How much is needed to self-insure LTC?

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How much is needed to self-insure LTC?

Post by baw703916 » Sun Dec 18, 2011 2:47 am

If I'm unable to buy LTCi, how much money do I need to accumulate to be sure I don't end up on Medicaid?
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Re: How much is needed to self-insure LTC?

Post by Valuethinker » Sun Dec 18, 2011 2:51 am

I cannot answer you directly. I can only make 2 observations:

- healthy male, policy to age 61, 120 day deductible, cost is about 3.2% of benefit (inflation indexed) in the UK

- you might approximate it by the cost of buying an annuity to the required benefit level, from your age of disability

Sorry this is not much help, but to try to give you ways to think about it.

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Re: How much is needed to self-insure LTC?

Post by sport » Sun Dec 18, 2011 3:13 am

The question should not be how much money do I need to accumlate, but it should be how much income do I need to provide? For example, if a retiree has a nice pension that pays 3K per month, plus social security that pays 2K a month, then the retiree has 5K monthly that can go a long way towards paying for LTC. On the other hand, if the retiree has no pension, and minimal SS, then they need to provide a lot more from investments to pay for LTC.

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Re: How much is needed to self-insure LTC?

Post by GregLee » Sun Dec 18, 2011 10:35 am

jsl11 wrote:The question should not be how much money do I need to accumlate, but it should be how much income do I need to provide? For example, if a retiree has a nice pension that pays 3K per month, plus social security that pays 2K a month, then the retiree has 5K monthly that can go a long way towards paying for LTC.

That's just how I figure it, too, on the income side. By coincidence, my wife and I both get about 3K/month pension and 2K/month SS. Now, for costs, I'm thinking roughly 8K/month for nursing and living expenses for the spouse that's disabled and 4K/month for the one (if any) that stays alive and healthy. Since our non-SS pensions have full survivorship payments to spouse, if one of us dies, the other disabled one will have 3+2+3=8K/month income, which should be about enough for nursing expenses. If we both survive, but one needs a nursing home, that's 12K/month, so we'd need to fund 2K/month from our investments -- if the stock market behaves itself, we can do that. If we both survive and both are disabled, we need to find 16K/month, which for us is out of reach, at least if we both live long disabled lives. And though our pensions are COLA'd, that won't necessarily keep up with medical inflation.
Greg, retired 8/10.

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Re: How much is needed to self-insure LTC?

Post by cliff » Sun Dec 18, 2011 10:48 am

For what its worth a few years back I heard a recommendation that if your assets are under 300k it does not make sense to buy LTC. Likewise if over $2 million.

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Re: How much is needed to self-insure LTC?

Post by bearwolf » Sun Dec 18, 2011 10:57 am

baw703916 wrote:If I'm unable to buy LTCi, how much money do I need to accumulate to be sure I don't end up on Medicaid?

I heard a call on Clark Howard the other day where a man age 65 purchased LTCi and was concerned 10 years later that the premium had increased to a point he couldn't afford them. Apparently there is not an upper limit on the amount of increases in premium that can be made. That would be my fear that I purchase the policy and pay for it for 10 or 15 years and then get priced out by premium increases. I would have been better off to invest the premiums rather than pay for so long and then loose the insurance because of the increase in premiums.

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Re: How much is needed to self-insure LTC?

Post by yobria » Sun Dec 18, 2011 11:05 am

Why would you want to avoid Medicaid? Doesn't seem like a rational goal in and of itself.

Nick

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Re: How much is needed to self-insure LTC?

Post by nisiprius » Sun Dec 18, 2011 11:06 am

The killer is that long-term-care costs have been increasing at the rate of something like 6% per year.

Every time I try this back-of-the-envelope, the answer I come up with is a) a million per person, b) at least a million--more would be better, c) a spare million, d) a million now, today, year-2011 dollars, e) a million in conservative investments because you don't know when you'll need it, f) and you need to increase that amount--add to it every year--to make up for the difference between the low returns of conservative investments and the high rate of increase of nursing home costs.

Step one is to find what nursing home costs in your state. One has to be aware that the easily-available information does seem to come from insurance companies, but... if we pick Pennsylvania, for no particular reason--home of Vanguard--Genworth's interactive chart says about $90,000 a year.

Now, you have the problem that comes into play with any kind of insurance: the insurance company gets to budget for the average case, but an individual self-insuring has to budget for the worst plausible case. I don't know what the shape of the distribution is, but it's obviously one of those nasty ones with a not-too-bad average but a long, fat tail. Many people have what might be euphemistically be called a short stay, but people can and do stay in nursing home for ten years and more.

Saying that it is a spare million is important. It has to be there when you need it, it can't have serve some dual purpose that would be compromised if it were spent. Which is frustrating because that means most of the time it will never be used.

In previous discussions in this forum, I've gotten the impression that people will say "I'll self-insure" as a brush-aside way of saying "I just don't want to deal with it seriously." I don't know that I've ever seen any really serious hard-headed planning for self-insured long-term care. It's more complicated if you're a member of a couple. If you are single you might reason that when you go into a nursing home, your food and shelter are taken care of, so you can sell your house to pay for some of it. But you can't do that too quickly, because people sometimes do come out of nursing homes and need a place to live.

