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About this blog: I developed a special interest in helping seniors with their challenges and transitions when my dad had a stroke and I helped him through all the various stages of downsizing, packing, moving and finding an assisted living communi...  (More)

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Long Term Care Insurance - Friend or Foe?

Uploaded: Mar 15, 2016
I'm 62, near the upper limit age-wise of when someone would/should/could be buying long term care insurance. I'm on the fence. I can't decide. Should I spend approximately $5K/year on a premium that could provide 300K or so of in-home or nursing home care should I need it sometime down the road? So, let's say at age 85 I need the care: I'll have paid $115K in premiums over that 23 year time span. If I use the full 300K then it looks like it's a pretty good deal. If I don't, not so much, except it does mean my health remained relatively in good stead.
I would love to hear from anyone who has made the decision to buy LTC insurance, and especially from folks who have actually used it or have parents or friends who have. Any issues with the insurance company when it finally came time to use the benefit? Have you seen premium rate increases since you bought it? While you can buy "level" premium LTC insurance, there is some fine print that states there is always the possibility that the premiums could increase if the government approves the insurance company's request to do so. The company I'm looking at says they have had an increase and the rate was between 0-40%! How's that for a ballpark? Has an increase happened to anyone and how much was it for?
Please share your experiences based in fact as opposed to "I heard about this guy..."
Local Journalism.
What is it worth to you?


Posted by Norman Beamer, a resident of Crescent Park,
on Mar 15, 2016 at 6:45 pm

Just like any other insurance. If you can afford it, pay for it. If it ends up that you need it, you avoid financial disaster, or at least it is less disastrous than would otherwise be the case. If it ends up you don't need it, be thankful of your good fortune. (And your premiums helped the insurance company pay to help the other folks who needed it, not to mention paying the salaries of the insurance company employees.) If you can't afford it, don't do it. Trust in fate.

Posted by Reader, a resident of another community,
on Mar 16, 2016 at 2:02 am

I could be wrong, but I think most current long term care insurance plans pay for up to only 2 years of full-time institutional care.

Alzheimer's disease (AD) is probably the biggest reason why people end up in institutional care. I think the average life expectancy, from the time of diagnosis, is about 10 years. I know of some people who lived some 20 years after they were diagnosed with AD.

Posted by Brad, a resident of another community,
on Mar 16, 2016 at 6:46 am

Hi, a book could be devoted to the topic of how to plan for possible long term care expenses. I have done quite a bit of research o this topic. When I was about age 52 I purchased a traditional LTC policy, but when I married for the first time at age 57 my wife could not qualify for a traditional long term care policy so we purchased a joint hybrid/whole life ltc policy, and I cancelled my traditional ltc policy. I was always a little concerned about whether the the policy provided real value. I did my own analysis, and compared some on-line ltc quotes to my own policy, and in the end I came to this conclusion. If you can afford the premium (over your lifetime not just the initial premium as premiums can increase over time) then the decision really comes down to do you want to spend say $100K for sure (the long term care premium) to maybe save about $400K 25% of the time (which represents the amount of instances that your long term care expenses would equal or exceed $400K). I did find an actuary, Jack Paul, who can perform an analysis of your ltc policy compared to your health (via 2 health questionnaires) to give you a better idea whether the ltc policy you are considering purchasing is a good value. His website is here. Thanks, Brad.

Web Link

Look at the Aug 7 and Aug 17th blog posts to get an idea how his PDRP Plus system works to provide you with an analysis of the value of a long term care policy based on your particular health.

Posted by spudguy, a resident of Downtown North,
on Mar 16, 2016 at 2:11 pm

I have done research on this topic, and will share my findings and conclusions. I did some deep analysis on this area about 2 years ago. Here's what I found:

- Unlike traditional insurance, LTCI is a volatile market. What you start paying now can escalate double digit increases, and there's also no guarantee that your provider will stay in the market.

