Longterm care insurance is not for everyone

I recently completed a life expectancy survey developed by professors at The University of Pennsylvania. I was pleasantly surprised to learn I’m estimated to live until age 96, and I have a 75 percent chance of making it to 87.

These statistics got me to thinking about longterm care insurance. Should I consider it? A lot of individuals nearing or past retirement are similarly concerned. Should they buy such a policy? Some people should. For others, it’s an unnecessary expense.

Long-term care (LTC) in the United States has evolved over the course of the last century beginning in 1935 with the establishment of the private nursing home industry. Today, LTC can range from in-home care or nursing home care to various lifestyle choices, such as personal care, continuing care retirement communities and other assisted living facility options.

To meet financial burdens of older Americans, who may require long-term care, several programs were introduced. Many were never enacted. Medicare and Medicaid were passed as amendments to the Social Security Act in 1965. Medicare doesn’t provide for LTC. Medicaid covers institutional, but not at-home care. Many Americans assume Medicare pays for LTC.

The insurance industry, recognizing growing problems among older policy holders, introduced long-term care coverage in the late 1970s. Long-term care insurance provides policyholders with peace of mind that they will be able to afford nursing home, assisted living or athome care if it becomes necessary. It usually covers custodial care, which includes help with eating, dressing, walking, bathing and other daily activities. Prior to this type of coverage, the expense for these services fell mainly on family members.

Traditional health insurance rarely covered long-term care. Countless people were forced to sell their homes or drain savings and investments to pay for nursing or assisted living expenses. Long-term care insurance is designed to combat family financial anguish over the care of loved ones. By the late 1980s and early 1990s, this bold new coverage was in great demand, and insurers made money. All was right with the world. And, then it wasn’t. Americans began to live longer. Health care costs rose. Initial premiums charged were of-

ten not enough to cover claims. Some insurers were unable to make good on claims. Headlines screamed that elderly people weren’t getting care they needed — and thought they had paid for. Lawsuits were filed. Congress and the General Accounting Office investigated. As a result of failure to properly price out longterm care insurance and the subsequent turmoil, very few insurance companies chose to continue offering the coverage.

Companies still providing LTC insurance are calculating it more intelligently. That frequently equates to a hefty price

tag. Yet, that isn’t always the case. According “The Washington Post,” many individuals wonder if the insurance is worth the cost. The story points out that one of the largest providers of LTC insurance wants to change premiums annually, rather than imposing double-digit rate hikes after several years of steady rates. Although the LTC insurance market is experiencing tough changes, it may still be a good financial move, feels “The Washington Post” article’s author Michelle Singletary.

Another insightful take on this type of insurance comes from the March 2018 “AARP Bulletin.” It suggests there are five things to know about the policy. The first caution echoes “The Washington

Post” piece.

Secondly, the article suggests you may need a plan, not insurance. If you’re taking less than 4 percent from savings each year for living expenses, perhaps could forgo LTC insurance and save more.

The third point highlights a new hybrid policy. This is whole life insurance that can be drawn from for long-term care. Unlike traditional LTC insurance, hybrid policies return money to heirs even if parents don’t need longterm care. This plan is less risky, appealing to older people and those without serious health issues.

The AARP article reports old-school policies are cheaper. With traditional coverage, there is no money back; with hybrids, you pay extra for the return

of funds. The hybrid works if the alternative deplete savings. Last is advice to start shopping for insurance when you are in your 50s or 60s. Every year delayed adds more to the cost. The article exemplifies that initial premiums at age 65 are 8 to 10 percent higher than those for new customers who are 64.

Granted, this insurance is tricky. Ample information is needed in order to make the right decision. Education & Outreach suggests: Younger healthier people qualify for LTC insurance, and they probably will pay less. Premium increases may break your budget. LTC insurance makes no sense for people with few assets and debt difficulties. Individuals with strong support systems could probably decline

LTC insurance.

I remember reactions when long-term care insurance was introduced. People thought it was the greatest thing since sliced bread. Everyone wanted it, but today very few individuals are buying the policies. They either pay for long-term care themselves. Or, they do nothing, counting on the state to take over upon fund depletion. It’s all about quality of life.

In short, don’t procrastinate. Recent federal government projections indicate about a quarter of Americans turning 65 between 2015 and 2019 will need up to two years of LTC. Twelve percent will require two to five years, and for 14 percent, it’s over five years. At $15 an hour for 24-hour aides, annual costs could climb to $131,400. Private rooms in nursing homes exceed $100,000, and assisted living facilities are even more expensive.

The moral of this column is to address LTC insurance early, and talk with your financial advisor.

Pete Hoover was destined to be a financial advisor. He has always been intrigued by numbers and money matters. They represent captivating puzzles to be analyzed, shaped and fit into place as pictures of financial solidarity. For nearly 40 years, Hoover has tackled those financial puzzles. In 2005, he launched Hoover Financial Advisors, located in Malvern. Hoover can be reached by emailing pete@ hfaplanning.

Pete Hoover