Before we go further, let’s review basic facts about insurance.
1. You only want to insure for risks you don’t want to take – it’s a protection.
2. You can get rid of risk, but it will cost you. Insurance companies are in business to make money.
3. Insurance is an economic decision. The costs have to be weighed against other ways to use the money.
The implication of this is that you want to insure against large risks (such as dying while you have small children you will be unable to support).
You do not want to insure against risks that you can bear yourself (effectively, self-insuring).
And you need to be able to afford the insurance without causing other problems. Most people with small children can’t afford $40,000,000 in life insurance so they make do with less, however much they may love their children and want to provide for them.
We can now apply this easily to long term care insurance.
If you are rich, such insurance is pointless. Why would Warren Buffet waste his money investing in long term care insurance? (instead, he invests in insurance companies such as Geico and General Re).
If you are poor, you can’t afford it – or, put another way, there are likely to be more important places to put your money. This easily leaves out half the market, and then some:
More than half of US households headed by someone over 65 have incomes that don’t cover basic living expenses, according to a study by Wider Opportunities for Women, a Washington, D.C. nonprofit group. [from Janet Kidd Stewart]
If you are in the middle, long term care insurance MAY make sense.
But let’s not forget one thing:
The government is NOT providing unbiased advice.
If you are destitute and need care, the government will pay for it. It won’t pay for as much care as you’d like in the place you’d like it – and you need to be destitute, so so much for passing things on to your heirs. But the government will pay. There are a LOT of baby boomers straining the system. Which means that the government would strongly prefer you carry long term care insurance to save pressure on their costs for long term care for the destitute.
This is an appropriate thing for the government to try, but it’s also appropriate to note that government advice is likely to be biased. If we carry the insurance, they won’t have to pay. It’s like a voluntary tax, but I don’t have to pay it any more than I have to buy lottery tickets.
You’d never know it from the stuff I get mailed to me, but this is a known bias. Just a couple of many articles:
States Draw Fire for Pitching Citizens On Private Long-Term Care Insurance
Last year, six million letters bearing Gov. Arnold Schwarzenegger's name and official state seal went out to Californians.
The missives, sent by a direct-mail company called Senior Direct Inc., were pitch letters, urging many low- and middle-income residents to buy long-term care insurance to cover any future nursing home bills.
Behind the plug: California, like many other states, is trying to curb the high costs of long-term care paid under Medicaid, the joint federal-state health insurance program for low-income people.
Thursday, March 06, 2008
State Partnerships for Long-term Care Policies Under Fire
California's public-private partnership pushing long-term care insurance marches into its 14th year with steady, predictable growth, but state officials are a bit on the defensive lately in the face of increased scrutiny as similar partnerships spread to other states around the country. Critics and the media are questioning motives and tactics behind the programs….
"That's very worrisome," said Betsy Imholz from Consumers Union. "I think it's a really bad idea for government to be sanctioning private insurance companies. Especially when this particular kind of insurance is of such questionable value."