long term care insurance

[walkitout]

http://www.washingtonpost.com/blogs/ezra-klein/post/old-gray-and-here-to-stay/2011/10/21/gIQATcXB4L_blog.html

I'm more than a little horrified by this proposal.

A guy at Brookings proposes cobbling together a way to cover long term care needs and it includes:

"Effective at age forty, every adult would be required to purchase a long-term care insurance policy with certain specified features: a five-year term, a benefit of at least $150 per day, automatic inflation adjustment and a low deductible."

Let's do some math on what the hypothetical maximum benefit on a minimum policy meeting this criteria would be:

5 years * 150 $/day * 365 = $273750.

Why should _anyone_ who can demonstrate a net worth substantially in excess of this be required to purchase such a policy? I'd be _overjoyed_ to pay for the policies for a dozen poor people (2 dozen, even, maybe) before being required to buy one for myself, my husband, etc.

But running all this through insurance companies does not strike me as bright anyway. Insurance companies have in no way demonstrated that they can price these things correctly (the opposite, actually). By the time a law was passed requiring purchase, we'd be looking at steep premium increases or having to bail them out.

I'm still trying to figure out what the probability to payout might be. I recognize that if you're fortunate enough to make it to 80, the odds get pretty good you'll need long term care, but of course a lot of people don't make it to 80 and I don't know the odds of an arbitrary baby born in an arbitrary year needing long term care after age 40. In fact, I think that's really the nut of the problem.

The concluding paragraph is extremely silly. "But with the population getting older and more reliant on long-term care, we’re likely going to have to do something." We never fix _anything_ until it's been well and truly intolerable for at least one full political cycle (4 years), usually several.

ETA People toss around premium numbers for this stuff. It is _no joke_. The annual premium for LTCI for someone in their 40s is liable to run small number of thousands. Annual premium for someone in their 60s might run more than a few thousand. If you think people should be paying for their own long term care, it makes more sense to mandate savings/retirement funding (if you took that premium and stuck it in something that made even 5% a year and were rigidly consistent about it, you'd have most of the benefit you might collect by the time you would actually need it). LTCI is essentially whole life under another name.

Comments

[ethelmay.livejournal.com]

I was dumb enough to think it would be much cheaper to start in my forties, and actually called back one of the people who advertise to my alumni group. Turned out noooooooo.

not dumb

[walkitout]

People like Suze Orman push the stuff and everyone says the same thing: it's much cheaper to start in your 40s than in you 60s -- as if people in their 40s didn't already have way too much going financially already, and as if you couldn't come up with a better way to invest the money for growth in your 40s if you did indeed have it.

It reminds me of all the advice I heard in the early 1990s about how kids getting out of college (me) should be saving for retirement, right away. Unlike some of my age-mates, I didn't have a stack of debt to pay off, but my husband was still in school and had a serious retail therapy problem (this would be my first husband K.). Once I got rid of the major cost in my life (the husband), I could save money and did -- for a down payment on a condo. My life took a serious turn in the dot com boom, but if I'd had a more ordinary path, I would then have moved onto spending money on kids and child care and saving for their college.

I think what the advice is really all about is people _older_ than us hitting these big bills (staring at retirement in their near future in the 1990s, staring at long term care for themselves or someone they are responsible for now) and wishing they'd done something sooner. So they deliver advice to echo-boomers (us) saying, hey, don't make our mistake. Which is stupid advice. The real solution to this problem is not every individual paying into insurance or saving for their _own_ needs. The real solution is collective action to help those in need, and trusting that that collective support will be there for us if _we_ need it. Otherwise, we have to assume that all those premiums paid by people who never need long term care will go towards those who do need long term care -- and we've already seen what for-profit insurance operations do with gigantic stacks of money they need to have to pay benefits in the future. It's never been pretty.

ETA: Also, the idea that buying long term care insurance to avoid spending down your assets when you are old make me want to bang my head against a wall. What, precisely, is it that people think they were building those assets up for? If it wasn't for their future needs, and they're quite serious about wanting to leave it for the kiddies, there are cheaper solutions out there than frittering away the assets on premiums for insurance that I cannot help but regard as fantastically speculative.