Planning for the Future - An Exploration of Long Term Care Insurance

[cahwyguy]

Our daughter frequently reminds us of one significant fact we should never, never, forget. When we get old and cannot take care of ourselves, it is she who will pick the home we will go into. The odds that we will need long term care are good. Forbes did a report on the costs and incidents regarding long term care, and noted that a 2005 report that provided forward-looking estimates for long-term care needs for the cohort of individuals turning 65 in 2005 estimated that 58% of men and 79% of women aged 65 and older would need long-term care at some point, and that average lengths for care were 2.2 years for men and 3.7 years for women. They also estimated that 38% of men and 63% of women will require care for one year or longer, while 11% of men and 28% of women will need care for at least 5 years.

In my family, we’re currently dealing with long term care issues. Luckily I didn’t have to deal with it for my father, who died of injuries sustained in a car accident after being hospitialized for a month, or my wife’s dad, who died on the way to the hospital after complaining he wasn’t feeling well. However, my wife’s mom is in a long term care situation, dealing with deteriorating memory and capabilities. She’s lucky that she had long term care insurance.

I understand the concept of insurance well. I’m a cybersecurity guy, and dealing with and assessing risk is my game. Insurance is just a form of dealing with risk: you transfer the cost of the risk from you to the insurance company, who accepts the risk… for a price. In that price, and the conditions, are the game.  Insurance is a bet with the insurance company. If you get really sick, you win, because they pay you out more than you paid in (and thus, you get money from other people). If you are healthy, you lose. Same thing with life insurance: if you die, you win (so to speak, because your family gets money). Art Buchwald has a great piece about this issue, and how the insurance company felt when he finally won and wanted to collect his money. You should read it.

I had dragged my feet on getting Long Term Care insurance. It is expensive, and that can slow me down. But I arranged for one of my insurance agents to speak to our Temple men’s group on the subject a few months ago. He pointed out a significant fact: When insurance companies went into the long term care market place, they misjudged it and had policies that were too generous — but were stuck because they can’t cancel a policy if the premiums are paid. So over the years they have been understanding the risk better, pricing the policies more in line with the risk, and adjusting the policies to reduce their exposure. For us consumes that means: if you wait to buy your policy, you will likely be buying a weaker policy. This got me off my duff, and I began our investigation.

This blog post summarizes what I have found. I’ll present my findings, and my conclusions. I want you to shoot holes in it — find things I didn’t think of or that I missed. By that way, I’ll get a better product, and you might even learn something that helps you. I’ll note that I didn’t just blindly take what my agent, Robert, sent me. My training in DOD acquisitions led me to try to get additional bids. I posted a call for recommendations on Facebook, which lead me to the fact that both the UCLA and CSUN Alumni association work with a company called Mercer for a long term care benefit for their members. Mercer, it turns out, is just a broker. I was on the verge of investigating that when a former camp counselor of mine, who does employee insurance plans, connected me with his insurance agent, Stan. Stan reps a different company from Robert, and got me an additional bid. Lastly, in reponse to my FB post, another fellow — Scott — chimed in. Scott is a co-owner at LTCShop.Com, a broker in Washington, who helped me look at the proposals I got and provided some additional information.  It is also very useful to read the AHIP Guide to Long Term Care. The National Association of Insurance Commissioners has also published A Shopper’s Guide to Long Term Care Insurance, which is also well worth reading for background.

My investigation focused on products from two primary companies: Mass Mutual (MM) and Mutual of Omaha (MO). The number of insurers providing long-term care is steadily shrinking, and these were the two companies that got the highest ratings when I did a web search. There are other companies out there, however. If you think yours is better, let me know. However, giving the shrinking pool of providers, you want a company that will remain in the business, and that will have the needed stability. This gives our first comparison. In terms of ratings, Mass Mutual looks stronger:

