Frequently Asked Questions

26. Question:

My wife and I don’t know anything about long term care insurance. Where can we read about it?

Answer:

My book (Long-Term Care: Your Financial Planning Guide, Kennsington Books, 2003) is the best source.

25. Question:

I read and saved your article from the October issue of the Wall Street Journal. I understood it clearly and am going to decide between CNA and GE. Only question was elimination period and what you recommend on that. GE only offers a 100 day but I like their deep pockets. Some say that the first 60 to 100 days of care are the most expensive and I should go for the least number of elimination period days. What do you think? Additionally CNA offers a one pay and a 10 pay that I am interested in. You are doing a tremendous service. Please keep up the good work.

Answer:

GE offers a 50 and 100 day so you have a shorter choice as well. CNA offers 0 (except for ages 80-84), 30, 90, and even 180 and 365 in the states that allow longer waiting periods. I have a section in my book to give you guidelines, but basically I recommend shorter waiting periods for anyone with less than $100,000 in assets, not counting home and car. The thing is, it’s not today’s costs you’re concerned about, it’s future costs and costs are projected to triple in 20 years. You’re welcome to browse the consumer side of my website for more info in the “reports” section as well. Best wishes and congratulations for taking care of yourself and your family with LTC insurance!

24. Question

I am 52 years old and am following your formula very carefully in buying for my wife and myself. I am down to a decision between CNA and GE. I am getting the best coverage available: lifetime, 5% compound, 130 per day, and short deductible. I would prefer GE over CNA due to their deeper pockets however I would like to do a single payment or no more than a 10 pay because I do not like long term payment obligations and I can afford it. But, GE does not offer any such thing. It seems to me that the single pay to 10 pay is way cheaper than a lifetime of payments. If I pay 20 years to GE (my preferred company) my pay in will be over 60K which is a lot more than a single to 10 pay to CNA. Am I looking at this correctly? Once you decide on the plan specifics it seems then that funding becomes the next step. By the way, my GE representative still insists that a 100 day elimination is all they offer. If it helps you, my assets are 350K excluding my house and car.

Answer:

You can handle a 100 day waiting period based on your asset base, although I don’t know where you live. If you are in Manhattan, for example, the cost per day in 30 years could be $1500 or more and for the rest of the country, about half that. GE definitely offers the 50 day waiting period so I don’t know why your representative is saying they don’t. Northwestern Mutual was the only major company I’ve seen to offer a minimum of 90 days and they’re coming out with a 45 day now. Limited pay versus lifetime pay, because it is so early in the game for this insurance, some actuaries are somewhat nervous about pricing a limited pay plan. GE apparently takes the position that it is too early to do so. They have the #1 market share, which helps them take this position. CNA has a very large market share also, but of course would love to do better. Limited pay is a very strong arrow in their quiver, especially for your age group. So as a consumer, you get to decide if you’re going the conservative route with the somewhat deeper pockets (and remember, your premium stops when you have a claim) or if you do the limited pay and hope the company knows what it is doing. I can’t make the decision for you, I am just listing the pros and cons. Best wishes.

23. Question:

I work for the federal government and after pricing their ltc insurance I think I can do better with individual policies for my wife and myself. I read your Complete Financial Security Plan brochure and was quite interested in the boldface sentence about not deleting the inflation coverage. I had always included the 5% compounding when asking for a quote. It seems to about double the premium. This morning a New York Life agent suggested increasing the daily benefit $70 or $80 a month and not use the 5% compounding. That might last me about 10 years before having to buy additional coverage and be a lot cheaper. Do you agree or disagree? Can you steer me toward any particular company? I am 53 (in good health). My wife is 43 (has been diagnosed with Raynaud’s Syndrome but is not disabled in any way and works 40/hrs a week). I looked at a company that is rated very highly but again the 5% compound doubles the premium.

Answer:

Just let me say this, looking at LTC insurance without inflation coverage is like looking at a health insurance policy that only pays hospital room rates at what they cost today, and you would never consider that, would you? Terrible advice from the other agent, the cost is tripling in 20 years and you are only 53 years old, 30 years from now when you’re 83 you’ll be looking at costs of probably $850/day and that much benefit isn’t even offered today. If anything, you need to bump up your daily benefit a little more than the average cost in your area, because the inflation on the policy is 5% compound, and the government projection is more like 5.8%. Also, think very hard about the federal plan, I think that may be the way your wife can get coverage and that’s a wonderful gift.

My husband and I are interested in LTC insurance. We met with a representative this past Tuesday who told us about their LTCI plan covering nursing home, assisted living, in-home care and dementia. My husband just turned 50 and I am 44 years old. We both are non-smokers. The representative quoted us $1930 premium with a built in simple 5% increase annually to cover inflation. Is this rate high, average or low for this kind of coverage?

