How to Cover Long-Term Care?

If you don't have a long-term care insurance policy, you're not alone. In a recent Morningstar.com article, columnist Mark Miller wrote that private long-term care insurance covers only about 7.4 million people. The policies' very high costs, combined with limitations on the coverage they provide, limit the attractiveness of this type of insurance in many people's opinion.

Although some creative policy options are being debated, in the meantime, folks without coverage may look to familial support or possibly Medicaid if needed, though both remedies have their complications.

We recently asked Morningstar.com readers for their thoughts on long-term care insurance. Specifically, we wondered, absent purchasing a policy, how have they or their loved ones thought about managing long-term care should it be required?

Many respondents said that they had looked into LTCI offerings, but ultimately decided that buying a policy just didn't make sense after crunching the numbers. "Long-term care insurance is a good concept, although the current products are not very attractive. Hopefully new products and possibly tax incentives can make it work," said Rathgar. "[A] few years back LTCI was offered through work. Looked into it and realized there are a million restrictions and clauses and the coverage limit was $200k or less with several thousands in premium per year," said theDumberOne. A few readers said that they considered a life insurance policy a better value, reasoning that if they spend down their assets paying for medical care, a life insurance policy will pay out a death benefit to heirs.

While some readers said that they had found an insurance product that fits their needs ("hybrid" life insurance/long-term care insurance products were mentioned by a few readers), many others said they planned to completely or partially self-fund their long-term care needs, and ticked off some considerations for those planning to do the same. The following is a summary of their responses. To read the full thread and weigh in yourself, please click here.

'The sweet spot was late 50's to early 60's' Some readers (such as Rule 72, quoted above) said they in considering a long-term care policy they were faced with this conundrum: When is the ideal time to buy a policy? On the one hand, you may not want to delay the purchase for too long, because the older you are, the higher your premiums will be, and the more likely you are to have encountered a serious health problem that could lead not only to higher premiums, but to denial of coverage.

But on the other hand, if you purchase a policy when you're younger, you could end up paying pricey premiums for decades before you would ever actually need long-term care.

"Timing is everything. My wife and I were able to get a 10-year paid in full long-term-care policy in 2003 when we were both 53. Owning a business at the time, I was able to fund the policies with before-tax dollars. A $53,000 investment over 10 years bought us both what is now a $180/day benefit (inflation rider attached) after we cover the first 90 days," said sundance.

"We subscribed to LTCI in our late 60's. That meant at a premium cost," said Juris2. "We regard this as wealth insurance--reducing the risk that we will exhaust our estate or depend on our kids for basic financial and support."

'Buying it can be like writing a blank check.' Another problem that many readers pointed out (such as EFHutton, quoted above) is that the premiums can increase to the point that a once-affordable plan is no longer affordable.

"My wife and I have LTC policy which is comprehensive but the cost is going up dramatically. We are considering dropping the coverage but would like a 'consultant' to help us decide based on the policy, the insurance company, and our financial situation," said xBanker.

"At the current rate of increase I'll have to forfeit the policy by the time I'm 85. I have no contingency plan for that. I'm still paying the annual premium, hoping for the best," said hctim7.

'Better to save to self-insure' TheDumberOne, quoted above, writes that "[Long-term care insurance] offered in the market today do not make sense for the coverage they provide." This reader, like many other respondents, ultimately decided that self-insuring made more sense in their situation. Many in this camp offer the following piece of sound advice: Start saving as early, and as much, as possible.

"For us the best long-term care insurance is to start saving and investing young and live a little below your means," said Rule72. "We just spend as we see fit, somewhat frugally."

"Our strategy is to save up…. And that's pretty much it. I think of it as a sort of retirement balloon payment," said GregLee.

A few readers mentioned that it's always a good idea to consider the tax ramifications when paying out of pocket: According to IRS rules, certain medical expenses, including long-term care outlays, are deductible to the extent they exceed 7.5% of AGI for taxpayers over age 65. (Currently the threshold is 10% for people under age 65, but beginning Jan. 1, 2017, it's going up to 10% for all taxpayers regardless of age.) "If you plan to pay out of pocket, use your traditional IRA," said Rathgar. This reader's reasoning is that because long-term care expenses can qualify for a tax deduction, you can match the tax deductions to the high taxable withdrawals to offset any tax burden you have.

"I set up a separate balanced portfolio of $250,000 from money I had already saved and invested. Then removed that money from my calculations of retirement withdrawals. It is there only for major medical expenses. If you can manage this inside a traditional 401(k), do so. It will be tax-deferred until used, and probably tax deductible when you use it…. Invest 30%-35% of every paycheck. Start early. I did at age 16… Stay out of debt. " says skipperchg.

Reader dprice says "My husband and I have held high deductible healthcare plans for years and we contribute the max to health savings accounts (HSAs). We established our HSAs personally and they reside at a consumer brokerage where we have complete autonomy and a wide range of investing choices. We do not withdraw the funds for medical expenses and will have tax-free growth for life if we are fortunate, or tax-free withdrawals for long-term care if we are not." 'Is your living situation right?' Finally, lifestyle considerations are also an important factor to many readers who plan to self-insure. In addition to receiving the medical care they need, these readers want to make sure they are as comfortable, and living as independently, as possible. For some this means they plan to "age in place," or to stay in their homes as long as possible. Sometimes that requires making renovations to a house (such as moving a bedroom to a first floor, for instance) or designating a room or apartment area for an in-home healthcare worker, if needed. Others mentioned that they plan to rely on family, or have researched and chosen a specialized continuing care facility.

"We will care for each other at home as long as possible, then purchase in-home help from other trained medical professionals when it is required," said Hobocon.

"I am looking into 'aging in place' instead of long-term care," said BigHead. "I have my estate plan done and CFP, CPA, estate attorney, medical team, church, and family all in place. Now planning changes to my house to get it more to a 'universal design.'"

DrHelen mentions that continuing care retirement communities can be a good option as well. "...you can live in an independent apartment but can also access supportive care when needed," this reader said. "The best and nicest of these aren't inexpensive but they can be a very attractive alternative."

Retired at 48 suggests this alternative: "Select one adult child who agrees that the day of the first death, he/she can retire and simply provide long term care for the second parent henceforth, if needed. If the second parent does not need care now, the plan is deferred. When the second parent needs care, the adult child provides it...for consideration ranging from a home to live in, all expenses covered...a salary, etc. Rather than pay the healthcare network, pay your kid."