If you could design “perfect” long term care coverage for yourself, what would it look like?
I recently asked someone this question and she said:
“It should have premiums that are guaranteed to never go up. It should be able to return most, if not all, of my premiums to my heirs if I never need long-term care. It should have some type of cash value so that if I decided to cancel it for any reason in the future I could get most, if not all, of my money back. It should give me the choice to receive my care at home and not just in a facility.”
What most people don’t realize is that policies like this are available and have been available for many years.
To learn more about this type of policy, contact me at:
I was reading an online “newspaper” the other day. There was an article about long term care insurance and the importance of planning for the financial consequences of needing long term care.
I like to read the comments at the end of articles. I often find the comments more interesting than the article itself. I was surprised that a number of people left comments believing that only those with “perfect health” could qualify for long term care insurance. Nothing could be further from the truth!
Since 1995 I’ve helped hundreds of people with health problems obtain quality long term care insurance policies, from highly rated insurers, at affordable prices. The key is knowing each long term care insurer’s “underwriting nuances”.
For example, one long term care insurer might not insure someone who has had a Transient Ischemic Attack (aka T.I.A. or “mini-stroke”) in the past 5 years. Whereas another long term care insurer can insure someone who has had a “mini-stroke” just 12 months ago.
An application submitted to the first insurer would result in an automatic declination. An application submitted to the second company would most likely be approved.
This is an over-simplified example, but it illustrates the central point: Most of the leading long term care insurers have very different ways of determining who is insurable and who is not insurable.
Is there hope for someone who has been declined for long term care insurance? ABSOLUTELY!
For years “experts” have concluded that the long-term care insurance industry is dead. Here are some of the headlines:
“Long-term care insurance begins to fade away”–New York Times, Nov. 2010
and, most recently:
“Dodge the long-term care insurance mess”–Forbes March, 2013
CalPERS plans 85% rate hike for long-term-care insurance–Los Angeles Times Feb. 2013
The CalPERS 85% rate hike on their long-term care policies validates my comments made on the Forbes article.
CalPERS is NOT an insurance company.
CalPERS is NOT regulated by the California Dept. of Insurance.
If CalPERS was regulated by the Calif. Dept. of Insurance, the CalPERS policyholders would have been protected.
Bottom line: The reports of the death of the long-term care insurance industry have been greatly exaggerated.
The facts are indisputable.
- Contrary to what is often published on the internet, 4 of the top 10 long-term care insurers have never had any premium increases on any of their LTCi policyholders. 2 of the top 10 long-term care insurers have not had any premium increases on any of the LTCi policies they’ve sold since the rate stabilization regulations began to take effect in each state (2001-2004). I wish my medical insurance premium was the same as it was in 2001.
- Although those who purchased the CalPERS LTCi policies are faced with a big premium increase, there are over a dozen different LTCi policies that were for sale in California, at the same time, that have not had any premium increases.
- Today, about twice as many people own long-term care insurance as did in the year 2000.
- The industry is paying about $7 billion every year in claims to over 200,000 LTCi policyholders that are on claim.
- While some LTC insurance companies’ sales have been down over the past few years, other long-term care insurers have had growth of over 20% each year the past few years. In this economy, that is a remarkable feat for any industry, particularly long-term care insurance.
- Since the financial meltdown of 2008, two of the top long-term care insurers have even had their financial ratings go up–improving from an “A” rating to an “A+” rating. In fact, those two companies are the only insurance companies to have their ratings upgraded since the mortgage crisis of 2008.
Is the long-term care insurance industry in a state of flux? Of course. Every industry today is in a state of flux. Every industry has been changing rapidly since the mid-90′s and the pace of change is getting faster and faster.
It wasn’t that long ago when personal computers were referred to as “IBM-compatible”. Yet, in December of 2004, the company that set the standard for personal computers stopped selling personal computers. After dominating the PC market for most of two decades, IBM abruptly left the PC market.
