Phyllis Shelton Says Wall St. Journal
Didn't Go Deep Enough
The July 1, 2013 WSJ article about long-term care insurance rate increases entitled "Long-Term Care Insurance Gap Hits Seniors" throws the baby out with the bath water. It overlooks three important areas:
- How to evaluate a rate increase
- There are long-term care insurance policies that allow the policyholder to buy less expensive coverage and protect assets if the insurance isn't enough and they have to turn to Medicaid for help.
- The impact of discouraging people from buying long-term care insurance is to leave them with Medicaid as their only option to pay for long-term care, which takes dollars out of the state budget that could have gone to education and other vital services that we all need.
How to Evaluate a Rate Increase: When people come to me to help them evaluate their rate increase, I first show them what it would cost to buy the same coverage today at the age they were when they bought their policy. It is nearly always more than it would cost today. Then I multiply the new premium to age 80 to compare the total payout to the benefits available at age 80. (I use age 85 if they have longevity in their family.)
It's generally about 10% premium paid in vs. benefits available at that time. Then I ask, is it easier to come up with their annual premium each year or $6,000 - $8,000 a month to pay for care today? And if historical trends continue, will they be able to come up with $30,000 a month in 30 years to pay for care? Of course, that will be much higher in high cost areas like New York and parts of California.
After this discussion which shares the value of their policy, most people accept the rate increase and save the benefit reduction offered by the insurance company for the next rate increase if there is one.
When Doug and Brenda Crockett of Gallatin, Tennessee were presented with a 90% rate increase from John Hancock, they found me in a Google search and asked my opinion. They were planning to reduce their coverage from six years to four years, their daily benefit from $246 a day to $200 a day and their inflation factor from 5% compound to 3% compound. By doing so they would reduce their premium by 40% from $4,454 to $3,169. Since they were 65 and 63, I showed them the $25,700 savings over 20 years as that got them to age 85 and 83. The savings paled in comparison to losing $1.4 million in benefits with these reductions. I also reminded them this is not a one-time decision. They could still reduce their premium in the future by reducing their benefits. At this time, however, they chose to accept the full rate increase and keep their benefits the same. (You're welcome, whoever is getting those renewal commissions!)
The Long-Term Care Partnership: I'm really disappointed that this article didn't explain that consumers can save money by buying shorter benefit periods with the appropriate inflation benefit for their age in the 40 states that have approved Long-Term Care Partnership policies. These policies cost the same as non-partnership plans but allow the policyholder to protect assets equal to the benefits paid out if care is needed longer and it becomes necessary to apply for Medicaid. All of the 40 states except California reciprocate the asset protection so people are free to move around.
I'll say it again: the inflation benefit is critical. When considering the hybrid life insurance/LTC policies this article references, be sure and tell the client what the policy will pay on a monthly basis for LTC at 80-85 years old. Presented with that information, clients may wind up putting more in or combining it with a traditional LTC policy to get the level of coverage they want. The article didn't mention that it is possible to buy a life/LTC policy with guaranteed annual premiums instead of a large lump sum.
The Real Choice: Finally, I strongly believe that Americans do not understand the real choice they are making when it comes to planning for long-term care. Most people think this is a personal choice that affects only them. It's not. Not only does it affect the family members or friends who wind up taking care of them, it affects all of us. It is so important for people to understand that every dollar paid for long-term care out of Medicaid is a dollar that could have stayed in the state budget for education, public safety, better transportation, public jobs, etc. Click here for a free brochure to share this message with everyone you know!
Of course the article does cite changes in long-term care insurance correctly about gender rating and more intense underwriting with blood tests and other medical screening. However, not all companies are doing this yet so there are still great deals to be had in long-term care insurance if you know where to look. I wrote my new book Protecting Your Family with Long-Term Care Insurance to give you that information and also ideas on how to construct combo plans to maximize LTC coverage.