Diane speaks with Dr. Roger Kligler who is living with advanced stage cancer on why he's suing the state of Massachusetts for the 'Right to Die' and with Dr. Jessica Zitter, and intensive care and palliative care specialist on why better communication is so needed between doctors and patients facing end-of-life issues.
As Americans age, more people are considering insurance for long-term care. Medicare and health insurance pay for immediate medical needs, but not for nursing homes, assisted-living centers or home care, all of which can cost thousands of dollars every month. Just eight million Americans carry long-term-care insurance. Though they can be a huge help, the policies can be confusing and risky, and come with expensive premiums. You have to be healthy to get it and, even if you have it, you only get the benefits if you medically qualify. Diane and her panel of experts discuss the pros and cons of long-term-care insurance.
- Kimberly Lankford Contributing Editor, Kiplinger's Personal Finance
- Kenneth Apfel Professor and Director,Management, Finance and Leadership Program, University of Maryland School of Public Policy; and former Commissioner of the Social Security Administration (SSA) from 1997 until his term ended in January 2001.
- Howard Gleckman Resident Fellow, Consultant and Editor of the TaxVox Blog at The Urban Institute; author of "Caring for Our Parents."
- Ron Pollack executive director of Families USA, a national non-profit organization for health care consumers.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. As America ages, more people are considering insurance for long-term care. Around 7 percent of Americans carry it. Joining us to talk about what these policies cover and who should purchase them, here in the studio: Kenneth Apfel of the University of Maryland School of Public Policy, Kimberly Lankford of Kiplinger's Personal Finance, Howard Gleckman of The Urban Institute and Ron Pollack of Families USA.
MS. DIANE REHMI'm sure many of you have questions. We'll try to take as many of your calls and comments as possible. Join us by phone at 800-433-8850. Send email to firstname.lastname@example.org. Join us on Facebook or Twitter. Good morning to all of you.
PROF. KENNETH APFELGood morning, Diane.
MS. KIMBERLY LANKFORDGood morning.
MR. HOWARD GLECKMANGood morning.
MR. RON POLLACKGood morning.
REHMKimberly Lankford, let me start with you. Tell us what long-term care insurance actually covers.
LANKFORDWell, what happens is, first of all, you make several choices. You choose the daily benefit of the average cost of nursing home care. Right now it's about $238 a day. So you can choose anything from, you know, $150, $200, $250, depending on what the cost of care is in your area or just to fill in gaps between what you think you could cover with your own savings and what you need help with from the insurance company. And then you figure out the benefit period. A lot of people choose about three to five years. The average care is about three years. Some people used to choose lifetime.
LANKFORDBut those benefits have gotten extraordinarily expensive, so many people now choose a much shorter time for care. And then if you end up needing help with activities of daily living -- you usually need help with two of those like bathing, things like that -- that's the benefit trigger, and the benefits will pay out. Also, if you need help with cognitive impairment, the benefits will then pay out whether you're receiving care in your home, in a nursing home or assisted living facility.
LANKFORDThe other key thing -- and this has caused a lot of expenses to rise a lot in the long-term care business -- is a lot of these policies also promise that benefits will increase by 5 percent compounded per year. So that's, hopefully, to keep up with the cost of care, but that's also caused these policies to become very expensive over the last several years. And some people who have had their policies for a while have had the great increases recently. A lot of it is because of those inflation adjustments.
REHMAnd to you, Howard Gleckman, Kimberly said $238 a day. What would that cost in premiums for, say, a couple, 60 years of age?
GLECKMANSo a typical policy these days for a 60-year-old is going to cost about $2,000 to $2,500, but that's for an average benefit which is really closer to $150 a day. And, typically, it may pay for two or three years of care. To get a full benefit, if you want to be fully covered, you could expect that, at age 60, to spend $350 a month for premiums, and that's per person.
REHMA month for premiums?
GLECKMANFor -- that's right. That's right.
GLECKMANThat's right. So it's quite -- it can be quite substantial.
REHMOK. And, Ken Apfel, who is this insurance really good for?
APFELWell, I think that relatively well-off people could afford this insurance. So it's for individuals who have pretty high assets and pretty high income. If they don't have high assets and they don't have high income, then probably buying long-term care insurance -- private long-term care insurance doesn't make sense.
REHMBut if they have high income, high assets, why would they buy it at all?
