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Navigating the minefield of long-term care insurance

“Charles, why are there a dozen bowls of water in the backyard?” she asked. “The dogs are thirsty,” Dad explained. He always was a soft touch—dogs could always hustle the last bite of cookie. Now he was seeing friendly dogs everywhere. As he sank further into Parkinson’s dementia, however, the hallucinations turned to bouts of paranoia. Mom hid both kitchen knives and added new door locks to prevent his wandering. As his problems with eating, sleeping, toileting and medications worsened, her health began to decline. She couldn’t continue.

At a friend’s suggestion, she called someone who connected weary caregivers to willing “live-ins.” Lesya, a Ukrainian who had left her young daughter in the care of others to make a better life in America, moved in the next day. Mom didn’t ask many questions. She didn’t check for Lesya’s green card. She paid in cash. A year later, pneumonia sent Dad to the hospital and he died soon after.

After years of caring for a string of dying fathers, our cheerful, hardworking, competent Lesya secured legal residency in Canada and was reunited with her daughter. Sixteen years later, she and Mom stay in touch.

I often think of Dad’s slow decline into helplessness. How would my wife, Jill, cope if that becomes me? I know that she would soldier on alone as long as she could. But I’ve begun to explore how we might pay for long-term care.

Medicaid is a solution for some. The “estate planning” industry has been growing apace as we baby boomers contemplate our mortality. While Medicare pays for “acute” care—physician and hospital expenses plus skilled nursing care for a brief period of rehabilitation—Medicaid will pay for nursing home care. But only if you’re poor. The estate planners help you appear poor enough to qualify without actually spending your savings on care. Medicaid is complicated. Specialist attorneys are eager to help you play the angles.

But we don’t feel right about that. So I’ve begun to explore long-term care insurance. Like many other forms of insurance, you pay a premium and hope to never file a claim. Nursing home care is costly—the average here is about $400 a day (yes, PER DAY). That’s nearly $150,000 a year. A long-term care policy pays out a maximum daily rate up to a total benefit. I’m shopping for a plan that pays up to $200 a day for a maximum benefit of $250,000. No, that doesn’t pay the whole cost—like all insurance, it costs more to be completely protected. We would pay the difference out of pocket like the deductible on an auto policy. The LTC insurance also covers the cost of home care or assisted living.

I started with a policy that complies with the New York State Partnership for Long Term Care. This business of managing (hiding?) your assets to qualify for Medicaid costs the state a bundle. The Partnership “deal” is this: Buy a long-term care insurance policy that pays for care for a period of time, and the state will approve you for Medicaid without spending down savings when policy benefits are exhausted. “By allowing New Yorkers to keep what they’ve worked hard to acquire, and reducing Medicaid costs for the State, NYSPLTC provides a win-win scenario for everyone,” the Partnership states on its website.

Typical New York, the Partnership’s “total asset” plan seems designed to guarantee that the state never has to make good on the offer. The policy has to cover 100 percent of the cost of care for four years—well above the average length of stay in a nursing home. And the policy must have inflation protection of a minimum 3.5 percent.  Get this: For Jill and me, the monthly cost of the Partnership-compliant policy would be $1,200. I turn 62 next month—suppose I enter a nursing home when I’m 80. We would have paid about $260,000 by then, nearly the cost of two years of care. There are other Partnership plans—go to http://www.nyspltc.org/ if you want to learn more.

Unsurprisingly, these plans aren’t a hot commodity. Since being introduced in 1993, about 104,000 policies have been sold—and there are about 4 million people in the state who are 60 and older. Nearly 30,000 policies have been dropped for various reasons, leaving 76,000 active policies.

At $1,200 per month, I decided against the NYSPLTC-compliant policy. The rules force me to buy more insurance than I want. Back at square one, the broker steered us to a policy written by Transamerica. “Best rates for you,” Charlie assured us. Priced at $4,500 a year, we started the application for Transamerica. We hit a roadblock at height and weight—just like New York’s Partnership, insurers want customers who will pay premiums, but not make claims! And Jill is too skinny to qualify. At 5 feet 6 inches, Transamerica wants her to weigh at least 112. That would require hiking boots and winter clothing, all soaking wet.