Answer:

The premium is on the low side. You didn’t tell me the daily benefit, benefit period, elimination period or level of home care that you’re looking at, but I will tell you that you are much, much too young to even consider a 5% simple inflation factor. I recommend 5% compound to most people and nonnegotiable for people 70 and under. My book (Long-Term Care: Your Financial Planning Guide, Kensington Books, 2001) should be in your local area in major bookstores if you want to see details on how to compare benefit features…but just know that the inflation coverage is one of the most important considerations to deal with. If the benefit is too small at claim time and you can’t make up the difference, you will be very unhappy. Make sure you have an adequate daily or monthly benefit, an elimination period (deductible) that you can afford at future prices, not just today’s prices, and the 5% compound inflation coverage. After that, adjust the benefit period to what is affordable.

21. Question:

What would a policy cost for a 56 year old with a lifetime benefit period?

Answer:

Premium is partially based on your age, but it’s also determined by at least five decisions you have to make based on your personal needs. An agent can help you with those decisions and customize a plan to fit your personal situation. For your information, the five decisions are 1.) benefit amount, 2.) waiting period, 3.) benefit period, 4.) inflation, 5.) home health/community care. Other decisions could be nonforfeiture or some form of limited pay policy.

20. Question:

How rigid are the underwriting requirements?

Answer:

Insurance companies vary on this issue. If you have recovered from cancer or heart problems for example, some companies want you to be recovered two years, some five years. But if you are recovered with no treatment and no complications, you can usually get a policy. Progressive conditions are uninsurable, such as Parkinson’s, Alzheimer’s or severe rheumatoid arthritis, and multiple conditions such as diabetes and heart problems or multiple strokes. Companies are becoming stricter on osteoporosis because it is common with older women. Conditions like hypertension are usually insurable if well under control. Some companies will accept insulin-dependent diabetics (commonly up to 50 units/day), and most companies will accept diabetics controlled by diet.

19. Question:

Am I required to have a physical during the application process?

Answer:

Normally no, the insurance company usually just checks your medical records and the insurance company pays your doctor for that information. However, the insurance company may ask you to see your doctor if you have not seen a doctor in many years. And many companies require a face-to-face assessment for cognitive impairment if you are past a certain age, usually 75. People who apply for long-term care insurance over the telephone can expect a medical person, such as a nurse, to bring the application by to witness the signature and observe your overall health condition.

18. Question:

Do insurance companies ask family history questions on the application?

Answer:

Not today, there is a concern, however, that they might start especially regarding family history involving Alzheimer’s. That is why it is so very important to purchase long-term care insurance as quickly as you can if you have anyone in your family with Alzheimer’s, just in case the insurance companies decided to ask that question.

17. Question:

What happens when insurance companies come out with new and improved policies?

Answer:

Better companies provide a window of time for existing policyholders to upgrade to the improved benefits with either no additional underwriting or light underwriting. Typically any extra premium needed will be based on attained age, but some companies have allowed existing clients to get the new policies at issue age with no additional underwriting. Other companies require you to apply for the new policies just like any other new policyholder. It is a good idea to ask the agent about how the company you are considering handled existing policyholders with the last policy improvements.

16. Question:

What happens if I die without using the policy?

Answer:

Most new tax-qualified plans won’t allow a cash-back return of premium feature if you terminate your policy without using it, because you will be taxed on any premium that you get back that you deducted on our taxes. Instead, tax-qualified policies usually offer an option called a shortened benefit period, which is like a premium account. This means that if you cancel your policy after at least three years, the insurance company must pay a claim at any point in your life equal to the amount of premium you paid in. Costs are increasing so fast that this benefit may not be very meaningful compared to the extra premium, about 30%, that you will pay for this feature. Most policies that have a cash-back return of premium feature are non-tax qualified policies since premium on these policies is not tax deductible. This means you get your premiums back on a scheduled basis if you terminate your policy after, say the 5th year, or if you die without using it. This feature typically addes another 30% or more to your premium for the life of the policy. Few people have bought the return of premium feature. The odds are very high that you will use the coverage, especially if you buy home health benefits, and many people would rather put the premium difference in a mutual fund, an annuity, etc., so they can be sure of not losing it if they have a claim. A couple of policies return the premium even if you have had a claim for people who are willing to pay the substantially extra premium this feature costs.

15. Question:

Is long-term care insurance coverage good in all states?

Answer:

Yes. A few companies sell policies that will pay benefits outside the U.S. or at least in Canada. (If in a Partnership state) Partnership plans will pay benefits in other states but the asset protection feature if you have to apply for Medicaid is only available in the state of purchase. (Note: Indiana and Connecticut may-be able to reciprocate.)