APFELWell, actually, long-term care is a classic insurable risk. People have very high costs when they experience the need for long-term care insurance. So some individual savings -- unless you are very, very affluent -- is not a great solution because it only hits a few people at any one point in time. So this is a good insurable risk, and some form of pooling makes sense. Now, private long-term care insurance is an interesting pooling mechanism for the top maybe 15 percent of the population, but that leaves the bottom 85 percent of the population that this really isn't a very good solution for.
REHMIt's interesting because as I read through this material, it looks as though there's an overall lifetime cap on how much this insurance pays out. Kimberly.
LANKFORDWell, it depends on the benefit choices that you make when you buy the policy. And as I mentioned before, a lot of the policies that people bought maybe, you know, five years ago or so, had lifetime benefits, and they did not cap the amount that they would pay out. However, those are exactly the policies that the insurance companies have discovered have been very, very expensive. And one of the reasons why many companies have been raising rates and several big, big companies have left the business recently is because of those lifetime benefits.
LANKFORDA lot of them are ending up having to pay much more benefits than they had expected, and it made the numbers very different than they were expecting. So those lifetime benefit policies now are extremely expensive. And many people do have policies that now cap coverage at three to five years or so. What they actually do is you multiply the daily benefit by those years, and if you have, you know, smaller costs, then it can extend longer than that. But there is a certain dollar amount that it will buy you.
REHMJust taking Washington, D.C. and this area into account, it's my understanding, Ron Pollack, it can cost as much as $100,000 a year for decent nursing home care. Does long-term insurance make sense?
POLLACKWell, as you indicate, there's a wide variation on what the cost of nursing home care will be. Nationwide right now, the average annual cost for nursing homes is about 78, $80,000. But in places like Washington or New York, it can be considerably higher than that. And as Ken was saying before, this is not for everybody.
POLLACKIf you're lower income and you don't have much in assets, hey, you probably can't afford a private long-term care insurance policy, but you also might be eligible fairly soon for Medicaid. Medicaid is the key way that we pay for long-term care. Among people in nursing homes, 63 percent right now of people in nursing homes have their coverage -- their payment for nursing home care covered by Medicaid.
REHMAnd how do they qualify for that?
POLLACKWell, you know, Medicaid in this situation is really not like an insurance program. You know, when you think about insurance, whether it's automobile insurance or homeowner's insurance or regular health insurance, you consider insurance as a way to protect you against an economic catastrophe. With Medicaid, you only get Medicaid coverage once you've actually experienced that catastrophe. In other words, you have to spend down your assets, and, essentially, those people on Medicaid are very poor.
REHMVery poor, so they would not have been able to buy any kind of insurance to begin with.
POLLACKOr they spent down their assets. They went to a nursing home. And at the time they went to the nursing home, they may have been middle class. But as you pay whatever, $80,000 a year, $100,000 a year for nursing home care, your assets get frittered away, and, as a result, you actually fall into poverty. And -- now one of the things about Medicaid, it's so important.
POLLACKBut heretofore, Medicaid has really been more of a program for institutional care than it has been for home and community-based care. And, hopefully, that's something that's going to change over time. The Affordable Care Act moves us in that direction.
GLECKMANI think it's important to keep in mind -- people often talk about long-term care and nursing homes as if they were the same thing. But it's important to keep in mind that, overwhelmingly, 85 percent of us are going to get our long- term care at home, not in a nursing home. So when you think about this as an insurable event, as Ken said, you need to think about it as insurance to pay for assistance at home just as much as you need -- or perhaps more than you think about it as insurance to pay for care in a nursing home.
REHMAnd payment for care at home presumably would cost a lot less?
GLECKMANWell, it depends on how much assistance you need. Typically, if you're hiring an aide, $20 an hour is not out of line. If you need -- say you're someone with dementia and you need somebody to be with you 24/7, then that can run almost as much and perhaps more than a nursing home can because remember that when you think about home care, you're not only providing this aide, you need to pay utilities. You need to pay the rent.
GLECKMANYou need to pay for transportation. You have a whole range of other things that are paid for when you're in the nursing home but are not paid for when you're living at home.
REHMKimberly Lankford, you wrote an article talking about hybrid policies. What do you mean?
LANKFORDWell, recently -- pretty recently, several large insurance companies have looked at some other ways to try to cover this risk. And one thing that they're doing is combining long-term care insurance and life insurance. And it's really interesting because you have just the two different types of risks there. And a lot of people have been very hesitant to get long-term care insurance because they worry that they'll pay premiums for all these years, premiums that cost may rise through time and then never need long-term care.