No journalist was silly enough to write the headline:
“IBM stops selling personal computers–the future of personal computing is in doubt!”
Yet, in the Spring of 2012, after one of the larger long-term care insurers announced that it would stop selling new long-term care policies, “experts” concluded that the future of the long-term care insurance industry was “in doubt”.
IBM made a simple business decision in 2004. They concluded they were not nimble enough to profit from low-margin, price-sensitive, computer manufacturing.
Insurance companies also make simple business decisions. There are significant overhead expenses to create, market, and underwrite long-term care insurance.
These expenses are incurred regardless of how many (or how few) policies are actually sold. If sales are too low, the overhead costs per policy make it unprofitable for the company to sell new policies.
Those companies that are providing a good product at a good price are experiencing significant growth–some companies as much as a 50% growth in sales in the past two years.
Not only are some LTC insurers growing, but some that had gotten out of the business have decided to get back into the business.
Two highly-rated insurers that sold long-term care insurance for nearly 20 years, and then stopped selling new LTCi policies, started selling new LTCi policies again after significantly reducing their overhead and streamlining their business processes (something every company, regardless of industry, must do today in order to remain competitive.)
Healthcare reform (aka “Obamacare”) does not provide any long-term care benefits. The “CLASS Act” is now defunct. Medicaid is not the solution for long-term care for the middle class or the wealthy.
Long-term care insurance policies are not the perfect solution. But, a well-designed long-term care policy, especially a government-approved long-term care partnership policy, may be the best way to prepare for the “long-term care tsunami” headed to our shores in the next 15 years.
Sometimes even smart people don’t understand long-term care insurance–even if they write for a leading magazine
I understand that journalists don’t have time to check all their facts, but this recent article in Forbes is riddled with falsehoods and half-truths. It doesn’t even read like something a journalist would write. It sounds like he’s just a salesman hawking for “longevity annuities”.
If you want to suffer through the article in one sitting, you can read it at this link.
Otherwise, my response, with quotes from the article, is below.
With 38 years of journalism experience, I am sure that Mr. Baldwin is very concerned about accuracy in reporting. Here are some corrections which need to be made to this article:
Mr. Baldwin states: “You are supposed to start chipping in premiums at a young age like 55, building up equity that covers you much later in life.”
This is a common misunderstanding that most consumers have about long-term care insurance. Many people think that the amount of benefits in their LTC policy is dependent upon how long they have paid premiums. They think that they build up the values of the policy as they pay each premium each year. That is not true. After just one monthly premium payment, the full policy benefits are available for any claim made.
Just like with life insurance if someone pays the first monthly premium and then gets hit by a truck the next day, the full death benefit is payable to the beneficiary. The same is true for long-term care insurance. The entire value of the policy is available for any claim made after just one premium payment.
Additionally, long-term care can occur at any age, not just “much later in life”. One of the leading long-term care insurers reported that about 40% of their claims were for policyholders under the age of 65.
Mr. Baldwin states: “The LTC policy covers only LTC. How do you know that it’s a nursing home bill you will be paying?”
It is true that a long-term care policy only covers long-term care. However, most people who need long-term care never go to nursing homes, especially those who own long-term care policies. Less than one-third of long-term care insurance claims are for nursing home care. Most long-term care claims are for care received at home, not in a nursing home.
Mr. Baldwin states: “The LTC policy permits the seller to change the terms after you have put money in.”
This statement is false. Long-term care insurance is highly regulated by both federal and state laws. No insurance company can change the terms of any long-term care policy. Period.
Mr. Baldwin states: “LTC policyholders have confronted surprise rate hikes on the order of 45% to 85%.”
Some long-term care policies have guaranteed level premiums for life. But most long-term care policies are “guaranteed renewable” which means that the insurer has a limited right to request a premium increase from each state’s insurance commissioner.
