The Long Term Care Review by Duane Lipham, CLTC

The largest open LTCi claim has just topped $ 1.7 million, the AALTCi (American Association for Long-Term Care Insurance) reports. The claimant paid annual premiums of $881 for only three years before becoming eligible for policy benefits 15 years ago. The New York Times phrased it well in an April 25 headline, “When $2,600 in Premiums Yields $1.7 Million in Claims”.

Also, the industry as a whole paid out a total of $6.6 billion in claims to 200,000 individuals in 2011.

The association annually collects data on claims including the largest open claims (still being paid as of December 31, 2011). The second largest claim still open is for a male who purchased his long-term care insurance policy paying an annual premium of $3,374. Three years later his claim began and has continued for just over six years ($1. 2 million in benefits has already been paid for his care).

I often get asked about the possibility of future rate increases for long-term care insurance. Most of the major carriers have experienced at least one rate increase in their 25 - 35 year history in the business. Those that haven’t usually have such high premium costs that they are pretty well insulated from rate increases anyway.

So what should the average consumer know about rate increases? Here are some thoughts from a recent article that appeared in the wall Street Journal’s online edition that provides some helpful information:

“Insurers can’t raise rates on individuals, but they can do so on a defined group of policyholders if they get state approval……

The lesson: It pays to look for insurers that have strong financial statements and conduct significant business in your state.

The majority of rate increases should be over, now that insurers have factored in the impact of low interest rates on their ability to generate income to pay claims and lengthening life expectancies, says Dawn Helwig, a principal with actuarial firm Milliman in Chicago.

But many insurance brokers tell their clients to expect at least one increase in the 20% range at some point. If that happens, most insurers will allow you to reduce the increases in exchange for trims in benefits.”

Another point that should be kept in mind is that not all policyholders see their premiums raise since only certain classes of policies receive the state insurance commissioner approved rate increase. In fact, many policyholders that are clients of the major insurers have not seen any rate increase at all.

A 55-year-old couple purchasing long term care insurance protection can expect to pay $2,700-per-year (combined) for about $340,000 of current benefits which will grow to over $700,000 of combined coverage when the couple turn age 80.

According to the 2012 National Long-Term Care Insurance Price Index published by the American Association for Long Term Care Insurance (www.AALTCI.org) prices for long-term care insurance policies currently being offered are between six and 17 percent higher than comparable coverage a year ago. “Insurance prices have increased as a result of the historic low interest rates and yields on fixed income investments,” explains Jesse Slome, AALTCI’s executive director. Between 40-and-60 percent of the dollars an insurer accumulates to pay future claims comes from investment returns.

The Association annually analyzes what consumers will pay for the most popular policies offered by 10 leading long-term care insurance policies. The study found that the average cost for a 55-year old single individual who qualified for preferred health discounts is $1,720 for between $165,000 and $200,000 of current coverage. In 2011, the same coverage would have cost an average of $1,480 annually.

In addition to across the board increased rates, the Association found that the spread between the lowest cost and the highest cost policy had increased compared to the prior year. “For the 55-year-old single policy applicant the highest price policy cost almost 80 percent more than the lowest priced policy,” Slome noted. “For some categories, the difference was as much as 132 percent and no single company always had the lowest nor the highest rate which is why we stress the importance of comparison shopping.”

The Association study examined prices for single individuals age 55 as well as couples, ages 55, 60 and 65. According to the report, a 60-year old couple purchasing the same level of protection ($340,000) could expect to pay about $3,335 -per-year if both spouses qualified for preferred health discounts. The preferred health discount would save them approximately $500 compared to standard health rates and are a good incentive to act at younger ages, Slome points out. “The available benefit pool for the 60-year-old couple would only grow to about $610,000 when the couple turns 80,” Slome notes. “To have future coverage of $700,000, equal to what the 55-year-old couple would have, they will have to buy a higher, more expensive policy,” Slome explains.

The Association priced policies that included a three percent compound inflation growth factor. “You want the value of the benefit you buy today to grow to keep pace with rising costs,” Slome noted. A policy valued at $170,000 for each policyholder would grow to roughly $300,000 in 20 years. “Married couples have the option of buying policies with a “shared care rider” meaning the combined benefits can be used by either spouse or spouse or split between them.

