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By Dr. Charles Patterson, WCI Columnist
Congratulations! You have deftly navigated your years of service and endured deployments and relocations during times of war and times of peace. You survived PFAS, then burn pits, and then government shutdowns. You made it to the promised land of retirement and the greener pastures of What Comes Next. That’s the great news. The bummer is that unlike your immortal acts of heroism which will echo through the halls of Valhalla forever, your mortal body is, well, mortal.
Being mortal in America can be an expensive ordeal, particularly in the last years. Cost estimators are readily available, making a rough estimate of those costs knowable. As with any risk, insurance is available for purchase. The White Coat Investor has covered Long-Term Care Insurance (LTCI) on the blog, on the WCI podcast, and on the podcast again. The CliffsNotes version reads something like this: LTC covers services that aren't covered by health insurance, and it helps defray the costs if you have a chronic medical condition or need to get into an assisted living home. Also, 1) LTC is a facet of insurance that is fraught, 2) it can be (incredibly) expensive and 3) those with few assets and those with many assets are the least likely to need it. While that may be an oversimplification, it's not too far off. As Dr. Jim Dahle once wrote, “The point of long-term care insurance is to avoid having to use all your remaining assets on long-term care, not to avoid living on the street. Like life insurance, it's for the financial comfort of your spouse and loved ones.”
Now, do we know someone who probably has more than a few assets but probably not many and also happens to be mortal? Yes, you, the military retiree.
But just because you fit the demographic of those who might benefit from LTCI coverage doesn’t mean that you actually will. In fact, the cost may only be justified in a select few situations. In the following paragraphs, we will explore the products available, the problematic price tag and risks, and how to approach the question of whether LTCI is a prudent choice.
Long-Term Care Insurance Options or Lack Thereof
It would seem so simple a task: exchange premiums over a period in return for benefits to be paid at the time of need. It is done all the time for automobiles, homes, healthcare, liability, and pretty much anything involving risk. Insurance companies—these temples of hard data, risk assessment, and cost analysis—should have nailed this. But “should” is the worst word in our language, and despite evidence that LTC coverage may lower end-of-life costs, issuers have only (with experience) found that policies were historically underpriced, which led to many of them either dropping their plans or going under. The true cost of LTC coverage is so high that even public options are inordinately expensive or untenable.
As Dahle has mentioned, there are reputable insurers who will gladly establish a policy for you. There are even brokers to find them. That is the easy part, as a simple Google search (or better yet, a search of WCI Recommended Insurers) will get you 90% of the way to your destination. But this presumes that you have fully considered your need, even if you fit the asset profile for whom this resource is most logical.
More information here:
Federal Retiree Options
Military retirees are posed with an interesting calculus. Because the pension (plus Social Security and retirement savings) almost automatically disqualifies them from LTCI coverage provided by Medicaid and because VA benefits may not cover the typical suite of LTC benefits, many retirees will find such coverage an expensive (think anywhere from $1,500 to in excess of $10,000 per year, depending on the age of issuance) but ultimately advantageous strategy for end-of-life care. The extent of service-connected disability (if any), financial resources, and the all-important state of policy at the time of need will determine to what degree the VA will be of service.
As a bit of background: in 2000, Congress passed the Long-Term Care Security Act, which directed the Office of Personnel Management (OPM) to contract an insurer to provide LTC benefits for enrollees. The result, per the current arrangement, is the Federal Long-Term Care Insurance Program orchestrated by John Hancock.
The law, as written, dictated that the OPM and contracted administrator evaluate and maintain a solvent program. As with similar “civilian” programs, it seems that benefits and coverage are more difficult to adjudicate than, say, life insurance. In December 2022, the program ceased taking new applications from otherwise eligible but uninsured folks. The suspension is to last for 24 months—though it can be extended—and it leaves potential purchasers to the civilian market. In short: at the current time, there is no federal retiree-favored LTCI policy available. A solution does not seem readily available.
If there is an outcry about this issue, it has been neither public nor vocal. I join them, in silent solidarity, when viewing this current state of LTC affairs with a hefty dose of ambivalence. Perhaps that’s because I don't plan on using LTC—my children’s greatest inheritance will be the myriad of lessons learned from their father’s MasterClass in what not to do with one’s life rather than being the beneficiary of whatever is left over. While this is not to say that LTCI isn’t a worthwhile service for veterans, securing our last years seems to be a lesser issue . . . for now.
