Why People Hate Buying Long Term Care Insurance


In 1989 I was promoted to the position of “Trainer” with a huge, A+ rated life insurance company.  In 1990 I was promoted to “Senior Trainer” when my partner accepted a promotion.

For two years I was responsible for the formal sales training of every new agent with this company in the Central United States.  One of the classes that I taught was called, “Overcoming Objections.”

I taught new sales people that all objections to buying insurance could be grouped into 1 of 4 categories.  Their job was to find out which one was of concern to their prospect.

REBELLION

With the “Individual Mandate” in Obamacare, I have to modify that list.  There are now 5 reasons people do not want to buy insurance.  I would add the group of “Rebellion.”  Unless you earn less than 138% of the poverty level or qualify for Medicaid, Obamacare requires you to buy “Essential Health Benefits” by January, 2014.

Some people just do not like being told what to do.  Obamacare is the first time that the federal government has tried to mandate that people buy private insurance.  The Supreme Court ruled that congress does not have the authority to tell Americans how they must spend their money.  However, congress does have the ability to levy taxes if Americans do not buy what congress wants them to buy.

It will not be a huge surprise to me if millions of other-wise, law-abiding, Americans elect to pay the additional taxes rather than buy a government approved health insurance plan.

The “Individual Mandate” in Obamacare does not go into effect until January, 2014.  Even when it does, the “Individual Mandate” only applies to the “Essential Benefit” Major Medical policy.  It does not apply to any other type of insurance.

The “Essential Benefit” plan, as outlined in Obamacare, does not pay for Long Term Care expenses.  Those expenses were addressed in Title VIII (C.L.A.S.S.).  In October of 2011, Secretary of Health and Human Services gave up on trying to find a way to make the plan workable.   In October of 2011, President Obama suspended all work on C.L.A.S.S.

Partnership Plans allow people to shelter some, or all, of their assets from Medicaid’s Asset Test and Estate Recovery by purchasing a qualifying Long Term Care Insurance (LTCI) policy.  The purpose behind the law was to encourage Americans to purchase Long Term Care insurance to pay for their future expenses rather than rely on the Medicaid system.

An individual is able to shelter their assets on a dollar-for-dollar basis with a qualifying Long Term Care insurance policy.  When, and if, they need Long Term Care, the insurance company would pay the bills first.  After the insurance is exhausted, if the individual still needed Long Term Care, Medicaid would not require the insured to liquidate his assets to pay those bills.  Provided they could qualify for Medicaid based on their income, Medicaid would pay any future Long Term Care bills.

Another benefit that Partnership Plans added was Medicaid’s “Estate Recovery” regulations.  For those who do not have a Partnership Plan, if Medicaid pays anything for Long Term Care, they are allowed to place a lien on the home.  The spouse is allowed to live in that house, however, when the spouse dies, Medicaid has a right to be reimbursed for all the money it spent on Long Term Care expenses from the equity in the house during probate.

Partnership Plans can minimize, or eliminate, the “Estate Recovery.”  They can be a valuable estate planning tool for people who want to leave all their real estate assets as an inheritance.

Unfortunately, for whatever reason, Partnership Plans have not had as much impact in the American people as had been hoped.  Unlike Obamacare, it does not require Americans to purchase private insurance.  Since it is voluntary, less than 10% of the population have purchased private Long Term Care insurance.  In this post, I want to share the reasons why people don’t buy insurance

NO NEED

One reason people do not buy insurance is that they see no need for it.  I can understand that philosophy.  LTCI is not right for everyone.  People with less than $30,000 in assets are close enough to qualifying for Medicaid that they really do not need LTCI.  Those with over $350,000 ($700,000 for couples) are able to pay their own Long Term Care bills.  Unless they are looking for a way to shelter their money for estate planning purposes, LTCI is a “luxury.”  It is nice but not a necessity.

LTCI is only needed by those people with between $30,000 and $350,000 ($700,00 for couples) or people whose money is tied up in real estate or some other non-liquid investment that might have to be sold at a loss in order to pay Long Term Care expenses.

NO MONEY

LTCI has the reputation for being very expensive.  That is a bit misleading.  It is true that the premiums for people who wait to buy LTCI can be astronomical.

A few months ago I calculated the premiums for a policy that would provide enough money for a private room in a private pay skilled nursing facility.  That client wanted me to add-on all the optional riders that were available.  The final premium was over $600 a month.

Around the same time I calculated the premiums for someone who was 14 years younger.  He was willing to play the odds.   He knew that only 15% of people who need Long Term Care end up in a nursing home.  Most people get their Long Term Care at home.   All he wanted was a plan that would provide enough money to hire a Home Care aide if that was required.  The premium for that was only $51.

Premiums for LTCI can be very expensive.  They can also be no more than what you are paying for Life insurance.  It all depends on 2 variables.

NO HURRY

We Baby Boomers are loath to admit that something bad could happen to us.  We have enjoyed the healthiest lifestyle in human history.  As a group, we are convinced that our health will never degrade.

Medical science has learned how to lengthen our life-span.  However, in exchange for a longer life, we are experiencing the same break-down of the human body that our parents experienced.

Time marches on.  It does not care who you are or how important you think you are.  Since I live in the Houston, TX area, I get to catch glimpses of President George H.W. Bush, the father.  I remember that when he was President Reagan’s vice-president and later President, he was a vibrant, healthy man.  Today he walks with a cane.  When someone says, “he looks healthy” they qualify their statement with, “for a man of his age.”

A few years ago Barbara required cardiac care.  I was used to seeing both of them at Houston Astros games.  All of a sudden, I only saw him coming to the games, by himself.  Barbara was laid up for several weeks and required Long Term Care.

Not all of us get the perks and benefits that come with being an ex-president.  Those of us who do not will need to find another way to pay for Long Term Care.  It is anticipated that 7 out of 10 Baby Boomers will need Long Term Care at some time after reaching age 65.

Those who already have a LTCI in place can concentrate on adapting to their limitations.  Those who do not, will not only have to adapt to their limitations.  They will also have to either spend their retirement savings on Long Term Care, rely on friends and family or “spend down” until they qualify for Medicaid.

NO CONFIDENCE

In recent years we have been told how unreliable and “evil” insurance companies are.  Most of those comments have been made by political activists who were promoting their pro-government opinions.  There is very little reason for concern for a few reasons.

LTCI policies are written contracts.  Your policy will tell you exactly what is covered and what is not.  In most cases, if there is confusion over payment of benefits, it is because you failed to understand your policy.

Insurance companies are regulated by state governments.  Insurance companies must get their LTCI contracts approved by each state before they are allowed to use them with the public.  If you say you have no confidence in an insurance company, you are also saying that you have no confidence in your state’s government.

Most states have Guarantee Associations or similar arrangements.  These programs are specifically for those people who are concerned about the strength of their insurance company.  They require all the insurance companies that operate in your state to come to the rescue of policy holders of an insurance company that has problems.  It does not mean that people who elect to use an insurance company that runs out of money will not experience a hassle.  It just means that their claims, up to your state’s guarantee association’s limits, will eventually get paid.

SUMMARY

I am willing to stipulate that LTCI is not for everybody.  However, when I know that the average American retires with less than $70,000 and will spend over $240,000 on health care during retirement, I know that more than 10% of Americans should have LTCI.

In this post I discussed the 4 most common objections to buying LTCI.  I encourage you to ask yourself if these excuses are legitimate for you.  If they are, you need do nothing.  If you decide that they are not, call an insurance agent whom you trust and tell him that you want to get a Long Term Care insurance plan before your next birthday.

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