“For roughly 15-to-25 percent more, instead of having having access to a benefit pool of $350,000, either spouse has access to a combined pool in excess of $700,000,” says Slome. “The ability to purchase a more affordable shorter duration policy but have access to a much larger combined pool of dollars is easy to explain and of great value to the buyer.”

“Over 70 percent of people today buy a 3-to-5 year benefit period,” states Larry Moore, Director of Marketing for American Independent Marketing, a leading national marketer. “When you factor in discounts available to couples, good health discounts and some of the lower-cost inflation options, long-term care insurance can be far more affordable than many people think.”

The federal government publishes their tax deductibility chart each year for those who qualify for deductions for their LTCI premiums on their federal income tax. I usually publish that chart each year to help my clients stay up-to-date on these tax changes each year.

But it has been more difficult to determine the deductions that are also available to long-term care insurance policyholders from their state income tax. Of course, with 50 states to track, it is a major effort to assemble this information and keep it current.

I am glad to say that the American Association for Long-Term Care Insurance has done the work necessary to gather this data and you can find the information at the link listed below. Just visit that page and scroll to the state where you live and it will tell you what, if any, tax deductions are available for you on your state income tax.

You can find the state income tax deductibility list for LTCI by clicking here.

Having an unlimited benefit period coupled with a high daily benefit and 5% compound inflation benefit means that the policyholder is well prepared for almost any long-term care situation that can arise.

Unfortunately, many consumers cannot afford a policy with those kind of rich benefits simply because the premium cost for such coverage is very high. So does that mean that LTCI is basically an all-or-nothing type of product? Is there no middle ground?

Jill Schlesinger, CFP, is the Editor-at-Large for www.CBSMoneyWatch.com and she has written an article that shows how consumers can approach LTCI on a more cost-conscious basis and still get good coverage. Here is an excerpt from that article:

“There is a middle road. On average, women need care for 3.7 years and men 2.2 years. One way to reduce the cost of an LTC policy is to choose a three- or five-year benefit period. Yes, there are some who will need care beyond five years (about 20 percent), but the cost of an unlimited benefit period could outweigh the risk.

Another way to reduce the cost of LTC insurance is to insure a portion of your daily need, rather than the whole thing. As you shop for LTC providers, stick with the highly rated companies with a proven record of not hiking premiums.

The bottom line is that there’s no sure-fire way to eradicate long-term care risk, but at the very least, you can reduce it.”

You can read the rest of the article by clicking here.

I often see persons who are considering long-term care insurance take an all-or-nothing approach to this kind of coverage. They feel if they can’t afford total coverage, then they won’t buy it all.

They often are not perfectly insured when it comes to health insurance, or auto and home insurance. But they take an extreme position on long-term care insurance anyway.

Here is an article that I feel can be well worth considering that discusses the reasons for getting good LTCI coverage even if you can’t afford perfect coverage:

“Don’t let your search (or an adviser’s clamoring) for perfect coverage prevent you from considering policies that are simply good. Indeed, we choose good frequently in our lives — in cars and investments, to name two. When it comes to long-term-care insurance, options other than the so-called best can do more for you and your family than you might realize.

I recently spoke with John Manchester, 60, who runs a packaging business in Hartland, Mich. His mother died several years ago at age 80, after spending time in an assisted-living facility and a nursing home. Before she became ill, in her 60s, her children purchased a long-term-care policy — for about $1,700 a year — that provided $50 a day for life, once a claim was filed. That coverage, when coupled with his mother’s savings, paid for her care without exhausting her estate. “Would we have liked having more than $50 a day?” Manchester asks. “Absolutely. But that money kept us from getting into a serious downward spiral with her assets.”"

You can read the rest of the article by clicking here.

The American Association for Long-Term Care Insurance has published the 2012 tax deductibility schedule for long-term care insurance on their website.

They also provide a nice explanation of what deductions are available to which policyholders. It’s very convenient to have all of this information in the same spot.

