Should You Purchase Long-Term-Care Insurance?

Ever notice how once you begin thinking of a topic you seem to run into it everywhere? I have recently written posts titled Thoughts on Long-Term Care Insurance and Good Advice on Long-Term Care Insurance and now can't seem to get away from the topic. I have literally seen one article after another on the subject for a couple months now.

Many of the pieces re-hash the same issues -- ones that we've discussed on other posts. But this piece from the Wall Street Journal is a good one in my opinion. It features two "experts" on long-term care insurance (LTCI) arguing whether it should or shouldn't be something that we all use as part of our overall financial plans.

The "yes you need to have it" guy basically says that the poor and the rich don't need LTCI because the poor have Medicaid and the rich can cover costs on their own. (BTW, he doesn't define the poor or the rich, but later in the piece it notes that the "rich" are people with incomes of over $250k per year. I'm guessing the "poor" are those that qualify for government assistance.)

But he argues that the middle group -- which is most people -- do need LTCI. Here's what I think is the most valuable part of his thinking:

The important thing to understand is that there are a wide range of policies offering different degrees of security, but all preferable to taking the chance of being financially decimated. According to estimates done by the American Association for Long-Term Care Insurance, a typical couple buying a shared policy providing immediate benefits worth $328,500 at age 55 pays an annual premium averaging $2,700. By age 80 their joint benefit has grown to $708,000 with the built-in inflation protection. Alternatively, a typical couple buying a shared policy with $219,000 of coverage could reduce their premium by about 20% to 25%. That's a viable option for those who are worried about this risk. If more coverage is affordable, buy more coverage. But some is better than none.

Reading down the piece a bit, the "no you don't need it" guy gets his say. After he argues that LTCI is too expensive and the odds are low that you'll ever use it, he goes on to say that it's certainly not suitable for the poor or the rich, but may be for the middle group -- exactly what the first guy said (for the most part)!!! But he does differ in one major way. Instead of actually buying LTCI, he suggests this solution:

But instead of buying a policy and paying premiums, the consumer could set aside savings for long-term care. At $3,500 a year, in 20 years he or she could have $70,000 plus interest. In the statistical unlikelihood they end up in a nursing home, they could use these savings to pay the bills.

The "yes" guy counters this with:

In theory, it's true, if a person invested $3,500 a year instead of using it to pay insurance premiums, the investment might grow enough to cover any eventual long-term-care bill. But as nice as it sounds, most people simply won't set aside additional savings for long-term-care needs. Moreover, savings of $3,500—should the need for care come sooner than expected—will pay for only $3,500 of care.

Ha! Tell me about it. Most Americans can't be counted on to even fully fund their emergency savings much less save $3,500 a year in addition to it!

That said, if you are disciplined enough, it looks like saving the premiums instead of actually buying a policy is a better way to go. If you need long-term care, you can then use the money to pay for it. But if not, you can use the money for something else. If you buy a LTCI policy, you only have once choice -- use it or lose it.

The piece is interesting reading for anyone considering LTCI and I'd suggest you check it out if you are so inclined.

So to summarize this topic, I'll offer the following:

• If you are poor or wealthy, you probably don't need LTCI.


• If you are in the middle of those two extremes, you have two choices: either save for long-term care costs or buy LTCI.

I know it's not that simple and that everyone has a different situation, but do those two points present a workable "general rule" for most people?

So that settles the issue (for the most part) for us as individuals. But I ran into this piece discussing long-term care issues for our parents -- something we all need to consider as well. Ugh.

Comments

[James]

The real answer is to elect officials who support a single-payer socialized healthcare system, like every other country in the world.

[TLIQ]

"The poor and the rich don't need LTCI" - this line is what really frustrates me with America today. When it comes to almost everything - education, healthcare, social services - the middle class is paying full price for everything. For your education, the poor get financial aid, and if you live in California (like I do), you have Cal Grants and a majority of scholarships that target low socio-economic families. Not to mention the fact that many universities are now offering acceptance based on the fact that some students did mediocre, but because they came from bad neighborhoods or poor families, "succeeded" despite the odds.
On a separate note, I agree with James above.

[Catherine]

I think lumping folks according to poor, middle and rich is too vague. I'm between middle class and wealthy. My options are to remain self insured like most people or get an LTC policy.

If I were single, without dependents, my net worth could cover years of care.

I'm not single. I have a spouse who is dependent upon my income and my retirement savings. If I remain self-insured and needed care, it could exhaust our life savings and leave my spouse destitute in his later years.

I'm not holding my breath hoping for the electorate to wise up and choose leaders with dignity and forsight to tackle this issue. The folks I've known who have needed care either used their LTC policy or lost their homes and left a surviving spouse bereaved and bankrupt. My hope is that we never need to use our policies. In the nearly 30 years that I've been driving, I haven't had to "use" that insurance either.

