After I wrote Long-Term Care Insurance Overview and Who Needs Long-Term Care Insurance? I received the following email from a reader:
I was privileged to participate in your “Millionaires” services a couple of years ago and continue to be a follower of your blog.
Recently I read your two posts on LTC, both of which laid out some great information. I went down this path a little less than a year ago, and asked many of the same questions and mined much of the same data.
Frankly it confused the heck out of me (and scared me a bit as well). I spoke to a number of brokers regarding LTC, and most came back with proposals centered on the “hybrid” type of option. This has the insurance if you need care and if not you have life insurance left over when you pass. Sounds good, but expensive, and very complex to understand.
Anyway, through my research I stumbled on a broker by the name of Scott Olson. His company is The LTC Shop, he’s licensed in almost all states, and operates out of Washington state.
I found him to be an amazing resource, and he spent many hours with me trying to understand my situation before he even started discussing policy options. He’s been in the industry a long time and has seen many of the issues that gave LTC coverage a bad name (driven by insurance companies underestimating the need for their insurance as the population aged — driving up the premiums each year for holders of standard policies.
In the end he provided me options and per my request priced out hybrid and annuity options. I settled on what I call a standard LTC plan (no annuity, no life insurance, etc). I was close to going the self-insure route until this exercise, but with my wife dealing with cancer (stage 4) I decided to purchase the policy so my children would not have any worries down the road if I needed LTC.
Sorry for the long note, but I thought the background would help. My main point is, if you plan to continue to highlight LTC in your blog, you might want to speak with Scott. Again he is an amazing resource. He’s been interviewed in other blogs similar to yours.
That’s it, just passing along some information for you to consider. Keep up the great work.
I thought it was worth contacting Scott, so I did. He accepted my request to answer some questions via email, and our conversation (questions and answers) will be the heart of this series.
Just to note, there are always disadvantages to various types of interviews. With email, you get the quotes exactly right (there’s no debating that since it’s written by the interviewee himself), but sometimes the back and forth can be clunky (versus a phone conversation which can be more fluid but also difficult to verify exact quotes).
I’ve tried to make this as readable as possible, but there are spots that might be a bit choppy. The responses below have been pieced together from a series of emails in order to try and increase readability. I think it works and hope you find that as well.
If anything is not clear or if you want to ask a question about something, please do so in the comments below since Scott will be monitoring these posts.
To begin, let me introduce him.
Scott A. Olson is co-owner of The LTC Shop.
The following is from his site (edited for brevity by me):
He has over 25 years of experience in the long-term care insurance industry and has been quoted in leading periodicals including Investment News, The New York Times, Business Week, and many more.
Scott has helped thousands of consumers obtain long-term care coverage. He began his insurance career in the mid-eighties, then switched gears and spent four years doing charitable work in the Caribbean. In 1995 he re-entered the insurance industry focusing exclusively on long-term care insurance.
Format for the Series
Over the course of this series, I’ll post my back and forth questions with Scott.
My questions will be in bold italic and preceded by “ESI:” while his responses will be proceeded by “Scott:” so it’s clear (hopefully) who’s talking.
At the end of each topic I’ll add an “ESI’s Thoughts” section that summarizes my take on the issue and what Scott has said about it.
Once that topic is completed and we’re ready to move to the next one, I’ll separate the sections with a series of dashes like this: “——————-“.
With that said, let’s get started…
Paying for Long-Term Care
ESI: Please review the two long-term care (LTC) insurance articles I sent you (Long-Term Care Insurance Overview and Who Needs Long-Term Care Insurance?). What did I (and the commenters) get right? What did we get wrong (or something that needs to be considered from a different way)?
Scott: There were some issues which were not addressed or can be considered from a different viewpoint.
1. You’re correct that it’s about cash flow.
I applaud you for taking a “cash flow” approach to deciding if you can self-fund your long-term care. Most people don’t do that. Most people just look at assets when they should be looking at income.
Retirees generally live on most, if not all, of their income. For most retirees, even FIRE’s, there is no such thing as a discretionary expense. Even charitable giving and providing assistance to family members is rarely considered “discretionary” by the most successful.
Reallocating income to pay for long-term care raises the question, how can you pay for care and keep all your financial commitments at the same time? Asking income to do both is, in effect, double-counting it.
Expecting assets, principal, and capital to both provide an effective income stream for a family’s long-term financial security and pay for extended care at the same time is double counting the assets. And that’s what most people do: double-count.
Typically, someone can only safely conclude they can “self-insure” if they are re-investing $100,000+ every year. If they are, then they can use that to pay for their care each year without invading any principal.
You did your “self-insuring” calculations correctly because a large portion of your assets are not producing revenue at this time. You could turn that $3.2 million into a revenue stream pretty easily to fully fund your and your wife’s long-term care expenses.
