Over the weekend I read a Forbes article, “Dodge the Long-Term Care Insurance Mess.” Like so much recent advice from politicians and other “experts” I found the advice in the article very one-sided and showing an ignorance of insurance.
The author assumes that all people have enough money to purchase an annuity when they retire. When the average American retires with less than $70,000 in savings, I know that the advice to buy an annuity is bad.
For those Americans who have been fortunate enough to accumulate several hundreds of thousands of dollars, buying an annuity to maximize Long-Term Care bills may make limited sense.
(However, be advised that there are no annuities with Long-Term Care benefits that are Partnership qualified. That means that if you elect to use this strategy, your assets will not be sheltered from your state’s Medicaid laws if you need care at home for several years and run out of money in your annuity.)
The author of this article about insurance, William Baldwin, is obviously not an “expert” on the insurance products he is willing to denounce in a highly respected financial publication like Forbes. His article shows a lack of understanding of how modern Long-Term Care insurance should be used.
In the Deficit Reduction Act of 2005, then President George Bush, authorized states to develop Partnership plans. These plans allow those with sizable assets to shelter those assets from Medicaid’s “Asset Test” and “Estate Recovery” rights.
For every dollar of Long-Term Care that is paid for with money from a Partnership qualified Long-Term Care insurance policy, a dollar is sheltered from Medicaid.
If a person still needs Long-Term Care after the funds in a Partnership Plan are exhausted, they only have to pass Medicaid’s income test. Medicaid’s right to require them to liquidate their savings cannot be enforced.
Also, Medicaid’s right to be reimbursed from your estate when after both you and your spouse have died will be waived.
The bottom line is that with a Partnership Long Term Care insurance plan, you can preserve your estate for your children and grand-children if that is your desire.
If you use the strategy that Mr. Baldwin recommends and your Long-Term Care expenses exceed the value of your annuity you lose in 2 ways.
- The money that is used to pay for Long-Term Care comes from your principle or interest. In other words, it is your money and not the insurance company’s money
- Since annuities cannot be Partnership Qualified, if you do not deposit enough money in the annuity to pay for all your Long-Term Care expenses, you will be subject to all of Medicaid’s qualification rules unless you die before all your annuity is used up.
1. The LTC policy covers only LTC.
Mr. Baldwin shows his ignorance of the current generation of LTC. He assumes that they cover only nursing homes. They do cover nursing home expenses but they do much more. LTC also pays for Assisted Living apartments and Home Care Aides.
In his article Mr. Baldwin makes one very good point without realizing it. He says, ” Maybe what you’ll need is cash to cover your rent and your food. With the annuity, it’s none of the insurer’s business how you spend the money.”
Many, but not all, LTC policies have noticed that weakness in older plans. Today, several of the LTCI policies offer a CASH benefit. If you have a LTC claim, they will pay you a lump sum of CASH that you can use in any way you see fit. If you need to use that money for rent or food, you may.
Recently, I read a complaint from an individual who failed to modify his LTC insurance. His older plan did not have a CASH benefit and he was bewildered when his plan denied his request to pay for the travel expenses of his children to take care of him. With the CASH benefit, he would have the money to reimburse his kids.
2. The LTC policy permits the seller to change the terms after you have put money in
Mr. Baldwin shows his lack of understanding about insurance policies with this comment. All insurance policies are contracts. That means that neither party is able to change the terms of the policy without permission from the other party.
If Mr. Baldwin had taken the time to read a LTC policy, he would have noticed that there is a clause within the contract that allows the insurance company to periodically adjust the premiums that are charged.
LTC policies are “Guaranteed Renewable” contracts. That means that the insurance company cannot cancel a policy except for “fraud” or failing to pay premiums.
Just like other health insurance plans, when providers costs increase, the insurance companies will pass that increase down to policy holders.
3. To collect on an LTC policy, your family may have to put up a fight.
Mr. Baldwin implies that after you have paid premiums for several years, you, or your family, will still have problems making a claim.
Once again, Mr. Baldwin demonstrates his lack of knowledge about LTC.
Problems with claims are not as common as Mr. Baldwin implies. Most insurance companies offer to pay for a Care Coordinator so that claim problems will be handled by a 3rd party. The amount of additional stress for the insured and his family should be minimal.
When there is a “fight” it is normally because an insured is asking for something to be covered that he did not pay for. The way to prevent this from happening is very simple.
When you get your policy, take the time to read the actual contract. Insurance agents tend to point out only the positive aspects of a plan so that you will buy. When you get the plan review not only the positive benefits but negative parts as well.
If you buy a plan that only pays for nursing home expenses, do not “get your panties in a wad” if they decline your claim to hire a Home Health Aide. Insurance companies will only pay benefits for risks that you paid premium for.
If your plan is from prior to 2005, my recommendation is that you blow the dust off and review it. It is likely that it is “dated” now and needs to be supplemented.
I do not believe in generalizing. My philosophy of insurance is that there is no one plan that is satisfactory for every person.
I agree with Mr. Baldwin that an annuity may be a solution for LTC for some people. If you are single and have hundreds of thousands of dollars, that strategy may very well be acceptable.
However, I find it, at best, unprofessional to publish something designed to scare middle class Americans. We already have politicians doing that. We do not need financial “experts” implying that preparation for LTC expenses when readers are older is something that is only required for people with hundreds of thousands of dollars.
The fact is that the purpose of insurance is to allow middle-class Americans to have the same level of security that the wealthiest Americans enjoy.