Thoughts on Long Term Care Insurance

[QofQuimica]

One of my finance profs apparently starts advising clients to consider LTC plans around age 45. Not only does that seem kind of early to me (most sources I've read suggest more like mid 50s), but IMO there are a lot of strong arguments against buying them, including the risk of the insurance company going out of business some time during the next approximately three decades before a 40-odd-year-old is likely to need LTC, and/or inadequate coverage for ever increasing premiums, especially if you have a plan without inflation protection.

Curious if those of you who are middle aged are buying one of these (or plan to buy one). I've basically decided to self-insure (i.e., save some extra money on top of my retirement money) rather than buy one. If I never need LTC, then this strategy has the added bonus that the money will go to my heirs instead of to some insurance company.

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[MD Financial Services Scott]

One of my finance profs apparently starts advising clients to consider LTC plans around age 45. Not only does that seem kind of early to me (most sources I've read suggest more like mid 50s), but IMO there are a lot of strong arguments against buying them, including the risk of the insurance company going out of business some time during the next approximately three decades before a 40-odd-year-old is likely to need LTC, and/or inadequate coverage for ever increasing premiums, especially if you have a plan without inflation protection.

Curious if those of you who are middle aged are buying one of these (or plan to buy one). I've basically decided to self-insure (i.e., save some extra money on top of my retirement money) rather than buy one. If I never need LTC, then this strategy has the added bonus that the money will go to my heirs instead of to some insurance company.

I think LTC is important to plan for either out of your pocket or paid by insurance carrier but plan for it either way. In the US the cost goes from about $150 per day of normal care to in excess of $300 per day in some areas. Now $150 or $300 does not sound like much but X365 turns into a real number especially if it is X 2 because of a spouse then by 3-5 years. Assuming $250k of expenses and about 1/4 people have that need then you have to decide pay the premiums which might be a few thousand a year (1-2% of the assumed risk taken by the carrier) or take the risk of 100% exposure of the expense yourself. Look at like this the carrier say "lets take the risk for those 4 people, charge them 1-2% of the anticipated risk ($3-5k) per year. Our premium flow is $15-20k per year X 25 years so we make $375-500k and have an actuarial exposure of $250k so assumed gross premium before expenses of $250k". Not a bad model unless the claims happen quicker or they happen more frequently than 1/4. For the individual I find most think about the all or none....which is I have coverage or I don't and they have never been told that you can buy partial coverage. We have a number of people buy $100 per day when the area they live in is $200 per day, they have assets and use this as a 'crutch' to help pay rather than to pay for the services. I also think the hybrid model is the best which is where you buy a contract, premiums are fully guaranteed, if you need the LTC great benefit is there, if you don't and die then the benefit is paid out in death benefit. My point is someone somewhere gets the money if LTC is not needed but if it is needed then you are covered for LTC as well. Certainly at under age 55 I would be hard pressed to have a client buy a non-guaranteed premium. Hope that helps!

 

[QofQuimica]

Partial insurance does partially solve the problem of astronomical premiums, but it doesn't address many of the other serious concerns, like the risk of your insurance company going belly-up over a period of multiple decades during which you must pay premiums. And premiums are still high, and they continue getting higher as you age, because the insurance company merely raises them for your entire class even if they can't raise them on you individually. It's also the case that most NH stays are much shorter than what the industry advertises. If you're in the NH for less than three months, that expense will likely not even be covered. Many plans also don't cover options like ALFs or home health care, which are significantly cheaper than full blown NH care and much more likely to be used over the long term. Finally, insurance types tend to neglect to mention the most commonly taken option of all in this country when faced with ruinous NH bills: spend down one's assets and go on Medicaid.

While I like the idea of a "hybrid plan" in principle, I'd still argue that if you can afford those premiums for 30+ years, you can likely afford to just self-insure. Of course, that also requires having the discipline to self-insure in one's 40s or 50s, which is another issue entirely.