LANKFORDAnd, this way, they end up having coverage. No matter what happens, they have some type of payout. What typically happens is, you know, say you pay $50,000, and a lot of these are a lump sum. You put a lump sum in. And then if you end up meeting long-term care, depending on your age, if you're 50s and 60s when you buy it, you may have, you know, three to five times that amount that you paid in as benefits. You can spread that over, you know, three, five years or so.
LANKFORDAnd if you end up dying, you may end up having, you know, about $75,000 in a death benefit. So it's not nearly as leveraged as if you buy long-term care insurance and need care fairly quickly, but you do end of getting some sort of benefit no matter what happens. And this is something that insurance companies have been a lot more interested in recently because it's more risks that they're very familiar with. And the life insurance risk tying that in together makes it a bit easier for them. But you do need to have this lump sum that very few people do have.
REHMKimberly Lankford, she is a contributing editor to Kiplinger's Personal Finance magazine. We'll take a short break here. When we come back, we'll ask more questions about whether you should or can buy long-term care insurance.
REHMAnd in this hour, we're talking about long-term care insurance, how much it costs, what you get for what you pay and what happens once those premiums continue to rise. Ken Apfel, I gather your wife owns a long-term care insurance policy.
APFELYeah. And as the former commissioner of Social Security, I believe in economic security, so this is an important issue for us as a family. She bought long-term care insurance when she was 51, and the provision was that the premium would stay constant over the life of her policy.
REHMWas that a written guarantee?
APFELIt was. Although, when you dig deep, deep, deep into the written statement, it indicates that your -- the benefit increases are possible if the premiums are determined to be inadequate. So this was the federal plan, this and -- so about three years ago, we received a notice that either the premiums would increase by about 25 percent or the benefits would be cut by about 25 percent. We have income, so we've -- we opted for a 25 percent benefit increase -- premium increase.
APFELSo others might say, I'm just going to have to have that benefit get smaller and smaller and smaller, so…
REHMOr they might have to drop out altogether, in which case, they lose everything they put into it.
APFELEverything. So there are risks with long-term care insurance for the individual. I'm still a strong believer that for some people it makes sense, but you can't be certain what you're ever going to get because we're talking about policies that are going to come due 20 and 30 and maybe even 40 years after they're originally taken out. We don't know what the system's going to look like then.
GLECKMANThe other issue is what happens to the insurance company that sells you the insurance. There's been over the last decade or so a tremendous consolidation in the industry. The estimates are that we've gone from about 100 companies selling this insurance to about 20. Now, so far, and as far as I know, no one has ever lost their benefits because their company went out of business. Usually, what happens is this book of business is acquired by another company. They pick it up. In one case that I know of in Pennsylvania, the state actually took over the insurance company.
REHMAnd this email follows precisely that question: "Can benefits cross state lines?" Mary Ann says, "If I buy and make payments in D.C. or some other state, can my long-term care benefits be applied in, say, North Carolina or New York?"
GLECKMANYes, they can.
REHMAll right. And she says, "What is there I should be looking for in that policy?" Kimberly.
LANKFORDWell, a key thing is you can use your benefits in whatever state you end up living. But as we talked about before, the costs of care can be very, very different from one state to another. So if you are looking at, you know, possibly moving, you know, 10, 20 years down the line when you are retired and needing benefits, which is hard to predict when you -- maybe in your, you know, late 50s or 60s and buying the policy, just consider, first of all, how much those costs might be.
LANKFORDThe MetLife Mature Market Institute has a really good cost of care -- annual cost of care survey that look state by state and even city by city, and it's really interesting to see the huge variation in parts of the country. Another interesting thing is, you know, it seems like, over the last several years, more financial planners have been talking to their clients about covering long-term care potential costs in some way.
LANKFORDSome of them are in favor of long-term care insurance. Some are in favor of some of the hybrid polices or other methods. But they realize that this is this potentially huge expense that can put their retirement savings in jeopardy.
LANKFORDNow, the tough thing is that a lot of them, you know, realize that the long-term care insurance policies -- you know, rates have been increasing -- and that when you are buying that, you need to look, you know, first of all, not just at the cost of care in the area, but not necessarily covering the entire costs yourself with the policy, kind of, you know, making some tradeoffs and realizing how much care could you afford from your retirement savings, and then maybe filling in some gaps that makes the premiums a little bit more manageable and makes you a little bit more prepared if your costs do go up.