ESI: What do you mean by “For most retirees, even FIRE’s, there is no such thing as a discretionary expense”?
I have an annual budget of roughly $100k.
Of that, at least one-third is discretionary (travel, giving, etc.)
Certainly if someone moves into LTC they will have a good portion of their expenses go away, correct? If nothing else, won’t they have reductions in housing and food related costs since that’s generally paid for by the fees to the retirement home (and even if one spouse is in care and the other is not)?
Scott: You make a valid point. In my own life, I don’t see giving as discretionary. Giving to my church, my family, etc…is a top financial priority.
Also, travel doesn’t end when someone needs long-term care. You know all of those “pre-boards” who need help getting onto the plane. Most (possibly all) of them could qualify for benefits under a long-term care policy, if they had one.
My mother-in-law is in an assisted-living facility. She only needs help with showering and with dressing. She’s able to do everything else for herself. One of her granddaughters is getting married in June in Southern California. My mother-in-law will get on a plane and she’ll be there. She would not miss that wedding for anything. We may have to hire an aide to come with us, including an airplane ticket for the aide. Just because someone is disabled doesn’t mean they stop travelling. The travel budget may even be higher.
ESI: I have questions about a line of thinking that comes up a couple times:
You say: “Typically, someone can only safely conclude they can “self-insure” if they are re-investing $100,000+ every year. If they are, then they can use that to pay for their care each year without invading any principal.”
And below that you say, “Again, it’s important to point out that the decision should primarily be based upon income, not assets.”
Why is it that “someone can only safely conclude they can ‘self-insure’ if they are re-investing $100,000+ every year”? I don’t understand what that means.
Also, why can’t someone pay for LTC with a combination of income and assets (i.e. principal)? I think there’s an underlying assumption (or more) that I’m missing.
Scott: The same asset cannot be used to pay for care AND guarantee lifetime income for the healthy/surviving spouse. If it’s used for care, then it won’t be there to provide the lifetime income. Once you begin invading principal the income-generated by the principal is lost.
I used $100,000 but a more accurate description would be “whatever it costs for 24/7 home care for one spouse.” In some areas that amount would be more than $100,000, in other areas a lot less than that.
ESI: Here’s my personal example for item #2 (rounding for ease):
- Total assets: $4 million
- Revenue Producing Assets: $925k in assets generate $83k
- Non-sellable assets (personal residence): $450k
- Remainder of assets: $2.6 million
Certainly the $83k income could be used to support one spouse while the $2.6 million could be used to pay for LTC, no?
In other words, I’m not talking about any assets doing double duty.
Scott: I never said that you were double-counting. Most people double-count. You’re not double-counting.
ESI’s Thoughts
Let’s start with the issue of living expenses someone needs to plan for related to LTC.
I 100% believe that when you decide (or are forced) to enter a LTC facility that your other expenses will go down. I’d even argue that if you have LTC at home that your expenses will decline as you simply won’t be able to do some of the things you used to do.
I’d also say that if one spouse goes to LTC, expenses for the other will probably decline as well.
As you know, I’m a big proponent of giving. But my giving will likely decline (and I think most others would do the same) if/when I’m required to move to LTC (besides, when I pass there will be a ton of giving done based on my current estate plan). I know my travel costs will go down as I simply won’t be as mobile. And my income will likely decline.
So my three biggest expenses — giving, travel, and taxes — will drop, so how could my overall expenses not be lower?
Now as a couple (one at home and one in a facility), expenses might be higher. But I don’t think he’s saying that. I think he’s saying the spouse left at home will have the same expenses as the couple had together, which I would disagree with.
I would have clarified this but we’d already been back and forth on it a couple times and I felt I was wearing out my welcome on it.
The second issue is paying for LTC — whether or not you can use assets.
Initially it seemed as if Scott was saying that you couldn’t use assets as he focused on cash flow. I didn’t know if this was because his intention was to preserve assets (for heirs) or for some other reason.
I didn’t see why assets 1) couldn’t be used to pay for LTC and 2) needed to be turned “into a revenue stream”.
I think we finally got to the point where we agreed that it’s ok to use assets to pay for LTC costs and they don’t have to be turned into a revenue stream to do so, but it seemed like a struggle to get there.
In the end, I wouldn’t say it’s just about cash flow. It’s about paying for an expense from 1) income, 2) assets, or 3) a combination of the two.
Very similar to retirement in that way.
Let’s move on to his next point…
———————————————
Scott: Long-term care is not about nursing homes.
It’s true that when people hear the term “long-term care” they think of nursing homes. And, unfortunately, most of the statistics we have about long-term care are nursing home statistics.
But, the reality is that a very small percentage of the people who need long-term care are in nursing homes. You used the phrase “nursing home” twenty times in your article. I saw only three references to receiving care at home. Those numbers should have been reversed.
