Employer-sponsored LTCi: Some words of warning

Once again, we're delighted to welcome our resident Long Term Care insurance (LTCi) guru, Herman Bruns, to IB. Today, Herman sets his sights on plans offered through one's employer:

I was in my car the other day listening to a well-known "consumer advocate" on the radio, when a perfectly healthy 42ish year old couple called in asking what benefit amounts they should choose on the group LTCi plan being offered on the husband's job.

The good advice they got was that it was still ok at their age to get LTC insurance, as they had no problem affording the insurance. The radio host then proceeded to discuss the limited benefit choices that they had available with daily benefit amounts and inflation options. He did not discourage them from shopping; the challenge is that they had only until the end of the year to sign up for something, anything, on the job.

The problem I have with his advice is what was left unsaid: that group LTC insurance is almost NEVER a good choice for a reasonably healthy married couple, no matter who the carrier is. WHAT!!!… you say? How can this be?

People seem to think that if it is a group plan, it must be a good deal. After all, isn’t their wonderful health insurance a bargain at work? What people sometimes forget is that their health insurance is subsidized by their employer. They find this out the hard way when they get offered COBRA when they're laid off. Their Long Term Disability plan is certainly a good deal, too, but it goes away when they leave the job.

Long Term Care insurance, in almost all cases except for some executive comp plans, is NOT subsidized by the employer. If you think about it, you are EXPECTED to take it with you when you leave: What good would LTC insurance be if it went away when you retired at 65, or the rates doubled if you left your job, since you are not supposed to need it until you are 83 in general? Therefore, it's a fully portable plan, and you pay 100% of the cost through payroll deduction.

Since the employee pays full price, with maybe a small affiliation discount, the ONLY time group LTCi tends to be a good value is possibly for a single person, or for someone who may have health issues, and thus find it difficult qualifying without simplified or guaranteed underwriting. When the employee has a spouse, or a life partner, they would have to purchase two separate LTCi polices, each with an affiliation discount. However, and here comes the shocker…….when you purchase LTC insurance on the private market, the spouse (life partner) gets up to an 80% discount on his or her LTCi plan. This effectively blows away the rates they would have to pay for two plans on the job. [I should add that there are ways to properly structure group LTC plans that are a good value for couples, it is just that it is not done that often].

There are lots of other reasons that group plans tend to be a poor choice. Lack of “shared plan” options, not being “partnership eligible” (which could stop the government from taking your house one day to settle your LTC debts), and just general lack of options. Group plans offer limited choices to avoid confusing the employee too much.

At the risk of making this post way too long, the best examples I can give are:

■ IBM, unless they recently changed, uses John Hancock as their group LTCi carrier. I have sold John Hancock LTCi policies to IBM employees that had more benefits and cost less than they could get through their job. Now the last I recall, IBM is still a fairly large company, and it should really make you wonder why I can get their employees more coverage than they can. If I only had a list off all the married IBMers who bought a LTCi plan at work for them and their spouse in the last 2 years, I could switch them to a better cheaper policy and probably retire.

■ State of Georgia uses UNUM as their LTCi carrier. I ran numbers for a state employee the other day who was shocked that I can up with a better value than the state program. So, when is a benefit not a benefit?

■ I saw a local Georgia county school LTCi plan that required 3 ADL’s to qualify for payment, yet the standard on the individual market is 2 ADLs. This could be real tough at claim time one day.

■ The Federal plan (not to be confused with the Class Act), for its own government employees, has the exact same problem. How many unknowing married postal workers bought into this plan without realizing their plan was not partnership eligible and they paid too much? I met one a few months ago, and she was not happy.

And I could go on, but remember that even if the plan is cheaper for a single person, it is still not partnership eligible, which could be huge in the future.

Anyway, back to the purpose of the post, the radio host would have given the people better advice if he simply stressed that group LTCi tends to not be a good deal in general for married couples…….and they should IMMEDIATELY go to the open market first and see what else they can find from a LTCi specialist, and not sign up for anything on the job until they completed that task.

Hope this helps someone, and of course there are exceptions to every rule….else consider this a simple public service announcement. Happy holidays.

Thanks Herman, and Happy New Year!

HSA and LTCi: What a match!

Long term readers know that we're big fans of both Health Savings Accounts (HSAs) and Long Term Care insurance (LTCi). What a lot of folks may not know, though, is that these two seemingly unrelated risk-management tools can actually work together to help you stretch your health care dollars.

How that, you ask?

According to FoIB (and LTCi Guru) Randy Gallas:

"If you're not eligible to deduct your LTCi premiums through self-employment or as an unreiumbursed medical expense on your federal income tax return, HSA funds may be an attractive option. Since LTCi premiums are considered a qualified medical expense, folks who who meet the criteria may withdraw money tax-free from their HSA to pay premiums."

Go on....

"Consider this example: you're 52 years old and looking for a tax-advantaged means of paying your LTCi premium (and good for you for buying at an early age!). You don't own a business so, so you can't deduct premiums as a self-employed person. Your accountant told you that you can't deduct the premiums as unreimbursed medical expenses. But if you own an HSA (or are eligible to open one),you may be able to use tax-advantaged funds from that account to pay that LTCi premium."

Randy also points out that there are are some limitations and considerations for people who have HSA accounts or those who are eligible, and provides this link to a more complete explanation of those.

Thanks, Randy!

Long Term Care Insurance: When's the best time to buy?

As previously noted, we don't recommend specific policies here at IB; everyone has their own needs, goals and budgets. But we do often suggest that many (perhaps most) folks might benefit from specific kinds of policies. One of these is Long Term Care insurance (LTCi), about which we've written before. But a colleague recently posted an informative and highy-readable piece on when to buy LTCi, and we're reprinting it here (with his permission).