[Nashville]

I have a LTC policy that I share with my wife. It is not intended to cover 100% of the LTC expenses but to keep our assets from draining away too quickly. Everywhere I look, Assisted Living housing is going up so these investors must think the customers will be there. I believe the extension of lifespan along with the increasing impact of various forms of dementia equals lots of people who will need LTC. I have no children to rely on and wouldn't if I did. I'm a believer in LTC insurance having had both a mother-in-law and a father in AL facilities and luckily both had LTC policies.

And I have lived in a single-payer healthcare system albeit when I was young in Scotland. You have to wait for every kind of health need and what you get is sub-par in both personnel and equipment. We have the best medical services in the world right here and right now. Single-payer health care is another step toward our demise.

[billyjobob]

I agree with James. A country as great as America should be able to take care of its citizens. We're always so willing to help other countries, why not take care of our own first. Health care shouldn't be decided on the basis of your wealth. It should be for everyone.
I think the premimums for LTC are to high. I'm not planning on getting it. I'm pretty much going to roll the dice on this and hope I never need it. If I should ever find myself needing LTC. I figue, I probably will not need my money for other things anyway. So... spend my savings till it's gone and then go on the poor people government plan.

[retirebyforty]

$70,000 + interest isn't going to last long in a nursing home though. I haven't decided yet, but if I can afford it, I would probably buy LTC. Spending the saving til it's gone and go on poor people's plan doesn't sound appealing, but it's probably the best option for many people.

[Old Limey]

There is another option and that is to pay for someone to come into your home and help take care of a terminally ill person. The number of hours required will depend upon the health of the healthy spouse. I have personally known two such couples where the wife became bedridden for many years. In both cases the wives developed Alzheimers. In the first case, the schoolteacher husband retired, cared for his wife and had help for as many hours as needed. He later developed Parkinsons disease but was able to keep going until his wife mercifully died.

In the other case, while I knew the couple, the wife was bedridden and was barely above being a vegetable. The retired engineer husband took care of her by himself and had a person from hospice come into the home for times when he needed to go shopping. Hospice finally decided that his wife was outliving the normal hospice length of time allowed and he then had paid help come to the home. The husband provided all of the care for his wife that she would have received in a hospital, and it's very unpleasant work.

Another couple we know moved into a luxurious assisted living facility while they were both healthy. They sold their home for $900K and bought a nice unit with full housekeeping service. They then paid a substantial amount monthly for meals and all of the recreational amenities that were available. Finally the husband became too sick to stay there and was moved into a skilled nursing facility where he was hooked up to life support for several weeks until he died. There are several levels of assisted living facilities, the one I just described is for people that are still healthy, do not have Alzheimers, but don't want all the work involved in taking care of a home and providing for themselves. The problem with otherwise healthy Alzheimers patients is that they cannot be unsupervised or they can harm themselves by starting a fire or walking off and getting lost.

In our own case we will never sell our home and have more than enough investment and other income to pay for whatever help is needed.

Even a country as great as America will NEVER be able to take care of all of its citizens from the cradle to the grave. Look at Europe for an example of why that doesn't work. My mother, in England, had to wait so long under Britain's "single payer" National Health Service that by the time she finally was permitted to see a specialist for her chronic kidney pain, she had kidney stones the size of small eggs, had them removed, but died soon after at 62.

Last year, my wife's 90 year old uncle, in England, had a lengthy illness, was too sick to visit a doctor, so the doctors came to him. For other necessary services the nurses would come to his home. If he needed tests then an ambulance took him to the hospital to be tested. Those are the kind of expenses for socialized medicine to bear that will bring a nation to its knees, as is happening in many european countries. Not only is healthcare free but so is higher education. England has a Value added tax of 20% levied on everything you buy, a 50% tax rate on income over 150GBP, and yet the country is still in a financial crisis. That's the "Nanny" state for you. It's just sour grapes to gripe about the top 2% and how they are getting richer while the poor are getting poorer - that's not going to change anytime soon.

[Apex]

@Old Limey,

That is a very balanced comment that takes a skeptical view of some of the short falls of govt run health care given that you seem to have political leanings to the left (I think that is accurate based on past comments but I apologize if that is an unfair assessment).

I would be curious, what roll do you believe would be appropriate for govt to take in health care in a way that might work economically?

[Kelly@FinancialBailoutNews]

I'm inclined to agree with TLIQ in the fact that the middle class seems to get no aid of help in financial situations of this nature. If they're the only ones who need to worry about saving for long term care then I'm sure less than a third will actually even consider putting this kind of money away when it can be used in better allocated savings accounts or in other future planning of some sort for them and their family.

[Luis]

Good question Apex. Here is what one pundit says....

http://fareedzakaria.com/2012/07/05/curbing-the-cost-of-health-care/

On this topic, what changes in the new Healthcare law affect LTCI? Will there be more or less coverage for Medicare/Medicaid? Will things get more or less equal? Interesting stuff.

