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Friday, January 27, 2012

Long-term-care insurance offers protection, but it’s not right for everyone

By Caroline E. Mayer, Published: January 23

In the last years of Martin Privot’s life, his family had to start selling his assets to pay for his nursing home costs. “He needed 24-hour care and couldn’t be left alone,” recalls his daughter Toni Footer. “My biggest fear was we would run [through his money] and wouldn’t be able to provide the care that he needed.”
Privot died in 2008, from post-surgical complications and other ailments, before all his assets were depleted. Yet Footer, 61, says her dad’s experience “reinforced my already strong feelings that long-term-care [insurance] is a necessity.” The Rockville resident says she pays about $2,500 every year for such coverage for herself. “It’s expensive — in fact, it’s gone up twice — but it’s worth every penny. It provides a peace of mind that my family won’t have to struggle to find money to pay for my care.”

Mary McClelland came to the opposite conclusion after seeing how her mother’s expenses were often deemed exempt from coverage.

Her mother, Ruth Mezick, purchased long-term-care, or LTC, insurance in 1990 at age 78 when she was in fairly good health, paying an annual premium of $2,827 until she died 11 years later. In her mid-80s, her health began to deteriorate and she spent time in a nursing home, at home with help and in assisted living. But her policy — which promised to pay $100 a day — failed to cover much of those expenses because it kicked in only after she had been in one institution more than 100 days.

“She was never in one place long enough to qualify. She ended up getting about 10 days’ coverage, worth about $1,000,” says McClelland, who lives in Arlington. “That was a lesson to me; I decided it doesn’t always pay off.”

The question of whether to get LTC insurance bedevils consumers and their advisers. Unlike medical insurance, it is intended primarily to cover people who need assistance with so-called activities of daily living — for example, the care of a dementia patient or someone recovering from a broken hip. It can be expensive: Premiums range from $1,000 to $5,000 a year, depending on the age, sex and health of the purchaser as well as the extent of the coverage. And policy details can be confusing.

Even advocates acknowledge that it isn’t for everyone. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, an industry group, sums it up well: “Long-term care is a universal issue facing all Americans who are getting older. But long-term-care insurance is not a universal solution.”

So how great is the need for such coverage? It depends on how you look at the data. “One in two Americans are likely to need long-term-care services sometime in their lives,” says Amy Pahl, a consulting actuary for Milliman Inc, a leading actuarial and consulting company. However, Pahl adds, of those who might need long-term care, about a third will not meet the most common deductible period of 90 days because they will either die or recover before then.

To determine if a long-term-care policy makes sense for you, it is important to understand how the coverage works and what’s available.

Medicare is not the answer
Most standard health insurance plans do not cover long-term care. Nor does Medicare or insurance policies that supplement Medicare.

Medicaid, however, is the largest source of coverage for long-term care. The program pays for more than two-thirds of nursing home residents, according to data from the Kaiser Family Foundation.

But Medicaid comes with significant limitations. The choice of facilities that accept Medicaid is narrow, and the program is restricted to people with extremely limited income and virtually no resources, which forces middle-income consumers to spend down their assets if they want to qualify.

“Medicaid is supposed to be a safety net, but unfortunately it rests just about a half-inch off the floor,” says Tom West, a Northern Virginia financial adviser and long-term-care expert.

Yet Kansas Insurance Commissioner Sandy Praeger cautions that LTC policies may not be a good investment for some people. “It’s mostly a policy to protect your assets [so you don’t have to sell everything to pay for care] in case you get sick. If you don’t have assets to protect, then you shouldn’t be buying it.” Unfortunately, that can leave those consumers with limited flexibility if they do need long-term care.

How the coverage works
Typically, a policy pays a fixed daily benefit ($150 is common) for a certain period of time (often three to five years) starting at a specified time (90 days is common) after the beneficiary becomes disabled. The policy covers nursing home expenses, assisted living charges or less costly in-home-care bills.

Many policies also allow the initial fixed daily benefit to rise 3 or 5 percent annually to keep up with health-care costs. The policyholder agrees to a premium that can increase only if the change is approved by state regulators. Such increases have occurred frequently in recent years and, as a result, once-flat premiums have risen sharply. So have nursing home costs, which averaged about $214 a day — or more than $78,000 annually — for a semi-private room last year, according to a national survey by the insurer MetLife.

