Concerns and Misconceptions About Long Term Care

Financial and retirement writers are regularly pumping out articles about long term care insurance. A lot of what is written is negative, such as when an insurance company decides to stop selling long term care policies. For example, my wife and I bought long term care policies from Met Life in 2008.   Met Life later announced that it would stop selling new policies at the end of 2010.

The Met Life decision concerned me because I was afraid that its next step would be to implement large premium increases for existing policy holders, perhaps to force us to cancel our policies. John Hancock has been one of the worst offenders in yanking up premiums for existing policy holders, sometimes as much as 64% in a single increase.  I asked for a meeting with the broker who sold us the policies and inquired as to whether we (including others at my firm who also bought policies) should find a different insurer. She showed us competitive data that persuaded us not to make a change.  Nevertheless, I will be watching this closely.

My  last comment brings me to the first topic in my list of misconceptions about Long Term Care.

1.  Long Term Care insurers can raise premiums  any time they want and in any amount.  This is mostly untrue.  In most states, insurance companies have to obtain approval of state insurance regulators to increase premiums for existing policies that allow for rate increases. The proposed premium increases have to be “justified.” Justification generally means that the insurer must show that it is losing money (and will likely continue  to lose money) on the policies as a group. Sadly, this seems to be the case for most LTC insurers, who underestimated how long its policy holders would live and how much long term care they would need. I believe that Met Life has requested an increase that has not yet been approved. I am holding my breath on this one.

2.  You are unlikely to need long term care.  This is sort of true but the risks are greater than you think. Recent data shows that 20% of older Americans will need long term care for 5 years or longer. That puts you in the one-in-five category.  The average cost of long term care is in the range of $75,000 per year.  Compare that risk to the likelihood that your house will burn down. If you own your home with no mortgage, have you considered cancelling your homeowner’s insurance because your house is unlikely to burn down?

3.  The government will pay for my long term care.  This will not happen, even under Obama Care.  Medicare only covers short-term rehab from an injury or illness. Medicaid will pay for some long term care but only after you have essentially spent yourself below the poverty line. Having LTC insurance that meets the long term care partnership guidelines actually provides a double benefit in this regard. For example, if you have a LTC policy that provides $250,000 in benefits and those benefits are exhausted because you need more care, you can get Medicaid coverage for that additional care and still keep $250,000 in personal assets. (Make sure you ask your sales person about this.)

4.  My family will take care of me.  If you need skilled care, your family can’t provide it and probably can’t afford to pay for it.  If you need care at home, do you really expect (or want) your family to be on site to bathe you, fix your meals, and (without being too graphic here), attend to your personal hygiene? I don’t think so.

5. I will get the insurance if my health declines.  While long term care insurance may not be as tough to get as regular health insurance, if you develop a chronic disease and then apply for LTC coverage, you are likely to be denied.  If you are older when you apply for coverage, you will likely be tested for cognitive decline as well.

6.  The insurance is too complicated to even think about.  I get this, because the policies can offer a myriad of confusing options. Because of this, people are concerned that they will buy the wrong coverage so they avoid the issue altogether. If you don’t understand it, don’t buy it but don’t avoid the issue either. Find a trusted and knowledgeable adviser to guide you (not a sales person). You can start exploring the topic by reading about the key provisions in long term care policies. 

Long term care is a difficult problem to think about, but the pain of not having insurance to cover it can be much greater than the pain of being prepared for it.

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