REHMSo, Ron Pollack, it sounds as though you really do need some financial advice from a planner to help you navigate all these issues.
POLLACKYeah, there's no question you do and-- 'cause there's so many decisions you have to made -- make if you're considering buying a long-term care insurance policy. But what this discussion shows is that long-term care insurance is a whole lot different in many ways than other kinds of insurance policies, whether your -- whether it's automobile insurance, homeowners insurance or regular health insurance. With all of those other policies, you have a high predictability that people purchasing insurance are not going to make a claim.
POLLACKSo when you buy homeowners insurance, you don't expect a fire in your house the next day. If you buy automobile insurance, you don't -- and you don't expect to have a car accident the next day. So for people buying long-term care insurance, the people who are most likely to purchase it tend to be those who are worried that they're going to have a long-term care insurance problem issue.
POLLACKAnd if you just have a pool of people who are older and sicker, more likely to have disabilities, then the premiums are going to be high. The benefits are going to have to be moderated. And so one of the key issues is, when you think -- when should you think about buying long-term care insurance? Should you wait till you're 60 or 65 or 50, or should you do it at a younger age? Now, if you buy it at a younger age, you're going to pay a lesser premium, and you...
POLLACKYou are going to be paying longer. But a lot of people are worried, what is my policy going to look like 20 years from now or 30 years from now?
POLLACKAnd as the company from which I -- I've just bought my insurance, are they going to be in business? And so it's a real dilemma because it makes sense to buy insurance at a younger age. But if you're really worried about what that insurance is going to look like when you need it, that's a real problem.
REHMAnd, Kimberly, I gather this particular insurance area is in disarray right now.
LANKFORDThere really is so much that has been going on over the last few years. I mean, several very large and established insurance companies have left the business over the last few years.
LANKFORDMany of them -- they're continuing to service their current policy holders, so those people don't need to worry. But it makes you wonder, I mean, what's going to -- what is the business going to look like a few years from now?
REHMSo which companies have left?
LANKFORDMetLife and Prudential, fairly recently, have both left big parts of the business. And then John Hancock and Genworth have been two of the large long-term care insurance companies. Both of those had pretty significant rate increases over the last few years. A lot of them are just kicking in now, so I've been getting a lot of questions from readers recently about what they should do if they do get that rate increase.
APFELWell, I just wanted to add that this just reinforces the point that we need to be looking at public pooling in this country more than we need to be looking at private pooling, but...
REHMAs does Germany...
APFELAs does Germany.
REHM...with -- what do they do at 2 percent?
APFELYeah, that basically, German -- the German system for health care is a public good, and they have moved over to social for long-term care cost being part of that public good. It's paid by a 2 percentage point payroll tax. It's not inexpensive. But all of Germans are covered by long-term care insurance publicly. Ten percent or so is to have private plans, which is about what we would have.
APFELBut I think that in the long run -- and in 2012 is not an easy time to be talking about this given the fiscal situation. But the reality is we need to be looking at public options for the 85 or 90 percent of people who are never going to be able to be able to afford a private long-term care insurance policy.
REHMAll right. We got lots of callers with many questions. Let's go first to Great Falls, Va. Good morning, Daniel.
DANIELGood morning. My question was about the lifetime caps and whether those are still going to be in effect when -- in 2014 with this type of insurance first and...
REHMI guess that's it. Ron Pollack, lifetime caps.
POLLACKWell, the likelihood is it will. I mean, that's one of the key decisions you have to make. Are you going to have some kind of a cap? How many years are you going to seek coverage? And if you purchased a plan that has a cap or has X number of years for which you have coverage, it's not going to be extended once you really need that care. And if you need that care for a longer period of time, you're out in the cold.
REHMHere's an email from Allan in Rolla, Miss., who says, "A friend who was an insurance agent educator told me a few years ago that if you had ever taken prednisone, it might be impossible to find long-term care insurance. Is this true? Are there other bars to eligibility?" Kimberly.
LANKFORDWell, insurance companies all have their different underwriting standards, which is the medical conditions that they look at when deciding whether or not to insure you. And if you do have any medical conditions, it's really important to shop around, look at several companies because we found huge differences in who they will accept and who they will reject, depending on the company.
LANKFORDBut because of the financial situation of many of the companies that have been providing these coverages, since they have been paying out many more people than they expected, they have really tightened up their standards, so some people who may have qualified for coverage several years ago, if they were to look for coverage these days, may have more difficult time.
GLECKMANBy some estimates, as many as a third of people who want to buy long-term care insurance are not eligible...
