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long-term-care-insuranceA recent article in the Wall Street Journal explored why people don’t buy long-term care insurance. Many readers commenting on the article planned to self-insure for long-term care expenses in part because of the uncertainty of future premiums and a misunderstanding of Medicaid. Your clients may also harbor similar objections to buying long-term care expenses.

Diffuse objection #1: Medicare or Medicaid will pay for long-term care

Help your client differentiate long-term care from medical care. Long-term care provides assistance with Activities of Daily Living or ADL. ADLs are usually self-care tasks normally performed without assistance, such as eating, dressing, walking or transferring, toileting, bathing, and continence. Long-term care insurance benefits usually begin when the insured can no longer perform two of these activities. About 30 percent of people 65 and older are unable to perform three or more ADLs. Medicare does not pay for long-term care associated with ADLs.

There are several hurdles to overcome to receive Medicaid long-term care. Clients expecting Medicaid to pay for long-term care often misunderstand the requirements to receive Medicaid long-term care. There are two main categories of eligibility, medical and financial. Similar to long-term care insurance, the person must be unable to perform some number of ADLs. The number varies by state. The financial requirements to qualify for Medicaid also vary by state and use two tests, one based on income and the other based on assets. The 2015 monthly income cap for is $2,199; the asset cap for the Community Spouse (the non-applicant) is $119,220 of countable assets. Both of these measures also vary by state. For more details on Medicaid financial eligibility, see Medicaid.gov.

Perhaps the most misunderstood aspect of Medicaid long-term care is the federal requirement to recover the cost of long-term care from the estate of the beneficiary or by a lien on real estate owned by the beneficiary. Read more about recovery options here.

Mitigate objection #2: The premium uncertainty of long-term care

It’s no secret that long-term care carriers have struggled to effectively price their products. In order to keep the product solvent premium increases were necessary. There are many contributing causes to the instability of long-term care premiums.

Current industry thinking indicates a more stable premium outlook for long-term care insurance. Actuaries are pricing new products to be profitable in a low interest rate environment and using actual lapse rates rather than the inaccurate high lapse rate assumptions used in older products.

Defeat objection #3: The affordability of self-insuring

Clients planning to pay for long-term care from savings are often under two misconceptions. The first, that long-term care insurance premiums are unaffordable. The WSJ article offers three annual premium scenarios starting as low as $1,060 for a 55-year-old single male, to as high as $3,930 for a couple both age 60.

The second misconception is the cost of long-term care. Although the cost of care varies widely from state to state, some rules of thumb can forecast an accurate picture.

  • Home health care: Long-term care most commonly begins with home health care that can be either medical or non-medical. According to Paying For Senior Care.com 
    • Almost 57 percent of people receiving long-term care receive it at home
    • 71 percent of long-term care claims begin with home health care
    • Home health care visits are between two and eight hours
    • Visits are several times per week
    • The average non-medical in-home care is $20 per hour
    • 50 percent of claims last more than one year
    • 3.9 years is the average length of claim that lasts more than one year
Assume a home health care cost of $20 per hour, of four hours per visit, and three visits per week. That comes to more than $12,000 annually. Someone needing care for four years would spend more than $48,000.
  • Community care – assisted living and adult day care: Many long-term care situations progress from home health care to assisted living or other community health care settings such as adult day care. Adult day care can be $69 daily or more, $24,000 plus annually. The median monthly rate for an assisted living facility is $3,600, or $43,000 annually. Patients with dementia or Alzheimer’s pay an additional $1,200 monthly on average.
  • Nursing home care: Nursing home care has become the last resort. More and more, people needing long-term care receive it either at home or in a community-based facility. Still, 35 percent of people age 65 and older will need nursing home care for some period.

When you total the cost of home health care and community based care, the cost of long-term care well exceeds the premium paid over the lifetime of the policy. Remind clients that most long-term care policies also cover respite care expenses for family caregivers. Those kinds of costs are not included in these estimates. Neither is the financial cost many family members incur when providing care for a loved one.

The reality and size of long-term care expenses should make non-believers take another look at long-term care insurance. When they do, call DIS to prepare long-term insurance quotes to illustrate affordability and options. In the meantime, take a moment to download the LTCI Broker Kit for more tips on presenting long-term care.