I don't see how "self-insuring" long-term-care becomes viable until you're in a situation where you can spare a million or two at any time without excessive financial disruption; i.e. a total portfolio site approaching or exceeding eight figures.
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Re: How much is needed to self-insure LTC?

Post by nisiprius » Sun Dec 18, 2011 11:12 am

bearwolf wrote:I heard a call on Clark Howard the other day where a man age 65 purchased LTCi and was concerned 10 years later that the premium had increased to a point he couldn't afford them. Apparently there is not an upper limit on the amount of increases in premium that can be made. That would be my fear that I purchase the policy and pay for it for 10 or 15 years and then get priced out by premium increases.
That is a legitimate fear. Indeed, it is said that the reason why LTCi is in trouble is that the insurance companies were counting on people dropping out and that not enough have done so. That fear is why I personally opted for a ten-annual-payment plan, and started it soon enough that the last payment will be made this year. (I will admit that I am too nervous to comb through the fine print to see whether there's any loophole that would allow the insurance company to ask me for more later after the last payment is made).
bearwolf wrote: I would have been better off to invest the premiums rather than pay for so long and then loose the insurance because of the increase in premiums.
Well, all I can say is, I know of no way other than winning lottery tickets that I could have invested the money I've paid in long-term-care premiums over the last ten years and have accumulated $1 million today.

I do not like insurance companies, but I feel that I need some of the things that only an insurance company can provide.
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Re: How much is needed to self-insure LTC?

Post by dbr » Sun Dec 18, 2011 11:28 am

I don't believe the cost I pay for LTCI is dangerous enough to my retirement prospects to justify avoiding it. That would apply even if the premium were substantially increased.

I follow what some might call an irrational practice of insuring at least much as I feel I can afford to insure even if it can be argued the insurance is not cost effective. I also choose to delay SS based on annuity insurance benefit even though it might be argued the bargain is not there on an expected payback computation. Alternatively, I do not invest liquid assets particularly conservatively. I have less than age in bonds.

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Re: How much is needed to self-insure LTC?

Post by dhodson » Sun Dec 18, 2011 11:37 am

most plans purchased today have limits so if you are unlucky enough to develop a condition which requires ltc beyond a few years then you easily could be in the same situation. i also dont agree that others havent put forth ideas on how they plan to pay or deal for ltc without ltci. they havent just brushed it away like you say bc they dont want to think about it. many have thought about it a lot and decided that ltci isnt for them. you may not like their plans and these plans all have potential pitfalls including ones that involve ltci. you seem satisfied with your purchase and i have no desire to rain on your parade. i also agree that if I were to purchase ltci, then i would look at a limited pay policy since i can afford although many can not. i think the rate increases are inevitable and i personally believe limited pay will wind up being cheaper but thats just a guess. currently they are more expensive for the benefit if you dont factor in rate increases.

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Re: How much is needed to self-insure LTC?

Post by yobria » Sun Dec 18, 2011 11:42 am

nisiprius wrote:I don't see how "self-insuring" long-term-care becomes viable until you're in a situation where you can spare a million or two at any time without excessive financial disruption; i.e. a total portfolio site approaching or exceeding eight figures.


My plan calls for self insuring with six, not eight figures. This is possible since I know the chance of needing LTC for more that five years is quite small, 5% after age 65 according to the New York Times, and I'm sure much less for men. How much will that cost? I'd be wary of using your source: Genworth, the company selling the insurance. But using their most expensive option, a private room in a facility with 24 hour nursing care is $213/day, or $388K for five years. They don't mention less expensive options (eg care in other countries), of course. Will that amount rise over time? Sure, but so will my savings. And there's no way medical costs can outpace economic growth as a whole forever, as they would eventually approach 100% of GDP.

Genworth, incidientally, came within a hair of insolvency two years ago. And of course they may raise rates to the point where you have to drop the insurance. That's the problem with LTCI - you're paying to eliminate certain risks, while incuring certain others. And of course much of your premium goes to commissions and other company expenses.

Nick

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Re: How much is needed to self-insure LTC?

Post by yobria » Sun Dec 18, 2011 11:46 am

cliff wrote:For what its worth a few years back I heard a recommendation that if your assets are under 300k it does not make sense to buy LTC. Likewise if over $2 million.


This never made an sense to me. The more money you have, the more days you can self insure. Not sure why a guy with $300K could just spend down his savings, but a guy with, say $500K would need LTCI insurance. It would depend on many other factors (family health history, bequest motive, etc).

Nick

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Re: How much is needed to self-insure LTC?

Post by jeffyscott » Sun Dec 18, 2011 11:57 am

yobria wrote:Why would you want to avoid Medicaid? Doesn't seem like a rational goal in and of itself.

Nick


I think what you want to avoid is losing the ability to choose where you are when medicaid takes over. To do this you do not, as I understand it, need to have enough to pay for a nursing home (or assisted living in states where medicaid is allowed to help with those costs) for the rest of your life. What you need is enough to pay for a few years.