[Apex]

@Luis,

The ACA requires states to increase Medicaid coverage by covering more people up to 133% of the poverty level, or have their federal Medicaid funds withheld. The SCOTUS said that was unconstitutional so states are not required to do so. Some have already pledged not to.

The ACA cuts $500 billion dollars out of Medicare reimbursements to doctors to pay for other increased costs of coverage. This is not supposed to affect individual Medicare recipients but as the program continues to decrease the payments they will make to doctors there are less and less doctors and hospital systems that will take Medicare patients (other than county hospitals and non-profits which are required by law to take them).

[K D]

My parents purchased long term care insurance many years ago. My father is now using his benefits. It seems that there is a large state of flux in LTC insurance at the moment, as the policies written long ago are being used much more heavily than anticipated. If premiums rise too much who will be able to afford them (but not many can afford to be without them either). It seems that when there is a spouse involved it would be prudent to have the coverage, so an expensive illness does not leave a surviving spouse will few resources.

I just read yesterday that 62 year olds are the biggest users of reverse mortgages, the earliest age at which they are available. Heaven help us if people are draining their home equity at such a young age.

[William R. Borton]

Being born in the USA, does not, and can never entitle every individual to unlimited health care.

"Personal responsibility" is not an oxymoron. It is incumbent upon every American to do his/her level best to provide for his/her current and future needs. To the degree that is not possible, inevitably the government will be called upon to provide aid. That aid must be means tested and have limits, or we will surely end up bankrupt as a nation.

That said, planning for all aspects of retirement, including long-term care, is simply the responsible thing to do. There is ample information available to anyone with an Internet connection, regarding the costs of home care, nursing home care and assisted living facilities. There are numerous ways of obtaining quotes for insuring some, or all of the LTC risk. Because you can't insure the entire risk is not justification for insuring none of the risk. You can even estimate how long you are likely to live.

Question - if an individual has the means to buy insurance, and chooses not to do so, and if they then spend down all their assets and leave a spouse destitute, are the taxpayers expected to pick up the tab?

I work with individuals, and there financial advisors, who are able to self-insure the LTC risk, but who may want to explore insurance as an alternative. There are a variety of options available that are worthy of consideration for those who have too much to consider qualifying for Medicaid as their primary LTC strategy.

[Lurker Carl]

As basic health insurance is becoming increasingly unaffordable, so will LTC coverage. Right now, it's cheaper to live year 'round on a cruise ship than in most assisted living facilities. Families will have to take in and care for their own just like they did not so many years ago. This will not be easy as the extended family unit has shrunk in size and those few relations tend to be spread far and wide.

[Matt]

I have refrained from commenting because I think this post has gotten to political. This is a post about whether LTD insurance is right for you. Saying that the government should provide any sort of care from cradle to grave is not the question. It is whether this sort of insurance is right for you and will you CHOOSE to take it.

I know of people who CHOOSE not to have health insurance knowing full well that they will be taken care of. Why do I think this? They are the ones who CHOOSE to buy that new wave runner and snow mobile and forgo health insurance.

So do you CHOOSE to have LTD insurance or not is the question and why?

[Old Limey]

@Apex
Everyone of medicare age already has the opportunity to have excellent healthcare at an affordable price. Those that live in major suburban areas have better oportunities than those living in sparsely populated areas since most HMOs in United Healthcare do not provide coverage unless they can tap into a large number of members. Our HMO is provided by the Palo Alto Medical Foundation which is closely associated with Stanford University. We have fantastic doctors and pay $20 to see our PCP or $40 to see a specialist. There is no charge for diagnostic procedures such as MRIs, Cat Scans, Xrays, Mammograms, or any other tests. We have a mail order prescription company that has 3 tiers of charges, $20 or less for a 3 month supply of a generic prescription, $50 for a 3 month supply of a brand name prescription, and $100 for a 3 month supply of a drug that is not in the formulary. My wife pays $100 for a 3 month supply of two inhalers, the actual cost to Medicare was $683, and $705 each.

I have had 4 outpatient procedures over the last 5 years, two lens implants because of cataracts an arthroscopic cleanup of a torn meniscus in one knee, and a colonoscopy. These cost $150 each for the use of the surgi-center.

Many people are under the impression that the government can run large businesses more efficiently than private enterprise. This isn't true and if you compare private mail companies with the USPS it is pretty obvious.

The European single payer systems even cover foreign tourists at no charge, that's how inefficient they are, and also there are no copays, everything is free. Of course most European countries aren't getting a million new immigrants every year as well as lots of illegals.

There was an interesting article on the Internet today that shed light on our economy. One of the "problems" is that businesses have automated their procedures so much over the last 20 years that they are producing far more goods and services while using far less employees. Obviously no industry is immune to automation but some occupations that require a lot more education are far less impacted than others.