GLECKMAN...because of pre-existing medical conditions. They're underwritten out of coverage.
REHMBut specifically on the prednisone issue, how many of us have taken prednisone as part of recovering from some short-term problem?
GLECKMANI think, as Kimberly said, what you're going to find is that different insurance companies will have different requirements. Often, they'll ask questions like, have you ever been in a nursing home? And that could be, you know, recovering from rehab for knee surgery.
GLECKMANAnd usually if the answer to that question is, yes, I have, you will not be eligible for getting this insurance.
POLLACKYou know, one of the things the Affordable Care Act has tried to do both in acute care and in long-term care is to end this, you know, denial of care due to either pre-existing condition or -- so one of the things the Affordable Care Act did is it requires insurance companies to provide coverage even if they have a pre-existing condition or that they can't charge a discriminatory premium. But that is for acute care.
POLLACKNow, with respect to long-term care, there was this program, which is not going to be implemented, the so-called CLASS Act, which was actually going to correct that. It was going to help create a private market, and it was going to prohibit some of these practices. But the CLASS Act is not going to be implemented.
APFELI just wanted to add that if we start looking at the number of people who can't get coverage for long-term care insurance because of their pre-existing conditions -- and that number that Howard mentioned of about a third, up to a third not being able to qualify -- that again argues that we need to be thinking about more broad-based solutions here than we have to date. Private long-term care insurance, potentially good for 10 or 15 percent of the population.
APFELBut if you think about those people that are applying now and not getting their long-term care insurance because of a pre-existing condition, they're precluded from ever getting coverage again. So we need to find some ways where we can have broad pools of people into these systems.
REHMKenneth Apfel, he's former commissioner of the Social Security Administration, currently professor at the University of Maryland School of Public Policy. And you're listening to "The Diane Rehm Show." Let's go now to Birmingham, Ala. Good morning, Katie.
KATIEGood morning, Diane. What a great program to be aired, very good topic.
KATIEMy sister had home health care, and she had a pre-existing illness -- myeloproliferative disorder -- and had it for many years. So I'm not sure how she got the insurance. It was a -- it's a nationally known company. But the experience was very negative. And I had had my financial planner try to get me to get long-term health insurance, and I just kept resisting. And this has reinforced my negative opinion of that type insurance just because of the experience we had with her. And I guess that it was home health care.
KATIEBut it was just a horrible experience. And it ended up never getting any payment because they said there was a 30-day exclusion. At first, I told my niece it was a 30-day waiting period, and then we'd be reimbursed for the home health care. But it ended up they said, no, it was an exclusion, so we got no money. She paid a lot on her -- for the premium. And not to mention that we had -- home health care was so poor.
REHMI'm sure there are hundreds and hundreds of stories like that out there, Kim.
LANKFORDWell, you know, I did an article a few years ago where I talked with a lot of people who had been on long-term care claims about what they wished they had done differently when they bought their policy, when they looked at the details of the policy. And one of the things that did cause some of the most complications was the definitions in the home health care part of the payment.
LANKFORDYou know, usually, long-term care policies do have a waiting period. And the longer the waiting period that you buy, the lower your premiums will be. They tend to be 30, 90 days, things like that. But some of the policies have a no waiting period for home health care, even though if you had nursing home care, you may have a 60-, 90-day waiting period. But this varies vastly from company to company.
LANKFORDAnd one of the things that the people who had had claims told me was look very, very carefully when buying the policy about the definition of home health care and how that's calculated, too, because a lot of times when people need home health care, they may need it for just two or three days a week at first instead of every day. And some policies calculate that as a week. Some policies calculate it per day, which can cause them to pay out very, very differently. So that's a key thing to look at when comparing those policies.
REHMHere's an email from Margaret, who says, "I've had long-term care insurance for 20 years. The cost has increased so much I cannot afford it any longer. The original company has changed hands four times since the policy was purchased. I think they had no idea what this care would cost, were glad to unload their customers. The cost has gone from $1,100 per year to about $5,000 per year. I'm too old to consider getting another policy. Even if I could qualify for coverage, I don't know whether to keep it or just let it go after paying so much all these years." Ron Pollack.
POLLACKSo policies may say, we're not going to increase premiums...
POLLACK...but they can do it as a class. And so...
REHMI don't understand that. What does that mean?
POLLACKWell, they may find that the business actually -- that they can't sustain the insurance coverage, that they felt they couldn't...
