How to Fix Long Term Care Insurance

[Justin Bilyj]

Kitces: How to Fix LTC Insurance | Financial Planning

Yet long-term care coverage has a challenge: What was once believed to be a higher-cost, lower-probability event has now turned into a very high-probability event with an increasingly large volume of lower-cost claims. As a result, long-term care insurance has begun to morph from effective insurance into something that looks more like just prepaying long-term care expenses in advance — at a high premium rate and with little insurance leverage.


With long-term care insurance, the deductible can range from 0 to 365 days, but over 90% of long-term care insurance buyers get coverage with a three-month elimination period.

Yet with an average length of stay significantly longer than this, the deductible isn’t actually achieving its purpose of carving out high-frequency small claims. (Remember that in the long-term care world, a year or two is a small claim, whereas a large claim might be five-plus years of care.)

What would a more effective, higher-deductible LTC policy look like? Imagine a policy that has a five- or 10-year (or even a lifetime) benefit period, but a two- to three-year elimination period to go along with it.

Interesting article to say the least...

 

[Mr_Ed]

Kitces: How to Fix LTC Insurance | Financial Planning

Yet long-term care coverage has a challenge: What was once believed to be a higher-cost, lower-probability event has now turned into a very high-probability event with an increasingly large volume of lower-cost claims. As a result, long-term care insurance has begun to morph from effective insurance into something that looks more like just prepaying long-term care expenses in advance — at a high premium rate and with little insurance leverage.


With long-term care insurance, the deductible can range from 0 to 365 days, but over 90% of long-term care insurance buyers get coverage with a three-month elimination period.

Yet with an average length of stay significantly longer than this, the deductible isn’t actually achieving its purpose of carving out high-frequency small claims. (Remember that in the long-term care world, a year or two is a small claim, whereas a large claim might be five-plus years of care.)

What would a more effective, higher-deductible LTC policy look like? Imagine a policy that has a five- or 10-year (or even a lifetime) benefit period, but a two- to three-year elimination period to go along with it.

Interesting article to say the least...

a) any "study" that focuses on nursing home stays should just be thrown out. Less than 15% of the people who need long-term care are in nursing homes. More than 85% of the people who need long-term care receive that care at home. Discussing the probabilities of nursing home stays is useless when discussing the probability of needing long-term care. It's like conducting a census of the united states, but only interviewing Californians.

b) with some companies, the difference between a 90 day elimination period and a 365 day elimination period is only about a 5% savings in premium. 5%!!!!!! (one company has about a 20% savings... most are between 10% and 15%). Even with a 20% savings in premium it shows that the insurers completely disagree with this "financial planner's" findings. He's suggesting that nearly all long-term care claims are "short". The pricing by the actuaries disputes that assertion.

 

[Justin Bilyj]

a) any "study" that focuses on nursing home stays should just be thrown out. Less than 15% of the people who need long-term care are in nursing homes. More than 85% of the people who need long-term care receive that care at home. Discussing the probabilities of nursing home stays is useless when discussing the probability of needing long-term care. It's like conducting a census of the united states, but only interviewing Californians.

b) with some companies, the difference between a 90 day elimination period and a 365 day elimination period is only about a 5% savings in premium. 5%!!!!!! (one company has about a 20% savings... most are between 10% and 15%). Even with a 20% savings in premium it shows that the insurers completely disagree with this "financial planner's" findings. He's suggesting that nearly all long-term care claims are "short". The pricing by the actuaries disputes that assertion.

Great Response Ed, I liked how you dove into the quoting percentage and the other stats to back up your claim.

 

[billberry12]

"It's like conducting a census of the united states, but only interviewing Californians. "

Perfect example.

 

[yankee466]

I will say that I have had a number of clients over the years say they can handle the first 2-3 years of expense on their own....so they wanted the big elimination period, but it does not exist. As pointed out, if I quote MOO with 365 versus 90 days, no one in their right mind would generally choose 365, since it is too small a difference. It seemed like there should be more than there is.

The only option we have now is to cost share with a smaller benefit amount.

It would seems like they could offer a more attractive plan with a 5-10 year benefit and a 2-3 year wait (as an example), but who I am I to question an actuary....and you can possibly also do that with a facility only policy if you had to, so as to eliminate the HHC component.

The stats say the average claim is less than 4 years...so it make sense to price around that.

 

[Justin Bilyj]

If the problem becomes a tsunami in this country; which I believe it will. The best possible strategy would be to get the ball in motion to have seniors look to tackle this problem and the best way I know how to do that would be to make all premiums tax deductible. Im afraid that option could subsidize unintended price increases. I just don't a better way to spur a whole generation to tackle this other than to mandate the insurance like PPACA...

 

[Arthur Rudnick]

orginally posted by emptyeternity


I

f the problem becomes a tsunami in this country; which I believe it will. The best possible strategy would be to get the ball in motion to have seniors look to tackle this problem and the best way I know how to do that would be to make all premiums tax deductible. Im afraid that option could subsidize unintended price increases. I just don't a better way to spur a whole generation to tackle this other than to mandate the insurance like PPACA...

100% tax deductibility of premiums have been talked about since the birth of the planet. Hasn't happened and probably never will. The standard line is that it will cost the government too much. Short sighted thinking in my opinion.

They have also been talking about having LTCi be a part of 125 Cafeteria Plans. You can add that to your wish list as well.

They tried to mandate LTCi with the ACA, remember CLASS Act?
How'd that turn out?

As with most ideas in this dysfunctional government, it's always to "kick the can down the road".

NYS offers a 20% tax credit (not a tax deducion, an actual credit) on the total premium, increased from 10% in 2004. The state is actually paying 20% of someone's premium. Can't get much better than that.

One would have thought when that became law, there would be a hugh uptick in policies purchased. Never happened. Unfortunately, tax incentives don't drive the sale of this product. If a NYS resident buys a policy, it's nice to have the credit, but it wasn't the credit that enticed them to buy.

IMO, there is only one thing that gets someone to purchase a policy. And, that's called "Pain"!

The pain of a baby boomer watching a parent require LTC services and seeing their life savings disappear in a few short years. There's no better incentive than that to get someone to buy a policy.