Click here to view the LTCI tax schedule for 2012.

More and more elder law attorneys are coming out in favor of purchasing long-term care insurance to protect assets and the ability to choose where long-term care is received. Here is an article from an elder law attorney with over 30 years of experience:

“Having practiced Elder Law for more than thirty years, it becomes more and more apparent to me that our current “needs based” system that provides government benefits to pay the cost of long-term care may become a thing of the past. As “baby boomers” approach their senior years, they should consider the purchase of Long Term Care Insurance to help pay the cost of their long term care needs.

“One of the great benefits of Long Term Care Insurance is that you can access funds when the needs arise for assistance at home. It has been my experience over the years that most people prefer to live at home rather than in an assisted living facility or a skilled-care nursing home. When it is possible, consideration for care in the home should be given to the elderly and if Long Term Care Insurance has been purchased the elder maybe able to realize that goal.

“Even under our current Medicaid system, very little benefit is available for persons residing at home. In the early years Long Term Care Insurance policies were not very good. However, as the insurance industry has become more comfortable with the cost of long term care, the under-writing development of policies has improved greatly. I recommend that those approaching their senior years consider the purchase of Long Term Care Insurance before the costs become prohibitive.”

Mark Clements
Certified Elder Law Attorney by
The National Elder Law Foundation

You can read the rest of the article by clicking here.

Minnesota, Washington and Oregon may have the best long-term care systems available to residents, industry experts say, but all states have a long way to go to offer adequate services for the elderly, sick and disabled.

A report released by AARP’s Public Policy Institute, The Commonwealth Fund and The SCAN Foundation found that states collectively need to improve vastly in areas such as home care, assisted living, nursing home care and support for family caregivers. Additionally, most states need to more efficiently spend the money they allocate to long-term care.

The report measures state systems using 25 indicators in four categories, using data from a variety of sources.

The three states who performed the worst — Mississippi, Alabama and West Virginia — had a limited number of providers, very little support services available for family caregivers and fewer private long-term care insurance policies available for residents.

Minnesota, Washington and Oregon, on the other hand, offered a wider variety of alternatives to nursing homes, such as home health aide services. These states also had lower rates of hospitalization for nursing-home occupants and other long-term care recipients.

You can read the rest of the article by clicking here.

New data indicates the majority of Alzheimer’s cases can be attributed to a combination of lifestyle factors that are under our control. Staying slender and not smoking are just two of many ways to ward off the development of this disease and other forms of dementia. Here is an excerpt from a recent article on the subject:

“The biggest modifiable risk factors for preventing Alzheimer’s among Americans, according to researchers at the San Francisco VA Medical Center, include physical inactivity, depression, smoking, mid-life hypertension, mid-life obesity, low education and diabetes. In analyzing data from other Alzheimer’s studies with thousands of participants, lead researcher Deborah Barnes, Ph.D., found that together these risk factors are linked with 54% of Alzheimer’s cases in the United States (2.9 million cases) and 51% of cases worldwide (17.2 million cases). Additionally, the number of Alzheimer’s cases is expected to triple within the next 40 years, according to the study.

“What’s exciting is that this suggests that some very simple lifestyle changes, such as increasing physical activity and quitting smoking, could have a tremendous impact on preventing Alzheimer’s and other dementias in the United States and worldwide,” Barnes said.”

MetLife Mature Market Institute has quantified the enormous financial sacrifice caregivers make when they take off time to care for an aging parent. A recent study shows average losses equal $324,044 for women and $283,716 for men. The percentage of adults providing care to a parent has tripled since 1994.

Some of the other findings from this article that are interesting to consider:

* Adult children age 50+ who work and provide care to a parent are more likely than those who do not provide care, to report that their health is fair or poor.

* The percentage of adult children providing personal care and/or financial assistance to a parent has more than tripled over the past 15 years and currently represents a quarter of adult children, mainly Baby Boomers. Working and non-working adult children are almost equally likely to provide care to parents in need.

* Overall, caregiving sons and daughters provide comparable care in many respects, but daughters are more likely to provide basic care (i.e., help with dressing, feeding and bathing) and sons are more likely to provide financial assistance defined as providing $500 or more within the past two years. Twenty-eight percent of women provide basic care, compared with 17% of men.

