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Phyllis Shelton's response to Jonathan Clements, Wall St. Journal, 1/29/02
How Much Insurance Is Needed To Help Cover Long-Term Care?

Hello, Mr. Clements. I am a national consultant for long-term care insurance and the author of "Long-Term Care: Your Financial Planning Guide" (Kensington Books, NYC, 2001). I hope you find my three comments on your recent article helpful as you are in the position to influence many people.

1) You ignore inflation by referring to the $60,000 annual cost today as though it is frozen. Even at the end of the article, you explain that buying a one year deductible means having to come up with $60,000 for the first year, but this would only be true if someone bought a policy today and filed a claim tomorrow (something the insurance companies do frown heavily upon :-) as you can imagine.

The $60,000 cost is the national average today for a 10-hour shift at $16/hr of home health care or it would pay room and board for one year of semi-private nursing home care with drugs and miscellaneous supplies. (High cost areas like NYC are closer to $115,000 a year.) The figure is expected to grow 5.8% a year, which means tripling in 20 years and by 2030, the $60,000 will probably hit around $310,000/yr. The 5.8% projection was made in a GAO report in June, 1991 and substantiated by the Center for Medicare and Medicaid Services (formerly Health Care Financing Administration) July/August 1999 issue of "Health Affairs". Nursing home costs alone grew 6.25% during 1990-1999, then dipped under 5% a couple of years, but now are inching up again. Home care grew much faster. The average NH was $25,000 a year when I entered the LTC insurance business in 1988, and people were buying daily benefits in the $60-$80 range.

2) Further, the reference to the TIAA premiums at 50, 60 and 70 years old also ignores inflation. A 50 year old who might consider $150 today will be looking at $250 by age 60 if he decides to wait and at $350 at age 70. John Hancock's premium for the plan you outlined would be $1,905 for the 50 year old at $150, $4,675 for the 60 year old at $250 and $12,845 for the 70 year old at $350. When you multiply these numbers to age 80 (average age for a claim if nothing happens at a younger age), you can see that the true cost of waiting is much more expensive than the TIAA premiums illustrate....and that's if the person is insurable even a year from now. Per The Urban Institute and the Congressional Research Service, 5/00, 40% of people needing long-term care today are ages 18-64. Many of these are mentally handicapped of course, but a significant number are victims of debilitating injuries or medical conditions such as Parkinsons, MS, Lou Gehrig's disease, etc. - any of which can strike in the 20s, 30, or 40s.. It
3) The article refers to nursing home care throughout and less than 20% of people who are receiving long-term care are in nursing homes per the American Health Care Association as well as The Urban Institute. TIAA's Mr. Davenport's figure of 20% of nursing home patients stay longer than five years in nursing homes is old - he is quoting a 2/91 New England Journal of Medicine article that is reporting data from several years earlier. The National Center for Health Statistics published the data from the 1997 National Nursing Home Survey in 7/00 which showed that only 14% of NH patients stayed longer than five years. The number is declining thanks to many more community options today with assisted living, adult day care and many more options for home health care.

Therefore when you make recommendations for the length of time benefits are paid, I believe it is misleading to base that decision only on the average length of stay for nursing home patients. It sits at only 2.4 years now (down from 2.8 a decade ago - again thanks to more community options), but several major caregiver reports (National Alliance for Caregiving and a recent Harris Survey to name a couple) show the average caregiving time at home to be 4.5 years with 25% longer than five years. Then assisted living is hitting around two years on average, so it can be a fairly long tail. It's true patients wouldn't trigger a claim the entire time and only a certain percentage would, but that's the nature of insurance - none of us know who will be the one who hits the insurance jackpot. But the message to the consumer is also that LTC insurance may be the only thing that keeps them out of a nursing home by providing money for the assisted living, adult day care and of course, care in their own home. Half of the
But time for positive comments - you gave excellent advice at the end of the article about not shopping for the cheapest policy - that's certainly one of the worst mistakes a consumer can make as it's almost a guarantee of substantial rate increases. And premiums do vary by company significantly. For example, the John Hancock premiums for the 50 year old are $1905 compared to TIAA's $2640. The 60 year old premium is $2805 compared to TIAA's $3,435 and the JH 70 year old is $5,505, a little higher than TIAA's $5,190. This is influenced by John Hancock wanting to sell younger people as they can pay premiums longer which will have a positive impact on overall rate stability.

Most of all, Mr. Clements, I want to thank you for writing about long-term care insurance as it is the most underserved insurance product today in my opinion. LTC insurance is only pennies on the dollar compared to the cost to our country if the baby boomers fall onto any type of public assistance for long-term care....just look at the average 58% tax rate in Sweden by comparison, a country that provides a government-funded LTC program for all. I think we forget who the government is sometimes, yes? :-)

If I can ever be of service in any way, Mr. Clements, please do not hesitate to contact me.

Phyllis Shelton, Pres.
LTC Consultants
Nashville, Tennessee

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