Only 13% of the people who need long-term care are in nursing homes. According to the Congressional Budget Office, 80% of the people who need long-term care receive their care at home. (page 20, exhibit 12)
For every person in a nursing home there are six people receiving care at home. To put it in pictures, for every “car load” of nursing home residents, there’s a “Greyhound bus load” of people needing care at home.
Therefore, statistics about nursing home care are not very helpful when planning for long-term care.
ESI: Given that more people have care at home versus in a home, this actually lowers the expected cost of care, correct? All the stats I saw said home care was much less expensive.
Scott: Not necessarily.
My mother-in-law’s assisted living facility costs $200 per day. If she were living in her home right now, her care would cost more than that. If she lived with us, her care would cost less than $200 per day because we would provide some of her care. The main reason the reports say that home care is cheaper is that they are assuming someone needs only 6 to 7 hours of home care per day.
ESI: I want to clarify: Are in-home LTC costs usually (i.e. 50%+ of the time) less expensive than costs at a home?
Scott: There’s no objective data available to answer that question.
For someone who relies on their family members to provide a lot of their care, for that person in-home care costs will always be less than nursing home costs. While that route may be “cheaper” it’s actually “more expensive”.
ESI’s Thoughts
I like the information about in-home versus out-of-home care. He’s correct that I (and probably many others) focus on out-of-home care. And yet most care is done in homes.
This is good information since it could impact decisions for addressing the issue of insurance, self-insuring, etc.
As for costs between the two, when I did research for my initial articles I saw several references to the fact that in-home LTC was cheaper than out-of-home.
Of course, in part that’s because the care is likely being supplemented with care from relatives. But it’s also because you’re not paying for the HOME part in out-of-home (because the person is in their home). That’s a big cost you can avoid by staying home.
I googled to see what I could find on the topic of costs and located this from the government:
Below are some national average costs for long-term care in the United States (in 2016). Average costs for specific states are also available.
- $225 a day or $6,844 per month for a semi-private room in a nursing home
- $253 a day or $7,698 per month for a private room in a nursing home
- $119 a day or $3,628 per month for care in an assisted living facility (for a one-bedroom unit)
- $20.50 an hour for a health aide
- $20 an hour for homemaker services
- $68 per day for services in an adult day health care center
The cost of long-term care depends on the type and duration of care you need, the provider you use, and where you live. Costs can be affected by certain factors, such as:
Time of day. Home health and home care services, provided in two-to-four-hour blocks of time referred to as “visits,” are generally more expensive in the evening, on weekends, and on holidays
Extra charges for services provided beyond the basic room, food and housekeeping charges at facilities, although some may have “all inclusive” fees.
Variable rates in some community programs, such as adult day service, are provided at a per-day rate, but can be more based on extra events and activities.
I’ll let you decide for yourself whether in-home care is less expensive than out-of-home care or not.
If you’d like more on this subject, check out part 2 of the series.
Steveark says
Great information! My wife and I both have conventional LTC policies. We could easily cash flow the costs of care but she feels more secure with the policies and it’s a small cost for her peace of mind. Even so I like knowing more about how LTC works.
Razorback 14 says
Great information about a subject that’s been on our minds for a while.
My wife and I chose to start our plan about 6 years ago, and since it’s a more conventional LTC policy, we feel more comfortable as we move in to our retirement stage of life, which starts in 2020 –
Like many others, we could probably self-fund too, but our LTC policy brings a level of comfort for both of us, so we’re good to go.
Hopefully, neither of us will need to use our coverage for many, many years, but you never know.
Although we’ve already made our decision on LTC, I love learning more about this important subject.
As always, I appreciate you leading the charge —-
Ronald D Schlegel says
Two years ago, at age 61, I was shopping for long term care insurance. After researching the market, I was assisted by my conservative Christian financial planner in my church who steered me toward a hybrid plan “Asset Care IV plan” by OneAmerica. I chose the amount of coverage I thought I would need in 20 years. Basically, the plan will pay each of us, my wife and myself $4,800/month for the remainder of our lives, after burning through the $120k life insurance component over the first 25 months of care. The fixed premium cost sus $16, 180
The great features of this plan are:
1. Care coverage for LIFE.
2. GUARANTEED FIXED ANUAL PREMIUM for just 10 years (10 annual payments of $16,180 annually for our chosen $4,800 monthly payout). Our premium would have been lower if we had chosen a lower monthly payout. We also could have chosen monthly, quarterly or bi-annual payment plans. Annual is the most economic payment plan.
3. Annual premium payment option. By paying once premium annually, I can pay the premium using my capital gains from investments for the year.
4. Comprehensive coverage for all types of care, including home care, nursing care, cognitive care, assisted living, hospice, etc.
5. 3% inflation rider.
6. 60 day elimination period (waiting period) for payments to begin after your doctor declares you cannot perform 2 of the DLA’s (daily living activities).
