Can Financial Planners Mis-Advise On Long Term Care Insurance?

Long Term Care insurance - Opinion vs. Opinion: Who has the FACTS? You be the judge.

I read an article about Long Term Care insurance that was published on the nytimes.com website on October 24, 2006. It was written by a guy named Fred Brock, but basically he was quoting a financial planner, Deena Katz.

While I agree with much of what the article said, I take issue with some of the points made.

Ms. Katz says, “Insurance companies have been in and out of these policies.” At one time there were 150 companies offering them; now there are very few. So the commitment is a little wobbly.”

I totally agree that many insurance companies jumped on the long term care insurance bandwagon only to find that they made some big mistakes. Commitment may have been wobbly in the past, but that shouldn’t scare anyone away from getting the protection they need now.

There are laws governing insurance. One of them is that all insurance companies must have insurance themselves. This is the way people who buy insurance are protected. No insurance company can simply take someone’s money, then not provide the coverage they promised. It’s against the law.

Some long term care insurance companies that got into financial hot water sold their long term care blocks of business to other LTCi companies that wanted, or could afford, to stay in the game. The biggest problem with these buy-outs has been rate increases for the policy holders. The policies themselves were not voided.

Mr. Brock says, “In addition, such insurance is getting more expensive and covering less…”

In relation to which policies and which years, exactly? While it is true that we may be seeing the beginnings of the end of unlimited lifetime benefits, the majority of policies that have been sold for the last several years cover much more than they did during the early years of LTCi. Most policies “in the olden days” were 3 year, nursing-home-only policies. They required prior hospital stays in order to receive benefits. Consumers wanted more and they got more. Today, I am not aware of any company that does not offer home health care, assisted living and adult day care benefits.

“…state regulations governing policies and premiums are inconsistent.”

This is true about state regulations, and it should be remedied. However, insurance is regulated by state, not on the federal level. Plus, LTCi policies are not “apples to apples”. One company might have several LTCi products to choose from in order to fit individual desires and budgets. It only makes sense that policies and premiums would vary or be “inconsistent”. This provides diversity of choice, a good thing. Even so, many states have enacted laws that require basic benefits for policy holders, such as offering non-forfeiture options, requiring that Alzheimer’s be covered and making it illegal to require prior hospital stays before benefits kick in.

“Policyholders can face big premium increases, especially for policies that were underpriced as insurers tried to gain market share in recent years.”

This is also true, and it has become a problem for those on a fixed incomes who bought lower priced policies, my mother being one of those people. Her policy has more than doubled and may even triple before they stop increasing rates. Fortunately, Mom has been able to pay her premiums so far. Many people have not been so fortunate and have had to lapse their policies. That has been the biggest problem with buying low-balled policies. People did not know that so many companies would raise rates…not even insurance agents, believe it or not.

On the other hand, Mom got a smokin’ grand-fathered in, tax-qualified policy for a very low price. She paid a lower price for several years, so she has actually saved money in the long run. Will she be able to keep her long term care protection if the rates continue to increase? We don’t know. That’s the gamble, as Mom is 76 now and is getting into the age range where she may need care.

Mr. Brock goes on to say: “Long-term care is not age-specific: you don’t have to be old and in a nursing home for it to kick in.”

That’s right. Did you know that 40% of people receiving long-term care are between the ages of 18 and 64? Harvard School of Public Health says that 1 in every 5 Americans over age 50 is at risk of needing long-term care services within the next 12 months.

Anyone, at any age, can suddenly require long term care if they experience a disabling accident, whether it be car, plane, horse, recreational or work-related. My brother in law was in his 30’s when he had a severe stroke. He was training for a marathon and in perfect health, so he thought. Of course, he didn’t have LTC insurance. If he had, perhaps it would have saved his marriage. It certainly would have protected his bank account.

There are also degenerative conditions such as Multiple Sclerosis, Parkinson’s, ALS, arthritis, Alzheimer’s, etc. etc. None of these are confined solely to the elderly. And you’ll likely spend MORE time needing care at home or in an assisted living facility than you ever will in a skilled nursing home. My husband, aged 59, has received 3 years of 24/7 long term care for Multiple Sclerosis…from me. If only he had bought an LTC insurance policy and not procrastinated, our lives would be so much easier.

Ms. Katz says, “On the other hand, there are good uses for it. People should buy long term care coverage for asset protection, estate preservation and what I call ‘the fear factor’: if someone lives far away from family members, and there is no one nearby to take care of them,”

Asset protection - yes, estate preservation (same thing really), but fear factor??? No one nearby to take care of you? Ms. Katz has made some huge assumptions. The article does not consider these factors:

1) Will a family member have the time and financial ability to become a full time or even part time caregiver? Primary caregivers duties can average between 40 to 60 hours a week.