In looking into options for my 86 year old mother with parkinson's and little in assets, the impression I had gotten was most places were happy if you would be private pay for a period of time, even if it would be just a couple years. So,while my mom is currently living with my sister and paying for a caregiver to help, one of the financial goals that I had suggested for her was that she try to maintain at least around $100K in assets to allow some choice, should she need to move to a nursing home someday.
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Re: How much is needed to self-insure LTC?

Post by baw703916 » Sun Dec 18, 2011 3:34 pm

yobria wrote:Why would you want to avoid Medicaid? Doesn't seem like a rational goal in and of itself.

Nick


Nick,

Well, it may be irrational, but being on Medicaid means, by definition, that' you're flat broke. And the whole idea of investing (IMO) should be to never run out of money.

Having more money than I can ever spend isn't a bad outsome--I can leave it to family members or some worthy cause. Running out of money is a bad outcome, to me. I really can't relate to the Zvi Bodie goal of maximizing one's lifetime consumption. That's simply not the metric I'm interested in optimizing. The objective that appeals to me is minimzing the probability of ever running out of money.
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Re: How much is needed to self-insure LTC?

Post by stan1 » Sun Dec 18, 2011 3:55 pm

My worst fear is ending up in a nursing home with a low quality of life yet not being deemed terminally ill.
Unable to get out of bed by myself, unable to control bodily functions, unable to recognize people -- with the prospect of this continuing for months or years without any reasonable chance of getting better.

At that point I might welcome a Medicaid facility that will accidently expose me to an infection or other contagion that would let me pass away quickly and in peace.
Last edited by stan1 on Sun Dec 18, 2011 3:58 pm, edited 1 time in total.

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Re: How much is needed to self-insure LTC?

Post by baw703916 » Sun Dec 18, 2011 3:57 pm

nisiprius wrote:The killer is that long-term-care costs have been increasing at the rate of something like 6% per year.

Every time I try this back-of-the-envelope, the answer I come up with is a) a million per person, b) at least a million--more would be better, c) a spare million, d) a million now, today, year-2011 dollars, e) a million in conservative investments because you don't know when you'll need it, f) and you need to increase that amount--add to it every year--to make up for the difference between the low returns of conservative investments and the high rate of increase of nursing home costs.
.....
In previous discussions in this forum, I've gotten the impression that people will say "I'll self-insure" as a brush-aside way of saying "I just don't want to deal with it seriously." I don't know that I've ever seen any really serious hard-headed planning for self-insured long-term care. It's more complicated if you're a member of a couple. If you are single you might reason that when you go into a nursing home, your food and shelter are taken care of, so you can sell your house to pay for some of it. But you can't do that too quickly, because people sometimes do come out of nursing homes and need a place to live.

I don't see how "self-insuring" long-term-care becomes viable until you're in a situation where you can spare a million or two at any time without excessive financial disruption; i.e. a total portfolio site approaching or exceeding eight figures.


Nisi,

As always, thanks for a thoughtful and informative post. That figure you cite sounds about right. I had the $2 million figure that cliff referred to upthread in my head, but thought $3 million more prodent in view of the inflation rate. To be sure, the question wasn't whether self insuring is preferable to buying LTCi. Due to medical issues which began at a young age, I'm forced to self insure, and am trying to determine what my target needs to be.

Brad
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Re: How much is needed to self-insure LTC?

Post by VictoriaF » Sun Dec 18, 2011 5:01 pm

baw703916 wrote:
yobria wrote:Why would you want to avoid Medicaid? Doesn't seem like a rational goal in and of itself.

Nick


Nick,

Well, it may be irrational, but being on Medicaid means, by definition, that' you're flat broke. And the whole idea of investing (IMO) should be to never run out of money.

Having more money than I can ever spend isn't a bad outsome--I can leave it to family members or some worthy cause. Running out of money is a bad outcome, to me. I really can't relate to the Zvi Bodie goal of maximizing one's lifetime consumption. That's simply not the metric I'm interested in optimizing. The objective that appeals to me is minimzing the probability of ever running out of money.


Hi Brad,

I will not call it irrational trying to avoid running out of money and ending up on Medicaid. But I will try to present it as a choice between two options:

Option 1: giving up a significant part of one's today's quality of life, working longer than one is comfortable with, continuing exercising frugality in retirement, and being financially prepared for a very long period of long-term care without running out of money.

Option 2: spending more now on the quality-of-life-enriching things and activities, taking an early retirement, using the retirement for engaging in activities that are difficult to do while working, and being financially prepared for an average(*) period of long-term care with Medicaid serving as the safety net.

(*) Average for one's age, gender, health condition, family history, and other factors. To be on the safe side, make it 2 standard deviations above your average.

If one critically analyzes these two options, chooses option-2, and ends up on Medicaid, it is not a failure, it is not losing the game. It is being unlucky to encounter a low-probability event and being caught by the safety net.

The beauty of option-2 is that it removes the risks associated with dealing with insurance companies. It also takes advantage of potential positive Black Swans in the form of regulations that would offer some government provided services, or the proliferation of intermediate-level services in one's own home, or the spread of community-based care where neighbors keep an eye on one another thus greatly reducing costs.

