The long term care insurance puzzle

And how to identify the pitfalls before you buy

Photo by Hans-Peter Gauster on Unsplash

My father died 30 years ago of non-Hodgkins Lymphoma. I was a junior in college when he was diagnosed and he died a month after graduation. When I got my first real job a few years later, they offered a long term care insurance plan that would cover parents. Remembering all of the medical bills my parents paid out-of-pocket with my dad’s illness, it seemed like a no brainer: planning ahead would save us endless worries in the future. The premium at the time was relatively low, a few hundred dollars, and mom and I thought we were making good plans for her future.

Somewhere there is a demon laughing at our naivety.

The devil is always in the details right? We have been paying premiums for long term care insurance for the past 30 years. My rough math is that we’ve paid nearly $200,000 into this plan. Mom’s current monthly premium is $430 which is a quarter of her fixed income. Mind you, her medication is nearly that as well, so that doesn’t leave much for utilities and food.

So, when we got into this new part of the journey, the one requiring daytime supervision to make sure she eats, takes her medicine, doesn’t burn down the house, or fall, I thought for SURE we could finally start using this insurance that we’ve dilligently been paying into for the past 30 years.

That demon is snickering in the corner….

While she was in the hospital, I made the first of numerous calls to the claims department to get a copy of the policy and initiate the claim. I was told we couldn’t start the process until she was about to get discharged from rehab. I was also told that she elected to not take the inflation riders about a decade ago, so her per-day benefit was ¼ or less of the average day rate.

I called back just as she was getting ready to get discharged from rehab and they had to get a confirmation from the rehab facility. Then they sent someone out to the house to ask her a list of questions and “assess” whether we were being truthful about her condition to initiate caregiving assistance. At one point, after the assessment, he reached out because he forgot to get her list of medications - this delayed our decision another week.

Then they send me a packet of information about the policy and several forms like direct deposit and HIPPA and all the things. We’re 30+ days in and I’d not hired anyone because I didn’t have any assurance that they would pay for care, so I worked remotely and switched into full-time family caregiver to cover. Then I got a letter saying that I’m provisionally approved, but I have to hire care for them to evaluate whether we qualify for care. [Huh?] I asked several questions about the type of caregiver and whether we could hire independent and was assured we were moving in the right direction.

Have you ever priced caregivers? They range from the expensive to the extreme. A caregiver can cost you anywhere from $15-$55 an hour. If you get an independent caregiver it’s on the lower end, but the agencies start around $36. And it is not that I am against paying caregivers what they are worth, but much of that hourly rate goes to cover the agency overhead. For the level of care my mother needs, someone to make sure she gets meals and keep her company, $55 is, in my opinion and for our income level, high.

So I hire an independent caregiver, a retired CNA. She’s a great companion and mom really enjoys spending time with her. I started her at 4 hours a day, three days a week, during planning for my brother’s funeral so my sister and I could get some breathing room, and I started documenting her time and emailing it in. Again, I called the claims department several times to make sure everything was filled out correctly and was assured it was and it was under review.

Last week, after a very long summer, the caregiver did her first 9a-5p M-F. It was the first week that I was back in my office full time. It was the first week that I didn’t start my day at mom’s house before running around frantically to get to the office and get back in time to put dinner on. It felt almost normal.

Cue the devil, holding in the guffaws….

Because on FRIDAY, I get a call from long term care saying, they’re sooo sorry, but they can’t pay the claim because the policy says the caregiver has to be from an agency OR has to be an RN level caregiver.

I’m sure the devil is rolling in the floor now.

So what am I supposed to do now? The math ain’t mathin. If I fire the current caregiver, and go with an agency at $36/hr for 8 hours a day, the un-inflation-adjusted day rate will only cover 2 hours of care. If I stick with the current caregiver, I’m out of pocket nearly $3,000 a month with no reimbursement. And this is all based on a policy that was initiated in 1995 with no changes, no reviews, and now, no room for an appeal.

My sister suggested I cancel the policy, but if my mother gets to the point that we need to put her in assisted living, there’s still a shot that the insurance can be helpful [maybe, possibly, probably not, but its all a hedge anyway right?!]

I’m tired of feeling exhausted and defeated.

Photo by Jon Tyson on Unsplash

I don’t have a clear answer to this problem yet, but I know I can’t give up having a caregiver because I have to work. And right now, this is looking like a $36,000 out of pocket expense annually, with no break on the weekends and I’m still covering the evenings. I’ve been emailing my accountant all weekend trying to figure out options.