As people’s needs have changed, LTC policies have expanded to cover assisted living and home care; some new policies are flexible enough to anticipate technologies that don’t yet exist, such as robotic care.
“The policies have become very innovative,” says Slome. “Today you can go in and design coverage for particular needs and desires; you can even buy long-term-care insurance to enable you to get your care on a cruise line if you want it — and can afford it.”

Today’s policies can also allow couples to share benefits, so a husband and wife can each buy a shorter-term policy, for example three years of benefits. About 70 percent of coverage today is sold to couples, Slome said. If it turns out that the husband needs more than three years’ coverage, he can tap into his wife’s benefit pool. And in some policies, if the husband completely exhausts the couple’s coverage, the wife may still receive some nominal benefits if she needs care, too.

At the end of 2010, about 7 million Americans had LTC insurance, according to LIMRA, an association of life insurance and financial service companies. About 422,000 new policies were written in 2010.
The 2010 health-care law has a provision creating a voluntary program of LTC insurance. However, in October, the Obama administration announced it would not implement the provision because it was financially unsustainable.

According to Slome, the average age of the buyer is 57, with three-quarters of the policies written when purchasers are between 45 and 64.

When buying insurance, the younger the consumer, the lower the annual premiums. Today, according to Slome’s association, a 55-year-old couple in generally good health can expect to pay $2,675 a year for $338,000 of benefits; that figure would grow to $800,000 by the time they reach 80 if the policy contained a 3 percent annual compounded escalation clause. If they are 65, however, that same policy would cost $4,660 a year and grow to only $527,000 in coverage when they are 80.

For Washington area residents, even that coverage can be less than needed. The Guide to Retirement Living SourceBook, a comprehensive listing of retirement community, nursing home, assisted living and rehab facilities and home-care options in the area, puts the daily local cost per person of nursing home care at $235 to $304, or nearly $86,000 to $110,000 a year. Daily assisted living costs run between $108 and $162. (The SourceBook is owned by The Washington Post Co.)

Steep rate increases
One of the key concerns among consumers is the rise of premiums.
“It’s probably the most frequent complaint I hear,” says Praeger, who heads the National Association of Insurance Commissioners’ health and managed care committee. “The problem is, the older policies weren’t priced right to begin with. Companies expected about 8 percent of customers to stop paying their premiums, when, in fact the lapse rate is closer to 2 percent.” That meant the insurers had to cover more beneficiaries than they expected at a time when the economic downturn has meant less return on their investments.
Praeger acknowledges that rate increase requests have posed a dilemma for insurance commissioners. “If we don’t give them the rate increase they need, the insurance carriers could become financially impaired, and that doesn’t help people,” she says. In fact, in recent years, a number of companies have stopped selling policies. As a result, she adds, it’s hard to turn the increases down.

The policies can be very complicated, and Praeger advises consumers to consult with their accountant, attorney or other trusted financial adviser before purchasing a policy.

This article was produced in collaboration with Kaiser Health News. KHN is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health-policy research and communication organization not affiliated with Kaiser Permanente.

Wednesday, January 18, 2012

Long-Term Care Insurance Gets a Makeover

By Lou Carlozo | Reuters EG – Wed, Sep 14, 2011 3:00 AM EDT

Less than two decades ago, Meryl Comer and her husband Dr. Harvey Gralnick embodied the American Dream: He was a physician, while she had built a career as an Emmy-winning reporter, producer and broadcast journalist. Everything looked perfectly in place for their careers to soar, their nest egg to grow.

Then came the news any couple would dread: Gralnick was diagnosed with early-onset Alzheimer's Disease at 57. Soon he couldn't recognize Meryl, and the couple went into financial free-fall as Comer took over his round-the-clock care.

"Here we have two people without income, and all the financial planning we have in place has disappeared," Comer recalls. "It's a straight financial bleed. With dementia, you're easily looking at $9,000 a month."

How does she make it, then, considering the couple had no long-term healthcare plan? "I don't," she says. "I'm going broke. The house will go next."

Comer, who serves as president of the Geoffrey Beene Foundation Alzheimer's Initiative, has become an outspoken advocate of long-term care insurance — an option barely understood, if not downright ignored, by most American consumers, including an alarmingly large percentage of Baby Boomers.