Herman Bruns is a veteran agent in the Metro Atlanta area (does this make him a MetroGeorgian?) who specializes in the often complex field of LTCi. In response to a recent question posed at a public bulletin board which Bob and I frequent, he explains some of the factors that should be considered in deciding when to purchase this coverage:

As with most types of insurance, the ideal time to purchase LTC insurance (LTCi) is about one month before you need it. That way, you can potentially collect from the LTC carrier for a lifetime and have only paid one month’s premium. Of course, without a crystal ball, very few of us can predict when we will have a car accident or a stroke, or be diagnosed with cancer or Alzheimer’s. Many of us may be one doctor’s visit away from a diagnosis that will either cause us to pay more for LTC premiums, or possibly not even qualify for the insurance.

Christopher Reeves (Superman) never planned to fall off his horse.

As more and more baby boomers become aware of the devastating financial and emotional effects that a long term care need can have on their family, the average age at which people purchase LTC insurance has been steadily dropping every year. Government awareness programs advising people to look into this type of insurance is also causing people to get educated on how these plans work and to start early. LTC insurance is surprising affordable when you buy it at a younger age, so more and more people are simply taking advantage of it sooner. My own personal experiences with my elderly parents and in-laws in nursing homes and assisted living (all paid out of their own pocket) caused my wife and I to purchase our plan when I was 52 and she was 50. I happily pay the premium every year, even though in the back of my mind, I hope I never have to use the insurance at all. Statistically, my wife has a much better chance of using the plan than I do.

The cost of purchasing LTC insurance goes up every year you delay. Carriers raise their rates for new purchases periodically, too. The older you get, the faster it rises. As one starts to move into their early to mid 60’s, you begin to enter into what the mathematicians call the “exponential curve” of rapid price increases. The good news is that when you buy a LTC plan from a quality carrier, you are essentially “locking in” your rate for the rest of your life. Now it is true that the rates on existing policies can and do in fact increase, but many of the top carriers in the industry have a long history of little or no rate hikes. No matter when you purchase a plan, it is always going to offer you tremendous protection for a fraction of the cost of an extended nursing home stay.

Sadly, as we grow older, many of us also get less healthy. Blood pressure, arthritis, diabetes, and other ailments show up frequently as we get into our late 50’s. Many of us simply don’t take good care of ourselves, and others of us are a product of our heredity. LTC carriers give preferred health discounts to those who qualify of between 10% and 20%, so it pays to be healthy. There are a lot more healthy 55 year olds than 65 year olds out there.

Back to the original question: when should you buy LTC insurance? Although you can buy it at any age up to 84 with some carriers as long as you can medically qualify, I would urge everyone to start considering it by age 50, and try to get it in your early to mid 50’s if at all possible. If you can handle the premiums at that time, it can be a great value……and with the power of a 5% compound benefit increase, the benefit you purchase at age 50 will immediately start growing. This will provide you with a huge plan of protection by the time you statistically will most likely need the coverage, which is in your 80’s. In the long run, even though you start paying the premium sooner, the overall amount of premium paid out can be less by starting early.

Everyone’s financial situation is different, and no one plan fits all. Not everyone can start at age 52. You may have to wait until the kids get through college to afford LTCi. You may first need to move to a more cost effective high deductible or HSA eligible health insurance plan, or wait until you are on Medicare, so you can free up the funds to pay for LTC insurance. If you are already 65 and reading this blog, then the time to buy LTCi is before you turn 66….assuming LTCi makes sense for your situation. The key is to first learn more about how LTC insurance works by speaking with an experienced LTC agent representing a variety of carriers and who can advise you as to all your options.

Thanks, Herman, for your insights and for permission to share them. Readers with additional questions or thoughts are encouraged to share them in the comments.

Narrowly Framing LTCi (Part 1)

Our good friend David Williams has written a blistering review of a recent WSJ article on why people aren't buying Long Term Care insurance (LTCi). Before addressing his concerns, I'll offer my own thoughts on the piece:

■ Based on the results of their study, Drs Olivia Mitchell and Daniel Gottlieb "found that many people regard long-term-care insurance as having no real value if ultimately the payouts aren’t needed.”

It's said that people rarely buy insurance: it must be sold (to them). This would certainly hold true regarding LTCi; as agents, we do a terrible job of selling it, which seems to validate this particular conclusion.

■ The article goes on to note that "instead of looking at long-term-care insurance primarily as financial protection, many people think of it as an investment—and a bad one at that." And they're right, of course: it is a terrible investment. But then, a dump truck is a lousy commuter vehicle, and my oven does a terrible job of washing my dishes (well, there was this one time I inadvertently left a plate in on the "self-clean" cycle, but that's another story).

Insurance is a risk-management tool, not an investment. No one expects to make a profit on their homeowner’s policy, either, but we still insure our homes. That's because, as David points out, the downside of a catastrophic loss far outweighs the cost of a policy.

■ The real meat of the article, though, and the part with which David seems most frustrated, is this:

"[O]ur research suggests that some consumers’ rejection of long-term-care insurance is based on what psychologists call “narrow framing,” or people’s tendency to exclude key factors when making decisions."

As the authors point out, this is often the case when faced with making a decision about something as complicated as LTCi. It is much easier to convince oneself that "if I can't understand it, I must not really need it." Something about "the path of least resistance" comes to mind.

Where I think the conclusions fall apart is this rather innocuous-sounding sentence: "[W]e believe that insurers could better position their products in the marketplace by providing more information to consumers regarding the high probability of needing care, and the high costs of such care."

