When to Buy LTC

The New York Times recently reported that caregiving is set to become the number one profession in the USA by the year 2020, overtaking retail.

This tells us there are a tremendous number of people caring for an individual needing long-term-care (LTC) services.  Whether they are working as a professional caregiver, or are caring for a family member, the stress is similar.  Today I am referring to an April 1 article in the USA Today newspaper concerning the depression that comes from doing this work.

The article mentions that 64% of those caring for disabled veterans have jobs.  On average, they miss about a day of work each week.  Twenty-eight percent quit work due to their caregiving duties.  Sixty percent say they are under constant financial strain.  Many of these caregivers are aging themselves and worry what will happen to the loved ones they care for when they can no longer provide that care.

It has also been documented that the morbidity (health) of caregivers is significantly worse for their entire life, even after their caregiving duties are over.  This is not something you want to burden your family with if it is avoidable.  However, with many states requiring more significant disability to qualify for Medicaid payments for care, many families will be required to step into a caregiving role, whether they have the time, energy, or space to do so or not.

Those who take responsibility for their own care will be able to choose the providers they want, and pay for it.  When I first purchased my LTC insurance policy 13 years ago, I thought it was expensive.  However, over the years that premium has become a smaller and smaller percentage of my income, just like a mortgage payment does.  The benefits though, at a built in 5% compound inflation factor, have kept up with the costs of services I may someday need.   Fortunately, I purchased my insurance at age 52, before several medical conditions became evident that would have made such insurance impossible to get, at any cost.

I know that I can obtain and pay for any LTC that I might need.  Do you have a plan?  Social Security will not be sufficient to pay for care, and with facility care costing between $40,000 and $100,000 a year, most life savings accounts will be emptied very quickly.  This is something that needs to be considered while you are still healthy.  More information is available at www.TheLongTermCareGuy.com

Recently, I have had a few conversations with agents about clients who have purchased the life/long term care products.  Now, it’s no secret that I am skeptical about the benefit of these products for clients (which I’ll explain later). When I share my concerns with the agents, I invariably get the response, “Well, something is better than nothing.”  Is it?

Long term care insurance (LTCI) is a complicated product because many factors need to be taken into account when selecting the appropriate product for the client.  The major questions include how much benefit is appropriate, for how long, the nature of the deductible – commonly called the elimination period, and inflation.

The first factor–how much benefit is appropriate–can be determined by considering how much of the cost of care clients can cover with their own resources—how much they can pay “out of pocket”.  When care is needed, the lifestyle changes that occur at the same time often mean that other areas of spending go down.  For example, they may be able to sell a car that is no longer being driven, will probably travel less, go out for dinner less frequently, and generally be out and about less.  Those dollars that were formerly used for these things can now be reallocated to paying part of the cost of care.  The interest generated on a life savings can also help pay for care, even while preserving the principal.

Selecting the proper product becomes essential in accomplishing what is intended here. If the combination of the clients’ income sources, along with the proposed LTC insurance benefit is not enough to pay the monthly bills for care when that care is needed, the clients’ assets will be depleted.  Eventually, they will become impoverished and need to turn to Medicaid.

Choosing the length of the benefit and the deductible is often a matter of what companies offer and what the clients prefer. Many companies have been shortening the length of time they will provide a benefit. Here too, clients may need to decide how much they can pay for on their own before they would need to turn to the insurance when considering these benefit levels.

One of the most vital items that must  be considered  when selecting an appropriate LTCI product is the impact of inflation on the benefits, especially when the needed care might not start for 20, 30, or 40 years from the time of purchase .  The costs of long term care services (such as assisted living, nursing care, home care, and so on) have been increasing by an average of 5- 6% per year for the past 20 years.   Since about 2008, the impact of the recession has resulted in a slightly lower rate of inflation, but costs will likely accelerate in the future.  The New York Times recently reported that “Caregiving” will become the largest profession in the United States by 2020, overtaking retail.  This is because of some basic demographic changes that are occurring.