- If you model outcomes, you will find that a lot of late life outcomes are not long, drawn out stays in a nursing home. 65% of those who enter nursing homes due to LTC needs pass away within a year. Average life expectancy is 2.4 years after entering such a home.

- So, buying LTCI pays off only in the exception cases. It is a protection plan for catastrophic cases, and when the conditions are exceptional. Note also: LTCI has very specific coverage conditions, and is not for general nursing home coverage. Many folks don't realize that and get denied claims when they thought it would be covered.

- Based on the above, if you can save enough to cover 3-4 yrs without impairing your legacy plans, you're in relatively good shape.

- The industry has about a 60-65% payout rate, which is very, very low for an insurance product. This along was enough to convince me it was not a good buy.

- If you are very affluent, it's better to self-insure

- If you are lower income, Medicaid will cover (with the standard Medicaid caveats)

- If you're in the middle, it could be appropriate, but only if the above is considered.

My last comment is that it has been a few years since I did this research, but I don't believe that things have changed much. I'm not a fan of this and will be self-insuring. I hope that helps you with your thinking, though I would recommend additional research to validate what I (and others) have found.

Posted by spudguy, a resident of Downtown North,
on Mar 16, 2016 at 2:20 pm

Oh, I forgot to also add that many retirees struggle most with the fact that they are often living on planned, fixed incomes, and when they start seeing annual double digit premium increases, they are less able to support the LTCI payments ongoing as they escalate.

Also - in case I wasn't clear, most plans require a trigger of requiring assistance with at least 2 of 3 ADLs (activities of daily living), before qualifying for benefits. ADLs are things like bathing, eating, dressing...if you can do all those things independently, you don't qualify for benefits. Cognitive disfunction (like Alzheimer's) is a special case that may or may not trigger benefits, depending on the policy conditions.

Posted by spudguy, a resident of Downtown North,
on Mar 16, 2016 at 5:03 pm

Sorry for yet another comment, but...

Max, I suggest that you re-do the math and assume a 10% rate cost increase for your model annually. I think you'll find over 20 years, that $5k payment grows a lot, and the total ends up being closer to $300k outflow over 20 years. Don't just multiply 20 X $5k.

Of course, medical expenses are growing pretty fast too, so...

Posted by LTC Global Agency, a resident of another community,
on Mar 17, 2016 at 3:36 am

Premium hikes are part of the long term care insurance industry. But you shouldn’t worry too much since there are variety options that can help you cut your premiums. Since you are just considering purchasing, it is recommended to request for long-term care insurance quotes first in order to find a policy that is within your budget and can cover your long term care expenses.

With the way the cost of care is increasing today, getting covered is best. For everyone’s reference the annual cost of an assisted living facility is $43,200 and has a 5-year annual growth of 2%. As for a semi-private room in a nursing home, it will cost you %80,300 annually and a private room will cost you $91,250 annually.

Paying for these costs out-of-the-pocket is not recommended especially if you will need extended care since you will end up exhausting your assets and becoming a burden to your loved ones.

The bottom line here is this, long term care insurance is a friend.

Posted by Been there, a resident of Another Palo Alto neighborhood,
on Mar 17, 2016 at 9:27 am

I would add to this discussion that it's very important to find a really good insurance company. Do they have a reputation for paying claims promptly and without harrassing and making so much paperwork, delay, and bad faith you wish you'd never bought it? There's what insurance covers and what it actually covers, and that comes down to the company. The only way to learn about that is talking to people, looking for who gets sued for bad faith, etc. If people who have the insurance like their agent, etc, have something very different to say than people who have had major losses, that's an insurer to avoid. Usually try to find a few people because insurers will sometimes handle some people as special for cover... That advice goes for all insurance. (Except medical, they all stink, but medical isn't really the same.)

