February 7, 2002
following is the sixth in our series of "LTC Reality Check" Bullets.
From time to time, we devote LTC Bullets to this "LTC Reality
Check" effort. The goal is to
provide accurate and timely information on long-term care financing topics and
to demonstrate how easily information can be misunderstood, misinterpreted or
misstated. For those of you new to
LTC Bullets, we hope our "LTC Reality Check" series is helpful and
contributes to raising the level and accuracy of discourse on the matters
addressed. Earlier LTC Bullets in
this series can be found in the LTC Bullets archives (sorted by subject and
date) at www.centerltc.org.
LTC Bullet comes courtesy of Eileen Tell, Vice President with the Long Term Care
Group. Thanks to Eileen for another
valuable contribution to this effort. Please
direct your feedback to Eileen at ETELL@LTCG.COM.
Jonathan Clements' article, "Is 'Nursing-Home
Insurance' Needed?" (Wall Street Journal, January 29, 2002) misses many
critical points about the value of long term care insurance.
The unsubstantiated claims and incomplete discussion actually muddle the
very questions he purports to clarify. Private
long term care insurance (please - not 'nursing home insurance'!) holds great
promise for preserving financial security, improving long-term care access and
choice, and relieving the burden on public long-term care assistance programs.
Here are some of the more critical problems with the article:
hide your wallet.” This opening line is misleading, dismissive, and unnecessary.
Most reputable and knowledgeable financial planners and insurance
advisors, as well as many consumer advocates and regulators, would take issue
with the advisor quoted in the article who says, “Long-term care is the big
hustle in the insurance industry.” While
long-term care insurance may not be appropriate for everyone, it is an important
product worth considering for both financial protection and peace of mind.
buy insurance if you have enough income to pay for nursing home care? The article suggests that, if you have enough annual income
to pay for nursing home care, that you might not need insurance. While the
article mentions the need to maintain income to adequately support a spouse
living at home or outliving the spouse who requires long term care, it omits
other reasons why someone might want to buy long term care insurance to pay for
care, even if they could pay some or all of the costs out of income or assets. Some people prefer to use their income for other purposes
than paying for care, for example, providing financial support to help with
their grandchildrens’ college education, an adult child’s first home
purchase, or simply to save and pass along to heirs.
How much money do you need to pay for nursing home care on your own? Also, as noted later in the article, it’s impossible to predict how much income you will need to pay for long term care, since you can’t know in advance how much care you will need. Will you be the person who spends only a short time in a nursing home, say 6 months, costing only $27,000? Or will you be the person who has an “average stay” costing over $142,000? How much would you need to pay for your care if you are one of the 20% of nursing home patients who stay more than 5 years, costing over $273,000?
insurance for peace of mind and access to care. The article also ignores
the many non-financial reasons people buy long term care insurance.
Having coverage provides great peace of mind that you won’t have to
rely on family or friends to provide care.
And many insurance policies provide more than just financial protection;
they provide counseling, support and referral to quality care providers
that can help you make your way through the maze of long term care services at
what is typically a very emotionally stressful time for you and your loved ones.
In this way, having insurance also enhances access to care.
are other strategies for keeping premium costs more affordable. The
strategies outlined in the article for keeping the premium costs more affordable
are good ones – choosing a longer deductible period or a shorter policy
duration rather than lifetime. But
there are other strategies, including selecting a lower daily benefit amount for
nursing home care, home care or both. For
example, the article didn’t mention that the TIAA-CREF policy used in the
premium example provides the same daily benefit amount for both nursing home
care and at-home care ($150/day). But
TIAA-CREF, like many companies, also sells a lower daily benefit amount for home
care, since home care costs are seldom as high as nursing home costs.
A policy with a reduced home care benefit can lower premium costs by
Importance of Care at Home is not mentioned. The article also left out
any mention of care at home, which is where most long term care is provided
today and which is, by far, the most preferred setting of care.
The “cost-benefit” analysis in the article only talks about nursing
home costs, but the premium costs cited in the article are for very
comprehensive coverage which also provides benefits for a wide range of in-home
care services up to $150 per day. In
thinking about the costs of care, one has to also think about whether they might
need or prefer to get care at home. While
the average stay in a nursing home is 2.6 years, most of those people didn’t
become disabled and need care only from the first day they entered the nursing
home. Many of them required care
prior to entering the nursing home, sometimes receiving care for months or years
at home before their health condition or personal situation made it necessary to
seek care in a facility.
not just “nursing-home insurance” any more. The title of the article
does a disservice to readers. Nobody
calls it “nursing home insurance” anymore because coverage is significantly
broader than that in today’s policies – covering a wide range of services
and care at home, in the community and in an assisted living facility.
The risks and costs of long term care that we all face go well beyond
just the probability of needing care in a nursing home.
To leave this out of the decision is misleading to those who are
evaluating whether long term care insurance makes sense for them.
True “Cost of Waiting.” The article also understates the importance of buying at
younger ages. The premium costs
cited at ages 60 and 70 in the article are for the same daily nursing home
benefit ($150/day) as used in calculating the premium costs for a 50-year old
buyer. If I am age 50 today, and I
consider a policy paying $150/day for nursing home care, the premium cost for
the TIAA-CREF policy described in the article would be $2,640 as stated.
But if I wait until age 60 to buy a policy with a comparable benefit
amount, I would have to buy a nursing home benefit amount of about $230/day
since the cost of a day in a nursing home will increase in the 10 years that I
have put off the decision. The cost
of care when I am age 60 won’t still be $150/day, it will be likely closer to
$230/day. The premium cost for that
coverage is about $5,200 at age 60. This
is significantly higher than the $3,435 premium cited in the article for the
$150/day coverage purchased at age 60. The
higher cost per $100 of benefit, combined with the fact that, the longer you
wait, the more benefit you must buy to keep pace with rising nursing home costs,
explains why it is important to buy at younger ages.
Premiums Increase? Finally, I take issue with the unsubstantiated statement in
the article that “anybody buying long-term care insurance should be prepared
for premiums to climb as much as 50%.” The
vast majority of companies offering long term care insurance have never raised
rates on their original blocks of business.
Most companies set rates very carefully, designing them to be both fair
and sustainable. It serves no
one’s interests to have rate increases. While
there may be a handful of companies that have not adequately priced their
products, or did not carefully underwrite or administer the risk, the vast
majority of companies dedicated to this marketplace have the commitment and
skill required to establish fair and sustainable premiums.
for long term care needs.
The article notes that, “. . . the problem with planning for long-term
care . . . . [is that]
. . . you don’t know how incapacitated a person is going to be and how long
care will be needed for.” That’s
exactly why insurance is a good idea; it provides financial protection and peace
of mind against this uncertain but potentially catastrophic risk.
Uncertainty about how much care you might need should not be a reason not
to plan ahead and consider insurance. The
appropriate question to ask yourself is, given the uncertainty, how would I pay
for care and still maintain my family’s qualify of life, if I needed care for
an extended amount of time? While
insurance may not be right for everyone, it is critical that they consider
whether or not it makes sense for them and to plan in advance for how they would
pay for care if they decide not to buy insurance.