Rating Agency	Mass Mutual	Mutual of Omaha
A. M. Best Company (Best’s Rating, 15 ratings)	A++ (1)	A+ (2)
Standard and Poor’s (Financial Strength, 20 ratings)	AA+ (2)	AA- (4)
Moody’s (Financial Strength, 21 ratings)	Aa2 (3)	A1 (5)
Fitch Ratings (Financial Strength, 21 ratings)	AA+ (2)
Weiss (Safety Rating, 16 ratings)	A- (3)	B+ (4)
Comdex Ranking (Percentile in Rated Companies)	98	93

In my comparison, I attempted to compare apples to apples. I’m 57 (turn 58 in January); my wife is 60 (she turned in July). We looked at policys with comparable benefit amounts ($328,500 for MM; $325,000 for MO), with comparable benefit periods (6 years) and  comparable elimination periods (90 days) for reimbursement. Both were quoted with an inflation protection benefit (3% compound inflation protection), and waiver of premium for covered partner (meaning thus: when you are collecting, you don’t need to pay premiums, and the waiver means that you don’t have to pay premiums for your spouse as well).  Both covered home care as well.  So, for the applies to applies comparison, the “quoted” premium for both my wife and I was, after discounts, $6,272.19 for the first year from MM, and $6,604.71 for the first year from MO. Normally, I think you pay for a 5 year period, but premiums can be adjusted during that time. I don’t think either carrier has increased premiums in California, but MO has in other states.

I put “quoted” in quotes because of an interesting tidbit about that quote I discovered when I passed them by Scott. Both were quoted at “Preferred” rates — so you would they are the same. They aren’t.  Each company has different underwriting classes.  Mutual of Omaha has four: (1) Preferred (15% less premium than ‘Select’); (2) Select (which is what most people get); (3) Class 1 (25% more than ‘Select’); (4) Class 2 (50% more than ‘Select’). This means that Preferred is the best, least expensive rate. Mass Mutual has three rate classes: (1) Ultra Preferred (10% less than ‘Select Preferred’); (2) Select Preferred (which is what most people get); (3) Preferred (25% more than ‘Select Preferred’). For MM, Preferred is the most expensive rate. You’ll get whatever rate class the underwriter chooses based upon your medical records regardless of what the agent quotes you.  This means that the quote from MM was the worst case, and the quotes from MO was the best case. Given that the MM amount was better than the MO amount, that makes MM look even better.

What about policy characteristics? I asked both my agents about what was unique about their policies. Most policies are very very similar, but there are a few distinguishing things.

Stan pointed out that, for MO, a Shared Care rider is available, and there is a buy up option for their inflation protection. The shared care rider allows you to draw from your spouse’s maximum care benefit when yours is exhausted, and if your spouse dies, their unused benefit is added to yours (and vice-versa). The buy-up option automatically increases the monthly benefit a set amount for inflation (but it looks like MM has something similar).

Robert pointed out that, for MM, they have unisex rates where women are not rated differently from men. He also pointed out that the MM policy has a home care monthly benefit rider, which changes the benefit from a daily amount to a 31-day monthly amount (every month is considered to have 31 days under this rider).  This gives you greater flexibility in arranging and paying for care.  The second is the joint spouse waiver of premium, which says that if either spouse is receiving benefits the premiums for both spouses are waived (although it looks like MO has that as well).

Stan also provided me with a comparison table of the two policies. Here are some of the relevant details:

