Month: June 2014

Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care.  My post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care.  The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Now that we’ve made our guess as to how long our long term care will last, we must predict how much each day will cost.  (Insurers use a daily rate because assisted living facilities and skilled nursing facilities charge by the day.  Some home care providers charge by the day as well, but most charge by the hour.)

Short answer:  If you expect to live out your retirement in Ohio, get a daily rate (in today’s dollars) of at least $200, BUT $250 would be better.  (I use Ohio because that’s where I help seniors who need long term care.)

Why buy insurance that would pay out $200 per day?

First, I suggest that you buy long term care insurance to cover your costs for nursing home care (i.e., in a skilled nursing facility.)  Usually, long term care insurance policies are not limited to nursing home costs.  Many or even most policies cover long term care costs provided at the insured’s home or at an assisted living facility in addition to paying nursing home costs.  In short, most insurers pay for your long term care no matter where you are receiving that care.

I use nursing home costs and time in a nursing home as comparative measures for long term care insurance because nursing home costs are the highest of the usual long term care costs.  If you’re going to buy insurance to guard against long term care costs, you should get enough insurance to guard against the financial worst case scenario, the nursing home.

Second, I suggest a $200 daily rate because that is approximately the Ohio Medicaid rate today (i.e., the amount of money that Ohio’s Medicaid agency, the Ohio Department of Job and Family Services, reimburses a nursing home for the care provided to a Medicaid-covered resident.)  Because $200 is the Medicaid rate, very few or no nursing homes have a private pay rate any lower than that.  Consequently, that Medicaid rate is the bare minimum that I can suggest when purchasing a long term care policy.

Why buy a policy with a $250 daily rate?

First, as I mentioned above, the lowest daily rate that you’re likely to find among any Ohio nursing homes is $200.  You’re more likely to find daily rates for private pay (i.e., for residents not covered by Medicaid) a bit higher than the Medicaid rate.  (Private individuals don’t have the bargaining power that the state and federal governments have.)  While you are using your long term care policy, the nursing home will expect you to pay the private pay rate.  You should buy insurance to cover that rate.

Second, the current five-year look-back period can be made longer by Congress at any time.  (Remember, you’re not expecting to make a claim against your long term care insurance until years from now.)  Getting a daily rate above the absolute minimum can help you get through a longer look-back period that may be in place in the future.

Why buy a daily rate for nursing home care when my policy will also cover in-home care and assisted living care, which are less expensive than nursing home care?

You don’t know what the future holds.  You could need nursing home care quite suddenly, or you could stay at home or in an assisted living facility for a long time before needing full skilled nursing care.  Without an accurate crystal ball, you just don’t know what your needs will actually be.

Remember, though, that long term care insurance is meant to protect your life savings against the risk of long term care costs.  In addition, the cost that you’re trying to insure against is reasonably predictable because we can easily approximate the private pay rate for a nursing home.  If you don’t buy enough insurance to cover this predictable cost, you’re not really protecting yourself or your life savings.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

© 2014 The Koewler Law Firm.  All rights reserved.

Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care.  My post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s installment discusses how much long term care insurance to buy as a function of how long you think you might need long term care.

The short answer is that you should buy enough insurance to cover 4 to 5 years of nursing home costs.

(Long term care insurance policies are not limited to nursing home costs.  Many or even most policies cover long term care costs provided at the insured’s home or at an assisted living facility in addition to nursing home costs.  I use nursing home costs and time in a nursing home as comparative measures for long term care insurance because nursing home costs are the highest of usual long term care costs.)

Why buy LTC insurance to cover 4 years of nursing home costs?

The average stay in a nursing home is approximately 3½ years.  Based on this average nursing home stay,  Consumer Reports (November 2003) recommends that people buy enough long term care insurance to cover 4 years of nursing home costs.

Note:  Be very careful in making any assumption that you will be average.  The 3½-year average is made up of many short stays (less than 1 year) and some long, long stays (longer than 5 or even 10 years) in nursing homes.

Why buy LTC insurance to cover 5 years of nursing home costs?

