Wednesday December 13, 2000
As you may know, the Center for Long-Term Care Financing promotes private financing in general and long-term care insurance specifically, among other options, as a means to achieve our public policy goal of universal access to top quality long-term care for all Americans. Diverting most people away from our public programs via private financing with insurance or otherwise will allow these now overburdened and underfunded public programs to offer high quality care at the appropriate level to the genuinely needy, whom those programs are meant to protect. Thus, we take the opportunity now and then to rebut unwarranted and/or unnecessarily harsh criticism of LTC insurance when remaining silent would perpetuate false or misleading statements about a product and industry this country desperately needs to succeed.
Martin Weiss, Ph.D. rates insurance companies. His firm, Weiss Ratings, Inc., is well-known and respected by many in the media. Center for LTC Financing President Stephen Moses recently served on a panel with Dr. Weiss at the Society of American Business Editors and Writers' (SABEW) 6th Personal Finance Conference in Tampa, FL. The panel's topic was "Long-Term Care: Insure or Impoverish?" According to Moses, Weiss criticized long-term care insurance severely, lambasted LTC agents as mostly "duplicitous," and ignored the panel's assigned topic, i.e., whether private insurance or self-impoverishment is the better course for long-term care planning.
Given Weiss's public antagonism toward private long-term care insurance and LTCI agents, we thought it would be a good idea to review his booklet "Weiss Ratings' Consumer Guide to Long-Term Care Insurance: Your Personal Guide to Long-Term Care Insurance, Medicare HMO's and Medigap Insurers." A copy distributed at the SABEW meeting was "based upon a 54 year-old individual who resides in Florida." The booklet offers additional copies tailored to the needs of any specific individual for $29 each by calling 800-289-9222.
To our surprise, Dr. Weiss's outspoken public attack on long-term care insurers and agents was not repeated in his published consumer guide. The booklet is actually quite thoughtful and restrained. It contains a lot of good advice. For example:
best way to determine [how much long-term care insurance] you will need is to
contact some local nursing homes, assisted living facilities, and home health
agencies and ask them what their average daily cost is."
safest bet is to pay for lifetime benefits.[if you can afford them]."
"We highly recommend you consider purchasing [the inflation protection] option."
"The bottom line is that you should be skeptical of policies that have comprehensive benefits, loose underwriting standards, high agent commissions, and low premiums. It's the old adage: If it sounds too good to be true, it probably is."
Unfortunately, not all of the advice in the Weiss guide is this good. Ironically, given his insurance specialization, he does not seem to understand why people need insurance. The purpose of insurance is to replace the small risk of a catastrophic loss with the certainty of an affordable premium. Nevertheless, Weiss says:
"If you have an adult child or other family member that could act as a caregiver, you're less likely to need the coverage of a long-term care policy. . . . It is estimated that, for persons who reached 65 years of age in 1990, only 9% will live in a nursing home for 5 years or more." Obviously, if you are lucky (and prescient) enough to know you will have a self-sacrificing caregiver and if you are willing to plan years in advance to burden that person with your care someday, you may be able when the time comes to delay long-term care institutionalization for awhile. That, however, is not why you need long-term care insurance. You need insurance to protect you precisely against the relatively small probability (nine percent) of the relatively catastrophic risk of an institutional stay lasting five years or more. Of course, it wouldn't hurt to have insurance coverage that also relieves the burden on your caregiver by making professional help and respite care more affordable.
Weiss makes a similar mistake when he advises: "[M]uch depends on your health status, the medical history of your family, and your lifestyle. If you're concerned you may get a chronic health condition, then long-term care is likely. If not, it should be a lot easier for you to do without."
is nonsense. The healthier you are, the more likely you will live long enough
to suffer one of the chronic illness of old age that require expensive,
professional long-term care. Your medical history or your family's is largely
irrelevant. The purpose of insurance is
to prepare for the unlikely, not to gamble on probabilities.
Weiss passes on a lot of commonplace advice that is rarely questioned, but bears careful scrutiny. For example:
"A simple rule of thumb: If you have to use your savings or make significant lifestyle changes to pay the premiums, don't do it. It probably means you can't afford it. How much should you have? On average, figure $25,000 to $35,000 in annual income and $75,000 in assets per person. (not per household, and that does not include your home or car.) Above that level you should be able to afford long-term care insurance. Below it, Medicaid will probably absorb the costs."
What's wrong with this advice? It might actually make very good sense indeed to use some of your savings or to curtail your lifestyle somewhat in order to be able to afford long-term care coverage. The biggest value added by private long-term care insurance is not asset protection. Medicaid planners can give you that after the insurable event occurs for a fraction of the cost of private insurance premiums. The main reason you need private LTC insurance is to be able to purchase quality long-term care in the private marketplace at the most appropriate level including home and community-based care. If you rely on Medicaid instead, you may become trapped in an under-financed nursing home, reliant on a welfare program that is approaching bankruptcy, and vulnerable to benefit recovery from your estate in the long run anyway. The smart consumer will seek creative ways to afford private long-term care insurance including financial assistance from adult children (why shouldn't the "kids" pay to protect their own inheritances?), home equity conversion, economizing in other budget areas, and yes, even cashing in a CD or selling the vacation home. It's well worth a little financial pinch to obtain insurance that helps you stay off welfare and retain your independence and control.
So, what does Dr. Weiss have to say specifically about Medicaid?
"Medicaid will cover your long-term care expenses if your assets and income are below the level defined in your state. If you're not already at that level, you can get there by spending down your assets or transferring them to someone else. . . . However, transferring assets is a planning tool to be used well ahead of time. You do this so that when it come time for you to need long-term care, you immediately go onto Medicaid."
This is terrible advice for reasons already discussed. To his credit, however, Weiss does go on to warn: "Going on Medicaid, however, is not something we recommend if you can avoid it. In general, it's not a good idea to deplete all your assets and the quality of care you would receive through Medicaid is questionable."
Our advice to Martin Weiss: By all means, keep the cold hard light of objective analysis and scrutiny shining on private long-term care insurance. But for heaven's sake, shed a little more light and apply a little more skepticism with regard to Medicaid, the primary public financing source for long-term care. Today's easy availability of public dollars after the insurable event occurs has anesthetized people to the risk of expensive long-term care. This government- induced indifference to the need for private insurance constitutes a much greater danger to the public's access to quality care than any flaws, however serious, in private long-term care insurance products or agents.
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