Posted by Max Greenberg, a resident of Midtown,
on Mar 17, 2016 at 1:57 pm

Thanks everyone for all the great comments and bringing to the forefront more things to consider. Spudguy: I was just wondering where your information regarding planning for a 10% annual increase on the premiums comes from? According to my NY Life agent, in the 28 years NYL has been selling LTC insurance, they have had only 1 rate increase and that was 13% 3 or 4 years ago. I am aware that despite being called "level premiums", the insurance companies can petition the state to raise those rates, but it seems like it doesn't happen that often. Obviously a 10% per annum rate increase would double the premium in about 7 years (if I'm using the right formula.)

Posted by Grumpy Old Guy, a resident of Palo Alto Orchards,
on Mar 17, 2016 at 2:49 pm

I would recommend reading the fine print.

First, most policies require a waiting period before it will kick in. That's fair, but you'll be surprised at how long some waiting periods are required before the policy kicks in. That's when you need the help the most.

2nd, I was also shocked to discover that some policies have upper caps on their payout. The cap was the total amount of premiums paid into the system. Thus, if you've paid into the policy $125,000, their cap on payout is $125,000. (with no accounting for growth in value).

I don't have an alternative to Long Term Care Insurance other than to tell my kids that I'm taking care of them for two reasons - first because I love them; and secondly, they'll have to change my diaper when I'm old.


Posted by spudguy, a resident of Downtown North,
on Mar 17, 2016 at 4:10 pm

Hiya Max,

Thanks for your clarification question. Let me provide more context. Sorry if this is a little long, but it's not a super simple answer, and I think you deserve some details, since this is such an important life decision.

My research is based on an overall collection of data points. Insurance is very state specific, and therefore is driven by local markets and a mix of local and national providers. My research indicates a few common characteristics about LTCI when aggregated:

- Rate increases tend to be chunky, and not gradual. So, you can have periods of flat and then a big, gut-wrenching increase all at once. This is probably why you yourself have heard the increase can be 0-40% (not a helpful range to do long-term modeling).

- The industry has had viability challenges. That is - many providers have exited the LTCI business altogether. Aggregate data of current providers may provide you with 'survivorship bias', and not look at data of past providers who had rate increases that aren't in your sample set of multiple quotes. Basically, you need to include insurance companies that have exited the business to get a try historical record.

- The industry has had challenges because medical costs are notoriously difficult to predict and have a lot of inherent volatility (we all know about 'skyrocketing' medical costs). There has been a high rate of inflation with things like hospice care and in-home care, and the insurance companies were losing money without significant rate increases. You can also look online with the track-record of customer satisfaction claims...pretty dismal. I think the volatility of costs, coupled with customer dissat on rate increases and claims has forced a lot of providers out of the market, fearful of brand damage.

- My understanding of rate increases is also that they are not a universal increase for everybody, but probably tiered based on the probability of use. That is to say, they may have higher rate increases when you get older and get closer to actually needing the insurance. Imagine paying for 20 years, and then in year 21 they raise your rate by 40% to a level unaffordable. I'm not saying that will happen, but I also am not very confident of protections from that, if any. I'm not sure your agent can give you an accurate statement of historical increases without saying if the rate has held across ALL age groups (I bet it hasn't).

- When I looked at the aggregate results of my research, my estimation was that a roughly low double-digit rate increase per year was a conservative but solid estimate of what could be expected. This is knowingly difficult to model accurately, but was my best simplification to gut-check the rough risk-adjusted ROI of LTCI. My earlier comments are where I netted out.

- You can poke around and some California-specific research by going to the California Department of Insurance site as the historical data is available to you. Start here: Web Link

- The info on the CA site is probably a really good view of the past. It's not the most simple thing to put together, but you can at least see some history. You'll find both existing companies in addition to the graveyard of companies (2-3x more than current) that have left. I think it's worth checking out both to avoid survivorship bias.

- I suggest you also model how much you could have after 23 years if you put the money aside in an investment account instead of LTCI. And bear in mind, you can use that money in the end for whatever you want, and not just for your nursing home needs.

I hope the above helps you in some way. Please make your own best decision, but I'd like to make sure you're armed with the best facts about it. I'm pleased that my prior research can help someone else make an informed decision.