Bullcrap.

For one thing, we already do that: look at any product brochure or marketing piece, and the stats are right there in big bold letters, charts and graphs. It seems to me that piling on would simply reinforce the "narrow framer" mindset.

The authors do get this one right: "focus more marketing toward adult children whose parents will likely require nursing-home care;" the idea being that they will pay for their parents’ policy as a means of preserving their parents' estate (and thus their own inheritance). The problem with this strategy is that you still have to get the parents' buy-in, and who's to say that they're not "narrow framers" themselves?

Finally, the article suggests that insurers should "emphasize policies that provide benefits in addition to protection for long-term-care costs. For example, more policies could include retirement income payouts or life insurance"

This skirts the issue, because the more benefits you throw on a plan, the more expensive it's going to be (whether broken out as riders or simply "baked into the cake"). Making LTCi more expensive seems counter-productive.

Interestingly, the article fails to mention one of the most valuable, easily understood benefits of LTCi, one which addresses pretty much all of their concerns: the Partnership Program. Pointing out that a properly constructed plan will help keep the Medicaid folks at bay makes for a very compelling argument that even "narrow framers" would find hard to resist.

Okay, so that's the WSJ; what about our friend David? Well, seeing as how this post is up to almost 700 words already, click here for Part 2.

UPDATE: David has graciously linked back to this post. Thanks, David!

Case Study: Life plus LTCi

So, working on an interesting case for a long-time client. Doris is in her early 60's, has an existing Universal Life policy but is looking at replacing it with a new plan that would include both life and long term care coverage (please don't ask why she's replacing a perfectly good UL plan; she apparently has her reasons).

After some discussion, we've narrowed things down to 2 (well, technically 3) options. All include $250,000 of life insurance and $5,000/month of long term care benefits:

Option 1: Term life + Stand-alone Long Term Care (LTCi) plan

15 Year term + LTCi = $4,551/year, or
20 Year term + LTCi = $5,189/year

The stand-alone LTCi plan offers 3% inflation protection and is Partnership-compliant; benefits payable for up to 48 months.

Option 2: Hybrid Guaranteed Universal Life/LTCi has a 50 month benefit period, and is built on an indemnity chassis (no receipts or invoices to submit past the initial claim form). On the other hand, it has no inflation protection and is not Partnership-compliant. On the gripping hand, the life insurance pays someone if there's no long term care claim (to her age 120!). The annual premium for this plan is $5,000 (Thanks to commenter Scott O who pointed out this omission - Mea culpa!)

There are a few other details, of course, but that's the gist.

So which option will she pick? I have no idea, but would be interested in our readers' prognostications (and feel free to explain why in the comments section below):

Narrowly Framing LTCi (Part 2)

In Part 1, we took a detailed look at a recent WSJ piece on Long Term Care insurance and "narrow framers." Our friend David Williams has asked us to review his take on that article, and so we shall.

I have only a few quibbles with his analysis:

"Insurance is useful when it covers rare events that could be financially ruinous. But long-term care is a common need ... and the benefit structure doesn’t protect against catastrophic expenses."

I think this is overly simplistic: as I mentioned in Part 1, insurance as risk-management tool has more to do with the severity of the potential loss rather than the frequency (although that’s certainly a factor). This explains, in part, the popularity of co-pay health insurance plans vice HSA's: few of us would go broke paying for a simple doctor's visit or common prescription, but we've been conditioned to "let the insurance pay for it." Regular readers will spot the fallacy there.

More disturbing, though, is his contention that "the benefit structure [of LTCi} doesn’t protect against catastrophic expenses." This is a common misconception of how LTCI works and what it's really designed to do, and for that I blame not David, but my industry. The story we've been told to tell is that you buy LTCi to pay for care. This is correct, but misleading: there is no realistic way to buy a plan that will completely cover the costs of a major claim (or series of claims). Anyone that could afford to buy such a plan would be much better off self-insuring.

No, the role of LTCi is to supplement one's assets (and a Partnership-compliant plan is a terrific ally in that quest), and to buy "choice."

What does that mean, Henry, "choice?"

It means that having the ability to pay for care oneself opens up a lot more doors (as regards facility and resource availability) than folks dependent on Medicaid will see. Is that fair? Doesn't matter. Is that real? Yes.

David then writes about his own experience in considering a plan, and noted that what he was shown had very little in common with what he wanted. This is a failure of either David (for not sharing his vision with his agent) or the agent (for not listening to David). I don't know his agent, but I have a very difficult time believing that David was less than forthright and explicit in his request. On the other hand, I know from experience that clients are generally less knowledgeable about these plans than they might think (which is no indictment: they've been served a long line of carrier and industry propaganda). My very first step when asked about LTCI  by a client (or potential client) is to point them to our primer on when one should consider buying a plan, and what to look for.

David does describe his ideal plan: "a policy with a 5 year elimination period and no cap on the benefit period." Such a configuration does not, to my knowledge, exist, but it seems to me that there ought to have been some common ground between what the agent had available and what David wanted; unfortunately, that doesn't seem to have been the case (or so I inferred from the post). Does that make David a "narrow framer" (in the context of the WSJ post)? Hardly: in fact, he seemed crystal clear in what he wanted and not distracted by the minutiae.

Where I think he veered off course is in not considering other reasons to buy a plan, and I hope that he takes the opportunity to revisit that decision. I'd be happy to refer him to a pro.

LTCi: Greater Need, Fewer Choices

Jim Reynolds runs Caring Companion Home Care in Concord, Massachusetts. The 20 year old company provides home health care services, and Mr Reynolds has a message for those of us who sell Long Term Care insurance (LTCi):

"You're doing a good job; keep at it."

