Who Needs LTC Insurance?
Thursday May 4, 2000
The following excerpt from the Center for Long-Term Care Financing's "Myth of Unaffordability" report was published as a stand-alone article in the May 2000 issue of LTC News & Comment. For information on LTC News & Comment, go to www.larsonltc.com/newsletter.html or contact Editor George Sherman at gsherman@ ris.net or (719) 783-9558. Order a copy of the Center's "Myth of Unaffordability" report ($34.95; free to media and lawmakers) by contacting Sarah Allen at email@example.com or toll free at 1-877-557-3627.
"Who Needs LTC Insurance?"
Senior advocates and financial planners often advise people not to buy long-term care insurance unless they possess certain minimum levels of income and assets. For example, according to the well-respected United Seniors Health Cooperative (USHC) of Washington, D.C.: "[E]ach member of your household should have at least $30,000 in annual income and $75,000 in assets, excluding your home and car, before thinking of buying long-term care insurance." Why these limits and not others either higher or lower? In the USHC's own words: "[I]f you have few assets, you do not need insurance because Medicaid can help absorb nursing home costs." In other words, their advice is: "If you can qualify for Medicaid nursing home benefits, then you don't need long-term care insurance." As we have shown in LTC News & Comment and elsewhere, however, virtually anyone can qualify for Medicaid nursing home benefits regardless of income or assets. Certainly, $30,000 in income, $75,000 in nonexempt assets, a $250,000 home owned free and clear, and a brand new Lexus all combined present no significant obstacle to qualifying quickly for Medicaid without spending down for care.
It follows almost syllogistically, therefore, that no one needs long-term care insurance. That is precisely the logical conclusion that most consumers reach, although few of them identify the reasoning behind their decision so precisely. Most of them just listen to the nice long-term care insurance agent's presentation, offer courteous thanks, explain they "have to think it over," and usher the poor, befuddled salesperson out the door. This would not happen so often if consumers understood that long-term care insurance is not only, or even primarily, for asset protection. At least under current public policy, the main reason to buy long-term care insurance is to assure access to quality care at the appropriate level within the competitive private marketplace.
Eve Tahmincioglu, writing in Kiplinger's Personal Finance Magazine, sets a similarly high threshold for purchasing long-term care insurance: "[U]nless you're a couple with assets above $100,000 (not including a house) or a single person with assets of more than $40,000 or $50,000, long-term-care insurance isn't for you." That standard would certainly leave out a lot of high-income, upwardly mobile, under-saving baby boomers who definitely ought to be purchasing long-term care insurance. What if you are a young couple who have not yet accumulated a lot of savings, but who want to take advantage of the low premiums available to people who purchase coverage at an earlier age? If you follow guidelines like these that are commonplace in the financial planning literature, you will miss one of the best opportunities in a lifetime to acquire long-term care insurance.
The National Association of Insurance Commissioners (NAIC) proposes a guideline for the purchase of long-term care insurance that seems at first to make more sense than either of those above: "[Y]ou should not buy a policy if you can't afford the premiums or cannot reasonably predict that you will be able to pay the premium for the rest of your life." That sounds reasonable, butů What if you have loving adult children who are willing to pay the premiums for a long-term care insurance policy on your behalf so that they will have the satisfaction of knowing that you will be able to purchase quality long-term care and that their inheritance will remain intact? What if, like many seniors, you are cash poor, but house rich, and you could easily pay the premiums for a long-term care insurance policy by supplementing your income with the proceeds of a reverse annuity mortgage? What if your ability to pay the premiums indefinitely is dubious, but you would like to have long-term care insurance protection now and for as long as possible? The usual "rules of thumb" about who should buy long-term care insurance are usually wrong and often dangerous to the public's well-being.
The correct answer to the question "Who Should Buy Long-Term Care Insurance?" is anyone who (1) correctly identifies the objective risk of needing long-term care, (2) understands the value of avoiding Medicaid dependency and paying privately in order to obtain quality care at the appropriate level, and (3) can find the income or resources to fund the premiums after giving this coverage an appropriate priority among competing spending alternatives. To recommend arbitrary income and asset levels below which people should not insure is unhelpful. Such recommendations would not happen nearly as often if the "experts" understood and fully appreciated the difference between and the complementary nature of long-term care insurance as both asset protection and, even more importantly, quality assurance.