Goodbye to Long-Term Care Insurance
Scott Burns says there are probably better alternatives.
Most seniors don’t have many assets and will end up on Medicaid, if the need arises. You may die before you ever need long-term care. There is always self-insurance, and this:
The continuing care retirement community is another alternative. You can receive guarantees of lifetime care by becoming a member of a continuing care retirement community. These residential communities bundle senior residences, assisted living and nursing care in a single property to provide a continuum of care. You become a member with a substantial initial payment and a monthly payment for a broad package of services. Some of the initial payment may be returned to your estate upon death.
With fewer children able to shoulder the costs and time investment of elder-care (and more couples electing to remain childless) this seems like a great alternative to conventional methods.
this is a very interesting and innovative idea
Seyyed, I agree. It makes a lot of sense.
This will definitely get a lot of the inefficiencies out of the process.
Wow, first time I’ve heard about this.
This is a really cool idea. I would also add that there are new ideas on co-housing communities, where similar to this, people of all ages pay and become part of a community where they take of each other. This phenomena will become more common as increasingly more people are choosing to live a solo life style, by extension, many are, and will, enter their senior age as singles. And so, this co-housing is something cool to watch out for.
These have been around for a number of years. My wife’s Mom and Dad lived out their lives in a CCRC moving from independent living (apartment) to assisted living to nursing.
The initial fees can be quite high (think the proceeds of selling your home) and the monthly fees are not slight either, but the quality of life, friendships and care I saw demonstrated make me certain this is the way I will go in time.
I am surprised no one is talking about how nursing homes are essentially cartels given how much government regulation is involved. Nursing homes have increased 7.5% per year and have crazy regulations like residents must have phones, employees must have IDs at all times, and even certain employees can do certain jobs. http://pjparlapiano.blogspot.com/2012/08/nursing-home-cartel-nursing-homes.html
With the recent election result, there will be no federal repeal of ObamaCare and no replacement with true reform that would actually lower costs, and improve access in a fiscally sustainable (responsible) manner.
The ObamaCare debacle could be the ideal opportunity to reassert state sovereignty for several reasons. First of all, it is a poorly conceived, complex, and effectively uninterpretable and unimplementable. Secondly, what portion is implemented will not only fail to reduce health care as promised but has already increased costs and will further do so as it is rolled out further. Thirdly the ObamaCare insurance mandates and regulation effectively violate the McCarran-Ferguson established state jurisdiction of insurance regulation. Finally the ability for the states to opt out of implementing an ACA-compliant state exchange brings up the question whether or not the federal government can do so, whether the federal government can distribute the premium subsidies at the core of the law, and whether the federal government, by distributing those subsidies, has the right to impose the economically harmful employer mandate.
Many states have already opted out of establishing the exchange and the Medicaid expansion, but there is no vision for moving forward with health care reform at the state level. PPACA is so bad and inept, that it could not possibly disqualify such state level reform that would actually lower costs, improve access and quality, and protect patient-physician medical decision-making freedom. If the states can be successful in implementing such reform, they will not only have improved health care and reclaimed state sovereignty but could be a first step to further strengthening of state rights more generally.
Have you thought about or are you aware of developed state level reform policy based in the free market principles you have so well articulated for national health care reform?
Any thoughts about the Utah exchange?
these are good facilities but what happens to a resident if the faciluty runs out of money and has to close down
Yep, and just the other day John put up an article about how poor quality the staff is at nursing homes.
Long term care insurance is a good example of how people will always find a way to take advantage of an available resource. People naively assume their kids both want to take care of them in their old age; and have the resources to take care of them. Neither of these two ideas are often accurate.
In addition, people will quietly give away assets prior to disability or tie up all assets in a house. When the Balanced Budget Act was being debated, Congress couldn’t even agree that people who need nursing home care should forfeit their house in the process. Something like $525,000 in homestead is exempt. Why is the state giving away nursing home services to people with, say, $250,000 to $500,000 in assets?
Continuing Care Retirement Communities (CCRC’s)can require an initial investment of $100,000 to $300,000. It’s a excellent life option, if you can afford it. However, if a person then needs home health care, assisted living on nursing home care in the CCRC, they then must pay a monthly fee similar to that which they would pay outside of the CCRC for these services. If the individual has a LTC Insurance Policy, it will pay that fee for them. Typically, if one needs care for 6 months or less, all their LTC premiums paid in will have been recouped because the insurance company will have paid more for their care then the insured has paid in premiums. Keep in mind that only a very small percentage of the population can afford a CCRC, while 70% of those over age 65 will need long-term care before they die (US Dept of Health and Human Services).
LTC Insurance is both the least expensive and most practical way to plan for the worst case scenario of needing log-term care.