Five years is the “look back” period that Medicaid currently uses to determine whether applicants have improperly “hidden” assets.

If you eventually need long term care, you can use the Long Term Care insurance to pay for the first 5 years of that care and (possibly) set aside some of your assets as a comfort fund when the insurance coverage starts.  Then, while the look back period runs, the insurance will cover the cost of your care.  When the insurance runs out, the look back period (or most of it) also will have run, allowing you to qualify for Medicaid to pay for your long term care costs thereafter.

Note:  The look back period could be made longer at any time.

A wish for the future: Because the government can make the look back period longer, I’d like to see Long Term Care insurance companies allow policy holders to add years to an existing policy in reaction to a change in the look back period.  I am told that no insurer offers such extensions now, but I think it would be a great policy feature.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

© 2014 The Koewler Law Firm.  All rights reserved.

Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care.  My post of May 22, 2014 discussed whether to buy long term care insurance at all; and my post of May 29, 2014 discussed looking for a stable, proven insurer.  Today’s post will describe how to identify a proven, stable Long Term Care insurance company.  The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.  (Thanks to Toby Kemsuzian of Skylight Financial for his input on today’s topic.)

Today, I add some criteria to help identify the proven, stable Long Term Care insurance company:

• A “superior” rating from A.M. Best (the independent rating agency for insurance companies;)
• A history of participation in the Long Term Care insurance market; and
• A history of NOT raising rates on existing policy holders.

The first criterion, the A.M. Best “superior” rating is self-explanatory.  The information is readily available on the internet, and companies rated “superior” will usually make it obvious on their own websites.

The second criterion, a history of offering Long Term Care insurance, recognizes that some companies have entered the long term care market and then quickly left the market.  In fact, some insurers that had offered long term care insurance over many years have withdrawn from the market.  So, unfortunately, following this criterion cannot guarantee that your insurer of choice won’t pull out of the market in a few years.  Nonetheless, LTC insurance shoppers should be wary of new entrants in the market.

The third criterion, a history of keeping rates steady for policies in effect, is probably the toughest to figure out but could be the most important measuring stick.

As discussed in my prior post, you don’t expect to make a claim against your long term care policy for a long, long time after you buy it.  During that long time, the economy can have many ups and downs, possibly taking your insurer’s finances up and down with it.  At some point, the insurer may need to find a way to increase its income and may turn to its policy holders to get that income.

Long term care policy holders who receive notices of a rate increase would be caught in a dilemma.  They can pay the increased premiums, or they can try to find new policies.  The new policy choice is tricky, however.  The policy holders are older now, so their new policies would cost more than their original ones.  In addition, some of the policy holders would probably have become less healthy and perhaps could not qualify for a new policy.  These “sick” policy holders would have the dubious choice of higher premiums on their existing policies or no long term coverage at all.

Please be aware, all long term care policies probably contain language allowing the insurer to raise rates.  (An agent selling for a company that has, in fact, raised rates will quickly point out this language in their competitors’ policies.)  The only thing that potential buyers of new policies can control in this regard is the choice between insurers that have raised their rates versus those insurers that have not raised them.

This is not to promise that an insurer that has not increased rates in the past will continue to forgo rate increases in the future.  No one can promise that.  (As financial services advertisements explain over and over, good results in the past are not a guarantee of good performance in the future.)

On the other hand, I think it may be true that bad performance in the past is an indication of likely bad performance in the future.  Raising rates on existing policy holders shows that an insurer may value its own financial results above the good of the policy holders.  Accordingly, a company that has raised rates in the past is, I believe, more likely to do so in the future (when compared to an insurer that has not raised rates.)

Note:  Do not look at changes in the cost of new policies over time.  My discussion concerns rate increases placed on policies after those policies are already in effect.

Accordingly, when considering long term care insurance:

• Look at A.M. Best rated “superior” insurers,
• who have been in the long term care market for a long time, and
• who have not raised its rates on existing policy holders in the past.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

© 2014 The Koewler Law Firm.  All rights reserved.