2) Will a family member have the physical strength and ability to provide care? Serious back, shoulder and arm injuries are common in caregivers, due to improper transferring techniques or inadequate assistance with transferring.

3) Will any family member be emotionally stable and compassionate enough to deal with the intense and unrelenting stress of caregiving? High stress levels can be a major factor for caregivers. Elder care abuse, due to high stress, is just as prevalent, if not moreso, from family members as it is from paid professionals.

4) Is any family member trained to provide the physical necessary care? Inserting catheters and I.V.s, giving shots or administering medicine to a possibly uncooperative dementia sufferer takes training, organization and a discerning eye. So does caring for pressure sores or watching for potentially dangerous changes in health.

5) Will any family member be willing to give up their current lifestyle in order to provide care for you? Keep this in mind: While providing care can be an enriching and fulfilling experience for some, many caregivers do it out of guilt or a sense of obligation. Most people do not consider the negative impacts on their social life or physical, mental or emotional health before volunteering to become someone’s caregiver.

For instance, more than 1/3 of caregivers experience depression and anxiety. Caregivers tend to forget to or, due to the extent of their duties, cannot sufficiently take care of themselves. Interrupted sleep, less attention to dietary needs, inadequate exercise and physical injuries often afflict caregivers. Increased mental, physical and emotional stress can cause high blood pressure, lowered immune system and coronary problems, just to name a few. Shockingly, caregivers who have high levels of stress, when compared to non-caregivers, are 63 percent more likely to die within the next 4 years.

When you are considering relying upon family or friends that are “close by”, ask yourself this:
Is there a family member that has the dedication and the inclination to do the dirty work? By this I mean, are they willing to get you out of bed, bathed, dressed, teeth and hair brushed, fed, toiletted and kept comfortable - every day until you die? Is there a family member or friend who be willing to be at your beck and call every moment of the day? Is there someone “close by” who will be willing, or with whom you will be comfortable enough, to wipe your backside after you use the toilet, or to clean up your poo or urine from the floor and furniture if you have an accident, or to change your diapers or catheter should you become totally incontinent?

Would you even want to put that kind of responsibility and stress on any of your loved ones, if there was another option?

This is not a “fear factor” issue. This is down and dirty, real-world, in-the-trenches caregiving. So, considering the risk factor that almost half of all Americans will need long term care sometime in their life, every one of us had better take a very good look at what may be in store if we become so challenged… and we had better plan accordingly now while we still can.

Ms. Katz continues: “… it is certainly a lot easier to go into a long term care facility as a paying patient than to have to go broke and accept Medicaid.”

Yes, it is. Especially if you have a spouse, because your spouse will end up on the raw end of the deal, with no savings to speak of, according to prevailing state law. Without insurance, all assets must be “spent down” for care before Medicaid can kick in.

The article continues:

“The insurance is expensive, but you may be willing to accept a lesser quality of life today - in other words, bear the cost of buying the insurance - for the promise of tomorrow’s security. The younger you are when you buy long-term care insurance, of course, the less the premiums are.”

I agree. This trade-off is the nature of all insurance.

Mr. Brock writes, “Most experts agree that the two groups of people who should not buy such insurance are those with high assets - enough money to afford care on their own - and those with low assets - too little money to worry about protecting it.”

Now I understand why people who have little or no assets wouldn’t want to get long term care insurance. They can’t afford it! But I have never (and will never ) understand why anyone who can afford long term care insurance doesn’t buy it! I mean, the risk is so high. Why would you take a 50/50 gamble of losing around $25,000 - 200,000 dollars per year, depending upon the care you need and where you live, if you could insure against that loss by paying (approximate figures) of say $3000-$6000 per year, depending on your benefit choices, age and health?

Any smart person with assets of any significant amount will want to preserve as much it as they can. Why be penny smart, but dollar dumb? Think about it. Fortune 500 corporations have money, but they still insure against risks of disruptive and catastrophic loss. It’s just good planning.

Now, some financial planners do have the motivation to tell you not get long term care insurance, although those with integrity will not act on that motivation. Still, there are a few who decry high long term care insurance premiums and/or the high LTCi agent’s first year commissions. They list half truth statistics that support their recommendation, telling their clients that they most likely won’t need long term care for very long (or at all) and that they won’t need much, if any, LTC insurance. And many so called “experts” (not just financial planners, but even LTCi agents!) tell you to wait, wait, wait until you are 60-65 years old…. no matter that the federal LTCi program is telling every one to get their LTC insurance as young as possible, even in their 20’s.

After all, the naysayers warn, what if you paid for years on a long term care insurance policy, but never had to use it? I say, better to have it not use it than to need it and not have it.

Why would any financial planner do such a thing, you ask?

