talk 734

Long Term Care
Peter Tong, F4

Recently, due to our teacher’s plight, long term care comes to the forefront of our attention. Mr. Cheung is lucky to have a daughter and to live in Canada where its social services cover long term care. For those of us who live in the United States, each individual must provide his or her own solution to this problem. SS and I were talking about this and I told him that I remember reading something in a magazine article not so long ago which said in effect that long term care insurance is a possibility but it is not everyone. It is not for the poor because long term care is not cheap and it is not for anyone who have assets of 2 million dollars or more because they can afford to be self insured.

SS asked me why 2 million dollars? How should I know! I am not James Koo who always wants to know the reason why things are the way they are. But SS insisted that I come up with a better answer to his question and write something about the topic. So, here is my research into the topic. Please remember I am no expert on long term care insurance and my research consisted of one hour romp on the Internet looking for articles on the subject.

As you well know, if you Google any subject at all, you will get 100,000 answers. If you read every one of them, it will take a life time or more. Of the 100,000 answers, 99.5% or more wants you to give them your phone number or email address so someone can contact you for the most detailed answer you could possibly desire. I have no interest in talking to any salesperson. But I did find two interesting sites that did not ask me for my phone number or email address and that actually provide information I deem pertinent.

The first is by AARP, American Association for Retired People. Here is the web page address,

http://www.aarp.org/bulletin/longterm/Articles/a2003-10-30-dailycost.html

This site gives you the cost of daily care in a nursing home by State. For example, if you live in California, the cost is $185 on average. Unfortunately, that does not apply to any of our classmates who most likely live in LA or the Bay Area. See Table 1 for those cities of interest..

City in California Daily Nursing Home Cost
LA 204
Oakland 242
Sacramento 241
San Diego 198
San Francisco 268
San Jose 254

Maryland is $181 but D.C. is $220. Go to this web site, you will get some idea what you will need if you are interested.

The second web site I found interesting is

https://www.ltcfeds.com/ltcWeb/do/assessing_your_needs/ratecalc

The title of the web page is The Federal Long Term Care Insurance Program. I have no idea who is the sponsor of this page. But the content seems relevant. The site contains quite a bit of information on long term care but in particular, this page is a long term care insurance premium calculator. You tell the program your birthday, daily benefit that you need and the benefit period. It will return your monthly premium. Here is an example.

Select a Pre-Packaged Plan Below
Your Birth Date:
Select One Pre-Packaged Plan:

Daily Benefit Amount
Benefit Period
Maximum Lifetime Benefit
Facilities 100
$100 x 3yrs. = $109,500
Comprehensive 100
$100 x 3yrs. = $109,500
Comprehensive 150
$150 x 5yrs. = $273,750
Comprehensive 150+
$150 x Unlimited = Unlimited
Notes: Waiting Periods for all four options are 90 days. Maximum Lifetime Benefits above do not reflect inflation increases

When I supplied my birthday and press calculate, I obtained the answer below:

The cost for the plan and options you selected appears in the highlighted column of the table below.
You can calculate the premium for up to 4 different plans! By adjusting any of the options below, you can calculate multiple rate quotes and then select the one that's right for you. Learn how!

**Age:
65
Plan Type:
Facil. 100
Covered Services:
Facil.
Daily Benefit Amount:

Check for Weekly Benefit Amount (Comprehensive only) $100/day
Benefit Period:
3
Waiting Period:
90
Inflation Protection:
Automatic Compound Inflation Option
Future Purchase Option

ACIO
View Premiums:
Monthly

Your Premium Payment:
$84.00
Your Maximum Lifetime Benefit:
$109,500

As another example, for $150 a day and 5 years, the premium is $219.

Is this a good deal? I don’t know the answer to that because I do not know the statistics on which the premium is based. If you wish to know if it is a good deal for a particular person, that would also require the health history of that particular person. That is much too hard. Do remember that all insurance companies are here to make money. So, if you don’t need them, don’t use them. Below, I am going to make a suggestion on how you may know whether you need long term insurance or not.

I should point out that long term care payments is not trigger by old age. If a person has long term care, the payment will start if that person needs help to take a bath or go to the toilette.

So, let’s get back to the basic question which started this article. How much long term insurance does an individual need? And what is the significance of the 2 million dollars figure that I cited at the beginning? Here is one way to look at the problem. Go to the AARP site and find out how much you need every day in a nursing home. Suppose the answer is $200. Now suppose you have N dollars. The table below shows the daily interest you can expect for various interest rate.

Daily Interest Based on Principal and Interest Rate
0.04 0.05 0.06 0.07
1000000 114.29 142.86 171.43 200.00
2000000 228.57 285.71 342.86 400.00
3000000 342.86 428.57 514.29 600.00
4000000 457.14 571.43 685.71 800.00

If you have 2 million dollars, this table shows the interest per day from that principal is $285 at 5% interest rate. Eureka, you have it make and you don’t need any long term care insurance. In fact, you can probably get away with one and half million dollars.

Now suppose you only have one million dollars. Assuming an interest rate of 4% and a daily need of $200, you then need about $100 a day from long term care insurance. Go to the calculator web site, you find that the premium will be around $89 a month.

Once again, let me remind you that I am not an expert on long term care and I know nothing about individual needs. Yet, I do think the information here can help you start thinking about that problem which we all have to face sooner or later.