7. If we never need to care, our daughter will recoup $120k life insurance.
8. If just one of us needs long-term care, the policy will still be worth the investment. The statistics indicate that at least one of use will need care.
I recommend considering this plan. It may be a relatively pricey plan, but considering the fixed premium, lifetime coverage, etc., this is a premium plan. I also recommend first moving to the state where you plan to retire, as insurance costs vary by state, and purchasing your LTC plan by age 55-60, to reduce your premiums.
Scott A. Olson, CLTC says
You’re fortunate to have bought that plan when you did. New applicant rates for similar benefits are about 50% higher than what you’re paying.
Most companies that sell these hybrids have raised their premiums significantly for new applicants over the last 18 months. That’s one reason why I’m not a big fan of the “hybrids”, with a handful of exceptions.
JohnJefferson says
We have had a traditional LTC plan with TransAmerica for about 20 years. Our worry is that they will be sold, declare bankruptcy or devalue the policy in some way. Our fear is that it will not be there when we need it! Is there any way to guarantee coverage?
Malcolm says
If that happens your State reinsurance plan will provide coverage upto a certain limit, depending on your state.
Scott A. Olson, CLTC says
John,
That’s a great question. Fortunately, your coverage is guaranteed by law.
If your insurance company is sold to another insurance company, the new insurance company is legally responsible to pay all claims.
If an insurance company is losing money on their long-term care insurance policies, they can’t just “declare bankruptcy” and “walk away”. They are legally obligated to pay all claims. Current claims and future claims canNOT be wiped out in bankruptcy. Policyholders’ interests come before ALL creditors. If they use up all their LTCi reserves (which is not likely) they would have to sell other company assets to pay the LTCi claims.
Of the 170+ companies that have sold long-term care insurance over the past 45 years, 3 of them are going through liquidation. All 3 were VERY small companies. All 3 had VERY low financial ratings. Combined all 3 of those companies have about 1% of the long-term care insurance policies that are in-force. After liquidating the assets, the regulators will use the guaranty association funds to pay any remaining claims (up to the limits that each state’s guaranty association has).
To reiterate, declaring bankruptcy does NOT wipe out an insurance company’s claims obligations (both current claims and ALL future claims).
Lastly, your insurance company canNOT reduce your policy’s benefits. You can, if you choose to, but they can’t.
Early retiree #19 says
I’m always surprised how people use insurance to provide comfort. To me, knowledge is comfort and with LTC, understanding what is provides or doesn’t is the most comfortable position to be in. A thorough cash flow and asset analysis should determine if one needs LTC insurance or not.
I recently had my dad cancel his $3000/yr LTC policy given he has assets exceeding $5M. At the age of 82, and in good health, between income producing assets and other fixed assets, he can clearly self fund LTC needs whether in or out of his home.
Here’s what Morningstar states about duration of care: 2 years: Average number of years that individuals age 65 and older will have a high long-term care need during their lifetimes. 0.88 years: Average duration of nursing-home stay for men. 1.44 years: Average duration of nursing-home stay for women. 22%: Probability of needing more than one year in a nursing home, men. High premiums for the possibility of using the benefit don’t seem to make sense from my perspective.
The law of averages would say high asset owners can clearly self-fund. After all, insurance is a form of gambling against the odds. With the Morningstar stats as a guide, it seems very clear not buying LTC insurance is the best bet when assets are in your side. As an early retiree myself, due to our cash flow and assets, we have also chosen to self fund.
Scott A. Olson, CLTC says
If your Dad’s policy was a bad policy, then that was a smart decision. If it was a good policy, then that might not have been the smartest of decisions.
getagrip says
With respect to one spouse going into care and the other staying at their home and expenses being lower. I don’t know. Let’s consider a short list of differences between one person in a home after the other has gone to LTC:
Things that likely stay the same:
* Property taxes – same
* Heating/cooling – likely same
* Cable services/Netflix/internet – likely same
* Home maintenance – Same or more likely higher (down one person, may need help maintaining inside or out)
* Insurance payments (car/home/etc.) other than long term care – same
* Medical Insurance premiums/prescriptions – same
* Mortgage/Car loan/other debt payment (I know, people shouldn’t have this, but people do things like take out loans in their names for grandkids college or cars, enter retirement with a mortgage, etc.) – likely same
* Vehicle maintenance – likely same in the short term
Things very likely to be reduced:
* Other Utilities (besides heating/cooling) – likely less, maybe 50% or more less but depends, certainly not gone
* Food – feeding one versus two now
* LTC insurance payment – my understanding is they absolve you of making payments while you are collecting LTC.
* Travel, at least at first and for a while.
Things that may increase:
* Gas and vehicle travel. Likely person is going to visit their spouse frequently, so depends on distance to the facility and how often they drove previously.