Well, there are two types of financial planners. One type is fee-based. They make no commission. The other type does not charge a fee, but instead makes their money in commissions by placing your funds into “vehicles” like stocks, bonds, money market funds, annuities, CDs, IRA’s, etc. Similar to stock brokers, the more money you let them place, the more money they can make. If you are spending $6000 per year on an LTCi policy, then they have $6000 less per year to invest for you, and therefore, less possible commission for themselves. Of course, only greed-heads would advise you to carry more risk so that they can make more money.

The fee-based financial planner has no incentive to choose one vehicle over another. Fee-based financial planners might just tell you that it is always wise to insure against a catastrophic risk such as long term care if it is within your means.

The smartest financial planning? Ensure that your planning stays intact by insuring against the risk factor.

The article goes on, “Ms. Katz sets $200,000 as the asset level, including equity in your home; below that, you probably can’t afford long-term-care insurance.”

But, she concedes, “there are disagreements about this all the time,” and “some advisers say $100,000.” Those with higher levels of assets must make decisions based on their cash flow and what they feel they can afford.”

This is a sticky area, especially since the national median price for a home these days is $250,000. But the housing market is leveling out and even going down. In my opinion, those with LOWER levels of assets, not higher, need to make the really hard decision about whether they can afford to buy and continue paying for long term care insurance. If you have plenty of assets, you can always liquidate some in order to pay for what you need. Those with less assets need to be more circumspect. They need to consider where every dollar goes.

Remember to figure in your debts! With inflation rising, it may take a crystal ball to figure out how much cash flow you will need to maintain a decent lifestyle while still protecting your assets. Do your homework!

Ms. Katz also said: “The average nursing home stay runs close to $4,000 a month. The average stay is about 90 days.” That’s $12,000. But, Ms. Katz also said: “Those that stay longer than that, stay about three years. At the tail end of those statistics are people who are in nursing homes for many years.”

I don’t know where she got her figures, because I’ve never heard of these numbers before. However, I do know that statistics can be massaged. to support anyone’s point of view.

Skilled nursing care is the highest level of long term care that you can receive. Maybe Ms. Katz’s statistics include all those folks who just came out of the hospital and needed recuperative care for 90 days or people who are on their last legs and die 90 days after entering a nursing home. That would skew the numbers.

As far as true long term care goes, the “average” stay in a skilled nursing home is about 2.5 years, not 90 days. So says every report I’ve ever read. Yet check it out! One in three nursing home residents stay 3 years or longer! That’s right, 1/3 of the nursing home population needs long term care for 3 years or longer.

But nursing home care is only a fraction of the care that most people receive. Here are even more eye-opening statistics. About 1.5 million Americans are currently receiving care in nursing homes. 8 million are receiving care at home. For every person in a nursing home at least five others need similar care at home. About 3 out of 4 people age 65 and over may use home health care. It is a rarity that a person will go from being relatively healthy to needing skilled nursing care. The majority of folks need years worth of care in alternative settings. So the nursing home statistics that are available do not paint a realistic picture of long term care, in general.

Even so, while it’s true that the time spent in assisted living or home care situations is far greater than the time spent in nursing homes, even those who can stay at home or who are able to function in an assisted living facility will likely end up in a nursing home at some point.

Hence the need for long term care insurance that pays for home care, assisted living facilities, etc. , as well as skilled nursing facilities.

Mr Brock’s article says, “If you are single, if you aren’t concerned about leaving an estate or if you do not live far from people who can help you, then you may not want long term care insurance.”

But hey! If you are single, then you probably have no children to take care of you (if they even would). So who is going to tend to your needs? Your aging parents? A sibling? Friends? We discussed the caregiver issue already. In my opinion, if you are single and you can afford it, then long term care insurance is a very good thing to have.

“Ms. Katz advises that you review your family medical background when making a decision.”

Sure, your family’s medical background may have some bearing, but

a) Accidents can happen to anyone.

b) Your family is not you. Your lifestyle plays a big part in your overall health and longevity.

c) If you do live a long life, the likelihood that you will need long term care actually increases.

“Ms. Katz said, “If you can afford a short stay in a nursing home for a broken hip, you don’t need the insurance for that,” she said. “You want it for a five-year stay, because you have Alzheimer’s.”

What is the point here? A broken hip vs. Alzheimer’s? How in the world can anyone know what will happen in the future? That’s why we buy insurance, to cover our risk factors.

Plus, to be clear, the average Alzheimer’s care usually lasts longer than 8 years, not 5 just years.

Ms. Katz also said: “You may not need insurance to cover all your costs, or you may not be able to afford full coverage. Whatever you can afford to buy is going to defray some of the expense. If a nursing home is charging $150 a day and you have a $60-a-day policy, that’s $60 a day you don’t have to spend.”