Comparison Parameter	MM Signature Care 500 MM-500-P	MO MutualCare Custom Solution LTC13
Plan Description	Tax Qualified Reimbursement Indemnity with Rider	Tax Qualified Reimbursement with Cash Benefit Option
Daily/Monthly Maximums	Daily Benefit of $50 – $400	Monthly Benefit of $1,500 – $10,000 in $50 increments.
Inflation Protection	5% and 3% Compound available	Inflation percentage: 1%-5% compound in 0.25% increments. Duration: 10, 15, 20, or Lifetime. Inflation protection option: Inflation applied to policy benefits (not to exceed 5%) on or before each anniversary date. Increase is effective on the policy anniversary following the election, with benefit increases occurring the following anniversary. Only available prior to the lesser of 20 years or age 75.
Nursing Facility	Up to 100% of daily maximum	Up to 100% of monthly maximum
Home and Community Care	Up to 100% of daily maximum	Up to 50%, 75% or 100% of monthly maximum
Assisted Living Facility	Up to 100% of daily maximum	Up to 50%, 75% or 100% of monthly maximum
Shared Option Available	Yes. Available with optional rider. Rider offers a third pool of money equal to the maximum benefit amount. If a covered partner dies, the shared total benefit amount will remain available. Shared pool not available with lifetime benefit. Dual waiver of premium is available under a separate rider. Upon death of one spouse, the survivor must continue to pay the rider to retain the benefit.	Yes. Available with optional rider. Shared Rider allows partner to access partners lifetime maximum if benefits are depleted. Coverage must be identical and applied for at the same time in order to purchase rider. There is a residual benefit until a minimum of 12 times the current maximum benefit remains. Not available with Security Benefit, Return of Premium at Death, Return of Premium at Death – Three Times Initial Maximum Monthly Benefit, and Partner Premium Allowance.
Hospice Care	Up to 100% of the daily maximum	Up to 100% of the monthly maximum, no elimination period applies.
Home Assistance Benefit	Equipment may be considered under the Alternate Plan of Care; Caregiver training is covered up to 5x the daily maximum (lifetime maximum)	Equipment, Home Modification, Medical Alert System and Caregiver Training are payable under the Stay at Home Benefit which pays 2x maximum monthly benefit.
Unlicensed/Uncertified Providers	No. All caregivers must be certified or licensed.	Payable under Cash Benefit provision
Homemaker Services Incidental?	No, Homemaker services do not have to be received in conjunction with personal care services.	No, Homemaker services do not have to be received in conjunction with personal care services.
Care Coordination	Unlimited care coordination services; does not reduce lifetime benefit amount.	Optional. Not required; however, some policy benefits are only available when care coordinator is used.
Waiver of Premium	Begins with receiving benefits after satisfying EP	Begins when benefits begin. For HC, must receive care at least 8 days per month in any continuous 30 day period.
Respite care	Up to 30 days per year.	Up to one month per calendar year.
Bed Reservation	Up to 60 days per year, for any reason.	Up to 30 days per year, for any reason.
Cash Benefit Options	Optional Indemnity Benefit Rider	40% of home health care benefit up to initial maximum of $2,400 per month.
Other Features and Options	Indemnity Rider: Pays daily maximum regardless of expenses incurred. HCSB Waiver of Elimination Rider: Permits days used for HCSB to apply towards elimination period for other benefits under the policy. HCSB Monthly Benefit Rider: Changes HCSB from daily to monthly Enhanced Elimination Rider: 1 day of service per week = 7 days Share Care Rider: Limited to 2 year and 3 year benefit only. Covered Partner Waiver of Premium rider Survivorship Rider: 10 years; claims restriction. Restoration of Benefit rider. Nonforfeiture rider.	Waiver of Elimination Period for Home Health Care Nonforfeiture – Shortened Benefit period Return of Premium – Three Times Initial Maximum Monthly Benefit Return of Premium (less claims paid) Return of Premium – If death occurs before age 65 Joint waiver of premium Survivorship Benefit Shared Care Rider.

Based on all the above: strength, premium, and policy features, I’m inclined to go with the MM policy. The costs still causes hesitation: that’s about 1.3x of a single property tax payment. Ouch! But I guess the cost will be a lot more if we need the care, and the likelihood of that is good, given society today.

This entry was originally posted on Observations Along the Road as Planning for the Future - An Exploration of Long Term Care Insurance by cahwyguy. Although you can comment on DW, please make comments on original post at the Wordpress blog using the link to the left. You can sign in with your LJ, DW, FB, or a myriad of other accounts. Note: Subsequent changes made to the post on the blog are not propagated by the SNAP Crossposter; please visit the original post to see the latest version. P.S.: If you see share buttons above, note that they do not work outside of the Wordpress blog.