Long-Term Care Insurance: Yes or No?

Q. Long-term care is a subject we’ve been avoiding for years, but as we are getting older and less able to do things for ourselves due to physical ailments, my wife and I finally sat down to talk about it. At first, long-term care insurance policies that help pay the costs of extended nursing care (if the time should come that we need it) made perfect sense to us. Nursing homes, assisted-living centers, and home care are all expensive, and there is no telling now if and for how long we would need the services. Buying a long-term-care insurance policy seemed like a way of making sure our future physical needs would be met, and that our savings would be intact in the event of burdensome care costs that could stretch on for years.

Then, we did a little more research and talked to friends and family, and found that long-term care insurance is expensive and risky. We even read about a recent class action lawsuit, where coverage was being denied and rates were being raised by more than 30%. In your experience, is long-term care insurance a good planning strategy or should we look at other options?

A. Statistics show that more than 70% of people age 65 or older will need long-term care sometime in their future, so you are certainly wise to plan ahead. There’s definitely a benefit for some people in purchasing long-term care insurance. However, there are certain issues to consider before you buy, including the rising costs and how long-term care insurance interacts with Medicaid.If you are considering long-term care insurance, you should look at the pros and cons, and weigh your options. The following are some important facts you should take into consideration before purchasing a long-term care policy:

  • Varying costs: According to American Association for Long-Term Care Insurance (AALTCI)’s 2016 Price Index, the costs for virtually identical policy coverage vary significantly from one insurer to the next.
  • Tax deductions and incentives: There may be some tax deductibility for the insurance premiums you pay as an individual (if you itemize deductions) to the extent that the premiums paid exceed 7.5% of adjusted gross income. Many states also offer tax incentives (credits/deductions) to encourage the purchase of insurance.
  • Lapsed policies are a concern: About half of all long-term care policies lapsed before any benefits were paid; policy holders were unable or unwilling to continue paying their premiums.
  • Costs never paid: Of those people who bought insurance and later entered a nursing facility, about half never collected a dollar from their long-term care policies.
  • No benefits for other types of care: No benefits were ever paid to the many people who bought nursing facility coverage but instead received home care or entered a residential facility not covered by the insurance.
  • Not enough to cover care: Long-term care insurance benefits are usually far below the actual cost of care. For many long-term care residents, LTC insurance benefits don’t cover the entire monthly bill, and even if it does, the benefits are often used up well before the need for care ends, so even with LTC insurance a family could still wind up depleting significant assets, and in many cases going broke.
  • Medicaid related issues: There are numerous important Medicaid-related issues that must be considered and understood before purchasing long-term care insurance. For instance, it is very possible to buy too little or too much coverage.  For married couples who can only afford coverage for one spouse, it is also critical to understand which spouse should obtain the coverage.  Unfortunately, most insurance agents who sell long-term care insurance have no understanding of Medicaid nor the Medicaid-related issues that must be considered.  Whether you are a potential purchaser or an insurance agent who sells long-term care insurance, please read our Long-Term Care Insurance FAQ to get a basic understanding of these important Medicaid issues.
Yet Another Reason to Reconsider Long-Term Care Insurance: A Class Action Lawsuit

In the class-action lawsuit you referenced in your question, Gardner v. Continental Casualty Company (CNA), the insurer was being sued for acting in bad faith by changing its policy interpretation regarding coverage for assisted-living facilities without alerting policyholders.The suit alleged the insurer acted illegally when it denied the claims of seniors who were insured by them, using “a scheme of fraud, deception and manipulation of policy terms” all while pursuing massive premium increases.

According to the complaint, Marie L. Gardner, 91, paid premiums on her long-term-care policy for 15 years before breaking her hip in 2008 and moving to an assisted-living facility.  She received benefits until February 2011 when CNA determined that her condition had improved.  After she fell down a flight of stairs at the facility a year later and fractured her sacrum, CNA denied her claim for benefits.

And, Gardner was not the only one. A class action suit of at least 20,000 CNA policyholders nationwide was brought to court, on behalf of the policyholders who claimed they were unfairly denied coverage. The lawsuit asked for class certification and an injunction to prevent the insurer from excluding claims for stays in Connecticut assisted living facilities, and the court ruled in favor of the plaintiffs. For the full text of this decision, go to: https://ecf.ctd.uscourts.gov/cgi-bin/show_public_doc?2013cv1918-168

Other Options to Pay for Long-Term Care

If you have done your research and decide long-term care insurance is still the right choice for you and your family, you should incorporate it as part of your long-term care plan, not as the only form of planning for long-term care.  Keep in mind that there are dozens of long-term care asset protection strategies other than long-term care insurance.

-Medicaid Planning can be started while you are still able to make legal and financial decisions, or can be initiated by an adult child acting as agent under a properly-drafted Power of Attorney, even if you are already in a nursing home or receiving other long-term care assistance.  In fact, the majority of our Life Care Planning and Medicaid Asset Protection clients come to us when nursing home care is already in place or is imminent.

-If you are still healthy and not yet on the “long-term care continuum,” then instead of Life Care Planning and Medicaid Asset Protection Planning you should consider our Living Trust Plus™ Asset Protection Trust, which is a simpler and less expensive method of asset protection for clients who will most likely not need any long-term care for at least five years. For most Americans, the Living Trust Plus™ is the preferable form of asset protection trust because, for purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain an interest in the trust while also protecting the assets from being counted by state Medicaid agencies.

As always, if you have not done Long-Term Care Planning, Estate Planning or Incapacity Planning (or had your Planning documents reviewed in the past several years), please call us to make an appointment for a no-cost initial consultation:

Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797

Leave a comment