Transcript An American Dilemma - Independent Planners Group

Is Long-Term Care Insurance
Part of Your Financial
Planning And Asset
Protection Strategy?
800-496-3572
www.ipg-us.com
Presentation Provided By:
J.T. RYAN & Associates, Inc.
IPG’s Long Term Care Partner
© JTR 2004
Revision 3.12.4
What is long-term care (LTC)?
No longer able to live independently
Prolonged physical illness
 Disability
 Cognitive impairment

© JTR 2004
When am I eligible for
benefits?
Require help with two activities of daily living:
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
Bathing
Dressing
Eating
Continence
Toileting
Transferring
Require supervision due to cognitive impairment
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Memory
Orientation
Reasoning
© JTR 2004
What’s my risk of needing
LTC?
Nearly 80% will live to be age 65 or older
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60% to 70% of Americans age 65+ will need LTC
Half of all women 65+, one-third of all men 65+
“At risk” group female baby boomers
Average stay in facility today is 2.6 years
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24% who enter a facility stay a year or longer
9% spend five years or longer
Young Americans also need LTC
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40% of those receiving LTC are age 18 to 64
© JTR 2004
What is the cost of LTC in
2004?
Daily Nursing Home Costs
$156 Atlanta
$232 Boston
$172 Chicago
$147 Dallas
$246 New York City
$174 Phoenix
$312 San Francisco
$185 Seattle
Home Care Hourly Rates
$18 Atlanta
$21 Boston
$18 Chicago
$17 Dallas
$15 New York City
$18 Phoenix
$20 San Francisco
$20 Seattle
•National average today for nursing home care is $181 a day
•Average long-term care stay in facility lasts 2.6 years
•Average cost of long-term care event is $171,769
© JTR 2004
What is the cost of LTC in
2024?
Daily Nursing Home Costs
$413 Atlanta
$615 Boston
$456 Chicago
$390 Dallas
$652 New York City
$461 Phoenix
$827 San Francisco
$490 Seattle
Home Care Hourly Rates
$48 Atlanta
$56 Boston
$48 Chicago
$45 Dallas
$40 New York City
$48 Phoenix
$53 San Francisco
$53 Seattle
•National average is for nursing home care is projected to be $480 a
day
•Average long-term care stay in facility lasts 2.6 years
© JTR 2004
•Average cost of long-term care event is $455,520
But I’m covered by Medicare
Not designed as a long-term care product
Pays 100% of first 20 days in SNF
Must be hospitalized three days
 Must enter SNF within 30 days
 Must require “skilled” care
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Pays amount in excess of $109.50 next 80
days
Pays $0 beyond 100 days
© JTR 2004
Medicare, Medigap and LTCI
Medicare
Medigap
LTCI
Federal Government
Health Insurance
Program
Private Health Insurance
Medicare Out of Pocket Costs
Private Disability Insurance
Help with Daily Living
Part A: Hospital Services
Inpatient hospital care
Some SNF care
Hospice care
Some home care
Most people get Part A at age
65 as a result of paying
Medicare taxes while
working.
Part B: Medical Insurance
Doctors’ services
Outpatient hospital services
Laboratory services
Physical therapists
Some home care
Enrolling in Part B is your
choice. The cost in 2003 is
$58.20 per month.
Ten Plans: A through J
All offer Basic Benefits
Part A coinsurance
Part B coinsurance
Some offer Extra Benefits
Skilled nursing coinsurance
Part A deductible
Part B deductible
Part B Excess
Foreign travel emergency
At home recovery
Basic and extended drug benefit
Preventive care
Assistance with daily activities
Bathing
Dressing
Eating
Toileting
Continence
Transferring
Cognitive Impairment
Memory
Orientation
Reasoning
Care provided in:
Nursing facility
Assisted living facility
Alzheimer’s facility
© JTR 2004
Adult day care center
Who funds the cost of LTC?
10% Insurance companies
14% Medicare
32% Family income, savings and investments
44% Medicaid
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43% Funded by States
57% Funded by Federal Government
Must have “spent down” assets to poverty level
© JTR 2003
Why do people buy LTCI?
Protect assets
Preserve independence
Quality of care choices
Avoid depending upon family and friends
© JTR 2004
Families and care-giving
84% of working caregivers changed work
hours
Lost an average of $659,000 in
compensation
Within two years suffered serious illness
©JTR 2004
Protection for financial
security
Auto insurance
Home insurance
Health insurance
Life insurance
Long-term care insurance?
©JTR 2004
Without Insurance
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
($50,000)
YR1
YR2
YR3
YR4
YR5
LTC expense could totally deplete
a $500,000 nest egg in five years.
Assumptions:
1. Family savings of $500,000 including retirement income and savings
2. Household living expenses of $50,000 annually plus 3% annual inflation
3. Nursing home expenses of $66,065 annually plus 5% annual inflation
4. Remaining annual savings earn 8% per year
©JTR 2004
Is LTCI appropriate for me?
Are you between the ages of 40 and 60
(18-84)?
Excluding your home, are assets >$30,000?
Can you afford the premium?
© JTR 2004
What determines the policy
costs?