All this to say, there has to be a better way, right?

I went down the road of buying long term care for myself a few years ago but got cold feet and now that I’m in the thick of it, I’m glad I did. Long-term care is expensive, and a good policy can provide peace of mind and protect your assets but a bad one can leave you with a proverbial hole in your pocket and without options that fit your circumstances and the times.

Here are some of the most important things to consider:

1. Your Financial Situation and Affordability

• Budget and Assets: Assess your income, assets, and overall retirement goals. The premiums for long-term care insurance can be expensive and may increase over time. A common recommendation is that premiums should not exceed 7% of your income. If you have limited income and assets, you may be better off relying on Medicaid if you need care later in life. Conversely, if you have substantial assets you wish to protect from being spent on care, a policy can be a good fit.

• Inflation Protection: This is a critical feature to consider. The cost of long-term care services rises with inflation. A policy without inflation protection will likely be worth much less in the future when you need it. While it increases the premium, it's a vital safeguard to ensure your benefits keep pace with the cost of care. This is the wrong place to penny pinch.

2. Policy Features and Coverage

• Benefit Amount: This is the maximum amount the policy will pay per day or month for long-term care services. Research the cost of care in your area (nursing homes, assisted living, and home care) to determine a realistic daily or monthly benefit amount.

• Benefit Period: This is the duration for which the policy will pay benefits (e.g., 2, 3, or 5 years, or a lifetime). Longer benefit periods will result in higher premiums. Consider your family's health history and your personal risk factors to help you choose an appropriate duration. The women in our family live long lives well into their 90s but we also have family history of dementia, diabetes, stroke, and high blood pressure.

• Elimination Period (Waiting Period): This is the time you must wait after you become eligible for benefits before the insurance company starts paying.Common elimination periods are 30, 90, or 100 days. A longer waiting period can lower your premiums, but you must be able to cover the cost of care during that time.

• Types of Care Covered: A comprehensive policy should cover a variety of care settings, including care in a nursing home, assisted living facility, and your own home. Ensure the policy covers custodial care, which is the most common type of long-term care.

• Benefit Triggers: Understand the conditions that must be met to activate your benefits. Most policies require that you are unable to perform a certain number of Activities of Daily Living (ADLs), such as bathing, dressing, or eating, or have a cognitive impairment like dementia.

3. Your Age and Health

• Age: The younger and healthier you are when you buy a policy, the lower your premiums will be. Premiums can rise significantly with age, and it becomes more difficult to qualify.

• Health: Insurers will review your health status and medical records. Pre-existing conditions, cognitive impairments, and certain chronic illnesses can result in higher premiums or even a denial of coverage.

4. The Insurance Company

• Financial Strength: Because you are buying a policy that you may not use for many years, it's essential to choose a financially stable company. Check ratings from independent agencies like A.M. Best, Moody's, or Standard & Poor's.

• Rate Increase History: Ask the agent about the company's history of rate increases for its long-term care policies. While premiums can be raised, they must be done for an entire class of policyholders, not just an individual.

• Agent and Broker: Work with a reputable agent or financial advisor who can help you compare policies from multiple companies and find the best fit for your situation.

5. Types of Policies

• Traditional Policies: These are standalone policies that exclusively cover long-term care expenses.They are generally less expensive than hybrid policies but are a "use it or lose it" product, meaning if you never use the benefits, you receive no return on your premiums.

• Hybrid or Linked-Benefit Policies: These policies combine long-term care benefits with life insurance or an annuity. If you don't use the long-term care benefits, a death benefit is paid to your beneficiaries. While more expensive, they can be appealing because you are guaranteed to get some value from the policy.

6. Other Considerations

• Guaranteed Renewability: Choose a policy that is "guaranteed renewable," which means the insurance company cannot cancel your policy as long as you pay the premiums on time.

• State Partnership Programs: Check to see if your state has a Long-Term Care Partnership Program. These programs allow you to protect a certain amount of your assets from Medicaid spend-down requirements, even if you exhaust your insurance benefits.

• Riders and Add-Ons: Understand what optional riders are available, such as shared care for couples, or a nonforfeiture benefit, which provides a reduced benefit if you stop paying premiums.

While I’m still trying to figure out my next steps for mom, I’m now also looking into alternatives for my own future planning. I’ll report back on what I find, but if you have seen other ways to finance your care in your elder years, please share so we can all learn together.