You are saying that you don't want to run out of money. But running or not running out of money is not a discrete event. You have some money, some new money is coming in, some money is coming out; the balance is changing. While you work, the balance is increasing; when you retire, the balance is decreasing. You can keep the lid on the balance trying to estimate how long you can go until it runs out. But is not living too frugally is as much of a problem as running out of money?

There are no right answers. But the answer may depend on how you value various outcomes. For what it's worth, I am not planning to buy an LTCI.

Victoria
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Re: How much is needed to self-insure LTC?

Post by bluemarlin08 » Sun Dec 18, 2011 6:45 pm

The dilemna, if Medicaid is on life support now, it is the crack addict of all entitlements, do you think they will look the same in 10 years? Where will people without insurance or assets get care?
Are we as taxpayers willing to pay those costs?

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Re: How much is needed to self-insure LTC?

Post by VictoriaF » Sun Dec 18, 2011 7:09 pm

bluemarlin08 wrote:The dilemna, if Medicaid is on life support now, it is the crack addict of all entitlements, do you think they will look the same in 10 years? Where will people without insurance or assets get care?
Are we as taxpayers willing to pay those costs?


Social Security, Medicare and Medicaid are social programs that provide American people with the safety net. These programs may or may not look the same in 10 years. They may be better or worse than now, depending on the will of the American people.

Calling the American social safety net a "crack addict" is an insult.

Victoria
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Re: How much is needed to self-insure LTC?

Post by GregLee » Sun Dec 18, 2011 7:19 pm

VictoriaF wrote:The beauty of option-2 is that it removes the risks associated with dealing with insurance companies. It also takes advantage of potential positive Black Swans in the form of regulations that would offer some government provided services, or the proliferation of intermediate-level services in one's own home, or the spread of community-based care where neighbors keep an eye on one another thus greatly reducing costs.

I like your option 2, and I think this was a careful and lucid analysis, with just two minor reservations. (1) These arguments for option 2 don't really distinguish it from option 1. (2) There must be a better term than "positive Black Swan".
Greg, retired 8/10.

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Re: How much is needed to self-insure LTC?

Post by nisiprius » Sun Dec 18, 2011 7:49 pm

dbr wrote:I follow what some might call an irrational practice of insuring at least much as I feel I can afford to insure even if it can be argued the insurance is not cost effective.
Me, too.
yobria wrote:My plan calls for self insuring with six, not eight figures. This is possible since I know the chance of needing LTC for more that five years is quite small, 5% after age 65 according to the New York Times, and I'm sure much less for men.
The average is relevant to an insurance company. It's irrelevant to an individual. For an individual, something approaching the worst case is what's relevant. The chances of a house fire are much lower than 5%--something like 1/2% the last time I checked. Are you therefore going to leave your house uninsured? Are you going to multiply the value of your house by 1/2% and set that much aside and call it "self-insurance?" I did not, by the way, mean that you need eight figures for self-insurance itself. What I meant is that I seriously doubt that many people really have a parcel of assets set aside, never touched, added to as necessary to keep it up with 6%/year rises in nursing home costs, and earmarked for long-term-care and for nothing else. If you don't do something like this, then it seems to me eight figures for your total portfolio is about the point at which you don't need to have much of a plan, because that is about the portfolio size at which one can spare a million or so when needed without planning. Much as one might not bother with collision insurance if one can afford the cost of a car without planning.
How much will that cost? I'd be wary of using your source: Genworth, the company selling the insurance.
Indeed. But there are nursing homes that mention costs on their websites, and Genworth's figures aren't crazy.
But using their most expensive option, a private room in a facility with 24 hour nursing care is $213/day, or $388K for five years.
But who says five years is the maximum? Five years is sometimes suggested, but not because it is the maximum time people spend in nursing homes, but because it is the current Medicaid lookback period.

Look, it all sucks. Medicaid sucks and it might not be there when you need it. Private LTCi insurance sucks and might not be there when you need it, either because the company is out of business (the state guaranty association provides a safety net of sorts here, and should be checked) or because the company is sleazy and weasels out of paying. The CLASS act sucks and also is apparently unimplementable. And self-insurance sucks, too. You get any good answers, please let me know.
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Re: How much is needed to self-insure LTC?

Post by VictoriaF » Sun Dec 18, 2011 7:49 pm

GregLee wrote:
VictoriaF wrote:The beauty of option-2 is that it removes the risks associated with dealing with insurance companies. It also takes advantage of potential positive Black Swans in the form of regulations that would offer some government provided services, or the proliferation of intermediate-level services in one's own home, or the spread of community-based care where neighbors keep an eye on one another thus greatly reducing costs.

I like your option 2, and I think this was a careful and lucid analysis, with just two minor reservations. (1) These arguments for option 2 don't really distinguish it from option 1. (2) There must be a better term than "positive Black Swan".


I will try to address your reservations.

