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LTCG

The Long Term Care Group Inc.
Eileen J. Tell
Vice President, Products
Commonwealth Road
Natick MA 01760 

 

To the Editor:  

I am writing to take exception to the comments made by Maria Luce in the March 27th report “Less than Meets the Eye,” as well as to her reply to Richard Eisenberg’s Letter to the Editor.  

Ms. Luce’s premise that “long term care insurance won’t provide the safety net it promises” is not an accurate statement.  The central focus of Ms. Luce’s criticism of long term care insurance is that the insurance company, not the holder of the policy, decides when and if to pay benefits.  While it is true that the rules for determining when benefits are payable are made by the insurance company (as they are with all insurance products), the criteria used for today’s long term care policies are nationally validated, extremely objective and reliable indicators of when someone needs long term care.  Specifically, today’s long term care policies use standard measures of one’s ability to perform activities of daily living (ADLs) like bathing or dressing or cognitive impairment (like Alzheimer’s disease) to determine when one qualifies for benefits.  The definitions of these key terms, the thresholds that must be met to qualify for benefit, and other key parameters of when benefits are paid are all clearly defined in both the policy that one receives when they get coverage and in the outline of coverage that must be provided to every prospective insured.   The criteria for receiving benefits are also uniformly defined in all federally tax-qualified long term care plans.  So the rules for receiving benefits are, to some extent, defined uniformly by the nationally defined standards that govern these tax-qualified plans, not by the insurance companies themselves.  

While the long term care policies of the past (e.g., 10 years ago) may have included some arbitrary and ill-defined benefit criteria, this is certainly no longer the case.   Based on our experience as a third party administrator for a number of leading insurers, nearly all of the benefit requests from individuals who have ADL deficiencies or cognitive loss are approved.  The primary reason we see for a benefit denial today may be that the individual is requesting benefits for a service that isn’t covered under their policy. (In other words, they may have bought a nursing home only policy but are requesting benefits for care at home.)  

I agree with the points raised by Mr. Eisenberg in response to the various points assertions you  made throughout your article.  Many of the statements you made are either inaccurate, untrue or misleading.  

1.   If you require nursing home care, the odds are 2 in 10 that your nursing home stay will last 5 years or more (Kemper and Murtaugh, New England Journal of Medicine, 1991), not 1 in 10 as stated in the article.  Don’t forget about the possibility that you might need care at home.  If you’re 65 years old, there is a 60% chance that you will need some type of long term care – either at home or in a nursing home (LifePlans, Inc. and Boston University, Project Report for HIAA, 1990).  

2.  It is simply not true that “..should you opt for in-home care…the insurer typically pays only half of your benefit.”   Most insurers today give you the choice of how much coverage you want to buy for “at-home” care and for nursing home care.  Most companies offer the same benefit amount for at-home care as for nursing home  care.  While early policies may have limited the home care benefit to 50% of the nursing home benefit, most do not impose this limit today.  In 1994, the average home care daily benefit across leading insurers was $78 compared with a nursing home daily benefit of $84.  So home care costs are, on average, being paid at over 90% of the nursing home benefit level (LifePlans, Inc., Who Buys Long Term Care Insurance, Project Report for HIAA, 1995).  This is nowhere near the “half” you cite. 

3.  You compare negotiating for long term care insurance benefits with the hassles of dealing with the “obstinate bureaucracy” of an HMO.  There are important differences between the typical HMO contract and a long term care insurance policy.  First, as discussed above, the long term care policy uses objective, reliable, and well-defined criteria for when you will receive benefits.  The exact type and amount of service that is covered, and any limits imposed on that service are clearly defined in your policy.  This means that your long term care policy is guaranteeing that you can receive covered services up to the type and amount listed in the policy as long as you meet the objective criteria for ADL or cognitive loss also defined in the policy.  An HMO contract may define the limits of coverage, but does not guarantee that you can or will receive services up to those limits.  Long term care insurance is not managed care and does not work the same way as an HMO contract might work.  To suggest otherwise is misleading and inaccurate.  

4.  The article cites the slower rate of increase in nursing home admission rates relative to rates of population growth among the elderly as evidence of the declining need for nursing home care.  This is then given as a reason not to worry about long term care insurance.  But what is behind this declining need for nursing home care is the increased use of alternatives to nursing home care – in particular care at home, in the community and in assisted living facilities.   Long term care insurance covers care in these varied alternative settings, not just in nursing homes.  In fact, it is almost the only payment source for these important alternatives; Medicaid seldom covers care outside of a  nursing home.   Also, data suggest that the need for long term care is on the rise.  The GAO predicts that the number of elderly needing long term care will double in the next 25 years (GAO, 1994). 

5.  Fear is not what makes long term care policies so popular; it is the need for a way to pay for long term care without impoverishing oneself or loved ones.  Another reason to buy long term care insurance is to improve access to care alternatives outside of a nursing home, and to be able to freely choose one’s care provider.  Having private insurance enhances one’s ability to obtain care at home or in an assisted living facility.  

6.  A recent industry study of 31 companies suggests policy termination rates (lapses plus death)

for policies issued in 1993-1996 of about 3-5%.  For policies issued prior to 1989, the termination rates were still on the low side – about 4% to 9% (HIAA, 1999).  This is nowhere near the statistic given in the article that “insurers expect half of new policies to lapse within five years.”   

7.    The article is misleading when it criticizes the industry for insurance which “won’t cover everything.”  The policy will pay up to the limits of coverage that the individual selects.  An individual can design their policy so that it covers more or less of their expected long term care costs, based on the extent of coverage they desire and can afford.  Some people buy “lifetime” coverage with inflation protection so that nearly all costs they might incur are covered.  Others prefer a more affordable policy that pays most but not all of their costs; these people are willing to pay some costs on their own and have the insurance pay for the balance of their costs.   

