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The Three Nephites Don’t Need Long-Term Care Insurance but You Probably Do
by Richard P. Halverson

If you are a faithful reader of the comic strip Wizard of Id you may remember a recent entry where a client asks the Wizard, “Do you have anything that stops the aging process?” The Wizard responds wryly, “Sure, what kind of disease would you like?”

Fortunately, we are living longer. Unfortunately, we are living longer and that leads to old age. Old age often means getting into a position of not being able to take care of ourselves. And while old age is the leading cause of becoming infirm, even young people can be incapacitated and need someone to care for them. It can be very expensive to pay someone else to take care of us.

This good news/bad news reality of modern medical technology has given rise to a whole new type of insurance. Long-term Care Insurance. This is not medical insurance. Most medical insurance does not pay for long-term care. This insurance pays for things like someone to help you get dressed and take the right medicines. I don’t know of many subjects that people like to think about less. But we all need to think about it. And just like you should be thinking about taking care of your health before you are too old to do anything about it, you need to think about long-term care before you are too old to do anything about it. Unfortunately, even if you choose to take lousy care of your health and pick one of the Wizard’s diseases to stop the aging process, it is no guarantee you won’t need a lot of expensive long-term care before you expire. So, unless you are one of the Three Nephites and have certain guarantees about your physical vitality and eventual translation you should read further.

Long-term care insurance has not been widely used in the past. Now it is growing rapidly in importance. People who are working to accumulate a decent retirement fund should seriously consider long-term care insurance as part of their financial plan. From a strict financial planning point of view, those with very few assets may not need it. This is insurance that pays when an individual needs help in two out of the following normal daily activities:

. Bathing

. Continence

. Dressing

. Eating

. Toileting

. Transferring

May I anticipate something right now? These items are very personal. Many people simply do not want to imagine that they will ever accept help with things like these. If there is any insurance I have ever run into that covers things that people consider distasteful it is this. Frankly, it is my observation that most healthy adults would rather die and have their loved ones collect on their life insurance before they want their loved ones help them get to the toilet. But you may not get the choice. Remember most of the current residence of nursing homes never wanted to be there. Someone else was eventually forced to make that decision for them.

The alternative to a nursing home, when conditions permit, is a professional who visits the home on a regular basis to assist with daily living activities. Most people prefer this. Long-term care insurance helps cover the cost of in-home care professionals or nursing homes. And if you are insured your options for the type of care you can receive increase tremendously.

There are a number of things going on in society that are giving rise to the need for this type of insurance.

. People are living longer.

. Historically, the elderly were cared for by their children. These days people have fewer children.

. Today children are less likely to be in position to care for parents because everyone in their own household is working out of the home.

. Today children are less likely to be living near their parents to provide help.

. Divorce is far more common, meaning that there are fewer committed spouses and children to assist.

. Advances in medical science often mean the care that is necessary is too sophisticated to be provided by loved ones.

. Increasingly, I find in our culture that parents do not want to be dependent on their children for this help even if the kids can.

These trends are clearly continuing. This means that no matter how much you or I may never imagine that we might need professional long-term care, the odds are increasing every day that we will.

The odds of needing long-term care are increasing, and so is the cost of that care. It is already very expensive and getting more expensive all the time. Here is the question, if you need it, who will pay for it? Here are some possibilities and some of the problems associated with them.

First, pay out of your own pocket. According to AARP the average nursing home stay is 2 years at an average cost of $40,000 a year. That can quickly exhaust the savings of many people and leave spouses and dependents in a difficult position.

Second, let the family pay. The Church teaches that families should assist each other. However, for many of the same reasons stated above the family assistance may not be available.

Third, let the Church pay. In general, long-term care assistance is outside the structure of the Church welfare program.

Fourth, let medical insurance pay. Most medical insurance pays for little or no long-term care. This includes Medicare and Medicare supplements.

Fifth, let the Government pay. This alternative is important and requires some elaboration. The government is the source many people would list as “first” not “fifth”.

. Government probably pays for over half of the long-term care in the country. Medicaid pays most of that. Let me observe that the Church has always taught self-sufficiency and discouraged Church members from living off government assistance. I believe that principle applies here.

. There are some huge problems with Medicaid from a financial planning point of view. To qualify for Medicaid you must meet certain income and asset tests. If you have too many assets you will be required to use those before Medicaid will pay. This is called “spending down” your assets. I think the concept is appropriate but it can be very difficult. Some assets and income can be protected to avoid leaving a spouse or dependents destitute. However, “spending down” can sharply alter the financial well being a family has worked for all their lives.

. The requirement to “spend down” assets has given rise to a whole new financial planning gimmick that I hate to even mention. Some people and their lawyers, figure out ways to put all their assets into trusts so that legally it appears the person has no assets while continuing to live like they do. Then the clever individual can leave all his/her money to the kids and let the government pay their bills. I am not going to explain this further because I personally believe this is contrary to the spirit of Church teaching. I will caution that if you don’t think this scheme amounts to fleecing your fellow taxpayers so you can leave your wealth to the kids be sure you do it correctly or you’ll really make a mess of things.

