LTC Bullet: Why Don’t Children Buy LTCI for Parents?
Friday, October 18, 2013
LTC Comment: The Wall Street Journal says professional kids should buy LTC insurance for their parents. It’s a perfect solution. So why doesn’t it happen more often? The answer after the ***news.***
*** LTC COVER UP: By hiking the debt ceiling and reopening government yesterday without corrective action, Congress covered up the underlying cause of America’s financial malaise: too much spending; too much debt; too little private economic incentive. They applied a band-aid to a suppurating malignant tumor. Long-term care is part of the cover up because most expensive LTC in the USA is financed in large measure by federal borrowing, money printing and deficits. As the time approaches when this funny money finally runs out, we face huge demographic challenges that legislators, policy makers, and bureaucrats have ignored for decades. There is not much individuals and families can do to protect themselves beyond maximizing personal savings, investments and insurance. ***
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LTC BULLET: WHY DON’T CHILDREN BUY LTCI FOR PARENTS?
LTC Comment: Yesterday’s Wall Street Journal had an article titled “Protecting a Family from Long-Term Care Costs.” It’s available here to online WSJ subscribers. If you’d like a copy forwarded to you, see the ***news*** above. Articles like this one, appearing in national publications, are a godsend for the struggling LTC insurance industry. Following are excerpts to give you a sense of the piece followed by our commentary.
Excerpts from Austin Kilham, “Protecting a Family from Long-Term Care Costs,” Wall Street Journal, October 17, 2013, http://online.wsj.com/news/articles/SB10001424052702303680404579141302301049242?mod=WSJ_LatestHeadlines.
“The husband and wife were successful physicians in their late 30s, but they were worried about the husband's parents, who had saved only about $100,000 for retirement.
“The couple was especially concerned about the cost of medical expenses falling to them should the parents' health deteriorate. . . .
“The adviser [Ms. Horvath] realized that even though her client's parents had relatively little saved for retirement, they wouldn't be eligible for long-term care coverage through Medicaid, which requires recipients to have less than $2,000 in assets. That meant that even if they purchased LTC insurance, they would be responsible for additional expenses once the policy ran out.
“But Ms. Horvath devised a solution that protected the parents and their children from the high cost of long-term care, while improving the parents' chances of qualifying for assistance from Medicaid.
“First, the adviser suggested that the parents purchase LTC insurance from Georgia's Long-Term Care Partnership program-one of 31 state partnership programs to encourage individuals to buy LTC insurance. . . .
“Ms. Horvath found a policy with a $6,300 annual premium and would pay up to $4,500 a month for long-term care for three years. . . .
“But Ms. Horvath had a second part to her plan: The son and daughter-in-law could pay the premiums on behalf of the parents. Not only could the successful couple afford the payments, she showed them how it might be less expensive than paying for long-term care down the road.
“Above all, Ms. Horvath adds, both the children and the parents are relieved to have a plan in place that addresses potential long-term care needs without putting either couple's finances in jeopardy.”
LTC Comment: Great plan. Slam dunk. That’s why everyone’s buying LTCI for Mom and Dad, right? Hardly.
Adult children purchasing LTC insurance policies for their parents is not unheard of, but it is rare. Why?
Most people don’t think about LTC protection until they need it and then it’s too late.
Well, sure, but why don’t they think about it? After all, the risk of needing LTC someday is high and the potential cost is astronomical.
If the risk and cost is so high, why are most people unconcerned? “They’re in denial,” you say. OK, true, but that explains exactly nothing.
The key question is “What enables their denial?”
Do you really think most Americans would remain in denial, oblivious of long-term care’s risk and cost, if one of every ten families in the country were being wiped out financially by long-term care?
No, there is a simple reason for this seemingly peculiar circumstance that most people ignore long-term care until they need it.
Since 1965, Medicaid and Medicare have paid most of the cost of expensive long-term care. Sure, families provide huge amounts of free care at considerable emotional and financial distress. But once care costing thousands of dollars per month becomes necessary, public funding kicks in.
Now, if the public funding didn’t start until personal finances were wiped out, as most media coverage and academic writing incorrectly assumes, then people would worry about LTC and plan ahead.
But that’s not how it works in the real world. Income doesn’t interfere with Medicaid LTC eligibility because people who have too little income to pay privately for all their LTC and medical expenses qualify based on income. Assets don’t interfere despite the $2,000 limit, because people’s biggest assets are exempt, such as a home, business, IRAs, term life insurance, an automobile, etc. Those who still have too much wealth to qualify consult Medicaid planners. They make the excess go away artificially and get their affluent clients into the nicest facilities by holding back some “key money” to buy their way into the best care.
Do you see why the LTC Partnership Program, promoted in the article, has not attracted as many clients as it was expected to do? People don’t buy insurance to avoid a catastrophic spend down liability that does not actually exist. They don’t intentionally plan to go on Medicaid. They just don’t plan or think about LTC at all. Their denial is the logical outcome of nearly five decades of Medicaid’s operating as a de facto LTC entitlement.
The Wall Street Journal article cited above describes a situation in Georgia. The Center for LTC Reform recently completed a study of Medicaid and LTC financing in “The Peach State.” Our report, titled “The Index of Long-Term Care Vulnerability: A Case Study in Georgia” will be published soon by the Georgia Public Policy Foundation and the Center. It will provide a much more detailed explanation than we have space for in this LTC Bullet. Stay tuned.