8.  In the example provided, a 60-day deductible does not mean that the individual would pay “thousands of dollars” for the first two months of care out of their own pocket.  Many companies allow you to satisfy the deductible period with days on which you are disabled but may not incur any out-of-pocket expenses.  Other companies allow you to meet this deductible with any covered service.  So someone who gets one visit from a home health aide (e.g., $50/day) would satisfy the 60-day deductible with only $3,000 of out of pocket expenses.  Let’s assume that this person is in a nursing home and is paying $100/day for care during the deductible period.  That would mean $6,000 out-of-pocket (some of which may have been paid for by Medicare or other insurance if eligible.)  Consider this expense in light of their overall coverage.  Suppose that person had a policy that paid benefits for 3 years of nursing home care after this one-time deductible was met.  The insurance policy would have paid for $109,500 out of the total expense of $115,500, or 95% of the costs.  The “thousands of dollars” that one paid out-of-pocket is minimal compared to the enormous expense covered by the policy once that one-time deductible is met.  (Most long term care insurance has a once per lifetime deductible, unlike health insurance which has a new deductible each calendar year.)  

9.  Your information about the type of coverage available is also out of date.  Most policies today offer a total pool of dollars that you can use for any covered service. So you can decide which type of care you prefer at the time you need care.  Most policies automatically include a waiver of premium provision.  It is simply not true that “the amount you can collect will always be capped, while the cost of your care will not.”  There are policies available today which provide lifetime coverage which lasts as long as you need care.  These policies also offer inflation protection which annually increases the amount of coverage to keep pace with rising costs.  In 1994, over one-third of people buying long term care insurance included inflation protection in their coverage.  Younger buyers (age 55 to 69) are much more likely to need and include this type of protection in their coverage (40% to 60% bought it) (LifePlans, Inc., Who Buys Long Term Care Insurance, Report for HIAA, 1995) . More recent data will be out soon and we believe it will show a continued rise in the number of long term care policyholders with inflation protection.  

10.  It is imprudent to suggest that people are better off taking their chances in the hope that a government solution to the long term care cost crisis will be forthcoming. Mr. Eisenberg points out the many factors that suggest this isn’t going to happen.  And even if it does, many policies have a provision that, if there is a government program for long term care, they will adjust coverage or refund premiums to coordinate with a social solution.  So there is no prudent reason to simply wait and cross your fingers.  

11.  While Continuing Care Retirement Communities (CCRCs) provide a valuable resource, it is a lifestyle option of limited appeal. Most people want to stay in their own homes, not move to a different town or state to a senior citizen community.  And not all CCRCs provide “long term care insurance” as part of their entrance or monthly fees.  Those that do provide services and coverage for long term care needs may also limit the amount of care you can receive “at home” in your independent living unit.  Many facilities require you to move to the assisted living or nursing home facility if you need care (Tell, et. al, Milbank Memorial Fund Quarterly, 1987).  

12.  Leaning on Medicaid certainly isn’t a viable solution. Ignoring the moral and ethical issues of estate transfers, Medicaid doesn’t pay for alternatives to nursing home care except in very limited situations.  And your ability to choose the type of care you want or the specific nursing home you prefer can also be limited.  

13.  The article indicates that putting aside enough to pay for 30 months of care (e.g., $100,320 at the U.S. average cost for a nursing home) is a better strategy than buying long term care insurance.  How many of us have $100,000 to “invest” solely for the purpose of self-insuring for long term care?  This means putting those funds away and never using them until one is certain to never need long term care.  The typical long term care insurance premium for comprehensive coverage with inflation protection at age 65 is $1,850/year.  Even if you don’t need care until age 85, you would have paid out only $37,000 in premiums over your lifetime for coverage worth at least $146,000 today (and increasing 5% each year). And you don’t have to use your other assets to pay for care.  That seems like a much more efficient way to use your money and preserve your estate for your heirs.  

14.   Finally, insuring yourself or “paying as you go” is also not a viable solution for most people except the extremely wealthy.  Saving on your own isn’t as easy as it might sound and it doesn’t make good economic sense either.  First, while some individuals are willing and able to set aside a large sum of money “just in case” they need it, others don’t have the funds or discipline to do so.  Also, since you can’t predict when you might need care or how much care you’d need, you would have to start saving significant amounts (much more than you’d spend to buy long term care insurance) well in advance and hope that you don’t need care sooner than later.  More importantly, many seniors want to preserve the assets they’ve worked a lifetime to accumulate – not so that they can use them to pay for long term care – but so that they can pass them on to a surviving spouse or other loves ones.    The author suggests that “the real payoff for self-insurance is this:  If you never need care, all that money belongs to you – and to your heirs.”  What is missing is the countervailing statement that, if you do need care (with a 60% chance of needing some type of long term care), you are unlikely to have saved enough to pay for the care you’ll need and you’ll need to impoverish yourself and possibly your spouse and have nothing to pass along to heirs.  

I’ve done the math for myself (as have millions of others who have bought long term care insurance – out of sound financial planning not out of “fear”).   I pay $1,200 a year for my long term care insurance.  Over the next 40 years (if I’m lucky enough to live that long), I expect to pay out nearly $50,000 in premiums.  But to me that is a fraction of what it would cost me if I needed long term care.  That $50,000 wouldn’t even cover a year in a nursing home at today’s costs, let alone considering what care will cost in 40 years.  I consider that investment money well spent – whether I need long term care or not.  I have purchased both peace of mind and, if I need it, comprehensive coverage I know I can count on.

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