My other blog posts have discussed the impact of the aging of the baby boomer population on the demand for long term care services.  Suffice it to say that the unprecedented number of people on the cusp of turning 65—or older—will have an impact on long term care service needs, just as it has impacted every other institution over the past 60 years. Especially significant is the fact that the U.S. Department of Health and Human Services says that at some point, 70% of Americans will need some long term care services.  There are fewer working-age caregivers, compared to the growing number of seniors who will need care.  The market always responds to an imbalance of demand and supply– wages will rise to attract more workers to meet the need.  All this is a recipe for rapidly increasing costs of long term care services.  A benefit that will pay for long term care today will be as useless as having  $1 to fill a gallon gasoline can 20, 30, or 40 years from now.  Thus, purchasing long term care insurance without an automatic 5% inflation factor benefit increase is not in the consumer’s best interest.

So…is something better than nothing?  Is a flat spare tire better than nothing?  You think you are covered in the event of a flat tire, but you have actually lost fuel mileage hauling around that empty flat spare while thinking you had “insurance” against a flat.

Similarly, if you paid LTCI premiums for many years, and then find that the cash flow it provides, along with your other available income sources is not enough to pay for care, you have no choice but to spend assets down to impoverishment and end up on Medicaid.  What good did that policy and all those years of premiums do for you?  They helped you go broke faster, and you still end up on the welfare program called Medicaid.

Long term care insurance is a complicated product.  Decisions made when purchasing it today will affect you many years down the road.  If it does not do what it was expected to do, it was a waste of time and money for clients and provides them a false sense of security.

My aforementioned skepticism about the life/long term care products is that when they were introduced, they didn’t include the inflation feature… and you can see that I think this is essential to protect clients.  The good news is that many products have now begun to include this.  Agents who have clients who can benefit from a life/long term care product have an obligation to seek out the ones that include inflation protection, for the protection of their client.

From time to time, I have even heard some agents say that clients won’t buy the life/long term care policy with inflation because it’s too expensive, so that’s why they sell the ones without inflation. That makes me wonder—is this about making a sale or doing what’s best for clients?

So..is something better than nothing?  I think that when it comes to long term care insurance, in some cases, nothing is, in fact, better.

Seeking expert advice from someone knowledgeable is vital. For more information visit: www.TheLongTermCareGuy.com

Among people eligible for Medicaid but not Medicare, long-term care residents are most likely to be among the costliest beneficiaries for a state, according to a new report from the Government Accountability Office.

Senator Charles Grassley (R-IA) requested the report, noting that much research has focused on those eligible for both Medicaid and Medicare, but has largely overlooked the Medicaid-only group. The GAO findings are meant to guide policymakers’ efforts to manage spending, the report states.

People on Medicaid for payment of LTC services compose only 4.3% of Medicaid beneficiaries nationally, but account for 31.6% of state Medicaid spending in 2009, according to the report.  Dual eligible (those eligible for Medicaid and Medicare) were an even costlier group, accounting for 35.2% of spending.

The remaining third of Medicaid dollars were spent on the 81% of Medicaid recipients who were not receiving LTC services.  As you can see, LTC is the majority of Medicaid spending, both on those who are Medicare eligible and those not yet of that age.  Fully 40% of all LTC services delivered in the USA are used by people between the ages of 18 and 64.

Some articles suggest that one should not even consider LTC insurance until you are 65 years old.  By 65, fully one-fourth of us cannot qualify to purchase LTC insurance due to our medical record.  That leaves us with little choice but to spend down our life’s savings when the need for care arises.   While many do not believe they need to leave an inheritance for family, few people want to leave a spouse or dependents with little to live on.

I occasionally encounter financial pundits who tell clients that their $200,000 or $500,000 IRA or 401K balance will take care of any LTC needs out-of-pocket, no need to buy expensive insurance that may never be needed.  I feel the same way about my car insurance (not needed in the past 25 years) or homeowners insurance (have you seen a single house burn down in your entire neighborhood in the past 30 years?).

Nest eggs are often used in retirement, that is why people saved.  How many will not touch the money, saving it in case LTC is needed?  If the money does not grow significantly, but the costs of LTC do, will there be enough?  Thirty years ago a new car averaged $12,300, gasoline was $1.11 a gallon, gold was $384 an ounce and the DOW was at 3800.

If costs of LTC services only increase at the current rate of 5%, a nursing home will cost $17,000 a month in 15 years and $34,000 a month in 30 years.  Are you prepared to handle those costs out-of-pocket when you can no longer manage on your own any more?  If the assisted living facilities or home care are only half or a third of that, how long will your funds last?

Perhaps investigating LTC insurance might be prudent.  More information is available at https://thelongtermcareguy.com