Juliet: “What’s in a name? That which we call a rose
By any other name would smell as sweet.”
Romeo and Juliet (II, ii, 1-2)
Shakespeare asked about names centuries ago to call into question the validity of the feud between the Montagues and the Capulets. The answer, as we were shown while the play went forward, is that a name can be everything.
The dynamics of the importance of a name can also be seen with Long-Term Care Insurance (LTCi). The National Bureau of Economic Research (NBER) has stated that only ten percent of the elderly have a private LTCi plan. The NBER went on to state that a 65-year old woman has a forty-four percent chance of entering a nursing home during her lifetime. Once in a nursing home she faces an average stay of two years.
Long-term care is extremely expensive, according to a MetLife survey. The national average daily rate for a private room in a nursing home in 2012 was $248, while a semi-private room was $222, which were up from $239 and $214 respectively from 2011.
Given the highly probable expense of over $180,000 for a two-year stay in a nursing home, you would think a lot more than ten percent would have purchased the coverage.
In 2011 United States fire departments responded to 370,000 home structure fires. These fires resulted in $6.9 billion in direct damage. There are 125,000,000 homes in the United States according to HUD. The math would state that the odds of having a reported fire are one in 338, and the average fire is under $19,000.
Why . . . when it is almost unthinkable to go without homeowner’s insurance . . . would only ten percent of the elderly purchase coverage for something that will seemingly happen much more often and be more expensive?
I think part of the answer is in Shakespeare’s wisdom of the importance of a name. I’ve been in the insurance business for forty-three years. When I first became aware of LTCi it was commonly known as “Nursing Home Insurance”. It’s doubtful they could have named it anything worse.
Benefits of Long Term Care Insurance
These benefits must be offered by all participating insurers as part of all plans:
- Nursing home care
- Home care
- Personal care
- Assisted living care
- Skilled nursing care
- Adult day care
- Respite care (14 nursing home equivalent days per year)
- Care management (2 days of long-term care planning services by a professional)
- Alternate level of care
- Nursing home bed reservation (20 days per year)
- Hospice care
- Inflation protection equal to 3.5% or 5% compounded annually
- Guaranteed renewable
There would seem to be several names that could have been picked that would have been much better than “nursing home insurance”.
Who would want to purchase insurance that would facilitate you being placed in a “Nursing Home”? Nursing homes have gone through a great deal of change over the last forty years. They are much more user-friendly, but still aren’t a place we’re eager to call home. No one wants to become older in our youth-oriented society, but it is inevitable and Boomers are demanding solutions that are palatable for them . . . and positive marketing.
Beyond the negative name, selling LTCi requires a discussion of the conditions for payment of loss. Many policies require that the insured can no longer perform at least two Activities of Daily Living (ADLs). There are six basic ADLs: eating, bathing, dressing, toileting, transferring (walking) and continence. An individual’s ability to perform ADLs is determines what kind of long-term care and coverage the individual needs.
One can only imagine what a sales turn-off it is to discuss ADLs around the kitchen table with prospective buyers. They don’t want to think about growing old, let alone have a discussion about incontinence.
The Long-Term Care industry also seems to have been very poor at predicting actuarial outcomes. Over the last few years ten of the top twenty largest LTCi companies have pulled out of the market. They cite low investment income from bonds, larger than expected claims due to medical advances that allow people to live longer, and the inability to achieve necessary rate approval from state regulators.
Industry insiders also suggest that many companies over-estimated the percentage of people who would allow their LTCi to lapse. Companies need a certain percentage of policyholders to allow their policies to lapse, because when that happens they can claim all of the premium paid to that point as fully-earned . . . because there is no chance for a paid claim on a lapsed policy. It seems that people who purchase LTCi hold onto it.
Because of this high premium, which is more than five times the cost of the average homeowner’s policy in the United States, many people think LTCi is “too expensive”. The market has reached the contrarian position of the insurance companies deserting the market because they feel they can’t make a reasonable profit and, at the same time, people thinking the coverage is too expensive.
People also avoid LTCi because they believe the coverage decision is “too complex”. It is complex; and you should involve an independent agent, but there are some parts of the buying decision that have become a rule-of-thumb. For example; a long-term care policy isn’t worth it for those with relatively few assets, some say less than $250,000. Odds are they’ll eventually turn to Medicaid if necessary. People with more than $2 million in assets have the financial means to self-insure.
Personally I believe self-insurance to be a poor decision. Asset protection is asset protection no matter what amount of money you have. However, I also believe that many LTCi policies are designed to cover ALL your long term care expense when what you need to cover . . . is what you cannot comfortably afford to cover.
Long Term Care Insurance Premiums
LTCi premiums are determined by six main factors: age, daily (or monthly) benefit, how long the benefits pay, elimination period, inflation protection, and health rating (preferred, standard, and sub-standard). Age and health are mostly pre-determined for you, but the other four require analysis to determine what coverage best suits your needs and financial ability to pay.