REHMWell, then they shouldn't say that to begin with. Whether it says a class, whether it's individuals, I think it doesn't sound good. Ron Pollack is executive director of Families USA. That's a national nonprofit organization for health care consumers. Short break. More of your calls when we come back. Stay with us.
REHMClearly, an awful lot of confusion and concern out there about long-term care policies. Here's an email from Mary Ellen, who says, "Ken mentioned purchasing an individual long-term insurance policy. Are these even sold any longer? It was my understanding that more LTC insurers are now selling group policies only. An April New York Times article mentioned that Prudential does not sell individual policies." Kimberly.
LANKFORDWell, there has been a big shakeup in the business, and some of the companies that had been in the individual market have gotten out. But meanwhile, some of the companies that are in the group market have gotten out, so the players are a little bit different. There are still several companies that do sell individual long-term care insurance, but it is a bit more difficult to get a group policy than it had been just a few years ago. Some of the big players in that part of the business have pulled out.
LANKFORDBut you can still find a lot of major companies that are still selling the coverage. It's just that it's not nearly as broad as it had been, and it's constantly changing. Just over the last two years, there had been some several announcements of some big companies pulling out of certain parts of the business.
REHMAnd, Howard, here's the rest of that email. "Are insurers covering more in-home services that Medicare does not cover, the aides to come in to help with care?"
GLECKMANYears ago, they sold mostly nursing home policies. Now, most companies sell what they call comprehensive insurance, which will cover both nursing home care and home care. So that issue, for new policies, for newer policies, is generally taken care of. The other question, though, is a very important one. There's this tremendous confusion about Medicare. The simplest way to say it is Medicare will not pay for long-term care.
GLECKMANMedigap for Medicare Supplement won't pay for it. Medicare Advantage won't pay for it. No version of Medicare will pay for long-term care. It will pay for limited skilled nursing after you've been discharged from the hospital for a limited amount of days. But in terms of long-term care, it doesn't pay.
REHMOK. So if you buy a policy that says it will cover three years in a nursing home, your three years runs out, you're still in a nursing home, what happens then, Kimberly?
LANKFORDThat's the very difficult question.
REHMYou get kicked out.
LANKFORDAnd -- well, that's where so many financial planners are trying to figure out. You know, people who are lucky enough to have enough assets to work with a financial planner, they're figuring this out as a big puzzle. And they're looking at, well, we know we have this dollar amount covered, maximum amount covered, and then what do we do after that?
LANKFORDAnd that's the very difficult part, though, because, you know, by that point, then you are going to have to tap your assets. And then, eventually, depending on how long you're there, you may end up spending them down and eventually being on Medicaid. So it's a very difficult question.
REHMAnd here is a website comment from Jim, who says, "Long-term care is probably the most important insurance you can own. You are either going to use it or just drop dead. Those are the only two scenarios. It's a shame the Feds could not get their act together to offer a national long-term care program, would have helped a lot of people and would have ended up saving the country lots of money." Ken Apfel.
APFELWell, yes. And in the health reform bill, there was, as Ron pointed out, the start of a national long-term care insurance system. But it wasn't -- it was an optional system and would have led to large proportions of people, who were very much needing that care -- driving premiums up very significantly. And that program, unfortunately, could not be enacted or couldn't be adopted, given the problems that existed with it.
APFELBut what we need -- and I don't know how long it's going to take in this country, very frankly -- is something like a Social Security System for long-term care. And we did this in 1965 with Medicare. We created a pool. And we need to do it for long-term care. The fiscal situation has to be different than it is today.
APFELBut I also think that what we have to -- what we're going to get to in the next 10 and 15 years are so many people realizing that they're at risk, so many families, so many grandparents, so many parents, so many of us, that we're going to need to start to look towards collective action in this area to be able to provide a pool for the vast majority of people. Medicaid is financially not very sustainable, given the financial costs for states. That's what drove Germany towards moving to a system, both human needs, and the fact that their system was state-based or lender-based.
REHMAll right. To Chapel Hill, N.C. Hi there, Gary.
GARYHi, Diane. How are you?
GARYThank you for taking my call.
GARYThe reason I was calling is because I'm in one of those companies that has just received a large increase. And my question has to do with, how do you know -- because my accountant was warning me about this. How do you know whether your company is actually going to be in business with all this turmoil in the industry? How do you know that it's going to be in business in 10 years when you're going to be needing your health insurance?