Age
Health status
Daily benefit
Benefit period
Elimination period
Type of care – facility, home or integrated
Inflation protection
Other benefits
Discounts that may apply
© JTR 2004
Premium examples
Purchased
Today at Age
Daily
Benefit
Benefit
Period
Inflation
Protection
40
$100
Lifetime
5% Compounded
$1180
45
$100
Lifetime
5% Compounded
$1336
50
$100
Lifetime
5% Compounded
$1524
55
$100
Lifetime
5% Compounded
$1850
60
$100
Lifetime
5% Compounded
$2359
65
$100
Lifetime
5% Compounded
$3325
Assumptions:
•Standard health status
•Elimination Period of 100 days
•100% Home Care
•No discounts applied
•Indemnity payment method
Annual
Premium
© JTR 2004
What’s important in an LTCI
policy?
The company!
Size
 Billions or millions in assets?
Other lines of business
 Insurance or manufacturing?
Reputation
 Rate increases and complaint ratios
Ratings
 AM Best, Moody, Fitch, Standard & Poor’s
© JTR 2004
What else is important?
Type of care
Nursing facility
Assisted living facility
Alzheimer’s facility
Continuing care retirement community
Home care
International
Combination or integrated
© JTR 2004
The tax issue
Tax Qualified
• Two triggers
– Assistance with 2 ADLs
– Cognitive impairment
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•
•
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No “necessity” trigger
90-Day certification
IRS $230 per diem cap
Conditional
deductibility
Non-Tax Qualified
• Three triggers:
– Assistance with 2 ADLs
– Cognitive impairment
– Medically necessary
• No 90-day
certification
• May include
“necessity”
• Benefits taxable?
• Premiums deductible?
© JTR 2004
What about options?
Inflation protection
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Compound or simple
Payment method
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Reimbursement or indemnity
© JTR 2004
Inflation options
$1,500,000
$1,000,000
$500,000
$0
40: YR1 50: YR10 60: YR20 70: YR30 80: YR40
Age and Years In Force
Comparison of Inflation Protection Options
$100 Daily Benefit for 5 Years or $182,500 Lifetime Benefit
No inflation
5% Simple
5% Compounded
© JTR 2004
Reimbursement payment method
Covers care in a facility
Covers home care by certified providers
Covers supplies approved by certified providers
Can be more flexible if care coordinator used
Does not reimburse if paid by another source
Stretches pool of funds
© JTR 2004
Indemnity payment method
Monthly or daily cash payment
Covers care in a facility
Covers home care
Care can be provided by informal
caregivers
Incidental charges covered
Premiums more costly
Greater flexibility
© JTR 2004
Claims payment example:
Assumptions:
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Age 50, $130 daily benefit, 5% compounding
Age 80, $561 daily benefit
Home health aide $60/hour in 30 years
Reimbursement payment:
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Aide used 3 hours/day
3 hours X $60 X 30days = $5,400
Indemnity payment:
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Policy pays 30 days X $561 = $16,830
Difference of $11,430 can be used as
needed
© JTR 2004
Why indemnity?
70% of Alzheimer’s patients live at home
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75% of care provided by unpaid caregivers
66% ADL assistance by family and friends
© JTR 2004
Other important options
Return of Premium
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Survivor benefit
Payment Options
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Flexibility for retirement income changes
Shared Care
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A solution to rising premiums
© JTR 2003
Shared Care
 A solution to escalating rates for new
clients
 Offers a less costly policy
 Provides significant benefit period
 Allows one spouse to use another’s
benefits
 If spouse dies, remaining benefits go to
survivor
© JTR 2004
MetLife Indemnity Comparison
Shared Care
Lifetime
 Ages: 65 and 63
 Ages: 65 and 63
 Daily Benefit: $120
 Daily Benefit: $120
 Elimination Period: 90 days
 Elimination Period: 90 days
 Inflation: 5% compounded
 Inflation: 5% compounded
 Risk Class: Standard
 Risk Class: Standard
 Benefit Period: 4
 Benefit Period: Unlimited
years/person or 8 years
combined
 Indemnity Rider: Yes
 Indemnity Rider: Yes
 Premium: $4273
 Premium: $5969
© JTR 2004
The cost of waiting
Year/Age
Purchased
Daily
Benefit
Annual
Premium
Years To
Age 80
Premium
Paid
Year 1
40
$100
$861
40
$34,440
Year 5
45
$130
$1268
35
$44,380
Year 10
50
$160
$1780
30
$53,400
Year 15
55
$200
$2701
25
$67,525
Year 20
60
$260
$4458
20
$89,160
Year 25
65
$340
$8252
15
$123,780
This chart illustrates how LTCI premiums for the equivalent of $100 Daily Benefit in 2003 dollars are impacted by age and expected
increase in healthcare costs. The example assumes benefit eligibility at age 80. Quote based on the following criteria:
1.
Single
2.
Standard health rating
3.
MetLife Value Plan with Indemnity Option
4.
$100 Daily Benefit equivalent adjusted at each age purchase
5.
100-day Elimination Period
7.
5% compounded Inflation Option
6.
8.
5- year Benefit Period
No discounts applied
© JTR 2004
The risk of waiting
At age 65, 23% uninsurable
At age 75, 31% uninsurable
© JTR 2004
Is Long-Term Care Insurance
Part of Your Financial
Planning And Asset Protection
Strategy?
What is long-term care?
How much does it cost?
Is long-term care insurance appropriate for
you?
What’s important in a policy?
© JTR 2004