Our Love/Hate Relationship with Long Term Care Insurance

Kristina Bolhouse, CPA/PFS, CFP®

Long term care (LTC) insurance started appearing in the marketplace in the late 1970s/early 1980s.  At the time, we loved the fact this product was available, even though the early policies offered poor coverage (such as only 50% home care) and many exclusions (such as for dementia and Alzheimer’s).  Then around the mid to late ’90s, we started seeing improvements in policies, which we loved: wider coverage, fewer exclusions, affordable pricing, and even the ability to have a married couple “share” the pool of benefits.

We have always taken the position that long term care insurance should be evaluated very carefully, and should be a supplement to HELP pay the cost of long term care, not cover the whole expense.  In the case of a single person, often the accumulated assets and other sources of income are sufficient to cover a large portion of the expense, as many other expenses drop off (such as maintaining a home, an auto, travel, etc.)  For married couples, the trick is to make sure the first person needing care doesn’t deplete the assets for the other spouse attempting to maintain the family home and lead a normal life.

So, while we appreciate the ability to purchase long term care when there is a legitimate cash flow shortfall, we hate what has happened to the industry.  We hate the fact that LTC insurance is being “over sold”.  We hate the scare tactics being used on people that have enough resources to actually pay cash for care if needed.   We hate the fact that some of our clients who could barely afford coverage to begin with have now been hit with a 20% premium increase.   This means re-evaluating the coverage and possibly reducing benefit periods to reduce costs.

For some of our clients, LTC insurance is the equivalent of a 3rd car.  While the odds are that 3rd car will not be needed, it’s comforting to know it’s in the garage.   However, for others, the price increases have made the affordability a real issue.  And, chances are pretty good that if you can barely afford the premiums, it may be more of a primary mode of transportation when the time comes to pay for care.  So, there is the rub: those who can easily afford the premiums probably don’t need it.  Those who can’t afford the premiums may still be too “rich” to qualify for Medicaid.  It is something we are very mindful of as advisors.

If you are curious about the cost of care, one of our favorite websites is: www.Genworth.com/costofcare.

This shows a map of the United States and the average cost of the various levels of care.  (Just click a state for details.)  We recommend noting the cost of a semi-private nursing home room (average cost $80,300) versus the cost of a private assisted living type room (average cost $43,200).  Of course, there are always outliers, such as New York, which has the most expensive care.

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