LTC Bullet: LTCI "Over There"

Tuesday, November 2, 2010


EXTRA: You've heard today's is a "wave election." Think of it as an "Age Wave" election likely to bring a sea change in public policy toward taxes, spending, entitlements and, yes, long-term care financing policy. Interesting times!

LTC Comment: Means testing for government financed LTC in Britain is much tougher than in the USA, fertile soil for growth of a private insurance market. Details after the ***news.***

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*** LIVING TO 100. Speaking of conferences: Check out "Living to 100 Symposium IV: Insight on the Challenges and Opportunities of Longevity," January 5-7, 2011, Renaissance Hotel at SeaWorld Orlando, FL. Overview, Agenda, Registration. I'm presenting a paper titled "The CLASS Act and the Future of Long-Term Care Financing."

"LIVING to 100 is a research effort which includes a triennial international research symposium. Sponsored by the Society of Actuaries, the symposium brings together thought leaders from around the world to share ideas and knowledge on aging, increases in survival rates and the resulting increase in aging populations together with its implications to social, financial, retirement and health care systems. The symposium also examines possible solutions to the challenges and opportunities created.

"A diverse range of professionals, scientists and academics gather at this prestigious event to discuss the latest scientific information on how and why we age, measure current mortality and project future rates of improvement in survival, identify potential advantages and risks associated with the increasing number of retirees and suggest answers to difficult issues resulting from individuals living longer. The outcome of each Living to 100 event is a lasting body of research to educate and aid individuals and policymakers in addressing the potential needs and services of the future advanced-age populations. This Web site offers a means of continuing communication among interested researchers and other individuals." ***

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LTC Comment: The 1917 George M. Cohan song "Over There" rallied U.S. soldiers in both World Wars:

"Over there, over there,
Send the word, send the word, over there
That the Yanks are coming
The Yanks are coming . . ."

Nowadays, though, the British may have an idea or two to send us about private long-term care insurance "over here."

Have a look at "A Brief Guide to Long Term Care Insurance: Choosing the right option for you," published October 2010 by the Association of British Insurers (ABI).

Following are some representative quotes to give you the flavor. As is true over here, LTC is a significant risk and cost in the UK.

Quote: "Currently about 20% of men and 30% of women will require long term care at some point in their lives, yet most people do not plan for needing long term care.

"The costs involved can be daunting. The average cost of care in a residential home in the UK is approaching 25,000 [$40,113] a year. In a nursing home, if nursing care is also required, this cost rises to nearly 39,000 [$62,577] a year. These are average costs and in many care homes the cost can be more than double these amounts.

"Even receiving long term care in your own home can be expensive. Every week around 300,000 households receive nearly four million hours of home help, and people in England spend an estimated 420 million [$673,834,275] a year on privately paid home care services."

LTC Comment: So what help can you get with your LTC costs from the government over there?

Quote: "The Government does provide some state assistance to help with the costs of long term care. However this assistance is means-tested and you will be assessed on what personal savings, property and other assets you may own. . . . Research shows that more than 40% of people going into a residential care home will have to pay all or most of the cost themselves.

"In England, if the total value of your assets [including home equity!] is less than 14,250 [$22,865], the Government must ensure that your assessed care needs are paid for. However, you will still be expected to contribute all of your available income, less a small amount for personal expenses, towards the cost of long term care.

"If your personal assets [including home equity] are more than 23,250 [$37,306], you will normally be expected to pay for the full cost of long term care yourself, although you may still be entitled to some state benefits that are not means-tested."

[Note that different upper and lower capital limits apply in Scotland, Wales and Northern Ireland.]

LTC Comment: England is pretty stringent compared to Medicaid rules in the USA which allow recipients of LTC benefits to retain up to $500,000 or $750,000 of home equity (depending on the state) in addition to a smaller cash exemption than England allows.

So, what private insurance options are available over there to cover LTC costs? Here's where it really gets interesting. The report mentions no LTC insurance such as we usually think of it here at home: a product to prepare for the risk of LTC in the future. All three of the products mentioned by the Association of British Insurers are aimed at helping people who are already in need of care! We see products like that here too, such as State Life/OneAmerica's "Immediate Care" plan, but they are still the exception rather than the rule.

Quote: "Immediate Care Plans - pay a guaranteed income for life to help cover the cost of your care fees in exchange for a one-off lump sum payment. These plans give you and your family peace of mind. You can use whatever money or assets you may have left over after taking out the immediate care plan for any purpose - for example, you may want to leave it to your family.

"Equity Release Plans - if you own your home, you can secure a loan against your property to release some of its value. The loan can then be used to help pay for care - either for yourself or for a relative needing care. The amount you can borrow will depend on your age and the value of the property. Interest is added to the loan on a monthly basis, and the outstanding balance is repaid when the property is sold or when the person in care passes away.

"Using Equity Release Plans with Immediate Care Plans - some insurers will allow you to fund Immediate Care Plans through home equity if you don't have enough cash immediately available. This means money will be loaned from your insurer and used to purchase the Immediate Care Plan. Like an Equity Release plan, the loan plus interest is repayable when the property is sold or when the person in care passes away."

LTC Comment: Get the drift? The Brits combine annuities and reverse mortgages to fund long-term care and divert the public from welfare dependency. We could do the same here at home if it were not for Medicaid's huge home equity exemption. I would not give up on traditional LTCI policies in the USA whose future is brighter than most believe, but I do like the idea of harnessing the tremendous potential of home equity to fund quality long-term care.

Unfortunately, home equity doesn't help much with LTC here in the USA for two reasons. First, Medicaid not only exempts a minimum of $500,000 of home equity, it also allows anyone who plans ahead five years to give away unlimited amounts of wealth of any kind with impunity. Second, reverse mortgages in the USA cannot be used to fund residential care, because they become due and payable after the borrower leaves home. I proposed a solution to that problem called a "Durable Reverse Mortgage" here, but so far no such product is available.

Bottom line, it's quite interesting to study how other countries try to cope with the daunting challenge of financing long-term care for an aging population. As far as I can tell, no one has it right yet and time is running out--over here and over there.


The Center for Long-Term Care Reform, is a private institute dedicated to ensuring quality long-term care for all Americans. Please visit our website: WWW.CENTERLTC.COM

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