Do You Need Long-Term Care Insurance?


Is Long-Term Care Insurance a Good Bet?
Economists argue that even if Medicaid spend-down rules were tightened significantly, Long-Term Care insurance would still be unfavored by consumers.
It is sometimes claimed that reducing the amount of assets an individual can keep while qualifying for Medicaid would increase the purchase of long-term care insurance. 
Now, two professors of economics have estimated that tightening Medicaid spend-down rules would do little to encourage the purchase of LTC insurance.  
While Medicaid recipients may keep only about $2,000 in assets in most states, their spouses may retain over $100,000 in Pennsylvania.  In the Fall 2011 issue of the Journal of Economic Perspectives, the authors estimate that a $10,000 decrease in the level of assets an individual and their spouse can keep while qualifying for Medicaid would increase private LTC insurance coverage by 1.1 percentage points.
"To put this in perspective," they write, "if every statein the country moved from their current Medicaid asset eligibility requirements to the most stringent Medicaid eligibility requirements allowed by federal law, this would decrease average household assets protected from Medicaid by about $25,000. This, in turn, would increase the demand for private LTC insurance by only 2.7 percentage points. While this represents a large increase in insurance coverage relative to the baseline ownership rate, the vast majority of households would still find it unattractive to purchase private insurance."
Overall, the authors are pessimistic about the prospects for encouraging more Americans to buy LTC insurance unless Medicaid is completely restructured or done away with altogether.  They note that LTC insurance is a poor deal, particularly for men, who get back only about 33 cents on the premium dollar they spend, and that for a 65-year-old man of average wealth, 60 percent of the private insurance benefits would have been paid by Medicaid. However, life insurance policies with long-term care riders may be a better bet, and our office can provide more information on these products if you are interested. 
The authors say that even if the implicit Medicaid "tax" on LTC insurance were eliminated, "other factors could still prevent the market for LTC insurance from developing."  These factors include the availability of informal insurance provided by family members, the liquid assets in the home serving as a "buffer stock of assets," and the difficulty many individuals have in "making decisions about long-term, probabilistic outcomes."