* For women, the total individual amount of lost wages due to leaving the labor force early because of caregiving responsibilities equals $142,693. The estimated impact of caregiving on lost Social Security benefits is $131,351. A very conservative estimated impact on pensions is approximately $50,000. Thus, in total, the cost impact of caregiving on the individual female caregiver in terms of lost wages and Social Security benefits equals $324,044.

* For men, the total individual amount of lost wages due to leaving the labor force early because of caregiving responsibilities equals $89,107. The estimated impact of caregiving on lost Social Security benefits is $144,609. Adding in a conservative estimate of the impact on pensions at $50,000, the total impact equals $283,716 for men, or an average of $303,880 for male or female caregivers age 50+ who care for a parent.

You can read the rest of the article by clicking here.

Of course, everyone wants to save money when buying long-term care insurance, or at least they do not want to over-buy.

There are several ways that policyholders can keep their long-term care insurance premium costs manageable and several of those methods are outlined in my guidebook on LTCI.

However, I came across an article that lists several good ideas for keeping LTCI premiums affordable for most consumers. Here are some of the suggestions:

“The first mistake is that people don’t shop around for LTCI. That’s unfortunate, because the LTCI market is fairly diverse. Prices and terms differ significantly among insurers. As with any other purchase, you should shop around.

LTCI premiums for the same person can differ by as much as 48%. The American Association of Long-Term Care Insurers conducted an annual survey the last few years. For 2011 it compared premiums among the 11 insurers who are members of the association, and it did the comparisons for a few different types of consumers……..

These differences shouldn’t be surprising. Insurers have different expenses, investment returns, claims histories, and other factors. They also make different assumptions about the future. Their premiums have to be different.

You need to shop around even if a friend shopped thoroughly and clearly favored one insurer. The best company for one person might not be best for another buyer. Insurers have different claims histories and databases. Some will consider one person to be a high claim risk, while another company considers the person less of a risk.

As I advise my readers of Retirement Watch, you don’t want to automatically choose the policy with the lowest premium. You want to examine a company’s financial stability, its claims-paying history, and its premium increase history. I’ve also advised people to avoid companies that don’t conduct a thorough health underwriting before issuing a policy. Failure to review the health history of applicants is an excellent indication the company will pay more claims than estimated and have to increase premiums substantially over time.

The other mistake people make is to accept the policy terms proposed to them. Many key terms of an LTCI policy have options. Premiums can be reduced dramatically by converting a “gold plated” policy into one with solid or adequate coverage. Here are terms to consider changing.”

You can read the rest of the article by clicking here.

I came across an excellent article written by a farmer who had purchased long-term care insurance for himself and his wife. He points out the necessity to understand how LTCI works and he made some interesting choices that reflected their willingness to co-insure a portion of the cost for care.

This means that they could buy what they considered necessary without overspending for the insurance in the meantime.

I highly encourage consideration of both approaches by those interested in buying a long-term care insurance policy - (1) get to know and understand policy benefits so you know what the benefits mean and how they impact your care, (2) decide if you feel that co-insuring a portion of the potential costs of care is something that you are comfortable with.

Here is an excerpt from that article:

“We began the quest for information in the late 1990’s. Sharon turned 60 in 1999. We were glad we started gathering information when we did because it took a lot longer than we anticipated. In the end, it took about a year to adequately understand the subject.

One of the first things we discovered is that a lot of insurance agents did not know much more than we did. The first obstacle we had to overcome was finding someone who really knew the subject. It was frustrating to start asking questions, only to find out that we knew more about it than the person we were asking.

Another thing we quickly discovered is that you cannot afford to cover everything you might want. You need to decide what the biggest risks are and be sure those are covered. We knew that we would be able to easily pay for a short stay in a nursing home with our liquid assets. Therefore we wanted a policy with a long exclusionary period. This is like the deductable on your property insurance. We both have social security which would be available to pay the cost of care. So, that amount could be subtracted from our coverage. In our cases, that amounts to roughly $50 per day or $1500 per month. Therefore, we looked for a policy that would pay $80 per day. That was roughly the nursing home cost at the time we started the policy.

