Long-Term Care - To Insure or Not to Insure?

In our work with pre-retiree and retired clients, we often get questions surrounding the applicability of long-term care (LTC) insurance to their particular financial situation. LTC insurance is, in many cases, viewed as this mysterious box of unknown benefits and costs and often clients are even afraid to inquire about the topic. So, let’s take a few minutes to learn a little bit about LTC insurance.

To begin, what exactly does long-term care insurance cover? Most people aged 65 or older in the United States are covered by Medicare or Medicaid so why does anyone need additional health care insurance? In short, LTC insurance covers those costs that are necessary to care for you when you cannot. Each policy has its own triggers but generally, if one cannot perform a certain number (usually two or three) of the “activities of daily living” or ADLs, your LTC insurance would then cover the costs associated with obtaining the care to help you. The activities of daily living and an associated short explanation are listed below:

• Bathing – getting yourself in and out of the shower; washing yourself
• Dressing – putting on and taking off your clothing
• Toileting – getting to and from and on and off the toilet
• Continence – maintaining bladder and bowel control
• Transferring – getting in and out of a chair, bed or wheelchair
• Eating – feeding yourself

A quick example would be an individual who has severe arthritis in their hands and knees and cannot care for themselves in the shower or bathtub or cannot transfer themselves from a wheelchair to a bed.

Keep in mind that you will still need your “health care” insurance even if your LTC policy has kicked in. LTC insurance does not cover medical issues like your annual preventative care appointment or a knee replacement or prescription drugs.

So, you might be thinking that LTC insurance is only for those people who are not in great shape. You eat healthily and work out on a regular basis, and you won’t need that type of insurance. Well, here are some facts that are not meant to be scary but just to put the need for this type of care in perspective.

• According to the U.S. Dept. Of Health and Human Services, 70% of people turning 65 can expect to use some form of long-term care during their lives. https://acl.gov/ltc
• Women need care longer (3.7 years) longer than men (2.2 years)
• Medicare covers some nursing home and rehab facility costs (up to 100 days). It does not, however, cover the costs associated with activities of daily living.
• The longer you live, the more likely you will need long-term care. There is a 47% likelihood that one spouse of a couple, both of whom are 65, will live to age 90. There is a 20% chance that one of them will live to age 95.
• According to Genworth’s 2021 cost of care data, the national median cost for one year of nursing home care ranges from about $95,000 to $110,000, depending on the type of room (private or semi-private).

Now that we have a sense of the need for long-term care, what type of policy should be purchased? So, there are generally two types of policies – traditional and hybrid. They both offer the same benefits, but the pricing is structured differently.

• Traditional policies work much like your home or auto insurance – there is an annual premium and there is the potential for price increases each year. The LTC insurance market is still relatively young which means that insurance companies still don’t completely understand how much they will pay in claims over the life of a policy. So, the price increases in these types of policies over the past 5 years have been significant. It has not been unusual to see 15% to 20% increases every 3 to 4 years.
• Hybrid policies are typically purchased by paying a single fixed premium or paying a fixed amount over a set number of years. This premium structure eliminates the possibility of price increases but instead of paying $4000 or $5000 every year for a traditional policy, you may need to put down a lump sum between $75,000 and $150,000, depending on how much of the risk you want the insurance company to cover. Hybrid policies also typically offer a life insurance death benefit that is paid out to your heirs if you do not use the long-term care benefits.

As the boomer generation retires and ages, the need for long-term care will continue to increase. I hope it is apparent by now that everyone needs a plan for long-term care but that does not mean everyone needs to purchase LTC insurance. For some of us, LTC insurance may be prohibitively expensive and planning for your family to help with your care may be your best option. For others, assuming the cost of an LTC policy is within your budget, purchasing a policy will likely protect your current assets from being depleted by paying for expensive skilled care towards the end of your life. Such protection can allow you to pass on the bulk of your assets on to your heirs. Finally, if you can afford to self-insure based on the planning you have done with your spouse and financial advisor, the choice boils down to whether you would like to retain the risk or share the risk with an insurance company.

If you have questions and would like to talk with us further, please call us at 513-271-6777. For more THOR reading, click here to go to the Blogs and Market Updates section on our website.

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