Posted by Not what it use to be, a resident of Palo Verde,
on Mar 18, 2016 at 7:12 am

I am 58 and my parents in their mid 80s..... they were lucky enough to live in an era when LTC policies were robust and reasonably priced.... They are both qualified receivers of benefits and are able to have almost full time in home care..... they have had this now for a few years and knock on wood, looks like it will continue for several more years to come.... It has been a blessing to them, my sister and I. Unfortunately, the insurance companies have changed the premiums/benefits of these policies so the conventional wisdom of yesteryear of having LTC insurance isn't what it use to be. Many of the posts above point out why....

Posted by Not what it use to be, a resident of Palo Verde,
on Mar 18, 2016 at 7:12 am

I am 58 and my parents in their mid 80s..... they were lucky enough to live in an era when LTC policies were robust and reasonably priced.... They are both qualified receivers of benefits and are able to have almost full time in home care..... they have had this now for a few years and knock on wood, looks like it will continue for several more years to come.... It has been a blessing to them, my sister and I. Unfortunately, the insurance companies have changed the premiums/benefits of these policies so the conventional wisdom of yesteryear of having LTC insurance isn't what it use to be. Many of the posts above point out why....

Posted by Miriam Palm, a resident of Old Palo Alto,
on Mar 18, 2016 at 10:45 am

When my husband and I bought LTC ten+ years ago (he was just shy of 60), Met Life's advice was at that time, the average stay in a nursing home was two years. If we would not have enough money to pay for triple that amount = six years = we should buy it, and so we did. I think our premiums have gone up only once in that time.

Posted by spudguy, a resident of Downtown North,
on Mar 18, 2016 at 2:37 pm

Hi Miriam,

MetLife exited LTCI as a business back in 2010. I think they still have to support enrollees who started prior to that. Some backstory here: Web Link

They also tried to increase rates 58% in 2013 in the state of CA, but were denied permission for this increase.

They are one of many of the providers that have existed this space. One has to remember also that once you exit selling new policies, there's not a high incentive to be good at processing claims, since you're not trying to generate new business and are only thereafter trying to minimize costs (i.e. paying for services).

Posted by Max Greenberg, a Palo Alto Online blogger,
on Mar 24, 2016 at 8:53 am

Max Greenberg is a registered user.

Wow - more responses and info than even the Baby Boomer Guru can process. Thanks to everyone who contributed. Still need more info on rate increases that policy holders have experienced. My NYLife agent claims only one rate increase (a couple of years ago) in the 20+ years of them selling LTC, and it was aaround 14 percent. So if anyone has direct knowledge and experience with rate increases, please chime in here.

Posted by Pat Hukill, a resident of College Terrace,
on Mar 24, 2016 at 1:29 pm

My husband and I bought LTC insurance about 20 years ago through CalPers. I paid $50 a mo for mine for Nursing Home and Assisted Care only with iflation coverage built in.There have been a few increases over that time but in 2014 they announced that there would be an 85% increase, yes 85%. In the next 2 years they offered an option of giving up inflation coverage and having the rate stay the same. It is difficult to know what to do. The new rate is $138 a month and it could continue to go up. I know CalPers lost a lot of $ a few years ago so I know the why but the loss of inflation coverage would mean a lower payout to me as nursing home rates rise. Any wisdom?

Posted by spudguy, a resident of Downtown North,
on Apr 11, 2016 at 10:42 am

Hiya Max,

Probably my last post on this topic, but I found this, so thought I would share. You're looking for some real live examples, and this site has about 200+ reviews of various companies and various experiences.

Bear in mind, people who are most frustrated will likely vent their experiences in this sort of forum, so take it with a grain of salt. Still - you can see a very common trend across companies and in different states that the industry has a lot of chunky rate increases that really hurt seniors. Note also, some of the complaints about claim avoidance, etc.

Take a closer look here:

Web Link

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