In most states the premium increase can only be approved if the insurer has incurred significantly higher claims than the insurance commissioner had originally approved for that policy. In most states, premium increases must go towards paying claims only—not profits. And the premium increases must be shared by all the owners of that type of policy.
Most long-term care policyholders who have had premium increases have had only 1 or 2 premium increases over a 10 to 20 year span. And most premium increases have been closer to 20%, not “45% to 85%”. I’m sure most of us wish our medical insurance had only two increases over the past 10 to 20 years.
In 2004, most states adopted “Rate Stabilization Regulations” for long-term care insurance. Most long-term care policyholders who have purchased their policies after those regulations went into effect have not had any premium increases.
Mr. Baldwin states: “They then have the unpleasant choice of either walking away from the premiums they have sunk so far or else throwing good money after bad.”
This statement is false. Every long-term care policyholder can reduce their benefits at any time. Most people who have had premium increases approved for their long-term care policy have simply reduced their benefits and avoided any premium increase (e.g. reducing a 5% compound inflation benefit to a 4.2% compound inflation benefit.)
Mr. Baldwin states: “Imagine buying a Lexus for $5,000 down plus $500 a month under a contract that allows the dealer to raise the monthly payment if he wants to. Six months in, it goes to $800, and you have a free choice between paying up or handing in the car and losing your down payment. That would be a ridiculous contract to sign. LTC buyers sign contracts like that.”
This Lexus example could only be an accurate analogy if Mr. Baldwin included all of the following requirements for the monthly payment increase:
- The state’s “Automobile Commissioner” regulated how much profit the Lexus dealer could make on each car,
- The state’s “Automobile Commissioner” had to approve any increase in the monthly payment,
- The increased monthly payment approved by the Commissioner had to be shared by all Lexus owners who had purchased cars from that dealer,
- The state’s “Automobile Commissioner” would only approve increased monthly payments after the Lexus dealer incurred higher losses and had much lower profits than the “Automobile Commissioner” had originally approved for the Lexus dealer,
- The “Automobile Commissioner” required the Lexus Dealer to give you the option to keep your payment at $500 but switch to a different Lexus one grade lower, and, lastly,
- The monthly payment increase was required in order to keep all the Lexus owners in their cars, driving safely, and the Lexus dealer in business and able to maintain all the cars and guarantee all the warranties.
Lastly, Mr. Baldwin states: “To collect on an LTC policy, your family may have to put up a fight. For an illustration of the point, read this account in the New York Times of what happened to a woman who bought a policy from CNA and then had a stroke.”
The U.S. Senate Committee on Aging commissioned the federal Dept. of Health and Human Services to conduct an audit of the top long-term care insurers’ claims practices. The 21-month study invalidates Mr. Baldwin’s statement. Stories like this from the NY Times are anomalies. You can download the actual study at the following link:
Scott A. Olson
Nearly everyone who receives care today receives that care either at home or in some type of facility–care that is provided by loving, compassionate people.
I’m quite certain that 30 years hence, care will still be provided by loving, compassionate people either at home or in a facility–making the point of this article moot.
Since HIPAA standardized long-term care benefit triggers in 1996, nearly every LTCi policy pays benefits for care received at home or in a facility.
Over 200,000 policyholders receive over $7 billion each year in long-term care insurance claims benefits. And a federal audit of LTCi claims practices concluded that LTC insurance is working.
Buying a long-term care policy because it has the “alternate plan of care” benefit is kind of like buying a car because it has “fuzzy dice” hanging from the rear view mirror. In other words, it’s meaningless.
Just be sure to buy a policy that has good home care benefits and facility benefits. Don’t worry about the benefit triggers–they were standardized by HIPAA in 1996.
To learn more about the federal gov’t’s audit of LTCi claims practices go to:
Scott A. Olson
Most of what I find on the internet about long-term care insurance is, to put it mildly, terribly miss-informed. This recent article from a website that rates retirement communities was surprising balanced. And the comments by members at the end of the article were very helpful.