(1) I should have described three options, not two, while keeping in mind that one of the options does not apply to Brad. The three options would be:
Option-0 - buy Long Term Care Insurance.
Option-1 - have enough assets not to need the safety net.
Option-2 - have enough assets to cover the expected value plus 2 standard deviations for one's potential LTC expenses.

The difference between Option-1 and Option-2 is the amount of effort and sacrifice (and investment risk?) that one is willing to put into the greater level of assurance of not running out of money.

If various money saving options become available (government coverage, in-home care, community support), then Options 1 and 2 would lead to the same outcomes, but Option 1 would have required more sacrifice that would end up being unnecessary.


(2) I like The Black Swan, and I probably reference it too much. In this case, using the expression is somewhat warranted. From the December 2011 point of view, an increase in the government coverage of the long-term-care needs is a low-probability event. If it happens within the next, say, 10 years, it would have a large impact. And it would be rationalized a posteriori. My main point was about being open to "good things" that may replace the reliance on the safety net in the small fraction of cases where the safety net could be needed. This is in contrast to accumulating so much money that the safety net would never be needed and the "good things" would only increase one's estate. (Again, the "bad" part about accumulating too much money is the sacrifice and the risk it may require.)

Victoria
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Re: How much is needed to self-insure LTC?

Post by dhodson » Sun Dec 18, 2011 7:50 pm

VictoriaF wrote:
bluemarlin08 wrote:The dilemna, if Medicaid is on life support now, it is the crack addict of all entitlements, do you think they will look the same in 10 years? Where will people without insurance or assets get care?
Are we as taxpayers willing to pay those costs?


Social Security, Medicare and Medicaid are social programs that provide American people with the safety net. These programs may or may not look the same in 10 years. They may be better or worse than now, depending on the will of the American people.

Calling the American social safety net a "crack addict" is an insult.

Victoria



Given who votes, I bet it changes very little.

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Re: How much is needed to self-insure LTC?

Post by dhodson » Sun Dec 18, 2011 7:53 pm

I think he is using 5 yrs bc many ltci contracts purchased today only cover up to 5 yrs of benefits

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Re: How much is needed to self-insure LTC?

Post by getRichSlower » Sun Dec 18, 2011 8:09 pm

nisiprius wrote:But who says five years is the maximum? Five years is sometimes suggested, but not because it is the maximum time people spend in nursing homes, but because it is the current Medicaid lookback period.




To me, this also goes both ways. Although I'm too young to think seriously about LTCi, my impression is that any plan that guarantees total payments for life, no matter how many years you might live, for a top tier nursing home(after all medicaid will pay for a bottom tier one), even if nursing home costs rise faster than inflation are going to have very high premiums.

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Re: How much is needed to self-insure LTC?

Post by TheGreyingDuke » Sun Dec 18, 2011 8:14 pm

I am concerned that the quoted prices for nursing homes is inaccurate; my late father spet the last 5 months of his life in nursing home care in 2009. Semi-priavte rooms in the two facilities were $250 and $300 a day, this was in the NJ/NY metro area. Rates of $220 for a private room anywhere outside of really low cost areas seem way too low.

BTW, the extra $50 a day was well worth it, much higher staffing ratios, daily doctor visits with an on staff doc, and better therapy.
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells

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Re: How much is needed to self-insure LTC?

Post by getRichSlower » Sun Dec 18, 2011 8:28 pm

nisiprius wrote:
dbr wrote:I follow what some might call an irrational practice of insuring at least much as I feel I can afford to insure even if it can be argued the insurance is not cost effective.
Me, too.
yobria wrote:My plan calls for self insuring with six, not eight figures. This is possible since I know the chance of needing LTC for more that five years is quite small, 5% after age 65 according to the New York Times, and I'm sure much less for men.
The average is relevant to an insurance company. It's irrelevant to an individual. For an individual, something approaching the worst case is what's relevant. The chances of a house fire are much lower than 5%--something like 1/2% the last time I checked.


You're point about the house fire is interesting, but as a counterpoint William Bernstein makes the historical argument that taking into account major economic, political, and military shocks, a 95% success rate is about the most that anyone can hope for. Maybe, sometimes we buy insurance not because the risk is so high that the insurance is essential but because the risk is low enough that the insurance is relatively cheap.

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Re: How much is needed to self-insure LTC?

Post by yobria » Sun Dec 18, 2011 8:34 pm

VictoriaF wrote:Hi Brad,

I will not call it irrational trying to avoid running out of money and ending up on Medicaid. But I will try to present it as a choice between two options:

Option 1: giving up a significant part of one's today's quality of life, working longer than one is comfortable with, continuing exercising frugality in retirement, and being financially prepared for a very long period of long-term care without running out of money.

Option 2: spending more now on the quality-of-life-enriching things and activities, taking an early retirement, using the retirement for engaging in activities that are difficult to do while working, and being financially prepared for an average(*) period of long-term care with Medicaid serving as the safety net.

(*) Average for one's age, gender, health condition, family history, and other factors. To be on the safe side, make it 2 standard deviations above your average.

If one critically analyzes these two options, chooses option-2, and ends up on Medicaid, it is not a failure, it is not losing the game. It is being unlucky to encounter a low-probability event and being caught by the safety net.