14. Question:

Who does the insurance company pay when there is a claim?

Answer:

It works like health insurance. It depends on who files the claim. If the home health agency or the nursing home files the claim, the benefit is paid to them. Many of them are happy to do so because it means they get their money faster! If the family prefers to file claims and then pay the bills, the insurance company pays the family.

13. Question:

What happens if I paid an annual premium and my premium is waived when there is a claim?

Answer:

Many insurance companies refund the balance of the premium for the year.

12. Question:

How long did you say the government looks back to see if assets have been transferred before you can get Medicaid?

Answer:

The answer is 36 months (30 months in California) unless you transfer assets to a trust and then it is 60 months. The trust has to be irrevocable, which means you cannot get money back out of it. A revocable trust that you can get money out of, such as a living trust, is considered as an asset when you first apply for Medicaid, so the 60-month lookback period doesn’t apply to a trust like that. If a transfer is discovered, a penalty period is determined by dividing the amount you gave away by the average monthly cost of care in your area, and that’s how long you have to wait before Medicaid will pay. For example, if you give away $100,000, Medicaid would divide that by $_____ (insert your state’s amount used by Medicaid department), and that would result in a penalty period of about _____ years before Medicaid would pay your bill. Also, states are required to do estate recovery at the death of the second spouse that can include a lien upon the house (in most states). But remember, the big issue with Medicaid is your loss of choice. When you are on Medicaid, you go where there is a bed, which very likely may not be the nursing home of your choice, and your option for home care (in most states) is gone.

11. Question:

I have long-term disability insurance. What is the difference between that and long-term care insurance?

Answer:

Both employer-provided and private disability policies only provide money to replace income lost due to a disability. Long-term disability insurance is intended to pay living expenses, such as a mortgage, rent, utilities, food, etc. It doesn’t provide an extra $3,000-$6,000 a month to pay for long-term care. Also, group disability insurance is usually tied to employment and you lose it when you leave your job. Long-term care insurance, however, pays specifically for long-term health care, such as home health and nursing home care and is a policy you can always keep no matter where you bought it. Finally, if your employer is paying the premium for your long-term disability insurance, you will be taxed on the benefits if you have a claim. This isn’t true with long-term care insurance. The benefits are tax-free.

10. Question:

I’m not even close to retirement and I’m healthy. Why should I consider long-term care insurance now?

Answer:

Long-term care insurance products are age-related and health underwritten. This means you can only get a policy if you are healthy and the younger you are, the lower the premium. You will pay longer, but you’ll pay less premium than if you wait to say, age 65 to purchase a policy. Adults of all ages need to seriously consider a policy. And remember, over 40% of those receiving long-term care are under 65. Finally, there’s a hidden cost of waiting that most people don’t think about. Today you might be able to buy a policy for $140 a day to cover the cost, but then years from now, you would have to buy a policy for about $240 a day, plus you would be paying premium for ten years older than you are now!

9. Question:

Why are we just now hearing about how important long-term care insurance is; why hasn’t it been around?

Answer:

Long-term care insurance has been around since the 1960’s, but meaningful policies were developed just in the last decade in response to the escalating demand for long-term care brought about by an aging population, changes in family structure, and the big shift away from the hospital setting.

8. Question:

Can long-term care insurance premium rates be increased?

Answer:

Rates can only go up on entire classification of policyholders. Obviously, policies with very low rates will probably increase a lot sooner than policies with middle-of-the-road rates. Companies that practice competitive pricing, conservative underwriting and that are financially very strong have the best chance of holding down rates in the future. Conservatives access to benefits such as the requirement in tax-qualified policies for a 90-day certification also plays a significant role in holding rates down.

7. Question:

Wouldn’t I be better off putting money aside now to pay for my long-term care needs?

Answer:

Let’s assume that a couple each year could faithfully put money aside for their long-term care needs. A fifty-year old couple that saved $1,600 a year, the premium for a policy that would pay about 2/3 of the cost for three years, and earned 10% for 30 years would have saved enough money to only pay for about one year of care at future prices. And, that amount would have to work for two people, not one year for each of them! Also, you probably didn’t accumulate the money you have by spending it when you didn’t have too? Do you plan to carry a homeowner’s policy when your mortgage is paid off?

6. Question:

Is it possible to buy a paid-up policy?

Answer:

It is rare, but there are a few versions of paid-up insurance available. One version is really a lump sum life insurance policy or annuity which will work if you put enough money in it, probably $100,000 or so for a 60 year old couple and there are a few long-term care policies approved in some states that have single-pay, 10-pay or 20-pay options that have a guaranteed premium.

You said I could lose my policy if the insurance company goes out of business. What about the state’s guaranty fund?

