Long Term Care Insurance article in WSJ. Thoughts?

[MochaDoc]

Read a fascinating article in the Wall Street Journal today.

https://www.wsj.com/articles/millions-bought-insurance-to-cover-retirement-health-costs-now-they-face-an-awful-choice-1516206708

Has anyone had any experiences with these (proposed) extreme increases in premiums or had to sue a LTCI company for adequate payment of benefits for themselves or a loved one?

The article is interesting to me because the LTCI industry seems to have been poorly designed from the outset due to inadequate projections coupled to general bad luck. The gist of the insurance companies' take from their current precarious situation is we thought more people would die much sooner due to falls or inadequate care received at nursing home facilities. This is an unsettling way of looking at one's current/future clients.

[ACN]

Full Article

[Jason Veirs]

Thanks for sharing, and yes, the LTCi industry has been in a bad state of affairs over the past 10 years or so, due to initial underpricing, actuarial miscalculations, and a long-term low interest rate environment - It's extremely sad, as many policyholders are now faced with the decision of either continuing to pay the exorbitant premiums, or to decrease their existing LTCi benefits - This is also happening with many imploding Current Assumption Universal Life policies, as they were illustrated at double digit percentage rates in the 1970's and 1980's. In fact, I've heard that many John Hancock LTCi policyholders have been hit pretty hard, as noted in the article.

Also, as the article notes, many LTCi carriers have since pulled out of the market and the ones who have stayed have sort of price corrected in order to make the product more sustainable. This is also why more and more people are looking to the hybrid Life/LTCi policies, as it's not a "use it, or lose it" situation like with a traditional LTCi policy, and the premiums are typically guaranteed never to increase.

Either way, it's very sad for policyholders to be hit with these increases and it really gives a black eye to the LTCi industry.

[White.Beard.Doc]

These long term care policies typically have lots of restrictions on what will be paid, where the care can be provided, and by whom.

When someone needs help due to age or progressive disability, there are often tough decisions to be made.

Why let an insurance company complicate those decisions and tell you what you have to pay for coverage?  Insurance is designed to spread the risk, but you are better off covering your own risk by saving and investing for old age.  Then you can decide how you want to spend that money that you saved, at home, in an institution, by hiring someone licensed or unlicensed, etc.  I made the choice never to buy long term care insurance a decade ago because it seemed like it would never cover half of the needs that might arise.

[MochaDoc]

So, the only way forward is for everyone to self insure or expect to be dependent on "federal-state Medicaid program for the poor?" Talk about the haves and have nots.

This is terrible.

[littlefish]

It still seems like LTC insurance is designed to help mitigate risk for those who don't have enough to self-insure.

A 55 yo could get a policy for $3400/year with 3% automatic annual compounding so that when they are 75 yo their Total Maximum Benefit would be $396,000. If that 55 yo was instead to invest $3400/year over the next 20 years, with a 5% CAGR, they would have $127,000. Of course a major caveat is not knowing how much one's premiums will continue to rise over the next 20+ years. Additionally, 3% will likely not keep up with LTC costs. However, in this scenario 3-year LTC costs at age 75 would cost about $400k-$500k (depending on geography, level of nursing care, quality, etc.)

Still it would seem like if one had $6800/year to invest towards their long-term care in the above scenario, they would be better off with the flexibility of owning a LTC insurance plan that would pay out $396,000 and having a separate investment account investing the remainder of their money that yielded them about $100,000 for non-LTC insurance covered expenses, as opposed to having their entire $6800/year investment, even with 10% CAGR, yielding them $474,000.

Someone please correct me if I'm looking at this wrong!

[Hank]

MochaDoc wrote:

So, the only way forward is for everyone to self insure or expect to be dependent on “federal-state Medicaid program for the poor?” Talk about the haves and have nots.

This is terrible.

Click to expand...

If you have $500K or less, then medicaid is the plan.  If you are north of $1M, then you (probably) are okay to self insure.  There was an uncomfortable donut hole from $0.5M to $1M where conventional wisdom said that long term care insurance might make sense.

The actuaries and the insurance companies successfully blew up LTCI.  Now there's practically no one who should rely on this insurance product.

[Hatton]

Yes I read that article.  I think most docs can pay for this out of pocket if it becomes necessary.  If you are not doing a good job with saving and investing then buying a policy at 55 makes sense.  I looked into this when I turned 55 and decided to self-insure.  I had a lot of experience with this with my father.  My father did not have a LTC policy but he had an inflation indexed pension from the civil service and military.  Assisted Living was not that expensive for him.  If you get to this point you really have no other expenses.  You sell your house and car and most furniture.  He had a couple of short stays in rehab after a hip replacement and a CVA.  These stays were paid by Medicare.  From what I have read this is common.  Shorter stays that are covered by Medicare and maybe a few months longer not covered at the end.  I really would hate to have an insurance company dictated where and when I get to stay in LTC.

[nwdpath]

I just looked at plans last year for me and my wife-- really spent time sifting through the options.  I decided that the plans offered right now just aren't good enough to invest in.  My sense is the industry is in trouble just as described in the WSJ article.  We opted to just self insure which for us meant kick more in to our taxable account and be done with it.  My hope is that the industry will work itself out, probably with the hybrid products.

[Jason Veirs]

Yes, the hybrid products are extremely popular and seem to appeal much more to consumers, as the premiums are contractually guaranteed and it's not a "use it, or lose it" type of situation.

In fact, there is one carrier on the market that I know of who has a patented joint life hybrid policy, which covers two individuals (usually a husband and wife) on a single policy, while passing as death benefit to your heirs, if unused. You can also add a lifetime rider onto the policy, where both spouses would have LTCi for their entire lives, if needed. Since this policy is designed on a Second-to-Die chassis, the risk and premium cost is spread across two insureds, which typically makes the premiums more palatable.