That's the good news.

The bad news is that, according to the National Association for Home Care & Hospice, some "7.6 million Americans received formal home health care and related services with a total value of about $58 billion in 2007;" by now, that number is likely to have grown substantially. The problem, of course, is that this care isn't free, and Medicare pays only a part (if any at all).

That's where LTCi comes in:

"When asked during an interview about how many of the families can use LTCI coverage to pay for the care, he thinks a bit, then says the percentage might be "10% to 10%." Then he thinks a bit more and says, "Closer to 10 percent.... It's not near as high as it ought to be."

And therein lies the rub: just as we see the need for this kind of plan peaking, its availability is on the decline:

"Shopping for long-term-care insurance? You should expect higher costs and a tougher approval process as a growing number of household-name insurers quit selling the policies."

As Bob noted this spring, "Prudential has announced they will be withdrawing from the individual long term care market." Met and Unum had already bailed on the individual LTCi market, and other carriers are now tightening their belts.

Those carriers "toughing it out" are making significant changes (aka reductions) in their product offerings. The latest comes from MassMutual. Although it's unlikely that they'll completely exit this market anytime soon, they're making some pretty significant changes. From email I received this morning:

"MassM announced ... that they are eliminating/limiting the following LTC options:

*Lifetime and 10-year benefit periods
*Full Return of Premium on Death and Return of Premium on Death riders
*All limited premium-payment options (10-year, paid-up at age 65 and discounted renewals
*Limiting the Shared Care rider to 2-3 year benefit periods

Granted, these tend to be the more expensive, low-volume offerings, but they indicate that the carrier is taking the shrinking market very seriously. That is, when there are fewer carriers even offering LTCi, "no carrier wants to be out on an island offering riders/benefits no one else does because it attracts an inordinate amount of business and remaining in balance is critical to LTC success."

Indeed.

So what to do? Well, if you have a need for this kind of coverage, then you'd best be acting sooner rather than later in getting it.

[Hat Tip: MM's Jeff M]

LTCi November

November's been designated as national Long-Term Care Awareness Month. We've blogged on Long-Term Care insurance (LTCi) often here; my favorite post on the subject (and one I send to pretty much every prospective LTCi client) is this one from LTCi guru Herman Bruns.

Another LTCi expert is Christine van Breukelen, who alerts us to these "fun" facts:

■ Most long-term care is received at home; not in a nursing home.  In fact, 43% of long-term care insurance claim benefits paid to individuals covered home care (and only 24% paid for nursing home care.)

■ One of the significant ways to save on long-term care insurance protection is to take advantage of available discounts.  People in good health can save.  You can lock in these savings even when your health changes.  Less than half (44%) of people between 50 and 59 qualify though and that percentage declines at older ages.  Why not see if you qualify.

■ Married couples can save on long-term care insurance, sometimes even when only one person is protected.  And with new "shared care" options, two people can actually share each other's coverage.   Less money … more benefit … worth considering.

And Chris adds: There's a great saying; Failure To Plan is a Plan For Failure.  Your first step should be getting the information you need to protect yourself, your family and your loved ones.

Misguided LTCi "Reform"

Over at LifeHealthPro, FoIB Allison Bell has the story of a woman who doesn't understand the purpose of the product, who's never designed, priced, marketed or sold a plan, who may not even own one, yet is called upon to offer suggestions on how to "reform" Long Term Care insurance.

What could possibly go wrong?

Let's start with some basic facts:

First, the primary purpose of Long Term Care insurance (LTCi) is asset protection. That is, as homeowner's insurance protects one's home, LTCi protects one's retirement and other financial assets.

By definition, folks on Medicaid have no such assets to protect, hence no need for a plan. If one has no car or driver's license, why would one want (let alone need) to buy auto insurance?

Second, the primary reason that rates have continued to increase is that the industry made some (very) bad assumptions about retention. That is, they designed and priced the plans similar to disability insurance (close cousin), assuming a similar lapse rate. In hindsight, this turns out to have been a mistake, because insureds have been keeping their plans - even with rate increases - in droves. This drives up claims, and here we are.

Ms Burns offers 7 suggestions about how to "reform" Long Term Care insurance. There's a lot of bad advice (and assumptions) but we'll just look at three particularly egregious examples.

First, "(l)et Medicaid help low-income long-term care insurance policyholders hang on to their policies."

Why? If they're already on Medicaid, then they have no use for an LTCi plan (remember, it's primarily designed to protect assets). Now I could see where that might help Medicaid: after all, premiums are a lot less than benefits, and so the gummint would reap some major savings. But that's not the same thing as actually helping policyholders, who might have other uses for those dollars.

Second, "(l)et the government try to recover any long-term care insurance premium subsidies provided after the insured dies, from the insured's estate." There's a lot of stupid packed in here, but I'll try to help her out. To begin with, this is already the law as regards benefits. How's that turning out?  And comparing LTCi with reverse mortgages? Where's Fred Thompson when you need him?

Sigh.

Finally (at least for this post), "(b)uild in transportation and meal support benefits." Right, because adding even more benefits always drives down cost. If there was a market for such cover, rest assured that it would be offered as an option for those who wanted to spend the extra cash. It's called "the free market" and it works.

Next week, we interview an electrician about the best way to install a new toilet.