We figured that the biggest risk was in needing care for a very long time. Therefore, we wanted the escalator clause that increased the coverage by five percent per year. With the policy in force for 12 years the coverage is now $143 per day. This, plus the social security payment, would still cover the cost of care.”

You can read the rest of the article by clicking here.

Prudential’s latest LTC survey makes it clear that Americans are sorely in need of education about the high cost of care and the role insurance can play. And once again, it’s evident that even people who express concern about their ability to pay for long-term care, don’t take the initiative to embark on LTC planning. However, the research yielded some very good news: LTCi ownership provides peace of mind. Insureds show a high degree of confidence in their ability to pay for future LTC needs.

Here is an article excerpt aboout the results of this survey:

“Prudential’s study points to a disturbing lack of knowledge regarding the cost and funding sources for long-term care services. On average, respondents estimated the average daily rate for a semi-private room in a nursing home at $450 – more than double the actual average of $215. And, more than one-third believe that a combination of private health insurance, Medicare, and Medicaid will cover any future extended care costs, while in reality, consumers can expect minimal coverage from all but Medicaid. The cost of insurance to cover long-term care needs is equally misunderstood. While the cost of an individual policy varies significantly by age at time of purchase, 60 percent of those surveyed well overestimated the annual cost, even for the oldest of individuals. The remaining 40 percent were so unsure they couldn’t venture a guess.

Cheung believes these misperceptions about both the role of private insurance and government programs and the actual cost of care and insurance may contribute to a failure to act. “Despite years of publicly and privately funded efforts to raise consumer awareness about the importance of planning for long-term care needs, Americans seem to understand almost all forms of insurance better than they do long-term care insurance. As a result, greater education is needed about the actual costs of long-term care and realistic funding options. The good news is that 77 percent of those surveyed in our study acknowledge they should know more.”

Given that many Americans already feel challenged about saving enough money for retirement, the unexpected costs associated with future extended care needs can add to that concern as the cost of care could erode one’s nest egg. Prudential’s research shows that those who currently have long-term care insurance are twice as likely to be “highly confident” about their ability to pay for future extended care services without depleting their personal assets or retirement savings. This finding points to the peace of mind achieved by incorporating long-term care insurance into a comprehensive retirement plan. ”

Click here to read the rest of this article

Some people conclude that they will let Medicaid pay for their long-term care should that become necessary and avoid having to buy any long-term care insurance premiums in the meantime.

However, it’s becoming more clear with every passing day that federal and state programs such as Medicaid are not going to be able to continue in their present form much longer because of huge budget shortfalls. So is it really a wise decision to wager your whole retirement income on a program that may not be able to provide the care you desire in 20 years?

This short, yet persuasively written article on the need for long-term care planning does a superb job of dispelling the “I’ll just let Medicaid pay for it” notion.

Here is an excerpt of that article

This year’s Long-Term Care Price Index published by the American Association for Long-Term Care Insurance has some inetresting facts in it that help answer some of the most common questions that I am asked by prospective policyholders.

The first question has to do with what the average cost of LTCI premiums are? Their answer: “A 55-year-old couple purchasing long-term care insurance protection can expect to pay $2,350-per-year (combined) for about $338,000 of current benefits ($169,000 each) which will grow to about $800,000 of combined coverage for the couple when they turn age 80.”

The second question is whether premiums vary much between different insurers? Their answer: “We significantly expanded this year’s survey to include more relevant scenarios for both couples and individuals at varying ages, health conditions and to take into account the significant spread in costs among insurers for virtually identical coverage,” explains Jesse Slome, executive director of the long-term care insurance industry trade organization. The study found that rates for comparable coverage from leading insurers could vary by between 41-to-48 percent.”

The third question addressed is what is the age when people mostly begin to buy these policies? Their answer: “The average age for individual purchasers is 57, Slome explains with some 76.3 percent of purchases made between ages 45 and 64 according to the Association’s research. ”

You can read the rest of the article here.