I have always said that some insurance is better than no insurance. Defraying a little expense is better than paying for the whole enchilada IF you can afford the insurance. I do, however, have a problem with Ms. Katz’s approach, and that problem concerns inflation.

Even with a 5% compounded inflation rider, which will increase the cost of a policy quite a bit, the yearly inflation for the long term care sector (not the CPI) is about 6%. If the nursing home is charging $150 today, it will be charging far more in a few years. Even with an inflation rider, that measly $60 isn’t going to buy you much care in the future.

Plus, your long term care insurance policy is not going to pay for any needed clothing, hair cuts, personal care needs, medication or any books or entertainment you may want. You need to have some money stashed away for daily care.

Protect yourself with as much insurance as you can afford so that, if you find yourself in a long term care situation, you can also afford to pay for life’s other little necessities. Think ahead!

“Ms. Katz also cautioned against the pitch from many insurance companies that you need lifetime coverage. “You really need only four to five years of coverage”, she said, pointing out that the three-year average for longer nursing home stays reflects the average life expectancy for people with serious, long-term illnesses.”

It’s hard to hear intelligent people making indefensible remarks. Unless you are prophetic, you have absolutely no idea what your future holds. How can Ms. Katz say that you only need 4 to 5 years of coverage? Past reports say the average nursing home stay may only be 2.5 years but we’ve already seen that 1 in 3 people receiving care in nursing homes will stay 3 years or more and ….

1) According to one LTCi company, over half of their claims are for cognitive impairment. That means senility, dementia or Alzheimer’s. An Alzheimer’s care period averages around 8 years. That would be 3 years more than a five year policy would pay. And locked down Alzheimer’s units can be pricey.

2) As mentioned before, even if you don’t have a cognitive impariment you may need many more years of care at home or in an assisted living facility before you enter a nursing home. Who will pay for that care? Not a 4-5 year policy, that’s for sure.

Mr. Brock suggests that you look at the long term care insurance that your employer offers due to the possibility of favorable group rates.

I agree, but you will definitely want to compare the offered policy with private LTCi policies. Many group rate policies get their “good deals” by having restrictive language incorporated into the contract and by offering less benefits. I also recommend that you compare any partnership policy that your State may offer. More and more States are jumping on board the partnership wagon. Again, compare them carefully with privately paid long term care insurance.

One more thing that the article says… “If a company turns you down, don’t despair. Try another. That’s the lesson Mary H. Parsons of Manhattan, Kan., learned when she tried to buy a policy after her husband died in March 2005, when she was 73. One company, which required a physical exam, turned her down twice because of a relatively minor case of osteoarthritis in her right knee.”

“(She) applied to another company and was accepted based simply on her medical records and a telephone interview. She bought a policy that will pay $70 a day for up to two years, or a bit over $51,000. Her premium is $111.16 a month, or $1,333.92 a year.”

“Who knows if I’ll need this or not,” she said. “It’s a crapshoot, but I think it’s worth the gamble. I mainly wanted to protect my estate.”

Be careful folks. First of all, if you have a health issue, it is good to apply to more than one company at the same time. A good long term care insurance broker will handle several companies and will be familiar with all of their underwriting standards. An experienced broker can choose the companies that he or she thinks will approve your health condition. If you apply to one company and get turned down, it may not be so easy to get accepted by a highly rated LTCi company later.

Most LTCi applications ask if you have had an application turned down from any other company. A “decline” can be a mark against you and you can’t lie. Not only is it fraud, but if the LTCi company did issue you a policy with mis-information on the application, they can decline any claims for benefit you make in the future. And they will find out! If you have a health condition, You need to tell the whole truth. You also need a very qualified broker to assist you, or you may not end up with the policy or company you truly want or deserve.

Now the policy Mary bought is pretty darned skimpy. She may be able to get away with it at her age, depending upon how long she lives and what health issues she encounters in the future. Remember inflation? But Mary doesn’t seem to have an inflation rider. If she lives another 10 years, she’ll most likely be sorry. But even if she went “on claim” tomorrow, $70 a day will not cover her entire nursing home costs. Plus, that policy only covers 2 years, when the average stay is at least 2.5 years,

If Mary needs long term care, this policy will not adequately protect her estate, and she said that was her main concern. It’s too bad.

Give yourself the best chances when buying a long term care insurance policy, Do not rely upon folks who sell LTCi “on the side”. And when it comes to your future, please do not believe everything a journalist says just because an article they wrote appears in a nationally-known periodical. As we can see from the news, much of the media today doesn’t seem to care about facts, only opinion.

It takes years of study and experience to know even a fraction of the long term care insurance options. Make sure you use a dedicated, long term care insurance specialist-broker for your long term care insurance needs.

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