Howdy Pardner: LTCi Update [Updated & Bumped]

[Please scroll down for update]

Regular readers may recall my report, almost two years ago, on my 8-hour long Long Term Care class. That was a mind-number; not so the "refresher" course I attended yesterday afternoon. Taught once again by local LTCi guru Ray Copenheaver, this 4-hour course was anything but mind-numbing. We heard from Ray about some very interesting new developments (I'll get to these in a moment). A registered nurse explained some of the differences between levels of care, and a local Elder Law Attorney provided invaluable insights into the inner workings of Medicaid. Atypically, this class "flew by,"

There are some new developments on the Long Term Care insurance (LTCi) front, and I'll cover some of the highlights (and one potential lowlight).

As an aside, if you're a consumer looking for advice about whether (and/or when) you should consider buying LTCi, I heartily recommend Herman Bruns' post on the subject.

First up, reciprocity: As a result of the Deficit Reduction Act of '05, all 57 states now offer some form of "reciprocity." That is, if one buys a Partnership Qualified (PQ) plan in Ohio (for example), and moves to Florida, the safety net provided by the plan is honored in The Sunshine State. That reciprocity, by the way, even extends to states such as New Mexico, even though there are no such plans currently available for sale in that state. NB: Wisconsin is apparently an exception, but that's being resolved even now.

Another interesting development is the implementation of the Pension Protection Act of '06. One of the provisions in this legislation make it possible for folks to "trade-up" to an annuity with a long term care rider. For example, someone with a "regular" annuity may be able to trade it in, on a tax-advantaged basis, for one with a long term care rider. It's one way to stretch one's long term care dollars even further.

The "fly in the ointment" is the CLASS(less) program: The Community Living Assistance Services and Supports Act is a part of ObamaCare© that "mandates the creation of a national long-term care insurance program that will provide average benefits of no less than $50 per day to help people pay for non-medical expenses." As I opined before, I'm quite sure that the gummint will find a way to screw up Long Term Care, as well. On the other hand, it may be beneficial as an example of "how not to do it;" that is, it may well motivate folks to finally consider buying a real LTCi plan.

UPDATE: Almost forgot something else I learned at this class. One carrier has developed (and is test-marketing) a new configuration which offers a zero day elimination period (in other words, benefits begin pretty much right away) but pays on an 80/20 basis. It's apparently priced significantly lower than current products.

Typically, products come in three "flavors:"

■ Reimbursement, which is the most common. Here, you pay the bill (to the nursing home, for example) and submit the receipt to the carrier.

■ Indemnity, which typically costs about 10-15% more; these don't require receipts, and pay the daily benefit.

■ Cash Benefit, which cost even more than Reimbursement, but pays the full amount directly.

The "new" plan works a little differently. Say you buy such a plan with a $100 per day ($3000 per month) benefit. You go into a nursing home that costs $110 a day. They'll pay 80% of that $110 (or $88). If the cost was $150 a day, they'd cap the reimbursement at the $100 you bought (not the $120 that represents 80%). It's fairly new, and I don't have any other details, but expect to see more carriers introducing these kinds of products.

Survey says: LTCi on the rise

Got an email the other day from Broker World magazine [motto: "You really don't want to see our swimsuit issue"] announcing that they'd published "the industry's most comprehensive Individual Long Term Care Insurance Survey." This was, in fact, the 13th consecutive such polling. My interest piqued, I asked for (and received) a .pdf copy of the article for review. Details on how you, too, can get a copy are at the conclusion of this post.

In the event, I turned to our resident LTCi guru, Herman Bruns, for assistance in noodling through the article (which ran to 28 pages). We were primarily interested in the first 8 or so, which digested and analyzed the results, which were based on the responses of the 18 carriers which participated (out of only 25 companies that market LTCi in any serious way). The results were interesting, but there were only a few real "surprises."

First, overall sales of LTCi increased last year; it's estimated that the industry sold about 6% more policies than in 2009, with a corresponding 10% increase in premium dollars. This tracks with our own experiences: as Boomers (and immediate pre-Boomers) hit their senior citizenship, there's an increased awareness of the need for these plans.

Claims data was even more interesting: total claims hit over two-and-a-half billion dollars. Of these, home health care (and adult daycare) accounted for about 40%, nursing home care a tad under that, and assisted living facility-related claims came in under 25%.

One reason cited for the near-equal distribution of home health and nursing home claims is the large number of older policies, which typically pay only for the latter; as these "age off" the books, look for that distribution to be more home health-weighted.

We're big fans of the Partnership Program; the study found that, had this program been fully implemented in all 58 states, over two-thirds of the plans sold would have been Partnership compliant.

We're not such big fans of the newly-minted CLASS Act, but the article claims that it's "stimulating workplace sales" as more front-line workers become aware of the importance of long term care coverage. This may also explain the apparent shift toward less expensive product designs (no doubt underscored by John Hancock's recent, and highly publicized, rate increase on many existing plans).

Herman and I were both rather startled by this chart:

The top two carriers held 54% of the market; both of us expect this to change as the aforementioned John Hancock reaps the results of its rate hike (which is not to say that it was unjustified, or even necessarily a "bad thing"). But what really had us scratching our heads was who held the #3 slot: Northwestern Mutual. This carrier, while financially solid as a rock, is not known for price competitiveness, and we marveled at its much-higher-than-expected results.

While it's tempting to label LTCi as "insurance for old people," the average issue age continues to hover at around 58 - not exactly ancient. That makes sense, of course: one's old enough at that point to have accumulated enough assets to be worthwhile protecting, yet young enough that the premiums aren't a huge drag.

Finally, the buyers' "gender gap" was surprising:

"58 percent of buyers are women, but 71 percent of single people who buy are female."

This makes sense, as well: like it or not, there's a much greater likelihood that a widow's going to need long term care than a widower (lot's more of 'em).