* Food – depends on who’s the cook and who’s in LTC. Also if I’m visiting daily or near daily I’m likely eating there and paying for it or eating out on my way there or back because of stress and worry and time.
* Travel – now someone either in LTC or exiting LTC with issues may need more money for travel, can be a wash (e.g. fewer trips per year versus more expensive trips) or not.
* Home Maintenance – As mentioned above you’re one down, may need to hire help.
So while I agree that overall expenses are likely to go down, I don’t know that they come down in a major way for everyone until a person changes their primary situation that was set up for two people. Seems the major reductions are likely in some utilities, some food, reduced travel but only if you did a bunch to begin with, and that you aren’t paying the LTC premiums while the person is receiving the LTC. Many of your other daily living costs aren’t going to change much so I can see the remaining spouse potentially needing 70-80% of their previous cash flow. So you may want to take that into consideration when deciding things.
Xrayvsn says
Yeah I don’t get the argument that you can’t consume some assets at end of life for long term care.
At that point you or your surviving spouse do not need to have 30x annual expenses remaining and can thus either have a higher withdrawal rate or start selling assets to fund.
My beef with long term care insurance is that who knows if the company will be around when you need it. Plus there are examples of people having issues with claims because of exclusions etc.
Scott A. Olson, CLTC says
1) When will you need care?
2) For how long will you need care?
3) For how long will your spouse live after you have passed away?
The value of the insurance is that it solves for these unknowns.
Diogenes says
Thanks, ESI, for this and other posts on LTC insurance. This subject interests me. One thing to keep in mind when considering caring for your loved one yourself, at home, with no help in order to save money is that being a caregiver takes a toll on the caregiver’s health too. If you fall ill from the stress of care giving, who will care for you and your loved one. If you have the means, pay for all the help you can, to stay sane and healthy for you and for your loved one.
Scott A. Olson, CLTC says
Exactly. The problem is that most plans to self-insure turn into wife/daughter sacrificing health/career/grandchildren in order to take care of the parent and save the 401(k). Caregiving duties are rarely spread evenly between siblings. That leads to conflict and strife between siblings, etc…
David D says
We recently checked out 24 hr care at home vs a nursing home. Nursing homes are equivalent to 24hr care, since someone is always available to help. At home 24hr care is substantially more in most places. However, if you can afford it, it would be a nice option to keep loved ones more comfortable in their own home.
I also agree that your expenses go down, if you want them too, when a loved one goes to a nursing home. You typically are not doing as much, at least for the first year or so, as you focus on getting your loved one settled into a routine at a nursing home. Also, the large expense of a nursing home makes people pause their other spending until they get comfortable with the new monthly bill.
Scott A. Olson, CLTC says
Have you had any close family members need long-term care?
David D says
Yes. We have one member who probably should have had some. Another, who has plenty and will be well cared for, and a third who can and probably should self fund. With aging parents, it’s been an interesting and emotional few years.
Phillip says
My comments:
1) When in need of LTC, your life expectancy should be cut shorter, hence spend/depletion of principal is prudent. What are you saving for when you’re close to death? Your heirs can live off their own wealth.
2) I personally believe in the near future, at home care practices will change. More at-home providers will come to homes on a “rotation” basis, serving multiple clients per day for those that don’t need full-time watching, at lower cost than nursing homes and this $200/day figure cited. Early on, most seniors only need help with basic things like light housework, bathing, etc. and can be accommodated by a visit for a couple/few hours a day. Once a senior gets really bad, then they may need 24 hour care but most of the time with this type of at-home care, the caretaker sits around and can watch TV, read, etc. New legal LTC models are needed whereas a low-skilled live-in caretakers who needs to be present 24×7 need to develop. Today, family members and “illegal” live-in caretakers are filling the gap. As one solution, I think Aupairs from overseas will eventually be available for seniors just they like they are for kids today (at a cost of roughly $30k/yr. + room and board). Other countries already allow this and insurance in other countries will even cover this in certain instances.
Scott A. Olson, CLTC says
Phillip: “When in need of LTC, your life expectancy should be cut shorter, hence spend/depletion of principal is prudent.”
Scott: In an ideal world, yes. In reality, not-so-much. What about the husband who gets diagnosed with Alzheimer’s’ in his mid-70’s. How long will he live?
Phillip: “What are you saving for when you’re close to death?”
Scott: Most people who need long-term care are not “close to death”. We’re talking about long-term care, not hospice care. The most common causes for long-term care insurance claims are Alzheimer’s/dementia, paralysis from a stroke, arthritis, osteoporosis, and heart disease. Most of those conditions don’t kill anyone fast. And when I need care, what I’m “saving for” is my spouse. I’m protecting our assets so that her financial independence remains intact. My long-term care insurance policy helps her, not me (and vice versa).