The beauty of option-2 is that it removes the risks associated with dealing with insurance companies. It also takes advantage of potential positive Black Swans in the form of regulations that would offer some government provided services, or the proliferation of intermediate-level services in one's own home, or the spread of community-based care where neighbors keep an eye on one another thus greatly reducing costs.

You are saying that you don't want to run out of money. But running or not running out of money is not a discrete event. You have some money, some new money is coming in, some money is coming out; the balance is changing. While you work, the balance is increasing; when you retire, the balance is decreasing. You can keep the lid on the balance trying to estimate how long you can go until it runs out. But is not living too frugally is as much of a problem as running out of money?

There are no right answers. But the answer may depend on how you value various outcomes. For what it's worth, I am not planning to buy an LTCI.

Victoria


Thank you Victoria, for putting my thoughts into better words than I could have. This post should be added to the LTC wiki, word for word.

Nick

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Re: How much is needed to self-insure LTC?

Post by baw703916 » Sun Dec 18, 2011 8:42 pm

yobria wrote:
Thank you Victoria, for putting my thoughts into better words than I could have. This post should be added to the LTC wiki, word for word.

Nick


Indeed. That was an excellent post which I found very helpful in framing the situation. Thank you!

Brad
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Re: How much is needed to self-insure LTC?

Post by GregLee » Sun Dec 18, 2011 9:06 pm

nisiprius wrote:What I meant is that I seriously doubt that many people really have a parcel of assets set aside, never touched, added to as necessary to keep it up with 6%/year rises in nursing home costs, and earmarked for long-term-care and for nothing else.

Why should it be earmarked? I think this is a great advantage of self-insuring: if for some reason it turns out that you don't need the assets you had intended for LTC for LTC, it's quite possible you can find some other pleasant way to spend the money. For instance, if I die early, my wife might not need our savings to support her own future nursing home stay (since our pensions should be sufficient), so she could use the money for, oh, a world tour, or to endow a scholarship. It's a great thing about money that it's useful for so many things.
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Re: How much is needed to self-insure LTC?

Post by dhodson » Sun Dec 18, 2011 9:09 pm

I'm pretty sure class act got nixed

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Re: How much is needed to self-insure LTC?

Post by yobria » Sun Dec 18, 2011 9:13 pm

bluemarlin08 wrote:The dilemna, if Medicaid is on life support now, it is the crack addict of all entitlements, do you think they will look the same in 10 years? Where will people without insurance or assets get care?
Are we as taxpayers willing to pay those costs?


I don't think even the craziest anti-entitlement zealot supports having millions of elderly wandering the streets until they starve to death. We'll change the national language to Hungarian before that happens.

Nick

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Re: How much is needed to self-insure LTC?

Post by yobria » Sun Dec 18, 2011 10:28 pm

nisiprius wrote:The average is relevant to an insurance company. It's irrelevant to an individual. For an individual, something approaching the worst case is what's relevant. The chances of a house fire are much lower than 5%--something like 1/2% the last time I checked. Are you therefore going to leave your house uninsured? Are you going to multiply the value of your house by 1/2% and set that much aside and call it "self-insurance?"


Averages are certainly relevant to me. I'd behave differently if I thought there was a 50% chance, vs a 2% chance of needing LTC for more than five years. And fire insurance is a great example - I'd never buy it blindly out of fear or mental laziness. I'd analyze the costs and benefits. If my home were only 10% of my assets, and fire insurance was very expensive, yes I'd self insure.

nisiprius wrote:What I meant is that I seriously doubt that many people really have a parcel of assets set aside, never touched, added to as necessary to keep it up with 6%/year rises in nursing home costs, and earmarked for long-term-care and for nothing else.


There's no need to. Your regular nest egg is the asset, since many years of LTC is almost certainly the end of the road. And again that 6% figure is disingenuous, since that rate of growth can't continue forever.

nisiprius wrote:But who says five years is the maximum?[/b] Five years is sometimes suggested, but not because it is the maximum time people spend in nursing homes, but because it is the current Medicaid lookback period.


Again, five years is the minimum period I will self insure for, since that time will cover 95%+ of all scenarios.

nisiprius wrote:Look, it all sucks. Medicaid sucks and it might not be there when you need it. Private LTCi insurance sucks and might not be there when you need it, either because the company is out of business (the state guaranty association provides a safety net of sorts here, and should be checked) or because the company is sleazy and weasels out of paying. The CLASS act sucks and also is apparently unimplementable. And self-insurance sucks, too. You get any good answers, please let me know.


It all sucks, but that doesn't mean I''ll be transfering my assets to Genworth. Note the stock price a couple of years ago to gauge management quality. One answer is to have an assisted suicide plan when the time comes so you (or your fiduciary) can manage your death.

Nick

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Re: How much is needed to self-insure LTC?

Post by jeffyscott » Sun Dec 18, 2011 10:33 pm

yobria wrote:I don't think even the craziest anti-entitlement zealot supports having millions of elderly wandering the streets until they starve to death.


