Long Term Care Ins- Good or Bad?

I know this is a tax problem, but it also falls under Financial Planning.
My company offered for a short time to pay the 1st yr premium on Long Term Care Ins for anyone in the family. My mother-in-law thought it was
a good idea and bought some just before she turned 80. Needless to say her premiums were HIGH, $3000/yr. Max pay of $75K @$60/day. Seemed OK, until she actually started needing it. PITA! with interviews, nurse visits, paperwork, delays, and red tape. Finally sorted out after months of frustrating effort. BUT now an interesting tax problem.
She has been our dependent, living in our home, for over 10 tax years. So we got her IRS deduction. She moved into a "Assisted Living" home at the beginning of '09. Since her expenses at the home almost exactly match her income from SS, a tiny pension, and the Long term Care payments, is she still our dependent? Do I lose the deduction? BTW, her Long Term Care payments also prevents her from getting Medicaid (not Medicare) payments for the home.
Frankly, the whole concept of Long Term Care Ins seems to be a bad idea. Bah, the guy in the middle gets screwed again!
Chip
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I'd say you do lose the deduction. See page 18 of the instructions for form 1040 line 6c at irs.gov. Your MIL would have to have a gross income of less than $3,500 and you would have to be providing more than half of her support to get the deduction. Your MIL probably has to file her own tax return.
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Cam wrote:

That's the way I read it too. But her SS and pension are under $3500. Do Long Term Care Ins dispersals count as Income? They go directly to the Home, not to her or me. Normal Ins dispersals like Life, Health, Accident aren't income, are they?
Chip
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I guess I am not answering your question but am hoping you won't mind if I extend your question to our situation. I am in my late 50's and my wife is early 50's. Wondering if now is the time to pick up some LTC ins? We have no children but are now retired with no debt and some money in the bank. If one of us would become disabled in the near future one of us would probably have to go back to work... Wondering what the best options for LTC insurance would be for our situation?? We are open to any opinions or suggestions. Thanks! Steve
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Steve wrote: I am in my late 50's and

My advice-forget it. Unless you have a strong and persistent advocate to chase down and hurdle all the obstacles that the LTC provider puts up to stall payments until you die. They want you to front the money for the home and then they use a fine print loophole(s) not to OK payments.
1) Any overpayment of your premium, and you will because of their stalling tactics, goes into the "Estate" of the insured. In other words, they hold your money w/o interest until you die. Hers has a 90 day "waiting " period so that they were "sure' she needed assistance and then another 90 days of their payments before premiums were waived. So they got an extra 180 days of premiums. Then it was about another 5-6 months before they acknowledged that her premiums should have been waived, but sorry we'll keep that extra money until she dies.
2) LTC dispersals take the insured off your IRS dependent list and you lose the deduction.
3) LTC dispersals eliminate the possibility of getting Medicaid. Several Medicaid residents live in the same home as my M.I.L. and get exactly the same facilities and attention.
4) Expected life once one enters an assisted living is about 1-3 years. LTC have a high (good for ads) cap, but since they only pay for the days actually used, they almost never reach the cap. Very expensive for the expected benefits.
5) If you leave the home, say for a vacation or hospital stay, you have a "break" in coverage and have to start all over again. Even more premiums.
6) They require an unbroken 90 days of documented assistance paid for by you before they start payments. If there is a "break", then there is another 90 days. Just to make sure you really need it. A lot of people die during that 90 day(s) waiting period(s) and never get a dime.
Bah! I strongly suggest "self" insurance. Put those premiums into a "safe" investment. Saves a lot of problems.
At least ask the LTC salesman about the above points and read the fine print very carefully. Good season for LTC insurers. Halloween! Ghouls and vampires galore.
Chip
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Chip,
As regards you reply and details of LTC, and the OP's questions as these pertain to logic, I myself do not see how adding layers of bureaucracy between consumer and doctor is going to lower costs across the board, including all health insurance.
The concept of insurance got started as far as I know, with shipping in the 1700's, in England. On any one voyage, one ship might be a complete loss. But if investors were found to finance 10 ships, the probability of all 10 being lost became very low. Thus the idea of insuring all ships and spreading the risk over 10 or even 100 voyages made ill-winds blow at least a bit less harshly. To the owner of the one lost ship, it was a catastrophe, but he was compensated. It makes sense that way, and it makes sense in auto and home insurance.
But in healthcare, one is insuring against a virtually certain event in all instances - the onset of body deterioration, the need for professional care, and eventual death. These events are feared, and motivate the purchase of "insurance." Those who die suddenly pay for those who die slowly. Medical costs and the delivery of medical services could be cut in half in lawyers were taken out of the picture. More young people might again be motivated to become doctors. If insurance were also taken out of the picture the paper-work would be cut in half, as well, doubling the quality of care.
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First, I understand there are LTC insurance plans designed to help people into nursing homes that are superior to those which have a fraction of beds designated "Medicaid beds." Second, if a senior with enough money from whatever source is in a nursing home with a fraction of beds designated "Medicaid beds," typically they can designate that they would like a private room. Whereas Medicaid residents do not get the option of a private room. Also Medicaid residents who want cable TV, hair salon, pedicures (a very big deal for someone unable to care for his or her own feet; not a luxury) and so on typically must pay for it separately. Paying residents and Medicaid residents are treated exactly the same only insofar as medical needs are concerned. Which makes sense to me, since there is generally public outrage when rich and poor receive different medical treatments for the same ailment, the difference being based in giving the poor substandard care.
This of course begs the question of whether free markets have a place in medicine. It is not an easy problem, especially given our supremely uneducated consumers.

