Advisors fight insurers to pay long-term care benefits
SAN DIEGO — How do you plan for an expense that could cost nothing or more than $250,000 — and could be paid for by insurance but also may not be? That's the challenge of long-term care planning, Vanguard speaker Ryan Donohue told attendees at the FPA's annual retreat. What’s more, advisors find themselves battling insurance companies on behalf of clients.
There is a wide gap between those who will need to spend on care and those who won't, says Donohue, citing data from the Department of Health & Human Services. Nearly half of people age 65 and above won’t need to pay a dime for long-term care insurance, says Donohue. An unlucky 15% will pay more than $250,000.
Medicare will not pay expenses after100 days for clients who require long-term care, leaving them the rest of the burden. That’s why 72% of long-term care users have to pay cash for at least some of their costs.
“For all that we hear about private insurance,” says Donohue, “it pays [for] only 3% of long-term care.” Clients who pay out-of-pocket cover 53% of all long-term care, according to a 2016 HHS report.
Even advisors who successfully set clients up with long-term care insurance can end up in a tough spot.
Many LTC policies were written years ago by companies that later merged or sold their businesses, according to advisor Michael Haubrich of Mount Pleasant, Wisconsin. The new carriers have one goal, he said: “We’re not paying.” He said three of his clients have been hassled by their long-term care insurance carriers.
One of Haubrich's clients, a woman with rheumatoid arthritis, had paid $35,000 in premiums. By early 2018, she could no longer lift her hands above her chest. When the insurance company denied her claim, the client paid for home care herself until she moved to a long-term care facility in December where she continued to foot the bill. The carrier finally agreed to pay out her benefit of $234 per day several months later — after she broke her neck.
Seattle-based advisor Monica Callen has also fought carriers to pay out her clients’ benefits. The two most recent cases have included a woman with severe cognitive impairment and a man with dementia and Parkinson’s disease.
Callen says insurance companies have regularly used “delay tactics” like pretending they have not received a faxed claim from her client. Once Callen called herself, the claim was processed right away.
“If you just send in the forms and don’t harass them,” she says of insurers, “then nothing happens.”
As sales of LTC insurance plummet, combination products — annuities with LTC riders — are picking up some of the slack, serving as a useful alternative for some clients.May 16
For advisors with clients who need to file a long-term care insurance claim, Callen has a recommendation.
“Read the policy,” she says. "You need to know what the details are because they're all different.” For example, advisors should not assume the policy pays out in reimbursements instead of a flat cash payment. There has been so much change in how policies are constructed, she says.
In any case, Callen says, “it’s very hard to get the benefits to be paid.”
While it may be difficult to plan, advisors can still identify factors that may help predict whether their clients will need long-term care. “The older you are, the more likely you’re going to need it,” says Donohue. Because women tend to live longer than men, they are also more likely to need long-term care. Being single also increases the risk, as does lack of exercise and good nutrition. Family health history can tilt the odds in either direction.
For clients who will need long-term care, the amount they pay will vary considerably by the state they retire in. For example, the average yearly cost is $250,000 in Alaska, while in Texas it less than $50,000, Donohue says. Some states subsidize health care more than others, he says, which accounts for some of the difference. Supply and demand also play a role: where there is more demand, care will be more expensive.