. Medicaid has limits on what types of services it will pay for and limits on how long it will pay. You may out live your Medicaid benefits.

Sixth, Let long-term care insurance pay for it. Increasingly, this type of insurance is being included in a well thought out financial plan. It is a way to be financially self-sufficient, protect the assets you have worked for all your life and increase your alternatives if you do wind up needing long-term care.

My purpose in this article is not to teach the reader all about long-term care insurance. I hope to bring it to your attention and convince you of the importance of looking into it further. I also hope to provide some direction. These are points you should beware of.

. Long-term care insurance is not just for senior citizens. The younger you are the cheaper it is to buy. It is like all health and age related insurance, the cost rises dramatically with age. For example, a policy that might cost a 50 year old $900 a year could easily cost a 75 year old $6000 a year. Further, the 75-year-old may have suffered some health problems now making her/him uninsurable. The other side of the buy young approach is that you will be paying premiums for a longer period of time.

. Long-term care insurance is fairly expensive. The cost will depend on your age, your health and what you buy. Be prepared for some sticker shock. However, if you buy a policy and later want to increase your limits it is easier if you are already covered. Further if you are covered it is easy to decrease your coverage and reduce your premium.

. Financial planners might discourage you from buying it at all if you do not have sufficient assets to protect i.e. take the “Let the government pay for it” approach. It is true that you do not want to ruin your current standard of living to buy coverage.

. Long-term care insurance is relatively new. This means that the coverage comes with a whole new set of baffelgab that you are probably unfamiliar with. Further, the permutations and combinations of things that can be covered or not and for how much is almost endless. This can make figuring out what you need and what you are buying a challenge. Unlike many older lines of insurance this has not yet congealed into a standard widely recognized form. This means that policies are difficult to compare between companies. Fortunately, consistency has improved dramatically in recent years with the advent of what is called the Federally Tax-Qualified Policy. (You want one of these.) You definitely owe it to yourself to get informed. Here are some good sources.

. The National Association of Insurance Commissioners has an excellent publication called A Shopper’s Guide to Long-Term Care Insurance. Go to www.naic.org and follow the “consumer publication” links.

. AARP has good material on their web-site at www.aarp.com. Search on “long-term & care & insurance”

. The Health Insurance Association of America (HIAA) maintains a list of their members that sell long-term care insurance. They also offer a lot of useful information on the topic. Their web-site is www.hiaa.org. Follow the links to “consumer” and then “guides”.

. Every state has a free counseling program related to health insurance and related topics for older adults called State Health Insurance Assistance Program (SHIP). You can locate the program closest to you buy calling the Elder Care Locator at 1-800-677-1116.

These sources can educate you so that you can deal with the insurance agents on a level playing field. At that point you are ready to begin shopping for a policy. Here are a few tips.

. Talk to agents from several companies.

. Carefully compare policies. As with most things you get what you pay for. As with most things it is hard to know what you are or are not getting if you don’t know about the product.

. Policies state what they will pay in terms of daily allowances e.g. $100 a day for nursing home, types of care e.g. in-home care professionals, overall maximum amounts, overall maximum years, shared coverage for spouses, etc.

. Like most types of insurance these have what amounts to deductibles. They are referred to as elimination periods. For example, the policy may not begin paying benefits until you have been in a care center for 90 days.

. In most cases it is important to consider only policies that provide inflation protection. No one doubts the cost of this type of care is going to continue to rise.

. Buy from a financially strong insurance company. This is insurance for the long term. It is important to know your company will be there when you need them.

. Be aware that rates can and probably will rise over time. Company literature may make it sound like they can not. What that means is that if they raise rates they must do it for everyone, not just you.

. Don’t over insure. This is tricky. Unlike most insurance where you can put a dollar value on a loss, that is hard to do here. For example, you know what it would cost to replace your home if it burns. But you have no idea whether you are going to need long-term care or what kind or for how long. Family history may provide some clues.

As I said earlier it is not my intention to provide enough information in this article that a reader could complete the purchase or even decide if he/she needed to make a purchase. I do want to stress that if you are anywhere near the boomer age or beyond you should be looking into long-term care insurance. It would be a shame to work hard on your financial plan your entire life and then see it gobbled up by long-term care expenses.

If you do conclude you should buy some then do the following: A) Don’t spend yourself into poverty by over insuring; B) Remember you will still need to pay these premiums after you have retired and you are living on your financial plan; C) After you buy hope that every penny you pay in premium will be wasted. Like all insurance you hope you never have to collect on this. I think most of us hope to enjoy a long healthy life and then find ourselves translated in the twinkling of an eye. However, unless you are one of the Three Nephites or know something about the Second Coming that you are not sharing with other Meridian readers you might need to be insured.

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