Obviously, there's a lot more information in the article itself:

"The complete findings have been published in Broker World Magazine's July 2011 edition. To receive a free, no obligation subscription to Broker World Magazine, compliments of DAI, please click here."

[Hat Tip: Dean Dumond]

Introducing STCi

No, that's not a typo: we've written quite extensively on Long Term Care insurance (LTCi), but this is new to us.

The major challenge with LTCi is the premium. While these plans can be cost-effective, there's no question that they can be, as my sister says, spendy. So, a lot of folks decide that, if they can't afford the plan they want they'll just take a pass altogether. While that's certainly understandable, it can be a big mistake.

But how to resolve the dilemna?

Well, that's where Short Term Care insurance (STCi) comes in:

"Short-term care (also known as Recovery Care or “LTC Lite”) is not a new product but it has been gaining ground in the last 2 years ... With its shorter underwriting cycle, high-issue rates, and low premiums it’s becoming increasing popular"

Unlike traditional or Partnership plans, these policies typically have benefits that last for a year (or even less). On the other hand, unlike the typical 90-day waiting period common to LTCi, these plans boast elimination periods of less than 60 days. So they pay out quicker (albeit for far shorter periods). In fact, they could be used to fill that "gap" in traditional plans.

Underwriting on these plans is claimed to be much quicker than LTCi (although I have no direct knowledge of this. YMMV).

The target market for these plans seems to be those who have already hit "senior" stage (age 65+) and have less than $100,000 in savings and investments. This is a somewhat different makeup from the typical LTCi policyholder.

Is this a panacea? Of course not, but it is a potentially helpful alternative to folks who've considered - and rejected - traditional Long Term Care plans.

Howdy, Pardner!

Ohio is in the vanguard of states offering the new "LTCi Partnership Program." Enabled by the Deficit Reduction Act of 2005, PP's are the latest signal from the gummint that it wants out of the long term care financing business. Briefly, the Ohio Partnership Program (OPP) allows one to "shelter" more money if and/or when one "spends down" to become Medicaid-eligible.

Many folks believe, erroneously, that Medicare will pay for their long term care needs. It doesn't: Medicare pays for medical expenses, which may sometimes include brief stints at a skilled nursing facility. But this is limited to a total of 100 days, which isn't exactly "long term." So, we turn to our long term care policies (if we have them) to foot a chunk of the bill. Often though, it isn't enough, so one turns to the state for assistance. The mechanism for this is called Medicaid, which is a federal program administered by the states. In order to qualify for this assistance, though, one must "spend down" one's assets. There are some allowances made for a spouse that's still well, and some personal belongings. But in general, one is allowed to keep only $1,500 in assets (Ohio's the lowballer here: most other states allow one to keep $2,000).

The Ohio Partnership Program changes that by allowing one to keep more assets if one buys a qualifying Long Term Care policy (PQ). Let's say you buy a plan that pays $100 a day for 3 years. That's a maximum benefit (or "pool of money") of about $110,000. If it's a PQ policy (more on that in a moment), then you're allowed to take $110,000 (plus the original $1,500) "off the table" when spending down. It's a way to preserve some, perhaps most, of your assets. Not a bad deal.

PQ plans are pretty simple, too, and most LTCi policies currently being sold would probably qualify. There are really only three criteria:

1) The plan must be federally Tax Qualified (most are)

2) Generally, the plan must include some cost-of-living or inflation protection

3) The carrier must be "approved" to participate

I'd daresay most plans sold these days fit at least the first two, and more carriers are signing on to participate. Still, it pays to ask your agent about your own plan.

If there's any downside to the program, it's this: since most plans sold prior to February of 2006 (when the DRA took effect) aren't Partnership Qualified, I suspect that there will be a rash of folks replacing their older, non-PQ plans with the newer model. This may or may not be a good idea, but I would be very suspect of any agent who suggests this course without a thorough fact-finding about one's current physical and financial health.

Oh, and the Law of Unintended Consequences comes into play on the agent's side, as well: we now have a new Continuing Education requirement. Effective September 1, we can't sell any LTCi plans (PQ or no) unless we're "certified;" the certification requires us to take a special 8 hour class on long term care in general, and the Partnership Plan in particular (and also requires us to have 4 hour "refresher" courses every two years after that). Nothing inherently wrong with that, but the class I took crammed 3 hours of material into 8 hours of instruction. Not the instructor's fault, of course, but completely unnecessary.

Long Term Care insurance is among the most complicated of the products we sell, so intensive training is not necessarily a bad thing. But I just don't think that it's 8 hours worth of material.

Still, it was worthwhile, if only because I'm now certified [ed: don't you mean "certifiable?"] to sell LTCi and the Ohio Partnership Program.

Genworth LTCi in the crosshairs

Genworth, one of the last remaining "players" in the Long Term Care insurance (LTCi) market, is about to drop the hammer on some of its long-time policyholders:

"We're conducting an intense, very broad and deep review of all aspects of our [long-term care] insurance business ... believe the company has to increase the price of products sold before 2002 to bring them closer to the break-even point"

Yikes!

Actually, this is far from unexpected, and arguably overdue: as we've seen over the years, the current long term pricing models just aren't sustainable. For one thing, too many folks have kept their policies (not a bad thing, per se, just that carriers count on a certain amount of attrition), so both claims and reserves continue to mount.

And, of course, as the LTCi business itself matures, it becomes more and more obvious that earlier plans were substantially under-priced. While that may have been a good deal for early adopters, over time it's a problem.

Which is not to say that the LTCi market is 'kaput;' indeed, more folks than ever seem to be taking a serious look at these plans. But it's important to keep in mind that, with few exceptions, rates will continue to climb for at least a while.