I remain concerned about the number of people who pay into any health insurance program and expect to get back what they paid and then some. No longer is mere "peace of mind" what they expect. IMO this misplaced expectation drives up health care, including nursing home, costs. I think this is as much a problem as the health insurer ghouls of whom you speak.
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wrote:

This may not be related LTC or to your comments, but in my opinion there's a big misunderstanding about the percentage of health insurance premium dollars that are kept by the insurer.
While it has been several decades, I was once in health insurance marketing (group insurance). "Retention" (premium less claims, reserves and dividend if any) kept by the insurance company for expenses and profit typically was around 3-5% overall - more for smaller companies, less for larger).
Because competition for business was heated and the amount included in premium rates for it was knowable, retention was a relatively thin portion of the premium pie. Based on the following article, that is still the case and those who think insurance companies are ripoffs are misinformed. http://news.yahoo.com/s/ap/20091026/ap_on_bi_ge/us_fact_check_health_insurance
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HW "Skip" Weldon wrote:

.
I have no problem with the insurance industry having a profit, they do provide a valuable service, but those huge buildings came from somebody's money.
My focus is on the treatment of the insured. Maybe we have an isolated case, but everything her LTC insurer seems to be doing is delaying any payment until she is dead.
Chip
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If you are a large company with lots of employees, you have to have large buildings to provide places for them to work. They either have to own the space or lease it. That's part of the cost of being in business.
Dave
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On Oct 26, 8:03am, "HW \"Skip\" Weldon"
[snip]

misinformed.http://news.yahoo.com/s/ap/20091026/ap_on_bi_ge/us_fact_check_health_ ...
Skip,
Interesting the way real data changes viewpoints :-). I had the idea that medical costs were marked up 50%.
Summary numbers *are subject to details* but for UNH (UnitedHealth Group) the SEC 10k (annual report) indicates that premiums run about 19% more than medical costs. Operating costs and cost of products sold, as a percent of revenues, have been increasing since 2006 ranging from almost 15% to almost 20%. http://www.sec.gov/Archives/edgar/data/731766/000119312509025587/d10k.htm#toc55188_10
Other insights into the medical insurance industry would be interesting. UNH has business other than purely insurance. I have heard from friends who work in hospitals that the paperwork burden chews up half their time (literally). Please note I'm not challenging your information - I glossed over the 10k and I'm not familiar with the company, how they estimate premiums, or the nuts and bolts of medical bills and payments.
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On Mon, 26 Oct 2009 10:29:58 -0500, dapperdobbs

I have no insight into markups in the healthcare industry (doctors, hospitals, drug companies, etc.). My only point is that I think we're going after the wrong boogy man (the insurance industry).
There is room for real change, however. My opinion is that changes in paperwork requirements (government oversight), liability issues (premiums for insurance and the frequency of defensive medicine) and supply/demand problems (the number of doctors and hospitals) are long overdue.
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On Oct 26, 10:57am, "HW \"Skip\" Weldon"
[snip]

Totally, and very well said. Those are my conclusions, well phrased. Very comforting to hear someone else sees the same things :-)
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On Mon, 26 Oct 2009 11:55:52 -0500, dapperdobbs

Of course, there's also the chance that we are both bozos. <grin>
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On Oct 26, 7:03am, "HW \"Skip\" Weldon"

Those companies still seem to be making enough money to pay pretty big salaries to the CEOs:
Ins. Co. & CEO With 2008 Total CEO Compensation
Aetna, Ronald A. Williams: $24,300,112 Cigna, H. Edward Hanway: $12,236,740 Coventry, Dale Wolf: $9,047,469 Health Net, Jay Gellert: $4,425,355 Humana, Michael McCallister: $4,764,309 U. Health Group, Stephen J. Hemsley: $3,241,042 Wellpoint, Angela Braly: $9,844,212
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So what?
Dave
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In article

