I wrote my blog post about long term care insurance in reaction to what I thought was a foolish, ivory tower-induced article in the Wall Street Journal, which blamed the unpopularity of long term care insurance on “narrow framing.” Narrow framing is certainly an issue in consumer financial decisions, but with long term care insurance the problem is the products themselves aren’t very attractive.
In particular I’m looking for a plan to cover catastrophic expenses in case I end up in a nursing home for a decade or more. I can pay the first few years myself and want coverage that kicks in later and takes over. Instead the plans that are out there start paying within a few months and end after just a few years of coverage.
Whenever I encounter an insurance oriented issue, I know to turn to InsureBlog’s Henry Stern for his perspective. I always learn something when I do.
Hank has a different spin on long term care insurance than what I’ve heard. Here’s what he writes in his critique of my post:
More disturbing, though, is [David’s] contention that “the benefit structure [of LTCi} doesn’t protect against catastrophic expenses.” This is a common misconception of how LTCI works and what it’s really designed to do, and for that I blame not David, but my industry. The story we’ve been told to tell is that you buy LTCi to pay for care. This is correct, but misleading: there is no realistic way to buy a plan that will completely cover the costs of a major claim (or series of claims). Anyone that could afford to buy such a plan would be much better off self-insuring.
No, the role of LTCi is to supplement one’s assets (and a Partnership-compliant plan is a terrific ally in that quest), and to buy “choice.”
What does that mean, Henry, “choice?”
It means that having the ability to pay for care oneself opens up a lot more doors (as regards facility and resource availability) than folks dependent on Medicaid will see. Is that fair? Doesn’t matter. Is that real? Yes.
Ok, that’s interesting. In other words long term care insurance doesn’t do what I want it to do, but it still does something useful for some people.
So I revise my view: long term care insurance has a role to play. But it still doesn’t deliver what I’m looking for.