LTC Bullet: WSJ Misfires on LTC Insurance
Friday, February 14, 2014
LTC Comment: We dissect and correct a misbegotten column in the Wall Street Journal after the ***news.*** [omitted]
LTC BULLET: WSJ MISFIRES ON LTC INSURANCE
LTC Comment: Over the years, private long-term care insurance has been the target of many unfounded attacks. But this latest one is especially galling as it comes from someone pushing a truly irresponsible alternative: Medicaid planning. Here’s the reply we emailed to the offending author and posted on the Wall Street Journal’s website.
Susan Kaplan’s “The Case for Skipping Long-Term-Care Insurance” (Wall Street Journal, 2/10/14) is full of inaccurate statements and bad advice.
Quote: “[T]he odds that clients will continue paying for coverage until they actually need it are slim.”
LTC Comment: Not true. Most LTC insurance policy holders retain their coverage. In fact, lapsed policies are only a small fraction of what actuaries originally expected. Besides, consumers who worry about making future premiums for traditional coverage can purchase LTC protection linked with single-premium life insurance or an annuity.
Quote: “Premiums are going up 10% to 45% a year.”
LTC Comment: Premiums on in-place business remained flat for the first three decades of the LTC insurance product’s existence. Recent premium increases have largely achieved their purpose so future increases should be moderate. If the Federal Reserve stops forcing interest rates to zero so insurance carriers can receive better returns on their reserves it is possible competition could actually push LTC insurance premiums down in the future. Besides, consumers who still worry about premium increases have guaranteed premium options through linked products.
Quote: “The average premium these days can cost anywhere from $4,000 to $6,000 annually per person, a lot even for high net-worth clients.”
LTC Comment: Actually, a couple can buy “best” coverage for less than that. According to the American Association for Long-Term Care Insurance: “Today’s average cost for ‘Best’ coverage for a 60-year-old couple each purchasing $164,000 of immediate coverage that grows to a combined benefit pool of $730,000 ($365,000 each) at age 85, is $3,840-per-year. ‘That’s a three percent increase from the 2013 average ($3,725) and 4.8 percent higher than 2012 ($3,663),’ [AALTCI executive director] Slome shares.” Furthermore: “A 55-year-old single male purchasing new long-term care insurance protection can expect to pay $925-per-year for $164,000 of benefits according to an industry report. He’ll pay $1,765 for coverage that increases the benefit pool to $365,000 at age 85, a 14.5 percent decline from last year’s average.”
(Emphasis added. Source: “2014 Long Term Care Insurance Price Index Published,” http://www.aaltci.org/news/long-term-care-insurance-association-news/2014-long-term-care-insurance-price-index-published)
Quote: “After paying the premium, clients may not have money left over to do things like take a vacation.”
LTC Comment: What’s more important? Preparing for a secure future or immediate gratification?
Quote: “Those who are wealthy enough or can save enough should just pay for long-term care out of pocket.”
LTC Comment: So, it’s better to spend dollar-dollars later than nickel-dollars today? Most people with significant assets to protect didn’t accumulate their wealth by ignoring the power of private health, life and auto insurance to protect it. Why should they ignore the leverage from private long-term care insurance?
Quote: “For those who can't [save enough to pay for their own long-term care], one solution is to put clients' assets into an annuity, which will provide them with an income stream of X amount for the rest of their lives. Because they are no longer holding the majority of their assets, clients can qualify for Medicaid before entering a nursing home. This doesn't have to be done in advance of needing long-term care and is perfectly acceptable to the nursing home.”
LTC Comment: Here’s what this article is really about, i.e., selling “Medicaid-friendly annuities.” But, Medicaid is a means-tested public assistance program. In a word, welfare. The program has a dismal reputation for problems of access, quality, reimbursement, discrimination and institutional bias. It is not true that Medicaid is “perfectly acceptable to the nursing home.” Medicaid pays nursing homes only 2/3 of the private pay rate so the nicest facilities roll out the red carpet for private payers. It is true now and will be more true in the future that to obtain the highest quality long-term care at the most appropriate level people need to be able to pay privately.
Quote: “The reality is that when a client gets sick, many don't even make it to the nursing home, and once there, most people die within 18 months. This paints a bleak picture of the future, but ultimately can save a client thousands of dollars over the years, especially as long-term-care policies get less and less appealing.”
LTC Comment: Long-term care insurance is “stay out of a nursing home insurance” because it ensures that policy holders can stay at home or in a comfortable assisted living facility as long as possible and that they can access the very finest skilled nursing facilities if necessary.