I looked at this when I turned 60 (1998) and came up with the following thoughts ( I chose not to buy, for the record I am probably not insurable now but I have no regrets): *********** Whether to purchase LTC insurance becomes a question of your net worth, your estimate of your personal probability of entering a nursing home and whether there is a spouse or other dependent still at home.
The consensus of articles that I have seen in Business Week, WSJ, Forbes etc is that you should not buy LTC Insurance if your assets are < $100K or > $1M
The recommended time to buy is about age 60 - you will still have your health and should have an idea if you will be able to afford the care
Nothing could be worse than to pay LTC premiums for 15 years and then have to give up the policy because you can no longer afford the premiums
Spend down rules vary from state to state - especially the amount that can be set aside for a spouse still at home. Elder Law attorneys in CA claim that they can usually arrange for a larger amount/portion of the income to be set aside for the spouse still at home than might be inferred from the spend down rules.
If you think that you will never return home, I can make a case for going to the Waldorf Nursing Home during the spend down period and then going on MedicAid.
Here are some statistics that I have gleaned:
"Taking Care of Tomorrow" by CA Dept of Aging (which would prefer that you have LTC Insurance and not become dependent on Medi-Cal*) quoting a study by Kemper and Murtaugh called Lifetime Use of Nursing Home Care and the 1986 National Mortality Followback Survey:
Age at Death % who used a Nursing Home 65-74 17 74-84 36 85-94 60
Projected lifetime use of Nursing Homes for persons who reached age 65 in 1990 Never 57% Under 3 mo 11 3-12 Mo 8 1-5 yr 15%
*MediCal is what MedicAid is called in California
"Business Week" 3/29/99 pg 182 > 1 yr in a Nursing Home Men aged 65 14% Women aged 65 30% (probably influenced by mortality and survivorship)
Business Week 7/19/99 Average stay is 30 months 76% out within 36 months 86% out within 5 yrs (not a normal distribution)
Wall Street Journal 4/23/90 70% of all couples have at least one partner go into a nursing home after age 65
Study by Health Insurance Association of America 1992 (I haven't actually seen this but I think it is the source of most of the statistics) and the Journal of Taxation of Estates and Trusts - Winter 1992: Nearly half of all persons aged 65....
Quote attributed to the 1991 Annual Report of Long Term Care Facilities of the CA Health and Welfare Agency (another outfit which would prefer that you have LTC Insurance and not become dependent on Medi-Cal)
Under 2 weeks 23% 1 yr 7% 2-3 week 20% 2 yr 4% 1-2 mo 21% 3-4 yrs 4% 2-6 mo 12% 5-6 yrs 2% 7-12 mo 8% 7-10 yrs 1% which is consistent with the previous table
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Nice post, Avrum. Here is more info from Consumer Reports on the subject, dated 2003:
"But will [long-term care] insurance really work? A CR investigation, for which we reviewed 47 policies, reveals that for most people, long- term-care insurance is too risky and too expensive. As with health insurance, you must keep paying to keep it in force. If premiums rise, you may have to drop the coverage, possibly losing everything that youve paid. The policys benefits may cover only a portion of the total expense. Many policies are packed with catches that can keep you from collecting. Finally, theres no guarantee that long-term-care insurers, some of which have weak balance sheets, will be around 20, 30, or 40 years from now when you need them to pay. "
The CR article provides anecdotal reports backing up some of what Chip wrote.
See http://www.consumerreports.org/cro/money/insurance/longterm-care-insurance-1103/overview/index.htm?Extkey=SY95PI0&CMP=KNC-CROVMYSSP&HBX_OUQ&PK=yssp
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Elle wrote:

http://www.consumerreports.org/cro/money/insurance/longterm-care-insurance-1103/overview/index.htm?Extkey=SY95PI0&CMP=KNC-CROVMYSSP&HBX_OUQ&PK=yssp
Two further points on my LTC insurer problems:
Just got reimbursed for the 1st 3 months of my front money for the home. They still owe for the last two.
AND
They have filed for Liquidation and will let the gov pick up the tab. I guess until the tax money runs out. Is this a great country or what? I wonder what their CEO's compensation was last year?
I'll now name them since they won't be a company next year- Penn-Treaty.
Chip 1
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Some problems with LTC are:
1) Denial of benefits: every kind of insurance tries this. They look for some escape clause, either procedural or in the original medical exam. The bad guys know if they stall long enough, the recipient will have died by then.
2) Premium increases. I've read most plans have done such, even though it appears the contract is constant for life. But if you read the fine print, there are some escalator clauses. These often involve petitioning a state insurance board, but are routinely granted.
3) Insurance company dies during the decades policy is paid for. This is rare. But 2008 was scary in financial insitutions you'd never thought would die, did die.
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