I'm not so sure about that, but I think those who would be willing to let that happen will remain a small minority and will be unable to impose their values on society.
press on, regardless - John C. Bogle

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Re: How much is needed to self-insure LTC?

Post by getRichSlower » Sun Dec 18, 2011 10:37 pm

jeffyscott wrote:
yobria wrote:I don't think even the craziest anti-entitlement zealot supports having millions of elderly wandering the streets until they starve to death.


I'm not so sure about that, but I think those who would be willing to let that happen will remain a small minority and will be unable to impose their values on society.


On the flip side, I think even the most rabid, big government socialist believes that at some point we have to find a way to limit the growth rate of elderly entitlements to the growth rate of gdp.

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Re: How much is needed to self-insure LTC?

Post by GregLee » Sun Dec 18, 2011 11:00 pm

getRichSlower wrote:On the flip side, I think even the most rabid, big government socialist believes that at some point we have to find a way to limit the growth rate of elderly entitlements to the growth rate of gdp.

I don't know why you think that. The elderly make up an ever increasing percentage of our population, so why shouldn't they consume an ever increasing portion of our public resources? The elderly need more health services than others, and we value and spend more and more on health services, so why shouldn't an increasing portion go to them? The elderly have more time to devote to public affairs and vote more than other groups, so they deserve and have the power to command additional entitlements.
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Re: How much is needed to self-insure LTC?

Post by Watty » Sun Dec 18, 2011 11:16 pm

In trying to determine "the number " don't forget to take the value of a paid off house into account. After my dad passed away my mom figured she did not need LTC insurance since selling her house could have paid for at least five years care along with social security without touching her other assets.

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Re: How much is needed to self-insure LTC?

Post by getRichSlower » Sun Dec 18, 2011 11:36 pm

GregLee wrote:
getRichSlower wrote:On the flip side, I think even the most rabid, big government socialist believes that at some point we have to find a way to limit the growth rate of elderly entitlements to the growth rate of gdp.

I don't know why you think that. The elderly make up an ever increasing percentage of our population, so why shouldn't they consume an ever increasing portion of our public resources? The elderly need more health services than others, and we value and spend more and more on health services, so why shouldn't an increasing portion go to them? The elderly have more time to devote to public affairs and vote more than other groups, so they deserve and have the power to command additional entitlements.


Since this isn't a political forum, I won't go into my opinions about what the elderly deserve. I would submit these four relatively non-partisan assertions for my judgment.

1) If the US debt/gdp climbs above 100%, interest rates will start to rise. If the US debt/gdp ratio exceeds 150%, the bond markets and China could cut the US off from further credit. Unlike Greece, the US is both too big to fail and too big for anyone else to bail us out.
2) Absent massive increases in revenue or gutting the rest of the federal budget, the US debt/gdp ratio will rise over 100% with entitlements on their current course.
3) Either eliminating the rest of the federal budget or achieving massive increases in revenue is difficult politically and economically. If it was easy, the US wouldn't be running trillion dollar deficits.
4) Most politicians look ahead at most eight years, so by the time Congress and a President act on these issues, it will be too late to have any smooth transitions.

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Re: How much is needed to self-insure LTC?

Post by bluemarlin08 » Mon Dec 19, 2011 8:07 am

Calling the American social safety net a "crack addict" is an insult.



Okay, lets call the current system a fully functional and completely funded. Although it isn't true, maybe that would be less "insulting" naive perhaps.

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Re: How much is needed to self-insure LTC?

Post by imagardener » Mon Dec 19, 2011 9:08 am

If I were a man I'd "self-insure" by marrying someone 10 years younger or more, hoping that person would be frugal and faithful, to provide in-home health care as long as possible. A good marriage IMO is one of the best insurances.

As a childless woman I know that it is likely I will outlive my spouse and need to provide for that. There are more independent women today than ever before and their safety net should be planned for---by them.

In the words of Sophie Tucker: "From birth to age eighteen, a girl needs good parents. From eighteen to thirty-five she needs good looks. From thirty-five to fifty-five, she needs a good personality. From fifty-five on, she needs good cash."

I think if Ms. Tucker were alive to rewrite her advice she would add "good career" to 35-55, she certainly did that for much longer and died aged 80 years.

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Re: How much is needed to self-insure LTC?

Post by jeffyscott » Mon Dec 19, 2011 9:33 am

bluemarlin08 wrote:
Calling the American social safety net a "crack addict" is an insult.



Okay, lets call the current system a fully functional and completely funded. Although it isn't true, maybe that would be less "insulting" naive perhaps.


Yes, clearly those are the only two possible descriptions. :roll:
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Re: How much is needed to self-insure LTC?

Post by jeffyscott » Mon Dec 19, 2011 9:45 am

getRichSlower wrote:2) Absent massive increases in revenue or gutting the rest of the federal budget, the US debt/gdp ratio will rise over 100% with entitlements on their current course.
3) Either eliminating the rest of the federal budget or achieving massive increases in revenue is difficult politically and economically. If it was easy, the US wouldn't be running trillion dollar deficits.