More information here:
5 Questions to Determine Your Long-Term Care Insurance Needs
To further explore whether LTCI may be a worthwhile pillar of your financial plan, consider the following questions:
#1 What Is Your End-of-Life Care Plan?
Plans are worthless but planning is everything, as Eisenhower said. While circumstances change and may dictate a different approach, this prompt is the crux of the matter. Only when you have an idea of how you want your final years to look, can you calculate its cost. Do you want to be at home (with assistance?) until the end? Would your family prefer a nursing home? How would surviving a devastating blow to your health and mobility affect this decision?
Here we will interject with the basic premise that, if not already done, one should establish a will or possibly a living trust and a Physician Order for Life Sustaining Treatment (POLST or similar). The will was likely already done during military service (when you deployed to fight the Taliban in Afghanistan or to liberate Kuwait), but it should be reviewed and updated as necessary every 2-3 years. These documents and the thought that goes into them are reflective of your values and intentions. LTCI is a tool that can help (or hinder) your execution of the same.
#2 Do Assets Need to Survive You?
If you’ve no dependents and no need to leave assets, then LTCI is probably not for you. Your plan in that case would be to spend down your nest egg to the point of qualification for Medicaid coverage. If you never reach that point, then whatever is left can go to the causes or persons of your choosing. Or give it to the government as a thank you for your years of service.
If, on the other hand, you need to provide for surviving dependents (wife, children, etc.), there are several avenues to explore. While there could be a role for LTCI, one might also consider establishing a separate irrevocable trust or an ABLE account (for special needs children). Of course, you could also spend more conservatively through retirement. There is no one-size-fits-all strategy, and knowing what income (Social Security, Medicaid, military pension, etc.) your dependents can rely upon following your departure is crucial. What do you envision their best life to look like after you’re gone? While morbid, this exercise is necessary for planning.
#3 How Could These Change in Retirement?
Your retirement years could span four decades (or more). What could change in that time? Anything and everything can and probably will change. But because LTCI policies are most cost-effective when established early, there is great utility in creating your comprehensive retirement plan well before you enter it. If you conclude that you are going to fall into the relatively small category of folks who would benefit from LTCI, it will behoove you to start it as early as possible. One might even want to consider purchasing a policy 2-3 years prior to their projected retirement. And if you find that you are well-provisioned as you approach the right side of the retirement smile, the expense of LTCI may not be necessary. Sure, you paid for it for years on end, but it is a sunk cost that suited its purpose. You can’t predict the future, but you can always cancel a policy. But the truth of the matter is that unless you are retiring at age 81, if you are planning this in-depth prior to retirement, you probably have time to self-cover LTCI costs.
#4 How Are Your Investment Priorities Reflected in Your Retirement Spending Plan?
At the end of the day, LTCI, like any insurance, is a financial product whose value lies in its pragmatic benefit and in the peace of mind it provides. Unlike other forms of insurance, many or most of which are hedging against calamity, LTCI hedges against a certainty (death) that comes in an unknown fashion. Ideally, if one can self-insure, then one should self-insure. With appropriate saving and investing through the working and retirement years, LTCI will probably not be necessary for the majority of retired officers and physicians. Thus, if you are thinking through this question early enough, you are likely to obviate a need for LTCI.
#5 What Are the Policies and Alternatives That Fit Your Conceptualized Plan?
As mentioned, the marketplace for LTCI has changed dramatically over the last decade. While some states have tried to adopt tax-funded means of providing this coverage to citizens, it is not immediately evident that such programs will remain solvent. What is clear is that there is a need for such coverage for many Americans. A lack of a long-term solution at a population level is no reason to purchase or not purchase a policy. But having a vision and a sustainable plan is an excellent antidote for the uncertainty that accompanies your last phase of life.
LTCI is a product that is fit for few. It's difficult and expensive to purchase, and it's probably avoidable with a solid plan and an officer’s income. These conversations are difficult, and our straight-laid roadmap ahead often looks serpentine by the time it's been trod. None of this is particularly easy or evident. But careful thought done early may be the difference in achieving a life of plenty and a dignified end.
Have you purchased LTCI? Does it provide peace of mind? If you decided against LTCI, what are the reasons why? Comment below!
The views expressed in this article are those of the author and do not reflect any official position of the Department of Defense or the US government. These writings are not authorized, approved, or endorsed by any of the above entities.