good and bad experience with LTC insurance. For one family member, she completely used her full coverage of $500k. For another, he passed away during the 90 period and saw nothing in terms policy benefits, after paying years of premiums.
Like anything, it’s a tradeoff and a way to protect against a worst case scenario. The pricing of these products have changed dramatically over the years. Many insurers lost millions underestimating the future payout costs. The newer versions are far more expensive or offer more limited coverage.
My personal opinion is for those that can build the anticipated cost into their retirement planning, it’s a better way to go than pay for LTC coverage. But, it’s also a question of personal peace of mind. Either way, it’s becoming way more expensive to fund either in home long term attendant care or facility care.
ADL list is similar to what Medicaid uses for providing and determining the level of attendant care under the waiver program. It’s not an attempt to cheat policyholders but a benchmark. Having said that, the insurers for these policies are looking for reasons not to pay them. They include periodic reviews of the payee’s current status and any potential change in conditions. If for any reason the policyholder’s condition improves, it does reset the 90 day waiting period for coverage to resume.
One of the downsides to family vs a professional in home care is it may not meet the requirements under the policy. So, an individual may be facing as much as $300 a day in professional charges for 90 days to then meet the threshold for coverage.
My parents bought a LTC policy shortly after they were originally introduced and it turned out to be a unicorn. It was affordable, premium increases were capped at a very reasonable % (and would no longer increase once benefits began under the policy), and there was no annual or lifetime cap on benefit amounts. Soon thereafter the carrier (MetLife) exited the LTC business entirely but continued to honor their existing contracts. My mom never had occasion to use the policy but my dad spent 3+ years in assisted living and eventually memory care, and after I spent a few months going back and forth with MetLife about whether he met the ADL requirements, the policy kicked in and was a financial lifesaver.
I work for the federal government, and once upon a time they offered LTC insurance to their employees. Unlike my parents’ policy, these policies were much less favorable to the insured. Premiums increased so dramatically many people wound up canceling their policies before they were able to receive any benefit because they could no longer afford them (the Washington Post had an article about this several years ago). The program has since been suspended. The insurers all seem to have figured out that the economics don’t work unless benefits are curtailed and premiums increased to a degree where the policies don’t necessarily make sense for consumers (MetLife realized this many years ago and simply walked away). My wife and I will be self-insuring our LTC needs.
Here lies the problem for most people (who don’t have sufficient excess savings). $7,000 a month sounds like a lot, but when you look at it in terms of care it’s not enough. $7000 / 30 days = $233/day. That’ll get you at best 12 hours of care, but that is the lowest level of care at under $20/hr (because in most places you can work fast food or a store cash register for $20+/hr). And if you truly need 24 hour care, more than half of the cost will come out of your pocket. And if you want higher level care, say $33-35/hr, then it’ll only get you 7 hours of care a day. For most ailments that require care, that isn’t anywhere near enough.
And the $250k limit might also be limiting in rare cases because that only amounts to under 3 years of care. But statistics show that almost all patients don’t come close to 3 years after requiring such care. Heck, a large percentage don’t even make it through the 90-day exclusion period and NEVER collect a penny from their LTC policy. A close friend experienced this with his mother, she passed before the 90 days had elapsed, and then a few months later his dad passed at 96 days, having collected 6 days from his LTC policy. And these people were in their late 90s and were paying for that LTC care policy for more than 40 years since they began in their 50s.
For anyone with adequate retirement savings, a LTC policy is probably not the right choice. Since you have to pay for much of the care yourself anyway, it is probably more worth it to simply self insure and pay all of it. Of course if you don’t have adequate retirement savings, you have fewer choices and may not be able to do so.
If the benefits were indexed to inflation then it was truly a unicorn.
To use my mother as an example, just placed her in memory care. A very nice place in GA with pretty grounds, various activities, good food (not just opening a can or thawing and nuking). Cost is $6250/month. Add medications, haircuts, manicures, other self care items, and conservatively round up to $7k/month. Between teachers retirement and social security, she gets $5k/month, so a $2k deficit. Mom really didn’t start saving for retirement until around 50 but still managed to accumulate a nest egg of $900k after the sale of her last home (which only netted around $250k). Even if she doesn’t gain another penny in dividends, interest, or capital gains, that amount would give $3,750/month over the next 20 years. Mom is about to turn 87 so 20 years is another overly conservative assumption.
I know mom is most likely an outlier in the fact that she has a state retirement/pension. But someone starting way earlier in their retirement savings could pull it off too.
LTC insurance is an interesting lesson in Lapse Rate or Attrition Rate.
When LTC insurance was first created, it was priced with the same relative assumptions as to the annual Lapse Rate (the rate at which people cancel or otherwise stop paying for a policy) as life insurance. Current annual Lapse Rates for life insurance stand around 7%. Lifetime Lapse Rate for life insurance is roughly 90%. The pricing of insurance to include lapse rates means that most policies are cancelled before any claims are paid ~ nearly 100% pure profit. That also means that you can price them more competitively to gain more business because most policies are cancelled.
That was a major mistake.
LTC insurance turned out to have annual lapse rate less than 1%. Lifetime Lapse rate is about 30%. This meant that FAR MORE policies ended up not being profitable for insurance companies - and why so many have left the business.
I don’t know if I have ever seen or heard of a policy being indexed to inflation (variable rate) but many of them increase the benefits by a fixed percentage annually to account for inflation. All Partnership Plans requires a inflation protection of 3-5% compounded. My state has a mandatory 5% compound increase in the benefits to qualify as a Partnership Plan.
An interesting paper came out from Milliman last December that goes to this:
The average LTC (although this varies a lot) is 2.9 years from data cited by the American Association for Long-Term Care Insurance (AALTCI). The Milliman site notes the total costs average $180,000 for that term, so using 3 years duration for ease of math, the annual cost would be $60,000.
Mark may well be right: it’s cheaper to self-insure, at least for what I imagine is most people here with their income levels and maybe even at double that cost.