Some Thoughts on LTCi

It's been a while since we've discussed the role and importance of Long Term Care insurance (LTCi) coverage. But as our population ages (and the "Boomers" are now knock, knock, knockin' on Medicare's door), the need for asset protection becomes more and more critical.

And make no mistake about it: LTCi is about protecting assets, not people. In that regard, it's much more closely related to homeowners than life or even health insurance.

Hunh?

Well, let's look at it this way: one of the most prevalent uses of life insurance is to replace income.

But homeowners insurance is primarily about protecting the asset that is your house (and, of course, its contents). If it were to be burgled, you'd want some help replacing the new plasma TV, and maybe that van Gogh you had hanging on the wall [ed: yeah, riiight!]. If there were a fire, you'd want some help cleaning up the mess, and rebuilding your dream home.

In the same way, if you need long term care, you'd want your assets to last as long as possible, to preserve your choices (and, perhaps, your dignity). And that's how LTCi works: it enables you to use less of your own hard-earned money (cash, stocks, whatever) while you receive care that's generally excluded by Medicare.

Of course, there's Medicaid, but that requires a costly "spend down" process, which can quickly drain away all those hard-earned dollars.

Don't believe me? Well, let's see what The Street's Senior Health Analyst, Donna O'Rourke, has to say on the subject:

"If you haven't considered long-term care insurance yet, this might be a good time -- and not just because health care costs are spiraling. More and more states are developing long-term care partnership programs that make it easier for you to protect your nest egg." She adds "(t)he cost of long-term health care can easily burn through your life's savings."

In fact, according to industry leader Genworth Financial, home health care (let alone in a nursing or other long term care facility) costs an average of $53,000. It's not hard to see how quickly one can "burn through" one's nest egg.

As Donna mentions, many states have now set up "partnerships" to encourage (and help) folks to purchase their own coverage. One of the "perks" of these plans is that participants get a break on the Medicaid spend-down rules, which would look primarily to exhaust the policy, not one's bank account.

Currently, over a dozen states have set up (or begun to set up) these partnership arrangements, with another 15 or so "on deck." To check to see whether or not your state is on board, check with your professional, independent agent (this kind of insurance is definitely not DIY), or your state's Insurance Department.

Don't put it off.

Coming up short?

Maybe, maybe not:

We've written pretty extensively about Long Term care insurance (LTCi), but there's a new kid in town, goes by the name of Short Term Care insurance (STCi).

Issued by Banker's Life (#7 on the LTCi charts, and rising), it offers some interesting twists on the LTCi concept. For one thing, the maximum benefit amount available is $100, and there's no real "choice" in product design: there's a 30 day waiting (elimination) period and a maximum benefit period of 180 days My bad: the maximum daily benefit amount can be up to $200, and other elimination periods and benefit multipliers are available.

There's one inflation protection option (5% compound), and it's available as a facility-only or facility and home care plan.

Two things I really like about this design:

First, it's issued based on a "simplified underwriting" basis; that is, the application is fairly simple, with just a few "gatekeeper" questions. This makes it appealing for folks who may not qualify for a full-blown underwritten LTCi plan.

Second, it's a "pool" based plan. That is, once you settle on a plan, you're given a "pool" of money on which to draw, which makes it a little more flexible than it might appear at first blush.

Let's say you pick the $100 a day plan. That immediately gives you $18,000 worth of care dollars to play with. So let's say you're in a nursing home for 2 months (60 days), and the cost is actually $80 a day. Starting in the second month, Banker's would pay out $2,400 ($80 times 30 days), but you'd still have over $15,000 in your "bank."

Pretty cool.

Of course, it's not Partnership Compliant, but I'm of the opinion that, for folks looking at this kind of policy, that's not a major issue.

In any case, it's nice to see some outside-the-bun thinking.

Long Term Care News

As we've mentioned, Ohio requires agents who want to work the Long Term Care insurance (LTCi) market to take biennial "refresher courses" (at 4 hours a pop!) in order to stay up to speed on these products. So yesterday I attended such a class, again provided by my colleague Ray Copenheaver, an acknowledged expert in the field.

I must admit to a bit of trepidation: after all, how much could possibly have changed so much in the past two years to justify 4 long hours of information overload?

Turns out, quite a bit.

We already knew about the recent spate of rate increases, and the exits of several carriers from the market, but that was just the tip of the iceberg. For example, it's (relatively) common knowledge that Unum bailed on the individual marketplace a few years ago, but did you know that they also announced (just a couple of days ago!) that they're also pulling out of the group LTCi business? I sure didn't.

There are also several new developments on the legislative front, such as the PPA (Pension Protection Act). This little beauty, which became the law of the land in 2010, has spawned a raft of new LTCi-enabled annuities, offering a potentially attractive alternative to folks who may not qualify for "regular" long term care plans.

And I learned something new about the Partnership Program. As we've previously reported, Partnership-compliant LTCi policies let one take chunks of assets "off the Medicaid table," protecting them from the dreaded "spend down." But it turns out that that's only half the story: folks who avail themselves of these plans may* also inoculate their estates from Medicaid Recovery efforts. This is a very significant bonus, potentially saving those "left behind" from losing the family homestead.

[*This is not entirely clear - I spent a great deal of time this morning with the Ohio DOI, who could neither conform nor refute this. I'll be speaking with the Medicaid folks shortly to see what they have to say.]

All in all, a very productive 4 hours, indeed.

Insuring Mrs Cleaver, Part 2...

In Part 1, we outlined the financial challenges facing homemakers who may become disabled. The post was inspired by an article written by Thrivent’s Kim Anderson, who also sent me some helpful occupational class information (more on this shortly).

