Should I Buy Long-Term Care Insurance?
Next Avenue's Money Editor struggles to answer the question
I turned 60 recently and celebrated in four ways:
- A fantastic family vacation in Spain
- A delicious dinner in New York City with my wife
- A shingles vaccine (you’re supposed to get one at 60)
- A phone call with a long-term care insurance salesman
That last one is weighing heavily on me. I can’t decide whether my wife and I should buy long-term care insurance policies. Few people do: Only about 8 percent of Americans have them and just 105,000 long-term care insurance policies were bought in 2015.
As the Money & Security Editor at Next Avenue, however, I know how outrageously expensive long-term care is and that Medicare generally doesn’t cover it.
The High Cost of Long-Term Care
I’ve written and edited plenty of pieces with nausea-inducing figures: The median annual cost of a private room in a nursing home is now $92,378…The median annual cost of an in-home health aide is $46,332…The typical 65-year-old has a 52 percent chance of needing long-term care services and supports at some point…
As the son of two parents who’ve had live-in caregivers, I’ve seen the need first-hand. And as the father of two twentysomething sons, I don’t want any long-term care costs I incur to become a financial burden for them.
I also know that premiums for long-term care policies can be expensive, and only grow higher the older you are when you apply. Annual rate increases are generally 2 to 4 percent in your 50s but “start to be 6 to 8 percent in your 60s,” according to the American Association for Long-Term Care Insurance (AALTCI).
According to a paper just presented by the University of Pennsylvania’s Ami Ko at the Retirement Research Consortium in Washington, D.C., and citing stats from Broker World magazine, the average annual premium of a typical policy has tripled over the last decade, from $1,000 to $3,000. And that’s just the average — policies can easily cost double that.
A Kaiser Health News piece recently said that yearly premiums for long-term care insurance with inflation protection can be as high as $4,406 for a 55-year-old woman, according to the AALTCI. That article also told the sad tale of a 69-year-old California woman whose monthly long-term care premiums have nearly quadrupled over the past two years. The story noted, too, that New Yorkers who bought coverage from Genworth Financial were hit with a 60 percent premium increase in October.
The Problem With Waiting to Buy a Policy
I also know that if you wait too long to buy a long-term care policy, you’re likely to be denied coverage due to your age or health. (Obamacare hasn’t come to long-term care.) According to the AALTCI site, 23 percent of long-term care insurance applicants in their 60s were declined in 2010 (its most recent data); 14 percent in their 50s were. The AALTCI says the best age to apply for long-term care insurance and “health-qualify” is in your mid-50s. Missed it.
A few health reasons you might be turned down for long-term care insurance, according to the U.S. Administration on Aging: you have a progressive neurological condition such as multiple sclerosis or Parkinson’s; you have metastatic cancer; you have any form of dementia or cognitive dysfunction or you have AIDS.
Drawbacks to Buying Long-Term Care Insurance
On the other hand…
Insurance companies keep dropping out of this market because they can’t seem to make a buck selling long-term care insurance. As Ko wrote in her paper, “a decade ago, there were more than one hundred insurance companies writing private long-term care insurance policies. Today, only a dozen remain.” Major carriers that have left include MetLife and Prudential.
That makes me wonder whether a company selling a policy I buy today will stand behind it (or even be in business) when, or more accurately if, I need it in, say, 20 or 30 years.
I also wonder whether my wife and I would be able to afford future premiums, given the insurers’ predilection to jack rates up — often with double-digit annual increases.
And, I wonder, even if I can shell out the premiums year after pricey year and the insurer is still in business when I need long-term care, can I depend on the company to make good on its promises and pay the covered benefits?
Color me skeptical.
At a 2014 Aging in America conference workshop I attended, a lawyer spoke of the work his firm did representing long-term care policyholders and their families in their battles to get claims paid. “This is a big problem,” said Alan Kassan, a lawyer with Kantor & Kantor in Northridge, Calif. “You pay for the insurance and when it’s time to collect the benefits, you get the bad news.”
What Financial Advisers Usually Recommend
The conventional wisdom of financial planners on whether to buy long-term care insurance is this: If you’re wealthy enough to self-insure, you should. If you’re poor, you can expect Medicaid to pay your long-term care costs. But if you’re in what The SCAN Foundation Chief Executive Dr. Bruce Chernof calls “The Big Middle,” that’s when you need to decide whether to buy or to just count on your savings and good luck to see you through.
A Call With a Long-Term Care Insurance Salesman
With all this in mind, Tevye-like (“on the one hand…” “on the other hand…”), I responded to the mailing I received from my alma mater pitching discounted long-term care policies. That led to the call with the insurance salesman. Let’s call him Irv.
Irv said my wife and I would need to spend an hour with him on the phone so he could ask us some questions. My wife was not pleased to hear this.
When Irv called, we soon learned why he wanted so much time. Much of it was for him to ask us a battery of questions about our health, medications and medical histories. My wife, who has little tolerance for this kind of thing, hung up after a few minutes, leaving me to speak for the two of us. Note to long-term care salespeople: Maybe don't start the conversation by asking "What is your weight?"
I told Irv that I was diagnosed with diabetes 15 years ago and have it under control, through medications and weight loss. I also said I take a statin for my cholesterol, which is also good these days.
A Big, Unpleasant Surprise
Here’s where I got a big, and unpleasant, surprise: If I chose to wait five more years to buy the policy Irv recommended, from Mutual of Omaha, I’d be rejected. That company won’t sell long-term care coverage to someone who has had diabetes for 20 years, Irv said.
I also saw his spreadsheet calculations showing that the same insurer’s long-term care premiums could be dramatically higher or lower depending on the terms of the coverage I selected.
For instance, I could keep premiums down by not getting an inflation rider. Trouble is, it’s about 99.99 percent certain that inflation overall will rise, as will long-term care costs.
And, I saw, the more dollars I'd want the policy to pay out in benefits, the more I'd pay in premiums. Similarly, the more years of coverage I'd get, the more I'd pay.
So to keep premiums “affordable,” I realized, I'd likely want a policy paying much less than the actual cost of, say, a private room in a nursing home; coverage lasting no more than five years; a long elimination (waiting) period before benefits kick in and no more than 3 percent annual inflation protection.
Ballpark figure: a policy might cost my wife and me about $6,500 a year for expenses we might never incur.
What One Sharp Adviser Says
I still couldn't decide. So I turned to Allan Roth, a topnotch Certified Financial Planner at Wealth Logic in Colorado Springs, Colo. and an occasional Next Avenue writer.
“For those neither wealthy nor least well-off, I generally recommend against long-term care insurance,” Roth said. “The main reason to buy would be to protect some inheritance for heirs and that’s not the main purpose of the portfolio. Because pure long-term care policies guaranteeing fixed payments no longer exist, the risk of continued huge rate increases after five or 10 years is too great.”
Roth, who’s 59 and doesn’t own long-term care insurance (he self-insures), reminded me that there are now hybrid policies that combine life insurance and long-term care insurance with fixed payments. But, he noted, “they are generally very expensive.” And neither my wife nor I need more life insurance.
Where I Wound Up
As of today, we aren’t going to buy long-term care insurance. I think the price is too steep and the payments are too dicey.
Instead, we’re saving as much as we can to self-insure and trying to stay healthy.
Put us in the fingers-crossed camp of the 39 percent of Next Avenue readers in our online survey last year who called themselves “somewhat confident” they’d be able to pay for the long-term care supports and services they’re likely to need as they get older.
That said, I’m also wishing the insurance industry, the government or both figure out a way for Americans to get truly affordable long-term care coverage they can count on. Sadly, I think that’s a long-term wish.