5 ms·

Long-term care insurance is a racket. If you buy it, read the terms very carefully. Most policies are loaded with escape clauses and will end up paying only a s

Long-term care insurance is a racket. If you buy it, read the terms very carefully. Most policies are loaded with escape clauses and will end up paying only a small fraction of any eventual long term care costs.

arbuge 9y ago
Perhaps, but it still seems to be a big money-loser for long term care insurance companies, such as GE capital.
mathattack 9y ago
It came in very handy for a parent. I’m an insurance skeptic, but if they were too it could have bankrupted both of us. (Yes - one anecdote doesn’t translate into data)
- daveFNbuck 9y ago
  Are you still an insurance skeptic? What does that mean?
  - cmurf 9y ago
    Insurance skepticism is when the product seems more like gambling or an expensive savings plan, than it is about high cost risk management. The more inevitable some costly event is perceived, then why not just save for that event, rather than pay a premium for only partial coverage, etc. This is my complaint with referring to health insurance, a huge amount of which is b.s. What we have is an aging payment plan. We're all gonna get old, and it's gonna suck, and be expensive, might as well start paying now: oh guess what, you are, it's called Medicare payroll tax.
    - chimeracoder 9y ago
      You're right that health insurance isn't insurance at all. But to clarify: > What we have is an aging payment plan. We're all gonna get old, and it's gonna suck, and be expensive, might as well start paying now: oh guess what, you are, it's called Medicare payroll tax That would be the case if the following were true: * If Medicare's operations were purely funded by tax money, and * If the taxes people paid were proportional to their expected lifetime costs-of-care However, neither of these are true. Medicare's reimbursement rates are indirectly subsidized by private insurers (who then pass those costs on to privately-insured patients in the form of higher monthly premiums and copays). And of course, the taxes are based on income, not risk profiles.
  - defen 9y ago
    Insurance works best for rare, randomly distributed events that have a high cost. Fundamentally, for insurance to work as a business, it has to cost more than the expected payout. The reason it's still worthwhile is that money has non-linear utility. To use a made-up example from the car insurance world (numbers are made-up but I hope it conveys the general idea): a guaranteed "loss" (cost of premium) of $100/month over the course of 30 years (total cost: $36,000) is far preferable to having a 1% chance of losing $500,000 over that same time period if you seriously injure yourself or someone else in an accident (expected value: -$5,000). So, the average person is paying $36,000 to avoid an expected loss of $5,000, which doesn't seem to make sense in a naive analysis. But the issue is that the average person can plan/budget for a $100/month expenditure, whereas a $500,000 loss could mean that they lose their house and life savings and more, which is far too high of a risk for most people. Things that insurance doesn't work well for: common events (e.g. routine medical care); non-randomly distributed events (that's why e.g. earthquake insurance in San Francisco is extremely expensive and has very high deductibles - if the Big One™ happens, it's going to affect everyone at the same time); inexpensive events (e.g. why insure a phone?)
    - chimeracoder 9y ago
      > Things that insurance doesn't work well for: common events (e.g. routine medical care); non-randomly distributed events (that's why e.g. earthquake insurance in San Francisco is extremely expensive and has very high deductibles - if the Big One™ happens, it's going to affect everyone at the same time); inexpensive events (e.g. why insure a phone?) I agree with this, but I want to clarify your language: insurance works very well for common events - what it doesn't work well for are predictable events (which is why insurance is a terrible model to apply to routine medical care). The entire value proposition of insurance is to reduce (but not eliminate) uncertainty. If an event is perfectly predictable on a regular cadence, there's no value to insuring it. Events that are common but have high variance are potentially worth insuring, for the same reason that a person whose earnings are highly variable (contractor, or tip-based work) might choose to use a service that evens outs those payments, even though it lowers their total take-home earnings (by charging a fee).
      - 9y ago
  - mathattack 9y ago
    I'm a skeptic because I've seen first hand that insurance companies and/or salespeople: 1 - Sell people policies that they don't need, or are inappropriate to their situation. 2 - Charging wildly different pricing for similar policies. 3 - Invest insurance premiums completely inappropriately. So I become skeptical, and (like many other things) believe I have to really dig in on the policies before buying one. Which means the sleaziness of the business has scared me enough that I'm probably underinsured now.
    - daveFNbuck 9y ago
      So insurance skepticism means you do your best to understand policies before buying them? What's the alternative to that? Before witnessing sketchy practices, did you just buy whatever the salesperson recommended?
1123581321 9y ago
Several years ago, I looked this up. The LTC payout ratio for men was ~.8 and for women was 1.05. The average was close to 1.0 since more women had LTC insurance. So, it’s possible that LTC provides too little coverage, but that’d mean it is also underpriced.
- tzakrajs 9y ago
  Don't women also live an extra 10% on average too?
  - 1123581321 9y ago
    Yes, and the propensity for men to die suddenly a little younger explains why the gap in payout ratio is larger than the lifespan difference.
- hickeygareth 9y ago
  Why do you think it may be underpriced? A policy with a payout ratio of 1.0 can still be highly profitable for an insurer.
  - 1123581321 9y ago
    Not highly profitable without assuming too much risk, but yes, 1.0 is profitable. But let’s say the LTC underwriters can pay out 10% more and stay in business. That would mean that in The OP’s “scam” scenario situation, instead of getting, say, $100,000 in benefits over two years, they could get $110,000. However, the inflamed wording suggests OP wants a lot more than his relative is getting, not a little bit more, like $300,000 over four years. That wouldn’t be possible to do in aggregate without charging a higher premium.