 

[MD Financial Services Scott]

Partial insurance does partially solve the problem of astronomical premiums, but it doesn't address many of the other serious concerns, like the risk of your insurance company going belly-up over a period of multiple decades during which you must pay premiums. And premiums are still high, and they continue getting higher as you age, because the insurance company merely raises them for your entire class even if they can't raise them on you individually. It's also the case that most NH stays are much shorter than what the industry advertises. If you're in the NH for less than three months, that expense will likely not even be covered. Many plans also don't cover options like ALFs or home health care, which are significantly cheaper than full blown NH care and much more likely to be used over the long term. Finally, insurance types tend to neglect to mention the most commonly taken option of all in this country when faced with ruinous NH bills: spend down one's assets and go on Medicaid.

While I like the idea of a "hybrid plan" in principle, I'd still argue that if you can afford those premiums for 30+ years, you can likely afford to just self-insure. Of course, that also requires having the discipline to self-insure in one's 40s or 50s, which is another issue entirely.

You are certainly right, companies do come and go....but not that often. When they do happen to go the products are almost 100% of the time taken over by another carrier for servicing that business, in fact after 22 years in the insurance business I don't know of a single Life, Disability, or LTC company that has went out of business and no other company stepped in to take over their operations. As for your point about the rates can change for the Class of insured's, that is correct by virtually all traditional policies being sold today. There maybe a few limited pay contracts out there but it is state dependent as to what one can acquire. However when we deal with the hybrid contracts those rates are fully guaranteed and the carrier Never has the right to adjust the premium individually or as a group. I am not sure what products you have looked at but the better companies / products out there typically have the at home care, custodial care, nursing home care all bundled up so that is surprising to me that what you looked at did not have that coverage at least as an option. In regards to the spend down clause and the ability to go broke so you get free care, one can certainly do that but be very careful as the government has a number of rules on what you can give away, when you can give it away and what they can go retrieve from those that you spent/gave money to. I know I personally am not planning on going broke to get free care, especially since free care does not come with many choices on where I am cared for!

Everyone has to come to grips with how they want to build in their protection and if you are comfortable taking that risk and not insuring it away then I think that is great. If that theory changes just get in touch with someone who is specialized in Long Term Care in your state of residency and see what your options are. Just the same but in a different order if one buys Long Term Care but over the years builds significant wealth then they may want to drop a policy at that point. The answer is never the same for two people and I believe that every year one needs to ask the question, 'do I buy it or not, do I drop what I have or keep it'.

 

[The White Coat Investor]

I think most docs can and should self-insure this risk due to their ability to do so and the risk of paying premiums for years only to have the company go out of business.

 

[dpmd]

Another factor is that as physicians we are likely to have advance directives that will lessen some long term care costs (none of this being in a snf on tube feeds crap for example, in fact there aren't a lot of scenarios where i would imagine being ok with an extended snf stay at all-it will be hospice or something a little more active before it gets to that).

 

[QofQuimica]

Another factor is that as physicians we are likely to have advance directives that will lessen some long term care costs (none of this being in a snf on tube feeds crap for example, in fact there aren't a lot of scenarios where i would imagine being ok with an extended snf stay at all-it will be hospice or something a little more active before it gets to that).

Sorry I'm responding to this late; didn't see it until now. But the scenario I was envisioning is more of an Alzheimer's type of scenario where you are possibly going to require around the clock custodial care for several years without necessarily requiring high amounts of invasive medical care. In addition, things like tube feeds are not necessarily going to be permanent, or if they are, you or your family may feel differently about them at the time that you need them than you do now. I've read several studies regarding people's take on quality of life for these issues; those who are seriously ill don't always feel that their quality of life is so low once they're in that position compared to what they thought they'd feel about it when they were young and healthy. Ultimately, I think having a good HCP who knows you well and understands your general philosophy is important. You just can't plan ahead for every possible scenario in an advance directive.

I think most docs can and should self-insure this risk due to their ability to do so and the risk of paying premiums for years only to have the company go out of business.

Yes, that's what I ultimately decided to do. Since I'm setting aside that money now, in my early 40s, it will have a few decades to compound, and it won't ultimately be that much extra that I have to save.