Interesting article on improving LTC policies

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IowaFarmBoy
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Interesting article on improving LTC policies

Post by IowaFarmBoy »

There is an interesting article by Michael Kitces about changing the design of LTC policies from their common configuration as essentially pre-paid plans to policies that are truly insurance against the long tail problem. I'm sure this would be a challenge for the actuaries but it would be really nice to see someone offering a policy like this article recommends.

When we bought our LTC policy about 10 years ago in our late 40's, most carriers were already promoting the kind of policy mentioned in the article- 90 day elimination, 3 years of $150/day benefit with 5% annual increase in benefits for a premium of about $300-350/mth per person. This would have seriously impacted our ability to do general retirement savings and there was a good chance that at least one of us wouldn't have used the three years. We settled on a joint policy that provide a total of 8 years of coverage between us with a 1 year elimination with the same $150 day benefit with the 5% increase for about $150/mth. I would have preferred a policy like this article mentions (2-3 year elimination with a lifetime benefit) but no one was offering them so this was as close as we could get.

https://www.kitces.com/blog/can-increas ... ing-again/
Yet when it comes to long-term care needs in today’s environment, what was perhaps once a higher-cost lower-probability event has now turned into a very high-probability event with an increasingly large volume of “lower-cost” claims. As a result, long-term care insurance has begun to morph from effective insurance, into something that looks more like just prepaying long-term care expenses in advance at a high premium rate and with little insurance leverage.

As a result, perhaps it’s time to reform long-term care insurance policies so they once again focus on covering (only) high-impact low-probability events. For instance, what if elimination periods for long-term care insurance were increased to allow for a 2 or 3 year deductible, instead of today’s common 3-month period, and individuals could then take the significant premium savings and use it to cover their care during that time period? Could such an increase in deductibles reduce the cost of long-term care insurance coverage enough to make it affordable once again to most of the general public?
dhodson
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Re: Interesting article on improving LTC policies

Post by dhodson »

while id personally be interested in such a policy, im not seeing it happen at least any time in my lifetime.

As you mentioned, it might be tough for the actuaries to get it right (and so far they have done a pretty lousy job with LTCi).

But even if they could get it right, im not sure there is enough of a market for it. As was mentioned, many claims/costs are for shorter periods of time and thus i dont see as many people jumping on board (even though i might). I think the insurance companies arent willing to make this bet and i dont think i can blame them.
skepticalobserver
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Re: Interesting article on improving LTC policies

Post by skepticalobserver »

I looked at LTC policies with 365 day elimination periods. The premiums were not that much better than the policies I looked at with 90 day provisions. It is important to carefully determine what type of elimination period the policy provides: Calendar Day or Service Day? The first is superior in that the elimination period starts from the first day you're eligible for coverage, whereas the Service Day period commences on and only counts those days you receive care. Unless paid care is more or less continuous a 365 Service Day elimination period could turn into a lot more than 365 days. https://www.comparelongtermcare.org/cal ... rvice-days
Independent
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Re: Interesting article on improving LTC policies

Post by Independent »

I agree that I'd love to buy a policy with a long elimination period and a long benefit period. When I was 16 my father told me to buy insurance for catastrophes, not for inconveniences. That's still my attitude. I can handle the more predictable stuff, I need insurance for the unpredictable.

The problem is that insurers don't want stuff that's unpredictable for them. They can handle life insurance because the total number of deaths in a large group is pretty predictable (and probably falling). But, the total cost of LTC in a large group is not so predictable. Will we find a cure for Alzheimer's? Will it turn out that Alzheimer's is partially caused by some environmental chemical that we've all been ingesting for the last 40 years, and the case count is going to skyrocket? Will we get better at keeping people alive, but not get better at keeping them healthy? Will people with Assisted Living coverage discover that moving to an AL facility as soon as they need a little help is really very pleasant?

I've been on the insurer side of this and seen CEO's who just can't stomach the long term uncertainties of long benefit periods. Can you really blame them? IF they offer longer periods, they intentionally price them so high that they are there only to give agents something to "sell away from".

(as a side note, some states have regulatory maximums on elimination periods. IIRC, 180 days in some cases, 365 days in others)
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grabiner
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Re: Interesting article on improving LTC policies

Post by grabiner »

Independent wrote:I agree that I'd love to buy a policy with a long elimination period and a long benefit period. When I was 16 my father told me to buy insurance for catastrophes, not for inconveniences. That's still my attitude. I can handle the more predictable stuff, I need insurance for the unpredictable.

The problem is that insurers don't want stuff that's unpredictable for them. They can handle life insurance because the total number of deaths in a large group is pretty predictable (and probably falling). But, the total cost of LTC in a large group is not so predictable.
There is also not enough demand to spread the risk. How many people would actually buy LTC insurance with a three-year elimination period and lifetime benefit?

This is the same reason that high-deductible health plans are not popular, and were even less popular before the IRS subsidy. I would have bought a high-deductible plan even without the rules allowing me to invest in an HSA for tax savings, but few other people would; they expect to pay $10 or $20 for a routine doctor's visit, not the $100 that is actually charged. But what I want from insurance is a plan that will ensure that I can afford care if I get cancer or get hit by a truck.
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