Charlie pivots to Genworth, which would only force Jill to tip the scales at 106, which might be achievable with a bit of gluttony for a few weeks. Surprise! Genworth’s policy is cheaper. “It’s a great company,” says Charlie. “My grandmother had a Genworth policy and there was never a problem with the claim.” We complete the application, but before submitting I check out the company.

Here’s the big unknown about LTC insurance: When you need the money, the company has to approve the claim AND still be in business. Insurers are rated by a number of firms. A.M. Best specializes in insurance, but Moody’s and Standard & Poor’s also publish ratings. Charlie’s “great company” gets a B from A.M. Best, a BB- from S&P and a Ba2 from Moody’s. If you don’t know about ratings, that’s not great. 

The other significant challenge (besides the risk that the company will throw up roadblocks to paying claims or go out of business entirely) is that you’ll get hit with a rate increase. In theory, your premium depends on when you buy. Buy young and the premium starts lower and stays lower. But states can approve across-the-board rate increases when a company’s claims put the firm at risk. “Hey, NYS: You can let me raise rates or I can stop issuing new policies in your state or go out of business.” Genworth got a rate increase of 60 percent approved on some of its insurance lines just last year.

We finally pivot (again) to Mutual of Omaha with an A.M. Best rating of A. Surprise again! The policy is a bit cheaper—about $4,000 a year for slightly better coverage with a far better company. So that’s my final caution: The broker isn’t your friend. Perhaps the commission structure from Transamerica or Genworth is more lucrative than Mutual of Omaha or maybe Charlie just gets the same cut and wants to steer you to the most expensive policy.

No, we’ve not made a decision. And Jill’s still pushing calories—which makes her the envy of the rest of us. “You want some premium ice cream on that cheesecake?”

Kent Gardner is chief economist and chief research officer for the Center for Governmental Research Inc.

11/11/2016 (c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

3 comments

  1. Jonathan Pond, Financial Planner, says that 90% of estates are spent this way:

    1) nursing home
    2) IRS
    3) children
    4) grandchildren
    5) charity

    The Federal Deficit Reduction Act provided for every state to have a Partnership program to provide asset protection for those who buy qualified long term care insurance policies.

    An alternative are linked products, Life Insurance or Annuities with long term care riders. In most states you can also use your qualified money (IRA/401k) to fund your plan.

  2. A number of good points, however most Long Term Care is not in skilled nursing, it is either at home or assisted living which costs much less … but is still not cheap. Average median cost of assisted living in the Rochester metro is $4300 a month. Home-care, based on a 44 hour week, runs on average $4400 to $4800 a month. Custodial care in a nursing home is less expensive than skilled.

    A real specialist in Long Term Care represents all the top companies and commission levels are all about the same. Underwriting does differ from company to company. It is best to work with a specialist who understands how these plans work and are used at the time of claim. The American Association for Long Term Care Insurance can help a consumer find a qualified specialist (few exist). You can contact them at 818-597-3227

    Safeguarding your future retirement income and assets from the consequences of Long Term Care is key to your planning. Premiums can be tax deductible in some situations and you can pay premiums out of a Health Savings Account.

  3. As a long term care specialist and broker for insurance companies offering these plans, I am not surprised at the frustrations expressed in this article. To coin a cliche, “the right tool for the job” is important no matter what we do, and “Charlie” (bless his heart) has been portrayed as a guy trying to do a good job but failing.

    Study after study has indicated that the average financial services professional, the average “financial planner” does not even bring up the subject, does not ask the basic question, “what do you plan to do when you can no longer care for yourself?” The subject is touchy, it is not life-affirming like planning a beautiful wedding for a beloved daughter — it’s planning to put that same daughter through a potential minefield of care-giving instead.

    Mr. Gardner recognizes the problem, he has seen it impact his own family, he was looking for information and education on one possible solution. My advice to everyone in the same situation, get the right tool for this job, a financial services professional who has actually helped many clients work through this process, a person who could answer the variety of questions posed by Mr. Gardner, who would not provide the misinformation contained in this article, who would not have to be asked to go back, time and again, to present what should have been discussed in the first place, including the underwriting issues.

    Financial services people specialize, just like other professions. You would not ask an estate planning attorney to litigate your DWI arrest; if you want to know enough about long term care insurance coverage to decide whether this purchase is appropriate to your specific situation, you talk to an expert.

    Andrea Graham
    LTC Specialist/Brokerage Manager
    Upstate Special Risk Services, Inc.
    Rochester, NY

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