Since there doesn’t seem to be a non-fraternal carrier offering this cover, we got to thinking about creative solutions to the problem. What we’ve developed is imperfect, but it is at least a solution.

Let’s start with a premise: I’ve always described Long Term Care insurance as “disability insurance for retired folks.” In a sense then, disability insurance could be viewed as “LTCi for working folks.” Why, then, couldn’t a SAHS (Stay at home Spouse) purchase a Long Term Care policy to replace the economic value of his/her contributions?

There are, of course, many different LTCi plans available. Without getting too technical, we'd use an “indemnity” type plan, rather than a “reimbursement” one. Indemnity plans pay out the specified amount each month, regardless of actual expenses; reimbursement plans pay out based on how much was actually spent on LTC. In the “regular” LTCi market, there is some debate as to which is more appropriate, but in this application, it seems obvious that the indemnity plan works best.

Disability insurance benefits and premiums are based (in large part) on the occupation class of the proposed insured. These classes are determined by the carriers, and typically range from 4A (e.g. attorneys, physicians, the producer of Desperate Housewives) down to B (e.g. butcher, blacksmith, pool boy on Desperate Housewives).

Ms Anderson told me that Thrivent assigns homemakers a 2A rating. A typical policy available to this class would define disabled as “unable to perform all the important, substantial and material duties of your occupation due to illness or injury, and you require the care of a doctor.” This would be the test to determine whether one is eligible to receive benefits.

The eligibility test for a Long Term Care policy is quite different, at least superficially: in order to receive benefits, one would need substantial assistance to perform at least 2 Activities of Daily Living (ADL): bathing, continence, dressing, eating, toileting and transferring.

Almost like two different languages.

And yet…

The physical conditions described in both definitions seem pretty similar. And there's this: according to the Government Accounting Office, 40% of those receiving long term care are "Working-Age Adults."

So here's my thinking: if a 30-something owned both a DI policy and a LTCi policy, and she was eligible for benefits under one, it seems likely to me that she’d meet the test of the other, as well. Flawed, yes, but not (IMHO) fatally so.

Perfect? No. Acceptable? Let’s see.

LTCi (what the heck is that?!)

An alternative to cruising?

Long Term Care insurance (LTCi) is one of those coverages, like disability, that everyone says folks need, that all the financial guru’s says folks need, that all us insurance folk say folks need [ed: getting a little “folksy,” aren’t we?].

But so few people actually DO buy it (or buy into it).

Now we learn that one reason that so few folks own LTCi is because they can’t get it:

“More than half (57.2%) of individuals who apply for long-term care insurance after their 80th birthday are declined coverage according to Long-Term Care Insurance Sales Strategies magazine. At older ages, the percentage of applications declined was significantly higher...only one in 10 (10.7%) applicants who were between ages 50 and 59 were declined coverage.”

Now, granted, anyone who waits until their 80 to start even looking for such coverage is most likely going to be disappointed. But my take on this is that maybe I haven’t really been pushing it that hard with my clients. First, this type of insurance is a bit more complicated than, oh say, term life insurance [you need more!], but it doesn’t have to be rocket science (or as my techie wife would say, “it’s not computer science!”).

Really, when you get right down to it, LTCi is nothing more than disability insurance for retired people. That is, it’s a way to protect your assets from being eaten up by a need for care, whether in a nursing facility or the comfort of your own home. Now, statistics seem to show that only about 1/3 of folks over age 65 actually end up needing such care.

But think about this: there's only about a 1 in 1200 chance that we'll have a house fire, but we all have homeowner’s insurance, right? Granted, the bank makes us buy that, but you get the point: it’s much more likely that we’ll need long term care than that our house will burn down.

It’s all about managing risk.

BTW, a group of governmental agencies have launched the Long-Term care Consumer Awareness Project, with the goal of increasing consumers' awareness of the need to plan for potential long-term care needs. For more information, and even printed materials, check out http://www.ltcaware.info.

LTCi in the News

Item the 1st:

Northstar State bureaufolks are contemplating how they'll respond to recent (and often dramatic) Long Term Care insurance rate hikes. The good news?

"Over 99 percent of the policyholders have kept the policies, even with the increases"

On the other hand, venerable insurance wonk Joseph Belth castigated the industry, remarking that "there are many reasons why private insurance cannot be a good solution for handling LTC risk ... the probability of loss is high, knowing whether a covered loss has occurred is open to debate"

Um, not really, Doc: the contracts (and insurance policies are contracts) specifically identify triggers, and there's no evidence of widespread bad-faith claims denial.

Item the 2nd:

Meanwhile, in California, Gov Jerry Brown has signed off on legislation that tweaks how non-forfeiture benefits are handled. LTCi plans allow policyholders faced with rate increases to elect alternate benefits, such as a shorter payout timeline, or lower daily benefit amounts. The new law tightens up insurers' notification obligations.

Item the 3rd:

FoIB Jeff M alerts us to this report on the causes behind many policy lapses:

"Cognitively impaired individuals are more likely to allow a long-term-care insurance policy to lapse even though they're more likely to need long-term care ... less wealthy households allow their LTC policies to lapse more frequently, due in part to inability to continue paying insurance premiums"

As to the first, this is puzzling: all LTCi applications include the name of a 3rd party who would receive notification if a policyholder was behind on premiums. I can't imagine a scenario where that would be left blank (although, I could see where a change might not be communicated to the carrier).

The second is more nuanced: yes, premiums increase. But (as noted above), policyholders are offered various premium reduction options. Still, there's no perfect answer.