A typical monthly cost for Long-term care ranges from $3,000/month to $9,000/month, depending on where you live and what services you are receiving. Compare that to the average cost of LTC Insurance…$200/month. Would you rather pay $200/month or $3,000 to $9,000 per month?
Keep in mind also that several top LTC insurerers have exited the market place (MetLife, Prudential, etc). Why have they left? The risk is too great and uncertain for them to see a way to make a clear profit. If the risk is too great for these huge multi-billion insurance companies to insure the risk of LTC, why do you think that you can risk not having LTC insurance?
How are these continuing care retirement communities of any good if, as we have read in other posts, their own staff members are not willing to provide certain services to the elderly living in these places? It sounds like a very viable approach. However, I’m concerned about how committed staff members are to these “programs”, especially since they play such an important role in them.
My experience with CCRC’s is inconsistent with Mr. Davidson’s belief that there are significant additional fees associated with assisted living and/or nursing. Remember the normal monthly fees can be several thousand dollars. Also, do not confuse nursing homes with CCRC’s. There are no Medicaid patients in CCRC’s.
These continuing care communities work well, unless you desire or need a private room when you reach the nursing home level of care. Some will charge an additional fee equal to the regular monthly fee you have been paying. Without long term care insurance, the additional fee may be too steep for some people.
The continuing care retirement community is another alternative.
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If you have $300,000 and up to move in… paying $50,000 over your lifetime for a LTC insurance policy is better leverage and you’ll leave more to your heirs or charity.
Thanks for the article. Indeed, continuing care retirement communities are an increasingly popular alternative for retirees “on-the-go.” For more detailed and objective information on Continuing Care Retirement Communities(CCRCs) go to http://www.lifesitelogics.com.
@Brad Is Life Site Logistics a fee based, commercial service? There is also considerable information available without strings attached at http://www.naccrau.com.
Thanks for your inquiry Jack. We are just launching. We will offer subscription based applications for advisors/planners/atty’s/etc. and a public-facing component where people can access data directly from our website. What makes us unique is our database that houses information on individual CCRCs. our reports provide about 300 data points on covering contract details, financial stability, fee levels, healthcare, and more. See a sample report here: https://www.lifesitelogics.com/advisor/community-detail.cfm?id=1B09E41F-CDB5-D682-D54F7EEC233AB24A
If a life care community has independent living and an extra fee for care, LTC insurance can pay that extra fee. If the area the resident is living and receiving LTC services is licensed for LTC services, LTC insurance can pay the whole bill up to the benefit allowed.
What folks forget is that these facilities are self insuring their residents, hoping to get healthy ones in earlier to subsidize the more ill later. Unlike insurance carriers, if they fail, there is no guaranty association or state backup. They are also underwriting health and age, so those folks waiting until they actually need LTC services may not be able to enter at that point.
70% of Americans will need long term care – longtermcare.gov
Jonathan Pond, Financial Planner, says that 90% of estates are spent this way:
1) nursing home
2) IRS
3) children
4) grandchildren
5) charity.
More people are worried about the IRS taking their money than about having to spend it on a nursing home. If you’re thinking about Medicaid planning, it’s a Federal offense to try to hide assets. There is a 5-year look-back period from the time you apply for Medicaid.
The Federal Deficit Reduction Act provided for every state to have a Partnership program to provide asset protection for those who buy qualified long term care insurance policies. http://www.partnershipforlongtermcare.com/
An alternative are linked-benefit products, Life Insurance or Annuities with long term care riders. In most states you can also use your qualified money (IRA/401k) to fund your plan. http://guidetolongtermcare.com/linkedbenefit.html
It is true that not everyone may need LTC insurance but for those who want a definite form of self-assurance for their future health care, then they may want to consider it. I suggest, interested policy buyers should first assess their needs. Seek the doctor’s advise specially if you have an existing condition that may lead to a disabling condition that may require LTC services. Also, with proper planning, one can better prepare himself for such needs. One can get long term care insurance information from Completelongtermcare.com . Their useful content can be used as guide in one’s LTC research
People may have different views about long term care ins . Not everyone may need LTC so those that require coverage and don’t want to pay out of pocket may find it as a better and more cost-effective alternative. Though scouting for the other options can help them save a lot.
My parents entered a CCRC about 5 years ago. They did so after exhaustive consideration of several options, and considered nearly a dozen such communities before deciding. Their decision process was drawn out over about five years, and delayed in part by their need to sell their residence before moving. They still live in the same community, and their experience has been for the most part a good one, but not without concerns.
Before they selected a community they noted the following issues:
1. All communities obviously are targeted at those with disposable assets, and the focus is on ‘mature adults’ between ages of 55 and 65.
2. All communities required an upfront ‘entrance fee (life care fee)’ of anywhere from $100,000 up to $750,000. The fee becomes the property of the community, if you leave (or die), you do not get it back. There is no salable property right associated with the fee.