People also avoid buying LTCi because they feel it is too hard to get. It is hard to purchase, if you wait until you’re quite old to buy it. Insurance companies are constantly trying to avoid adverse selection. The debate over Obamacare succeeding centers on whether young people will take part in the pool. To force them to take part there are penalties built into the Affordable Care Act. Insurance companies also need younger people to buy LTCi to make the pool profitable.
According to the American Association for Long-Term Care Insurance, at age 49 and under only 7.3% of applicants are declined. The declination rate increases to 13.9% in your fifties and 22.9% in your sixties. Those who apply in their seventies will suffer a 44.8% rejection and if you apply in your eighties you can expect to be declined 69.8% of the time.
If you have any of the following you probably will be most likely be declined:
- AIDs or HIV infection
- Alzheimer’s Disease
- Amyotrophic Lateral Sclerosis (ALS)
- Cystic Fibrosis
- Hepatitis C, Non-A, Non-B, or Autoimmune
- Kidney Failure
- Liver Cirrhosis
- Memory Loss
- Multiple Sclerosis (Mid – Advanced)
- Muscular Dystrophy
- Parkinson’s Disease
- Post-Polio Syndrome
- Sickle Cell Anemia
- Systemic Lupus Erythematosus
You will also probably be declined if you must have assistance with dressing, bathing, toileting, or feeding . . . or have incontinence, or need assistance with getting from a bed to a chair. You will probably be declined if you use a multi-pronged cane, walker, crutches, oxygen, or wheelchair. If you need assistance with grocery shopping, using a bus or taxi, or need help with the telephone or banking, you probably won’t qualify. If you are currently receiving special care, you will more than likely be declined.
It is very important to start coverage when you’re in good health and preferably when you are younger.
Women have greater use for LTCi than men. Until recently rates have not reflected this difference, but that is changing rapidly.
One of the main reasons women use LTCi more is that women tend to be the caregivers. If men need long term care, the first place they look is to their spouse. Since women out-live men (the life expectancy in the U.S. for women at birth is 79, and for men is 72), they often do no have the option of having their spouse take care of them.
Women are susceptible to many diseases that don’t effect men.
More than seventy percent of the residents of long term care facilities are women. One in nine women age 75 or older, and one in five age 85 or older, needs assistance with daily activities.
LTCi can be purchased as a rider on some life insurance policies. This method allows a person to use part of their death benefit under the life policy for long term care.
One of the reasons that people don’t purchase LTCi is that people are counting on the government to provide for their Long-Term Care through either Medicaid or Medicare. These programs have a place but are not equitable replacements LTCi.
Generally to be eligible for Medicaid you must be one of the following:
- 65 or older
- Permanently disabled as defined by the Social Security Administration
- A child, or the parent or caretaker of a child
Further, you must meet the following:
- U.S. citizenship (or meet certain immigration rules)
- A resident of the state where you apply
- Valid Social Security Number
In addition you must have limited income and assets.
To qualify you must have very limited assets or spend down your assets in an approved manner. You will not be allowed to accumulate wealth. You will have some input into how and where you will receive care, but not to the extent that you would if you have LTCi insurance to cover the expense. LTCi does not ask that you meet any of the above requirements, only the policy terms.
Medicare will help pay for a short stay in a skilled nursing facility, for hospice care, or for home health care under the following conditions:
- A recent prior hospital stay . . . at least three days
- Admission to a Medicare-certified nursing facility within thirty days of your prior hospital stay
- You have a need for skilled care, such as skilled nursing services, physical therapy, or other kinds of therapy
Medicare will ONLY pay for SOME of your costs for up to one hundred days. For the first twenty days, Medicare pays all of your costs. Days twenty-one through one hundred, you pay your own expenses up to $140.00 per day (as of 2013), and Medicare pays the balance.
Critical Care Insurance
Critical Care Insurance is an alternative for those who were declined or ineligible to apply for LTCi. It is a newer coverage that allows many more people access to the kinds of protection offered by LTCi.
Critical Illness Insurance
Critical Illness Insurance is much like LTCi. It is a supplemental health policy. If you have been diagnosed with cancer, stroke, or heart attack, Critical Illness Insurance is designed to help cover the many expenses that your health insurance doesn’t cover. This could include deductibles and co-pays, drugs, treatments and care. It also will cover nonmedical expenses, including mortgage or rent, utilities, car payments and insurance premiums and lost income.
The rates depend on your current health, gender, age, use of tobacco products, and coverage amount.
One in eight of elderly (over 65) in the United States has Alzheimer’s. Nearly half of those 85 and older have Alzheimer’s.
People 65 and older survive an average of four to eight years after a diagnosis of Alzheimer’s disease, yet some live as long as 20 years . This indicates the slow loss of memory and thinking abilities, as well as loss of independence. A person with Alzheimer’s will spend time in the most severe stage of the disease. Much of this time will be spent in a nursing home. Seventy-five percent of those over age 80 with Alzheimer’s will be admitted to a nursing home, compared with only 4 percent of the general population.