Phillip says
Scott, I get your point but longevity is shorter upon onset of a long-term illness. So let’s say I have heart disease, cancer stage 1, paralysis, etc., I may live, say 10 more years (say with 5% probability). But if I invested such that my retirement planning is currently enabling me to survive for 20 more years (with 5% probability based on longevity charts), then I think it’s prudent to adjust my spending based on a diminished life expectancy due to this event.
Scott A. Olson, CLTC says
That’s fine if you’re single.
Are you single?
Phillip says
No. But IMO, the same principle applies as a married couple. I can anticipate your argument that with one spouse staying at the same house and healthy, the equation won’t work since you need to plan for the surviving spouse. But the longevity equation drops if there is one spouse vs two. Similar to insurance companies, I’m looking at it from an actuarial perspective and looking at self-insuring vs buying LTC insurance. By going the “self-insure” route, I put trust in myself rather than being at the mercy of what the LTC insurance provider will grant me. There are many more options available if I have cash to pay for different options out-of-pocket. This is on top of the general cost/benefit equation of insurance vs self-insurance, assuming you have sufficient assets that self-insurance is an option.
Scott A. Olson, CLTC says
Since you’re looking at it from an “actuarial perspective” please answer this question for me.
How would an actuary answer you if you asked:
“What is the probability I will need long-term care in my life?”
Phillip says
Answering this won’t illustrate my point.
My point is that any insurance policy charges a price that covers expected payout till death, overhead and profit for the company offering the policy. Policy premiums are always statistically a bad bet. This is not to say insurance is a bad thing but something that I avoid if at all possible. With the lack of clarity of what is really covered and not covered (just like health insurance), stability/predictability of future rates, potential future changes to healthcare and policies, lower flexibility vs self-insuring, etc., I’m very wary of LTC insurance. Then on top of this, you’re paying for a statistically bad bet (which is what my actuary sentence was meant to convey).
Scott A. Olson, CLTC says
OK, I’ll answer the question for you.
If you asked an actuary, ““What is the probability I will need long-term care in my lifetime?” The actuary would say: “There is no way to accurately answering that question.”
Actuaries can’t predict if you will need long-term care. An actuary can’t even predict if he/she will need long-term care.
However, actuaries can predict how many people out of 10,000 will need long-term care.
That’s called the law of large numbers and it is why “risk pooling” (e.g. insurance policies) work.
There’s no way of you knowing if you will (or won’t) need long-term care.
You’re not looking at it from an “actuarial perspective” because you’re assuming all the risk yourself. You’re not self-insuring. You’re betting.
That’s OK, though, because in your case it doesn’t really matter if you lose the bet. If you spend your life’s savings on long-term care, only you will bear the consequence.
That’s why it’s more important for couples to own long-term care insurance than single people (unless the single person has heirs that could benefit from an inheritance.)
Phillip says
Hi Scott,
No need to get into a discussion on what an actuary does and what risk pooling means. I think most readers here understand this. Yes, as a risk pool of one party (e.g. no pool at all), it’s a higher risk, higher reward situation. But it’s in my best interest to seek strategies that might be better for me than the “statistical bad bet” that current LTC insurance policies provide. There are certainly cases where I think it’s tolerable to take “bad bets” and buy insurance. But for me personally, I’m taking a pass on current LTC insurance offerings.
Scott A. Olson, CLTC says
Speaking of statistical bad bets, less than 3% of us will get more from our medical insurance this year than what we pay in premiums and deductibles. The odds are 30 to 1 against us. Yet, none of us will go out and cancel our medical insurance because it’s a “statistical bad bet”. In truth, EVERY type of insurance is a “statistical bad bet” for the insured. That’s why it’s not a valid argument to say that you’ll pass on “LTC insurance” because it’s a statistical bad bet. If that’s a valid reason, then you should cancel all your insurance policies.
Scott A. Olson, CLTC says
Phillip: “My point is that any insurance policy charges a price that covers expected payout till death, overhead and profit for the company offering the policy.”
Scott: And those profits are regulated by insurance commissioners (just like utilities’ profits are regulated).
Phillip: “Policy premiums are always statistically a bad bet.”
Scott: Yes, it’s a bet which you hope to lose. It’s called “risk pooling”. By paying a premium I share the risk with everyone else who has the same policy. Ben Franklin started it in Philadelphia way back in 1751 with the first fire insurance company.
Phillip: “This is not to say insurance is a bad thing but something that I avoid if at all possible.”
Scott: You’re right. Insurance is only important for the big things: medical insurance, disability insurance (if you’re not yet able to retire), life insurance (if you have dependents), property insurance, auto insurance and portfolio insurance (aka long-term care insurance).
Paulz says
Just wanted to say thanks! Your blog covers so many fascinating topics, but this one is near the top! I’ve been struggling for months on this topic, so appreciate the post and introducing us to Scott.