3. As you might expect, nicer communities were accompanied by the higher entrance fee
4. In exchange for this entrance fee, you get the right to rent an apartment in the community buildings
5. Rent includes a meal plan in the community dining room M-F
6. If your health requires you to ‘progress’ to assisted living, or nursing home care, you have access to these levels of care, but you continue to pay the monthly rate for these services, as dictated by the facility. Nursing home rates are similar to other nursing home rates.
7. There is NO GUARANTEE of the price you will pay for your monthly ‘rent,’ it is set by the facility.
8. If you become unable to afford the rent, you cannot stay.
9. If you progress to nursing home care, and the nursing home then depletes your assets, the nursing home will allow you to stay with coverage from Medicare/Medicaid benefits. This is not generosity, this is federal law.
Since they have lived there, they have noted:
1. During and since the economic crisis, ‘membership sales’ have fallen far short of pre-crisis projections. Many prospective customers became unable to afford that community, and many have delayed as they wait for sale of their homes. Many units remain unoccupied, additional construction has been halted.
2. Rents have increased regularly.
3. Facility upkeep has been fine, but some complementary services have been curtailed, fees have risen, and the quality of the food has declined since their arrival.
4. Fortunately, their health has remained good enough to avoid need of nursing home services, so they have no personal experience there. However, several friends have required nursing home care and received it as promised.
My observations as a physician and business owner (and perhaps devil’s advocate!)
1. These CCRC’s are business ventures involving investments involving hundreds of millions of dollars. The investors obviously seek maximum return on their investment, and investments this large have certainly been guided by experienced investment professionals.
2. The managers of these ventures have developed a business model that targets a large chunk of exploitable wealth – the baby boom generation after the time they become empty nesters but before they become elderly.
3. It does appear that the CCRC growth projections established in the 90’s have not been maintained courtesy of the 2008 financial meltdown and real estate crash. It is doubtful that investment returns will match initial projections, or that resident fees/rents will remain as low as suggested back then. There have been CCRC bankruptcies. See http://www.grantthornton.com/portal/site/gtcom/menuitem.8f5399f6096d695263012d28633841ca/?vgnextoid=c71223f6763ba310VgnVCM1000003a8314acRCRD&vgnextrefresh=1
4. By attaching their nursing home to the captive population of wealthy residents, the CCRC has a model that deals with the least possible Medicaid burden a nursing home could legally maintain. Most residents moving to the nursing home will pay out a large sum of personal assets before they are depleted; many will die while still paying full fare to the nursing home.
5. The terms offered to ‘members’ are very lopsided in favor of the CRCC venture. I cannot get over the fact that they all offer no equity in exchange for the 6-figure membership fee. There is no title to an apartment, no equity in the facility, not even the right to ‘resell’ the membership at market rates, or to will it to others after death.
6. The membership is in every way an unsecured investment with a guaranteed 0% return. There is no guarantee to the member that the CCRC will continue as a viable enterprise. Should the CCRC declare bankruptcy, the member has no recourse to the fee, or rights to the facility or apartment that was occupied. While the facility may operate after bankruptcy, terms to the residents, as well as fees, may rise significantly.
7. Since they have targeted a population that is approaching life’s end, it is highly unlikely their ‘members’ will choose to leave as long as they have the ability to pay for their accommodations. Likely their last dollars will be spent on staying in their apartments.
8. Much of what I observe is also supported by observations I made about 10 years before my parents made their investment. As a young physician, I had been repeatedly solicited as an investor in ‘senior living communities.’ As an enterprising young business owner at the time, I attended one investment seminar which pitched this investment model to prospective investors. The presenters listed much of what I stated above as advantages of the investment. At the time I was impressed that the investment model heavily favored the managers of the investment over the investors, and did not invest. If the CCRC is not favorable to the providers of capital, and is not favorable to the ‘members’ that it appear that the managers are the only ones guaranteed financial gain.
9. CCRC is an option for retirees seeking such residential accommodations, but is not a substitute for LTCI. LTCI covers the cost of nursing home care, because even at a CCRC nursing home care is not free. Many of the residents at my parents’ CCRC, my parents included, maintain LTCI to prevent their estates from depletion if nursing home care is needed.
10. After considering all these findings, I am amazed that such a large industry has developed for the purpose of fleecing the senior population – systematically extracting their wealth without any real contractual guarantee. It seems to me that such facilities should be held to some level of fiduciary responsibility to their members/residents. CCRC’s should be required to report at least annually on their financial position to interested parties (not just investors, but residents also). They should be required to demonstrate a financial position adequate to assure residents that their membership investment will assure care will remain available for the remainder of their lives, as suggested but not guaranteed, in the sales pitch. Bankruptcies of such facilities should be as rare as municipal bankruptcies. As always, caveat emptor!