arbuge 9y ago

Perhaps, but it still seems to be a big money-loser for long term care insurance companies, such as GE capital.

mathattack 9y ago

It came in very handy for a parent. I’m an insurance skeptic, but if they were too it could have bankrupted both of us. (Yes - one anecdote doesn’t translate into data)

daveFNbuck 9y ago
Are you still an insurance skeptic? What does that mean?
- cmurf 9y ago
  Insurance skepticism is when the product seems more like gambling or an expensive savings plan, than it is about high cost risk management. The more inevitable some costly event is perceived, then why not just save for that event, rather than pay a premium for only partial coverage, etc. This is my complaint with referring to health insurance, a huge amount of which is b.s. What we have is an aging payment plan. We're all gonna get old, and it's gonna suck, and be expensive, might as well start paying now: oh guess what, you are, it's called Medicare payroll tax.
  - chimeracoder 9y ago
    You're right that health insurance isn't insurance at all. But to clarify: > What we have is an aging payment plan. We're all gonna get old, and it's gonna suck, and be expensive, might as well start paying now: oh guess what, you are, it's called Medicare payroll tax That would be the case if the following were true: * If Medicare's operations were purely funded by tax money, and * If the taxes people paid were proportional to their expected lifetime costs-of-care However, neither of these are true. Medicare's reimbursement rates are indirectly subsidized by private insurers (who then pass those costs on to privately-insured patients in the form of higher monthly premiums and copays). And of course, the taxes are based on income, not risk profiles.
- defen 9y ago
  Insurance works best for rare, randomly distributed events that have a high cost. Fundamentally, for insurance to work as a business, it has to cost more than the expected payout. The reason it's still worthwhile is that money has non-linear utility. To use a made-up example from the car insurance world (numbers are made-up but I hope it conveys the general idea): a guaranteed "loss" (cost of premium) of $100/month over the course of 30 years (total cost: $36,000) is far preferable to having a 1% chance of losing $500,000 over that same time period if you seriously injure yourself or someone else in an accident (expected value: -$5,000). So, the average person is paying $36,000 to avoid an expected loss of $5,000, which doesn't seem to make sense in a naive analysis. But the issue is that the average person can plan/budget for a $100/month expenditure, whereas a $500,000 loss could mean that they lose their house and life savings and more, which is far too high of a risk for most people. Things that insurance doesn't work well for: common events (e.g. routine medical care); non-randomly distributed events (that's why e.g. earthquake insurance in San Francisco is extremely expensive and has very high deductibles - if the Big One™ happens, it's going to affect everyone at the same time); inexpensive events (e.g. why insure a phone?)
  - chimeracoder 9y ago
    > Things that insurance doesn't work well for: common events (e.g. routine medical care); non-randomly distributed events (that's why e.g. earthquake insurance in San Francisco is extremely expensive and has very high deductibles - if the Big One™ happens, it's going to affect everyone at the same time); inexpensive events (e.g. why insure a phone?) I agree with this, but I want to clarify your language: insurance works very well for common events - what it doesn't work well for are predictable events (which is why insurance is a terrible model to apply to routine medical care). The entire value proposition of insurance is to reduce (but not eliminate) uncertainty. If an event is perfectly predictable on a regular cadence, there's no value to insuring it. Events that are common but have high variance are potentially worth insuring, for the same reason that a person whose earnings are highly variable (contractor, or tip-based work) might choose to use a service that evens outs those payments, even though it lowers their total take-home earnings (by charging a fee).
    - 9y ago
- mathattack 9y ago
  I'm a skeptic because I've seen first hand that insurance companies and/or salespeople: 1 - Sell people policies that they don't need, or are inappropriate to their situation. 2 - Charging wildly different pricing for similar policies. 3 - Invest insurance premiums completely inappropriately. So I become skeptical, and (like many other things) believe I have to really dig in on the policies before buying one. Which means the sleaziness of the business has scared me enough that I'm probably underinsured now.
  - daveFNbuck 9y ago
    So insurance skepticism means you do your best to understand policies before buying them? What's the alternative to that? Before witnessing sketchy practices, did you just buy whatever the salesperson recommended?

1123581321 9y ago

Several years ago, I looked this up. The LTC payout ratio for men was ~.8 and for women was 1.05. The average was close to 1.0 since more women had LTC insurance. So, it’s possible that LTC provides too little coverage, but that’d mean it is also underpriced.

tzakrajs 9y ago
Don't women also live an extra 10% on average too?
- 1123581321 9y ago
  Yes, and the propensity for men to die suddenly a little younger explains why the gap in payout ratio is larger than the lifespan difference.
hickeygareth 9y ago
Why do you think it may be underpriced? A policy with a payout ratio of 1.0 can still be highly profitable for an insurer.
- 1123581321 9y ago
  Not highly profitable without assuming too much risk, but yes, 1.0 is profitable. But let’s say the LTC underwriters can pay out 10% more and stay in business. That would mean that in The OP’s “scam” scenario situation, instead of getting, say, $100,000 in benefits over two years, they could get $110,000. However, the inflamed wording suggests OP wants a lot more than his relative is getting, not a little bit more, like $300,000 over four years. That wouldn’t be possible to do in aggregate without charging a higher premium.