Scott A. Olson, CLTC says
Phillip: “With the lack of clarity of what is really covered and not covered (just like health insurance),”
Scott: Every long-term care insurance policy specifically states what is not covered and what is covered. And every LTCi policy has to be approved by insurance regulators in the state in which it will be sold. Every policy lists the “Exclusions and Limitatons”. Every policy defines home care, facility care, and who/what is a qualified caregiver and a qualified facility. This year, the LTC insurance industry will surpass $150 Billion of incurred claims.
Scott A. Olson, CLTC says
Phillip: “…stability/predictability of future rates.”
Scott: New policies have very strict regulations regarding rate increases. You can learn more about that here:
https://www.ltcshop.com/long-term-care-insurance/rate-increases/
Scott A. Olson, CLTC says
Phillip: “potential future changes to healthcare and policies”
Scott: Policy benefits canNOT be changed by the insurance company. Regarding changes in healthcare, I’m pretty sure that 30+ years from now, disabled elders will still need tender, compassionate care from caregivers. I don’t see how that’ll change, do you?
Scott A. Olson, CLTC says
Phillip: “I’m very wary of LTC insurance.”
Scott: Are you aware that over 1,000,000 families have received nearly $150 BILLION of long-term care insurance benefits. My family is one of them. My mother-in-law has so far received almost $200,000 from her LTCi policy (that’s more than 5x what she paid in premiums and she still has about $160,000 of benefits remaining in her policy. Getting her claim approved was incredibly easy. Here’s the trick we employed:
https://www.ltcshop.com/2017/09/27/heres-trick-making-long-term-care-insurance-claims-easy/
Karen says
This is going to get long, but here’s a real story. My parents died within 18 months of each other; they were retired Midwest grain farmers. They had $4 million in farmland assets, and spent about $70,000 annually – 90% of their net cash income after property and income taxes. They did not have any other investments. After dad’s death, mom’s annual expenses dropped to $58,000. (there was some previous conversation about how much living expenses drop at the first spouse’s death). They both had conventional LTC purchased about 25 years b/f Dad died. Mom was 10 years younger than dad. Mom was diagnosed with Parkinson’s when she was 70 & Dad was 80. I kept an eye on their finances and healthcare visits, etc. the last 4-5 years they lived at home.. They were able to live by themselves w/o domestic help until Dad was 90 when he had a massive stroke and died a week later. He did not have to use his LTC. 6 months after dad’s death, mom moved to Assisted Living due to her PD. By this time her LTC company was under ‘receivership’ with the state’s re-insurance department (not sure what all those terms should be) and the state guaranty was $300,000 lifetime benefit which happened to be the same as her original coverage, so no problem there like you have pointed out, Scott. She had a 3 month waiting period before collecting upon entering AL facility.
In this blog’s discussion of cash flow and making decisions easier for children (usually its mostly 1 child that bears the brunt of the care and decisions. In my case the sibling lived across the US from us) – I found the LTC process a positive experience. Upon my dad’s death I also made sure I had every legal document I would need to handle mom’s affairs without a hitch.
Here’s where the cash flow comes in. Mom broke her hip within 7 months of moving into AL. She then needed more care as she became wheelchair bound, so moved to nursing home (NH). Her AL home was in city of 150,000 people where the NH would cost her $12,500/month for a private room. Our rural town of 1200 people had a NH and using the exact same care codes which cost about $6000/month. It was also nearer to me. So I moved her back to her home town.
Had I kept her in the larger city facility, for cash flow reasons, I would have had to start selling farmland which is not a fast process. Would I have had to sell the whole farm to get the best price? Or just 40 acres at a time and take a huge hit on price. Lots of questions. From start to closing, it easily could be 4-6 months. Plus there would have been tremendous capital gains cost as their farmland basis was from 1950’s and this was 2018.
I had a 55 hr week job, a 30 to 80 miles drive to the care centers depending on where she was at the time, and grandkids spread out across the state. It would have been extremely difficult & stressful to keep all those plates spinning including selling hard assets and still my sanity. My dad, had a good business mind and told me once that LTC insurance was a no-brainer – as at that time the annual premium cost the equivalent of 2 weeks of LTC. He fully expected mom would outlive him by many years. In the end he didn’t use his LTC and Mom was in AL & NH for 10 months – 3 months waiting period and 7 months of LTC payments.
My husband & I bought conventional LTC insurance in our early 50’s. Yes- the premium has almost doubled in the 15 years we’ve had it, but so have nursing home costs. I just did a calculation and our annual premium is the equivalent of 1 month private room in skilled care ($7000 annual premium for $250/day benefit – 4% inflation rider, – unlimited payout- includes home health option – 30 day wait) versus $7000 month skilled care cost in our rural area or $13,000 in the small cities our kids live in.
