Long-Term Care: Long-Term Care Insurance Policies
Guest: Barbara Franklin – Long-term Care Specialist
Host: Sally Smith – Author/Resource literature on age-related disease and healthy aging
Sally Smith: Welcome to Age to Age. I’m Sally Smith. Let’s talk. Barbara Franklin is with is again today, and we’re happy to have her as a long-term care specialist. She’s illuminating us on the structure and components of long-term care, especially with long-term care policies as opposed, and a good distinction to make, to long-term health care, long-term disability, or any of those sorts of other kinds of insurance. This is to, basically, finance, however the end may unfold, to give people peace of mind as they move forward. Now, you’ve told us some of the basics of what goes into a policy, walk us through what a typical, in this day and age, long-term care policy might be like.
Barbara Franklin: Sure, Sally. I’d be glad to do that. The first thing you have to do in determining the components of your policy would be to decide how much you want the company to pay, either on a daily basis, or on a monthly basis. And if we know, for instance, that the average cost of a nursing home in our area, right now, is $165.00 a day, which it is, according to a survey by the Mature Market Institute, many of my clients would opt for coverage that would pay at least that. Now, if they know that they have the ability to pay part of that themselves, through income, Social Security, or other means, they might opt for less insurance, depending on some of their own resources. We call that coinsuring. So, that’s where some discussion and some give-and-take comes in.
Depending on age, and in almost every case, we’ve got to factor in inflation. If we know that the cost of care is $165.00 today, what is it likely to be in the future? So, most long-term care insurance policies give you the option of adding a provision for inflation; it’s usually 3 percent, 4 percent, or 5 percent, so that your benefits increase, every single year, automatically, without impacting your premium. That way you know that you’re keeping up with the cost. If I had to point to one error that I see people making with their coverage, it’s that they leave out inflation. It does, of course, result in a lower cost policy, but in the end, years down the road, they’re not going to have the benefits they think of. So, I view that as sort of a penny-wise, pound-foolish approach.
The next factor to consider would be how long we want those benefits to last. Again, the policies are administered in terms of a pool of dollars, and not years, so the use of them is going to determine the length of time. If you can use it outside of a facility, they’ll last longer. A recent survey has been very helpful in this matter. It was determined through Millman Research Institute, by looking at all the claims of long-term care policies issued up until now, that 92 percent of those claims would have been covered effectively with a five-year program.
Now, for individuals who are concerned about that other 8 percent, perhaps they have a history in their family of Alzheimer’s disease or some other medical condition that they would be concerned about, they might want a longer period of time, maybe even unlimited benefits. But, for most people, we feel that level of risk management is acceptable. So, a five or six-year program is along the lines of what would be typical for most people today, now that we have this kind of data, which has emerged in recent years.
Sally Smith: I find that absolutely fascinating. What important data, really, for your field.
Barbara Franklin: It is, Sally.
Sally Smith: It’s like knowing how long before you’re going to run out of gas, in your gas tank. Well, let me ask you something. All these factors, like you were saying, it’s a little bit more expensive policy if you add in for the cost of living and inflation increases, which you feel are important, is it less expensive if you buy it younger? Is it less expensive if you’re in good health?
Barbara Franklin: Absolutely, Sally. The younger you are, the lower the cost. And, of course, if you are in good health, you’re going to increase the chances of even qualifying for coverage to begin with. And many of the carriers offer health discounts. Obviously, they would prefer to insure people that are healthy, so they have discounts. Another important area for discounting is for couples. Most carriers have figured out now that if they insure a couple, there’s a very strong likelihood that one healthy spouse could likely be the caregiver for the one needing care, and that is a very important factor in controlling the costs. So, they’re willing to give some pretty substantial discounts, even up to 40 percent, when two people are insured together. So, a healthy couple, a younger couple, is going to see the most optimum rates. And, by the way, the average age of people who are applying for long-term care insurance today, according to a recent industry survey, is 59 years of age.
Sally Smith: Really?
Barbara Franklin: Yes.
Sally Smith: Wow. Do many of them apply as couples? Is that a more popular way to do it?
Barbara Franklin: It is, Sally. And the industry has really gone down this path very strongly. There are even features that are designed specifically for couples to make it very attractive for two people to get coverage together.
Sally Smith: And then it’s kind of like survivor benefits?
Barbara Franklin: Exactly. It’s actually one policy the two people share. So, if one dies suddenly without needing the benefits, the rest of them are available to the survivor. That’s exactly the idea.
Sally Smith: I see. So, if the scenario is this: I’m 59 and I buy my typical policy for five of six years, and start paying on it, when does the five or six years kick in?
Barbara Franklin: When you…
Sally Smith: Go to the doctor and he says he can’t do these things.
Barbara Franklin: When you meet the triggers that I mentioned earlier: cognitive impairment, or two out of six activities of daily living. That’s when it starts.
Sally Smith: Okay. So, say I’m 59, and say I’m perfectly healthy for ten years, and I’m paying my monthly premium, and it’s going in the kitty. Then, something happens and I trigger from that point on, whatever I’ve decided, five to six years of care. Now, once again, I’m just thinking of other things that a person would ask. I know of someone who wanted to be in a certain nursing home in New Jersey and it turned out they couldn’t go to that one because their insurance wasn’t nearly enough. That’s just one of those things you’d pick up the difference. But no one’s telling you which place to go to.
Barbara Franklin: Exactly.
Sally Smith: It’s an economic decision.
Barbara Franklin: That’s the beauty of long-term care insurance. It allows for complete control. Once you meet the triggers, the insurance company does not enter into the decision about where the care is provided. So, unlike health insurance, where there can be some things that are dictated in terms of where you go for care, that doesn’t happen with long-term care insurance.
Sally Smith: And there’s no recapture. There’s no cash value to your policy.
Barbara Franklin: No, there isn’t. Even though I’ve mentioned a pool of money that’s for the utilization of an individual who needs it, it doesn’t have a beneficiary.
Sally Smith: Right.
Barbara Franklin: It’s there if you need it.
Sally Smith: So, if you pay for ten years and then you die, nobody can cash in on that policy.
Barbara Franklin: That’s right. You’ve had peace of mind for those ten years.
Sally Smith: You have peace of mind for those ten years.
Barbara Franklin: That’s right, exactly.
Sally Smith: I see what you mean. Wow. That is very interesting. And so, about what percentage of the population currently has long-term care insurance?
Barbara Franklin: Well, sad to say, Sally, the population, in the United States, that has long-term care insurance is less than 10 percent. And here in South Carolina, it’s less than 6 percent. So, we’re even behind the 8 ball in terms of people realizing the importance of planning, and realizing that this tool is a way to do that. We’re constantly trying to get the world out. I’m on the board of the American Association for Long-term Care Insurance, and one of our major issues is getting the word out. In November, we will be helping out with National Long-term Care Awareness Month as a way to let the public know that public programs simply aren’t going to provide this any longer. We must take personal responsibility.
Sally Smith: Wow. Thank you so much, Barbara. This is so fascinating to learn about. I really appreciate your expertise, and sharing it with us. Thanks to all our listeners, too, for joining us. We welcome your suggestions, always. This is Sally Smith, Age to Age, saying goodbye and wishing you courage and joy on your journey. We area all connected.
If you enjoy listening to Sally Smith, you can buy her book, The Circle. It’s the story of how she personally responded to her mother’s journey with Alzheimer’s disease. It’s a wonderful gift of hope for anyone with a parent with dementia. Just click on Sally Smith’s name under the Health Professionals tab on the Podcast home page. All profits support research at the Center on Aging. Thanks.