LANKFORDWell, I mean, that's the thing people are concerned about. I mean, the good news is there is a big safety net. Every state has a state guarantee association. And if a company does end up going bankrupt, then the state does end up paying out premiums. And there has never been a situation where people haven't gotten their -- excuse me, state would end up paying the benefits. And there hasn't been a situation where people have not had their benefits paid.
REHMWhat about Pennsylvania, Howard?
GLECKMANWell, the state is picking up the costs. It is basically paying the benefits on behalf of this...
GLECKMANOn behalf of this insurance company that failed.
REHMWhat company was that?
GLECKMANKimberly -- Kim, do you remember what it's called?
LANKFORDIt was -- was it Penn Treaty?
GLECKMANI think so, but I'm not certain.
REHMAnd that company failed.
GLECKMANIt was a relatively small company...
GLECKMAN...so it was easy to do. The harder question is what happens if a bigger company goes under, and that's what's on test that we don't know.
REHMAll right. To Harrisburg, Penn. Barry, you're on the air.
BARRYThank you for taking my call.
BARRYI got a question. The gentleman said that 63 percent of long-term care is paid by Medicaid. The question I have is financial planning has been a thing of the last 20 years. A lot of that is to take away how do we hide the assets of grandma or grandpa so that when they need long-term care, they go into Medicaid? And the nest egg that was there to take care of them, at least for part of the time they were in need at the end of life, is gone, and they now become a ward of the state.
POLLACKWell, as Gary was -- Barry was indicating, right now, of the people in nursing homes, 63 percent have their care covered by Medicaid. And Medicaid is not -- as I mentioned before, it's not really an insurance policy that prevents you from having an economic catastrophe. It only covers you once you've really spent down your assets and you have very little income. Now, those people who try to transfer their assets in order to make sure that they'll be eligible for Medicaid, they've got to wait a number of years to become eligible for Medicaid, typically five years.
POLLACKAnd moreover, if they have a home, the state is likely to place a lien on that home to recoup what the costs were to the Medicaid program. So this is not a program that really protects people from economic catastrophe, and that's why I think what Ken was saying is so important. We've got to provide a social benefit like we do with Medicare, like we do with Social Security.
REHMWe have to get out of a political rough first. Howard.
GLECKMANFirst of all, I want to respond to the -- this issue that the caller raised, it is largely an urban myth that lots and lots of Americans are finding legal ways to avoid paying what they owe and artificially putting themselves into Medicaid. There's just no research that supports that. It certainly happens. I mean, we all know that there are lawyers out there who do this, but it's relatively rare.
GLECKMANOne of the reasons why we know it's relatively rare is most people who are 80 or 85 years old, which is the time of which they're going to require long-term care, don't have any money. They haven't had any money for years. So there wasn't anything for them to hide in terms of artificially giving it away. The other issue, which is the one that both Ken and Ron did mention, is this idea of finding a way to create a broader risk pool, a national system. I've been thinking about whether or not we've been going about this all wrong.
GLECKMANWe've been thinking about it. The industry has been thinking about it. The government has been thinking about this as if it was a life insurance product, a retirement product. Maybe we should think about it as if it were a health insurance product and make it a part of health care because that's really what it is. That's how consumers see it. So that may be a way to approach this more productively if we think about it that way.
REHMHere's an email from Jacqueline. She says, "We bought home health care years ago at about age 50. My husband had a stroke eight years ago. He's totally non-ambulatory, so he needs full-time care and competence in transferring him. We lived in a remote area. There are no agencies. We hired very good aides locally through a referral, but the insurance will not pay because the aides did not come through an agency. What can I do? The cost of aides is depleting our assets rapidly."
LANKFORDWell, that's -- it goes back to that similar question from a previous caller about the home care benefits. And there really is such a very different definition from company to company about what they will pay out. It's such a difficult situation if you already have the policy. And so many people I had talked to had found a home health aide who they loved, had them for the 30 days or however long their waiting period was.
LANKFORDAnd then when it was time for the policy to pay out, they realized that they might not have that -- had the licensing to qualify, things like that. When looking for a policy, really look for -- think of -- think about how the care is provided in your area and look for a definition of home care that may coincide with what you have available in your area because people -- that is one of the biggest complaints that people that I had talked to had was that their home care aides were not eligible for coverage under certain types of policies.
REHMAnd one quick question from Perry, who says, "Please mention there's a tax deduction for this type of insurance depending on your age and that gauges the amount you can deduct." So, Ken?