LTC insurance will allow us to pass farmland assets on to our kids & grandchildren. I know we could self insure, but we want to give them a leg up in owning appreciable hard assets and it includes peace of mind for all of us. LTC insurance also allows us to know we won’t be a burden on future generations by paying for our own LTC costs through LTC insurance.
I was an insurance agent in the 1990’s. At that time, we were told that the government needed to get out of paying for LTC (via Medicaid), so there was a national policy push for private LTC. This is similar to when the US policy started Soc Security b/c people weren’t able to save or chose not to save for retirement and many were destitute. Isn’t it interesting that 30 years later, pubic policy hasn’t solved this in an fiscally effective way?
One parting comment – in small communities we tend to know most everyone. While the avg time in a AL &/or NH is about 2.5 years in our area, we know of 4 farm families where one spouse had severe dementia and spent over 10 years in skilled nursing centers before dying. In each case, the spouse was still living. I’ve often wondered where that income stream came from b/c there wasn’t enough farm & SS income to cover the remaining spouse’s cost of living along with the cost of the NH.
Scott, thank you for your LTC educational 3 part series. I will share this with friends and family.
Phillip says
Scott, thanks for your passion on the subject. Let’s not dominate the comments section. You get the last word.
Scott A. Olson, CLTC says
My intention is not to dominate the comments section. However, if you’re going to make a laundry list of half-truths against long-term care insurance, I owe it to the readers of this blog to share the other half of the truth for each of the points on your list.
Phillip says
I need another word now. This discussion could continue as I don’t think my side is a half-truth and your side is the full truth. I could continue my side of the argument but this back and forth is getting too long and I don’t think it’s proper to continue this debate in the comment section of this article. I’m starting to feel like we’re debating politics or religion.
ESI says
It’s often hard to have deep back and forth conversations in a comments section.
I’m working on a solution for this — stay tuned — it’s coming in a few months. 😉
Scott A. Olson, CLTC says
It’s true that long-term care insurance policies have had HUGE rate increases. That’s half the truth. The other half of the truth is that most rate increases have been on policies sold before the Rate Stability Regulation. In the state of Colorado (our host’s home state), one of the top selling LTC insurers has not had any rate increases on any of the policies they’ve sold in Colorado since the Rate Stability Regulation became effective 7/1/2007. You can learn more about that here:
https://www.ltcshop.com/long-term-care-insurance/rate-increases/colorado/
Diogenes says
Phillip and Scott, I personally found your back and forth very helpful. Thank you both!
Scott A. Olson, CLTC says
Glad to hear you found the discussion helpful.
MJ says
Thank you ESI and Scott for all the information you have provided. My husband and our fee-based financial planner do not believe we need LTC and I would say that we are at the high end of the sweet spot. I have a few questions I would like to ask.
1) Most LTC seems to start 30 days after the person starts LTC services and goes for three years. I believe that our finances could handle this and would not want to pay for it through insurance. I am more interested in the worst case scenario-many years needing LTC. Are there any currently available to purchase policies that have $ amount per month that lasts until the person dies but it starts at 3,4,5, or more years after the person starts getting LTC? The cost should be low because the number of people who need it should be very few. Think of it as a very high deductible car insurance for LTC.
2) I have heard that a longevity annuity is another option in cases where you have a long life. You pay now and if you reach say 80 or 85, it pays out a flat $ per month until you die. What are the pros and cons of this option?
3) If I go the self-insure option for up to $500,000 and want a separate account to hold this money so I am not “double counting” as you say, how can I determine how much I need?
4) I do not want to think about Medicaid for LTC, but I like the idea of the state partnership where if I get up to $300,000 of LTC insurance, the healthy spouse could keep that same about of assets and the spouse with LTC could get Medicaid to pay for LTC. This seems to be state based and states laws are less stable then federal so I am not sure I would trust it. If you moved out of state would the partnership benefit be worthless? What are the pros and cons of this?
5) My work recently offered LTC for a reasonable cost but when I looked at the reviews for the company, they were AWFUL. So many cases of people not getting services they paid for and getting hassled. Is this getting worse? I would I know that an insurance company are fairly paying out and CONTINUE to pay out when I need it? Are there policies that designed to make this less of a hassle/risk?
Thank you.
M264 says
Back in about 2005, at around age 40, I bought a conventional employer-sponsored LTC policy through my employer with Unum. Back then is was $25/mo for $250K coverage with 5% simple interest inflation increase each year. It’s now $45/mo.
My mom went into an ALF in 2007. Fortunately, she had an LTC policy with State Farm. She met the requirements for inability to perform two ADLs, and it paid like clockwork, 80% of the bill every month for the two years she needed it. She purchased her policy at age 60 in the late ’90s for $1000 per year, by the time she needed it seven years later it was $1500/yr. LTC policies are much more expensive now.