So it's not possible that a combination of a modest slowing of the rate of increase in health care costs, a modest tax increase on those with the highest incomes, and modest reductions (or even just reductions in the rate of growth) in other large budget categories such as "defense" could solve the problem?

The US does spend far more on health care and war/defense than other developed countries, so it would seem there must be some opportunities to reduce the rate of growth of both of these to less than it has been.

While there may at some point be problems with too much government debt, the US would never be Greece as our national debt is denominated in our own currency.
press on, regardless - John C. Bogle

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Re: How much is needed to self-insure LTC?

Post by nisiprius » Mon Dec 19, 2011 10:10 am

imagardener wrote:If I were a man I'd "self-insure" by marrying someone 10 years younger or more, hoping that person would be frugal and faithful, to provide in-home health care as long as possible. A good marriage IMO is one of the best insurances.
Half-joking, half-serious: in the real world a fair amount of long-term-care is sometimes provided at no cost by family members; such as Arnold Bennett's "providential aunt." It usually represents a major life burden on the providers.
Although, on account of his nervous restlessness, Mr. Baines was never left alone, it was not a part of the usual duty of the girls to sit with him. The person who undertook the main portion of the vigils was a certain Aunt Maria--...not a real aunt, but a poor second cousin of John Baines; one of those necessitous, pitiful relatives who so often make life difficult for a great family in a small town. The existence of Aunt Maria, after being rather a "trial" to the Baineses, had for twelve years past developed into something absolutely "providential" for them. (It is to be remembered that in those days Providence was still busying himself with everybody's affairs, and foreseeing the future in the most extraordinary manner. Thus, having foreseen that John Baines would have a "stroke" and need a faithful, tireless nurse, he had begun fifty years in advance by creating Aunt Maria, and had kept her carefully in misfortune's way, so that at the proper moment she would be ready to cope with the stroke. Such at least is the only theory which will explain the use by the Baineses, and indeed by all thinking Bursley, of the word "providential" in connection with Aunt Maria.)
What's the net present value of a "providential aunt?"
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: How much is needed to self-insure LTC?

Post by yobria » Mon Dec 19, 2011 10:18 am

bluemarlin08 wrote:
Calling the American social safety net a "crack addict" is an insult.


Okay, lets call the current system a fully functional and completely funded. Although it isn't true, maybe that would be less "insulting" naive perhaps.


Yes, given that it's working exactly as intended, and providing coverage to 100% of the people who qualify, that's what I'd call it.

Nick

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Re: How much is needed to self-insure LTC?

Post by bluemarlin08 » Mon Dec 19, 2011 10:26 am

Yes, given that it's working exactly as intended, and providing coverage to 100% of the people who qualify, that's what I'd call it.



I guess you are right, wouldn't be prudent to project what the costs will be in the future and how it will be paid, as long as it is working now.

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Re: How much is needed to self-insure LTC?

Post by baw703916 » Mon Dec 19, 2011 11:46 am

bluemarlin08 wrote:
Yes, given that it's working exactly as intended, and providing coverage to 100% of the people who qualify, that's what I'd call it.



I guess you are right, wouldn't be prudent to project what the costs will be in the future and how it will be paid, as long as it is working now.


From your other posts, I know that you sell insurance. And, I agree that people should seriously think about LTCi, assuming they can afford it, can pass underwriting, and don't have an eight figure portfolio. But not everybody is in that category. There are 22 year olds who can't pass underwriting for LTCi, but who are able to work. Is the solution to chastize them for having waited too long to buy LTCi?

Brad
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Re: How much is needed to self-insure LTC?

Post by bluemarlin08 » Mon Dec 19, 2011 11:55 am

I don't see where anyone is chastising anyone. I do sell insurance, LTCi has changed and I don't recommend it for everyone. Many folks are going to have to spend down their assets and HOPE that the government will continue to have a safety net that is viable. There will be many people in this category and it will cost a fortune.

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Re: How much is needed to self-insure LTC?

Post by Alan S. » Mon Dec 19, 2011 12:07 pm

I would think a ballpark figure assuming retirement at age 65 for a couple would be about 1.2 million in total retirement assets for full self insurance. Partial self insurance with lesser amounts. For a couple, this amount could be reduced if both spouses are healthy and one could care for the other for an extended time. That would be a starting point subject to adjustment for individual factors and considerations, including how much of your assets you want to preserve for heirs. Very few people live very long in nursing homes as they do not go into nursing homes unless there is no other choice.

Nursing home costs vary considerably by region, with the NE states the highest and the southern states currently running about 40% less than the NE states.

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Re: How much is needed to self-insure LTC?

Post by yobria » Mon Dec 19, 2011 12:18 pm

bluemarlin08 wrote:
Yes, given that it's working exactly as intended, and providing coverage to 100% of the people who qualify, that's what I'd call it.



I guess you are right, wouldn't be prudent to project what the costs will be in the future and how it will be paid, as long as it is working now.


I'd be far more worried about the future solvency of the insurance companies you represent. In the insurance agent world, the US Govt. is sure to collapse tomorrow, while Genworth will be around for the ages...

Nick

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