With long-term care policies, the costs of assisted living facilities, in-home care and private nursing homes are covered, in many cases with inflation protection. But since not many people are signing up for policies, the companies that offer them are trying to make them more palatable. Genworth Life Insurance Company recently launched Privileged Choice Flex, a long-term care solution that allows consumers to more easily choose an insurance plan that best suits their lifestyle and budget.

"It's been 24 months in development and it will be another eight months before it's fully available across the United States," says Matthew Sharpe, Genworth's long-term care product manager. "It takes a long time. We had three different products in the marketplace and combined them into one offering."

Some features of Privileged Choice Flex include a shared benefit where a husband or wife can reach into their spouse's portion of the policy for additional coverage. Even if a sick spouse exhausts the total benefit, the well spouse still maintains 50 percent minimum coverage, Sharpe says.
Privileged Choice Flex also allows access to Genworth's new Live+Well, a wellness program run in partnership with the Mayo Clinic that provides tools, resources and services to long-term care policyholders, and their spouses or partners.
"We wanted to provide a feature that would be available immediately, and that fills the gap between employer benefits and a long-term benefit," Sharpe says.

Genworth has been in the long-term care business more than 35 years, and was the first such provider in the U.S. Even so, the company has faced challenges educating consumers about long-term care policies because most people avoid the subject.

"Long-term care is definitely under-penetrated, there's no doubt about it," Sharpe says. "About 4 percent of the population that is eligible actually has a policy. But it's a tough topic to broach. We're still fighting this battle."

"Long-term care is a growing, looming threat to retirement security," says Whit Cornman, spokesman for the American Council of Life Insurers in Washington D.C. He cited figures from Genworth's 2011 Cost of Care Survey, which shows a private nursing home stay rising 3.4 percent over the last year to $77,745 annually. That cost, Cornman says, "is only going to go up" — to a whopping $330,000 in 2040.

"It's incredible," Cornman says, "and really the only product that can help people pay for it is long-term care insurance. When you're looking at retirement savings, a 401(k), or a pension if you're lucky, it's still going to be very difficult to save for retirement and still pay for long-term care."

The eye-popping numbers explain why Jim Darguzis, a State Farm Insurance agent based in Shorewood, Illinois, bought a long-term care policy for his wife two years ago. The couple is healthy but Darguzis, 67, wants to make sure any potential health problems won't impact his children and grandchildren.

"My mother was in a nursing home for two years and the cost at that time, 11 years ago, was $100 a day," Darguzis says. Now it's $175. He tells people that they've worked hard all their lives to accumulate a nest egg, and "the long-term care policy is designed to protect that nest egg, so they don't have to spend what they've accumulated."

Darguzis says a policy with 5 percent inflation protection for a 50-year-old male, offering $127,750 in lifetime benefits today, would more than double to almost $323,000 in benefits if long-term care begins at 70. The annual premium would start at $2,261, or less than $190 a month.

Those counting on the Affordable Care Act of 2010 to provide long-term care coverage shouldn't wait. Such protections won't be announced until later this year at earliest. "The law is still being written, and a lot of questions are being raised by the Congressional Budget Office and the American Academy of Actuaries," Cornman says.

Meanwhile, Comer has a warning for those who'd rather roll the dice and hope their assets can cover a crisis like the one she's endured. Today she not only cares for her husband, now in his mid-70s, but also a second family member with Alzheimer's: her mother, who stays in the family dining room.

"If you're 60 and rather act like 40, go for it, but don't kid yourself," she says. "Anticipate the future. Who wants to be remembered as a burden to their kids?"

Comer draws a long sigh. She pauses. Her voice conveys equal parts pain and imperative: "Anticipate, anticipate, anticipate."

Retrieved from http://finance.yahoo.com/news/long-term-care-insurance-gets-070000729.html;_ylc=X3oDMTNucnM3MzBqBF9TAzExODMzMTE5OTYEYWN0A21haWxfY2IEY3QDYQRpbnRsA3VzBGxhbmcDZW4tVVMEcGtnAzYzZTU3MDNiLTcwYTUtM2VhZC05ZWQ0LWY0NjRiOTliMzlhNgRzZWMDbWl0X3NoYXJlBHNsawNtYWlsBHRlc3QD;_ylv=3 on 1/18/12.