The Long Term Care Group Inc.
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.”
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.
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.
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).
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.
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
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.