APFELWell, this is a deductible expense into the health insurance cost that an individual would have. But I know that there have been policies out there to recommend greater tax incentives than even exist currently. And if we're going to put the next dollar into long-term care, I'm not sure we should be doing it for the 10 or 15 percent of people who would be potentially buying long-term-care insurance.
APFELWe ought to be thinking about low and moderate income or middle-income people. So I think that creating a whole new set of tax incentives here for the small group of the population who are at the higher income range, who are potential candidates, is not the way to go.
REHMAnd you're listening to "The Diane Rehm Show." Let's take a call in Marquette, Mich. Good morning, Mary.
MARYGood morning, Diane. Thank you for taking my call.
MARYI enjoy your show so much.
MARYI will try to be brief. My mother is a recipient of the benefits of a policy that she bought. She's in assisted living. And she has offered to purchase policies for my two sisters and I. My two sisters are 60 and 62. I am 49. I'm married, but we have no children. And I'm just wondering if it's worth it for a policy for me given all the question marks that are being raised particularly in the program today or if it would be better to invest that money to use in the future towards my long-term care.
REHMWhat do you think, Kimberly?
LANKFORDWell, I think it's -- I mean, it's a difficult situation now. Policies do cost a lot more than they had several years ago. I'm very relieved that my parents bought a policy about 10 years ago when the premiums were still pretty low. My in-laws did, too. They recently had a rate increase, and we looked around at the cost of policies currently and realized that it was a better deal for them to pay the rate increase than to shop around, which is pretty much the deal for everybody.
LANKFORDReally, the policies now are a lot more expensive. However, I think at the current -- in the current situation that it is still pretty much the best way to provide potential -- coverage for this potentially large cost. But I think that it's important to make some trade-offs instead of spending a lot of money on premiums to cover the entire perspective expenses, to maybe look at covering, you know, part of the cost and really seeing how it ties in with your retirement savings, saying, I will cover maybe -- get a policy to cover maybe half or two-thirds of the cost of long-term care.
LANKFORDMaybe go in -- if you're married, there's policies where you can get shared benefits, where you get maybe three years each, so you get a pool of six years. If one of you needs care for two years, the other has four years, so it's -- since the odds are that one person may need care for a lot longer than the other, this is another way kind of to hedge your bets with that.
LANKFORDSo I think a lot of people are making trade-offs to use these coverages to cover a big chunk of the potential cost but maintaining the premiums, keeping them more affordable because you're realizing that you are likely to have a premium increase at some time in the future. So be sure that that's entered into your calculations when thinking about how much coverage to get.
REHMDo you agree with Kimberly's assessment, Howard?
GLECKMANWell, I think the question of whether you can self-insure is a very hard one. You know, mathematically, sure, of course, you can, although she said her sisters are in their early 60s.
GLECKMANUnless they've already put aside a lot of money, it's pretty late for them. She's 49. Maybe she could, but that would require a lot of savings discipline. She'd have to put aside several thousand dollars a year for, really, the rest of her working life, which would have to last into her 70s for her to put aside enough money to make this work.
GLECKMANTo give you some sense of it, the average person at 65 would have to have put aside about $65,000 in savings just to pay for their long-term care, and that's the average. That doesn't count somebody who may be well beyond the average, as been mentioned, may require a long-term care for many, many years.
REHMAll right. To all of you. Ken, you said earlier your wife has long-term-care insurance. What about you?
APFELI didn't take it out at that time, and, actually, probably -- I don't want to get into details -- but with pre-existing conditions probably wouldn't qualify.
REHMAll right. And, Kimberly, I assumed you do have long-term care.
LANKFORDWell, you know, I always say that the sweet spot for buying the coverage is in your 50s or 60s. I'm in my mid 40s so...
LANKFORD...I don't have it yet. But 50s or 60s, I will consider it, depending on what the situation is then.
GLECKMANWhen I was working on my book, "Caring for Our Parents," I told everybody that I would decide whether or not I was going to buy when I finished the book, finished all the research. At the end of it, I find it -- my wife and I decided that we do not buy -- we would not buy it for us.
REHMAnd to you, Ron Pollack?
POLLACKI don't have long-term-care insurance. As some of the folks here know, I -- we took care of my mother, or my wife did -- mother-in-law, both deceased, and now my father-in-law is 98 years old. None of them have long-term-care insurance.
REHMRon Pollack, Howard Gleckman, Kimberly Lankford, Ken Apfel, thank you all so much. And thanks for listening. I'm Diane Rehm.
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