Answer:

States have a fund that will pay benefits only for claims in progress when a company goes under. If you have not filed a claim, there is nothing to guarantee that benefits will be there if the insurance company is completely out of business.

4. Question:

Would you please explain the tax incentives again?

Answer:

The Health Insurance Portability and Accountability Act of 1996 provided tax incentives to both individuals and employers to purchase long-term care insurance. The law clarifies that daily benefits up to $190 day for 1999 are not taxable income even if the benefit is more than cost of care, and benefit payments more than $190 are still tax-free as long as they do not exceed the cost of care. For individuals, a portion of the long-term care insurance premium based on your age is counted as a medical expense. Medical expenses in excess of 7 ½% of your adjusted gross income are tax deductible. Also, self-employed individuals can deduct a percentage of the long-term care premium in the same category as health insurance, 60% for 2000 tax year up to 100% in the year 2003. And finally, self-employed people and people who work for small businesses with 50 employees or less can pay for long-term care insurance with pre-tax dollars as an acceptable expense in a Medicaid Savings Account. Employers will receive a tax deduction for 100% of any portion of LTC insurance premium paid, and neither the contributions nor the premium will be taxable income to employees. All of these provisions are available only if you are using the new tax-qualified policies. (Policies issued prior to January 1, 1997 are “grandfathered” which means you get all of these tax advantages automatically and are considered tax-qualified policies.) If you purchase a non-qualified policy, you run the risk of being taxed on the benefits, since the legislation didn’t address non-qualified policies.

3. Question:

Why would I be offered a non-qualified policy?

Answer:

Non-qualified policies will pay for short-term conditions because they do not have the 90-day certification requirement. They may also pay a claim quicker for you because some of them pay when you need help with only one Activity of Daily Living. If the ADL list includes bathing, it will be very easy to get a claim paid. A couple of policies will even pay a nursing home claim a the policyholder’s discretion, which means if you decided you want to go to a nursing home, the policy pays. And finally, some non-qualified policies will pay if you don’t need help with any ADLs and you are not cognitively impaired, your doctor just has to say you have an illness or injury for which you need care. You know the old saying, “If it sounds too good to be true, it usually is.” Not only are companies who pay benefits out too quickly at risk for rate increases, but some may struggle to stay in business when the baby boomers start filing long-term care insurance claims. Long-term care was never intended to pay for short-term conditions. That’s for health insurance, Medicare, Medicare supplement or HMOs to pay. LTC insurance is for the 90-day and longer episodes. That’s why it’s called “long-term care.”

2. Question:

What is a medical savings account?

Answer:

A medical savings account is an account that an individual in a high-deductible health insurance plan can fund with pre-tax dollars to pay for out-of-pocket health expenses. These expenses include deductibles, co-payments and other amounts the participant must pay out-of-pocket for medical expenses approved by the IRS, but do not include insurance premiums, with the following exceptions: premiums for long-term care insurance, COBRA plans, and health insurance premiums for people who are receiving unemployment compensation. Eligibility is limited to individuals who work for companies with 50 or fewer employees and to self-employed people (or a spouse of either type of person). Any institution approved by the IRS to offer IRAs is automatically approved to offer medical savings accounts. A “high-deductible health plan” for individuals has an annual deductible of $1,550-$2,350 and an out-of-pocket maximum of $3,100 or less. For families, the deductible is $3,100-$4,650 and the out-of-pocket maximum can’t exceed $5,700. In addition, The Balanced Budge Act of 1997 made medical savings accounts available to the first 390,000 people on Medicare who set one up for tax years 1999-2003 and long-term care insurance will be an acceptable expense in MSA’s for Medicare beneficiaries as well. These MSAs work a bit differently, however. The government will actually help fund a medical savings account for someone on Medicare. You will be allowed to select a plan that pays for all of the expenses currently covered by Medicare Part A and Part B. The government will pay the premium allowance for someone on Medicare into a medical savings account. The allowance is a minimum of about $400 a month in 2000 but could be much more, depending on where you live. This deposit is not taxable income to you, and if you don’t use it all in one year, it just continues to grow, tax-deferred.

1. Question:

I don’t understand how the new Medicare+Choice program is going to work when so many HMOs have stopped taking Medicare patients.

Answer:

HMOs have lost money on people who are chronically ill, because the government’s allowance for each person on Medicare only varies by geographical region, not by the person’s health condition. That means that HMOs receive the same amount of money for well people, and sometimes it isn’t enough to take care of the sick people. Beginning with the year 2000, HMOs will be paid based on the person’s health status in addition to geographical region, which will make it much more attractive to HMOs to accept Medicare patients.

Note: All of these questions and many more are discussed at length in the Long-Term Care Planning Guide.