As with most insurance, long-term health insurance can be hard to wrap your mind around. Mark Reckman is here to help change that.
In this episode of “Simply Money,” Mark gives a course on who might need long-term healthcare insurance and provides you with 5 helpful tips to guide you through the process.
Amy Wagner:
You’re listening to Simply Money. I’m Amy Wagner, along with Steve Sprovach. It’s not a fun part of your financial planning, but a piece of it that can’t be ignored is long term care insurance. What happens if you get sick later in life and how do you make sure that you and your family or you and your spouse are covered? Joining us tonight is our estate planning expert for the law firm of Wood and Lamping, Mark Reckman. Hey, Mark, this is something that, again, people don’t like thinking about, but it’s something that every single one of us needs to address in one way or another. And I think the key is looking at long term care insurance and deciding whether it makes sense for you or not.
Mark Reckman:
Well, it is. And it’s a big, black box of mystery for most folks. And just a lot of insurance people don’t really understand how it works.
Amy Wagner:
Okay. And so, let’s start with, you’ve got five tips on how to buy it. And let’s keep in mind too, as we’re talking about this, Mark, that there used to be dozens of insurance companies that offered these policies, you had all kinds of options, not so anymore. The marketplace is very limited. So, how do you begin?
Mark Reckman:
Well, I think the first thing you’ve got to do is to figure out whether or not you’re the right profile for long term care insurance. And I think the place to start is by deciding whether or not you can qualify, either you or your spouse, whether you can qualify for Medicaid without impoverishing your spouse. If so, long term care insurance is probably not necessary. Now, that doesn’t mean it’s not a good idea, Amy, because long term care insurance will always improve your prospects for admission to a quality facility, but it’s not necessary if you don’t have the risk of being impoverished by it.
Amy Wagner:
If you are looking or planning for long term care markets, almost the people that should be looking at these policies are those that fall in the middle. You have too much to qualify for Medicaid, but not enough set aside to self-insure. Meaning, if you or your spouse had to go into a long term care facility, first of all, these are insanely pricey, you’re looking at what? Probably six figures over the course of a year?
Mark Reckman:
Yeah, probably between 10 and $12,000 a month at this point for the decent facilities. So, you’re right, that’s a 100 to $125,000 a year.
Amy Wagner:
So, if you don’t have that kind of money set aside where you can handle that, then Mark, wouldn’t you say it’s those who fall in the middle who probably need to start looking at this?
Mark Reckman:
Well, that’s exactly right. So, if you’re below that middle, you may have less exposure because you have less assets to lose. And on the other side of the extreme, if you have a lot of money, you can afford it. You can self-insure, we call it, which means you can afford to pay for care. The average nursing home resident lives about 2.6 years. If you can afford to pay for nursing home care for, let’s say three or four years without threatening the financial security of your spouse, then you may choose to self-insure.
Amy Wagner:
Which going by the numbers that you just said, that’s $300,000 plus out of pocket for one of you. And Mark, what often happens is one person needs to go into a long-term care facility, but also the other person needs to be able to stay home, maintain the house, cover bills. So, there’s a lot to think about here.
Mark Reckman:
Well, that’s exactly right. And deciding whether or not you have enough money to self-insure depends in large part on what your income is. Many of us that are self-employed or have jobs that don’t come with a pension, we have to have money in the bank, because social security is not enough to live on. Other folks have jobs that come with good pensions. And so, they have substantial monthly income that reduces how much money you need in the bank to cover long term care.
Amy Wagner:
All right. So, Mark, when you’re thinking about these and especially if you’re married, how do you decide do we need one policy, do we need two policies here? Because these premiums are not cheap. In fact, the fact that there’s fewer and fewer insurance companies offering them means that the price of these have been going up over the past few years, somewhat astronomically in some cases.
Mark Reckman:
Well, that’s right. So, the question is, can you get by with just one policy? And to do that, you got to start by assessing your family history, your own personal medical history and your financial profile. Let me give you an example, Amy. If I’m retired from a career in the military and I’m in good health, I’ve got VA benefits and decent savings, I may choose just to ensure myself with the idea that if my wife goes into the nursing home, I know that my VA benefits, I know that my military pension, all of those things are safe and that I’m not at risk to be impoverished. Or I may choose to just ensure myself, knowing that if I can cover any expenses I may have, that it won’t wipe out my wife. It all comes down to what is the risk and can I afford, can I self-insure for one person, but not two.
Amy Wagner:
Mark Reckman, our estate planning expert, joining us tonight with some great insight on long-term care. Do you need an insurance policy? How do you go about it? And Mark, also, where do you go? Where do you go to find a policy and also know and have confidence that that person isn’t trying to sell you something that you don’t need that they’re making a huge commission off of, but that it really is the right thing for you?
Mark Reckman:
Now, that’s a tough one, Amy. But I’m a fan of using independent insurance agents, not ones that are captive to a particular company. They do a better job of comparing policies and benefits. They do a better job of customizing the policy to fit your specific circumstances.
Amy Wagner:
That makes a lot of sense. And also, before you go in, do your research? I mean, make sure that you know what you’re talking about, what you think your best options are. Not that this person can’t educate you and help you figure out maybe what’s truly best for you, but you don’t want to go in having no clue about what’s needed or what costs might be.
Mark Reckman:
Well, there’s a learning curve to this. And if you can get a head start on that learning curve, by doing a little reading, find a consumer reports article or some bias [sic], some non-bias source who can describe how long term care policies work. Learn a little of the terminology, then when you meet with an agent you’ll be able to talk their language. For example, you need to know what assisted care means and whether or not it’s covered. You need to know what in-home care means and is that covered. There’s something we call an elimination period. That’s the period of time that you have to pay for yourself before the insurance policy kicks in. If that’s a short period, your premiums are higher. If you can afford, for example, if I want to reduce my premiums, I may take a six month elimination period. In other words, I’m willing to assume responsibility for the first six months of institutionalization. And if I have a longer elimination period, my premiums will go down.
Amy Wagner:
So, you’re essentially self-insuring in the beginning and then covering on the back end the fact that if you’re in there for a longer period of time, the long term care insurance will kick in there. Mark, you have been doing this for a long time. And one of the things I love about having you on the show is the wealth of experience that you bring and also the stories about the clients that you’ve worked with. Anything that come to mind as far as for people who just maybe think like, I’m going to blow this off, I’m not going to worry about it, bad situations that people have come into by not planning for this?
Mark Reckman:
Yes. And the answer to that is that when you search for a nursing home, what you’re going to find out is that the market changes. And that the market in Cincinnati, for example, was very, very different 10, 12, 15 years ago. Cincinnati overbuilt nursing homes and nursing homes were looking all over for residents. It was easier to get into a nursing home. That’s changed now. The market is caught up and in Cincinnati we have a much more balanced market. So, when you go shopping for a quality facility, if you have a long term care policy in your pocket you’re going to have better choices. You’re going to like the facilities that are interested in you. And I’ve seen that over and over and over. So, long term care insurance isn’t always just about the risk, sometimes it’s used as a way to gain access to a better facility.
Amy Wagner:
That’s great access, great insights tonight from our estate planning expert, from the law firm of Wood and Lamping, Mark Reckman. If you have not considered long term care insurance and maybe you’re getting in your 50s, closing it on retirement, definitely something worth thinking about, some great tips to consider there. You’ve been listening to Simply Money, here on 55KRC, the talk station.