TransAmerica released some information recently regarding the length of long-term care after a person passes age 65. Here are their findings:

“What are the estimated number of years someone may need long term care after they turn 65?

None 31%

Less than 1 year 17%

1-2 years 12%

2-5 years 20%

More than 5 years 20%

What this tells us is that a person who has reached the age of 65 has a 69% chance of needing long term care services. He or she also has a 40% chance of having a long term care need that lasts at least 2 years. With an average annual cost of $80,3001 for a private room in a nursing home, the price of care can add up quickly. “

Here is a very noteworthy press release regarding the claims payment data from 10 of the top insurers in the LTCI industry:

“The nation’s 10 leading long-term care insurance companies paid over $10.8 million in daily claim benefits in 2010 according to a new study conducted by the American Association for Long-Term Care Insurance.

This represents a 53 percent increase over the daily value of claims paid by the same entities in 2007 according to study findings. “Every single day, long-term care insurers pay benefits for home care, assisted living and nursing home care,” explains Jesse Slome, executive director of the national trade organization. “Benefits paid by just these leading insurers totaled nearly $4 billion for the year, an amount that will keep growing as more aging policyholders qualify for benefits from their coverage.”

The study examined claims-paying data for leading insurers that provide coverage to some 5.76 million individuals. “During a typical 30-day timeframe, these insurers paid benefits to nearly 135,000 individuals,” Slome notes. According to the Association’s 2010 LTC Insurance Sourcebook, some 31.0 percent of new individual claims are for home care services, 30.5 percent for assisted living and 38.5 percent for skilled nursing home care. “

Here are the results of a recent study conducted by the American Association for Long-Term Care Insurance on the average costs of long-term care insurance policies:

“One fourth (27.8%) of individuals purchasing long-term care insurance during the first half of 2010 who were under age 61 pay less than $1,000 a year according to a new report issued by the American Association for Long-Term Care Insurance (AALTCI).

“The single greatest misconception held by consumers is the actual cost of coverage,” explains Jesse Slome, AALTCI’s executive director. “Most people perceive the cost is actually quite a bit higher than the real amounts paid by large percentages of those purchasing coverage.”

The Association reveals that nearly one-in-five (19.4%) purchasers in the study who were under age 61 pay between $20 and $30 a week for new policies. Over one-fourth of buyers (28.9%) in this age band pay between $1,500 and $2,500 a year with the remainder paying more. Less than one-tenth of these buyers (6.8%) pay $4,000 or over.

“Studies that report average premium costs regrettably mislead the public into the perception that long-term care insurance is expensive,” Slome explains. “Averages include large numbers of older buyers and other factors that result in higher costs. The fact is that many people pay far less than the average amounts reported.”

Costs for long-term care insurance can vary significantly based on the age when one applies, the ability to take advantage of discounts offered to healthier applicants as well as the amount of future benefits desired.

Insurance rates are based on the attained age of the applicant. Older buyers pay more and according to the Association’s examination of the latest data of real buyers, less than a tenth (9.0%) of buyers between ages 61 and 75 paid $1,000 or less when they applied for new coverage.

According to the Association, the average age for new individual purchasers is now 57. Eight out of 10 (80.5%) of new individual buyers in 2009 were younger than age 65 when applying for long-term care insurance according to AALTCI’s annual research of 155,000 new applicants. The pricing data is based on an analysis of over 200,000 purchasers of partnership qualified LTCi policies.

Study after study has emphasized that women are more likely to need long-term care than men. They also usually live longer and therefore have no spouse to assist them when their health becomes frail.

Unfortunately, many women are not aware of this higher risk, and therefore do not prepare properly.

Here is an excerpt from a recent article on the subject that is eye-opening:

“Advisors don’t typically set aside a separate pot of money for women to use as they age, but more are trying to raise awareness about the special circumstances they face: Women not only live longer, but face an average lifetime cost of long-term health-care services of about $82,000 compared with $29,000 for men. (That is in 2000 dollars.) Also, “they are much less likely to have someone to take care of them because they are more likely to not have a spouse,” Rappaport says. ”

You can read the rest of the article here.