The Heller School for Social Policy and Management, Brandeis UniversityNational Program on Women & Aging
Women & Aging Letter
Update - Sept. 1997
| A Big Decision for Women:
Should I Buy Long-Term Care Insurance?
Volume 1, Number 6 |
|
With the assistance of James G. Palma, Jr., Planning Analyst Supervisor, The State of Connecticut "Partnership for Long-Term Care," we have updated our November 1996 Letter on private Long-Term Care insurance. |
Topics Covered:
A Big Decision for Women: Should I Buy Long-Term Care Insurance?
The average cost of nursing home care by state across the country in 1997 ranges from $40,000 to $80,000 a year. That's between $100 - $200 per day! These are very scary numbers as you grow older and the likelihood that you may need such care rises. It is even more frightening when you realize that Medicare, designed to protect us in later years from big medical expenses, pays for nursing home and home care only in certain limited and very specific circumstances. When it comes to financing long-term care in this country, most people are on their own, unless they become impoverished to the point of qualifying for Medicaid, a welfare program whose future availability is uncertain.
To help deal with this problem, some private insurance companies sell long-term care insurance. The insurance is designed to cover the costs of certain long-term care expenses not covered by Medicare or private supplements to Medicare (called "Medigap" policies). But this insurance can be expensive, and the provisions vary widely from plan to plan.
Long-term care insurance is of special importance to women. Women are much more likely to provide care at home to immediate or extended family. They are also more likely to outlive the men in their lives and need nursing home care. It is estimated that the majority of women, over 50%, (opposed to 33% of men) reaching the age of 65 will need nursing home care before they die.
Whether you should buy long-term care insurance is a big decision, and a complex one. This update of the Women & Aging Letter focuses on this vital topic.
Most long-term care is provided by family members. But in situations where services must be purchased, the costs are paid largely out-of-pocket.
Often people do not realize that Medicare covers only short-term nursing home care in a Medicare-certified nursing facility. The only type of care Medicare will pay for is "skilled" level of care (ongoing nursing or therapy care), even though most residents in a nursing home need only custodial level of care (periodic assistance with routine activities, such as bathing and dressing). Even when skilled care is needed, Medicare benefits go only to those people who have been hospitalized for 3 days prior to admission into the nursing home. In 1995, Medicare paid for only nine percent of national nursing home costs.
Medicare also pays for certain skilled care at home. Again, however, benefits are paid only under very stringent conditions that are very restrictive. For example, only about half of the home care agencies in this country are Medicare-certified. Also, Medicare reasons that if you need care every day then you should be cared for in a nursing home.So it only pays for intermittent care at home; yet you must be homebound.
A different program, Medicaid, pays for long-term care if individuals are poor. What often happens is that a person enters a nursing home, initially using personal funds to meet the cost. Then very quickly, their savings are exhausted, and their income is too low to meet the costs of care. When their economic situation falls below the means-tested eligibility levels for Medicaid, they can then apply for help from the government.
Each state is required to pay for nursing home care for individuals in their state who meet the Medicaid eligibility requirements. Currently Medicaid pays for approximately half of the nursing home expenses in the United States. The Medicaid program in many states also covers care at home, but states are not required to provide home care assistance through Medicaid. However, the home care eligibility requirements are sometimes more restrictive than the nursing home requirements. For this reason, Medicaid is not a major payer for care at home.
Since most of the persons needing long-term care receive that care at home, the major burden for care is left with family members, and typically when family can no longer provide the needed care at home the patient is moved to a nursing home to utilize Medicaid.
Private Long-Term Care Insurance
Many people would like to avoid the Medicaid option of long-term care financing. People who have saved for a lifetime do not want to see their assets wiped out by nursing home costs -- threatening the economic welfare of a spouse or preventing them from leaving a legacy to their children. Others want to avoid reliance on government payments from a means-tested welfare program. And some fear that Medicaid eligibility will make it difficult to enter a nursing home of their preference, since home operators claim they lose money on Medicaid patients.
Several types of private long-term care insurance are available. As of December 1995, approximately 4.5 million policies have already been sold nationwide. The most common type is the "expense-incurred" policy that pays towards the cost of care up to a daily cap each day that you receive covered care. Much less common are policies that cover a certain percentage of the costs associated with various services. A third type of policy, called the "disability-model," pays a specific dollar amount each day regardless of the actual charges for covered services received or whether you receive care each day.
Private long-term
care insurance policies sold today will typically cover care at home and
in a nursing home, and most likely also cover care in adult day care facilities,
hospice care, and care in an assisted living facility. Benefits are purchased
that are then paid out on a daily, weekly or monthly basis until the total
benefits are exhausted. Long-term care insurance should be thought of as
an investment vehicle, because you buy it today but typically will not
have to use it for 15, 20 or more years later. During that time the cost
of care will most likely increase. Therefore, you should make sure that
your long-term care benefits will also increase. This is done with an "inflation
protection" benefit. A long-term care insurance policy without inflation
protection may be worth almost nothing in future years.
It's a long-term care insurance jungle out there. Deciding on whether to buy long-term care insurance, what kind, and from whom is a difficult task. Few consumers have the expertise, or have the time required to make a good decision all by themselves. Or they may have not given enough thought to the matter but feel pressured to make a decision when a salesperson calls on the phone or visits to answer questions.
The result? Many people confronting this issue feel the need to reach out to someone else for help.
Good luck, when confronted by this situation! In 1991, Consumer Reports magazine reported on the experience of a trained expert who posed as a relative of an older person seeking long-term care insurance. The expert listened to 14 sales representatives from nine of the largest sellers of coverage. The magazine reported that the investigative reporter heard lies, witnessed ignorance or deceit, and saw ethical standards violated and state laws ignored.
According to Consumer Reports, "Every sales agent misrepresented some aspect of the policy, the financial condition of the insurer, or the quality of a competitor's product. Not one sales agent properly explained the benefits, restrictions, and policy limitations . . . Not only did agents fail to explain their policies properly, they didn't bother to leave written information that would." (Consumer Reports, June 1991)
This is not a pretty picture. It hardly gives one the confidence needed to try to make a decision in this critical area. Moreover, the fact is that there are no federal regulations or standards for long-term care insurance. Some states, however, have adopted regulations.
Currently, every state regulates long-term care insurance. Ask the department to send you information on the regulations. Most states utilize the Model Regulations set up by the National Association of Insurance Commissioners (NAIC). Some states have issued regulations that provide consumers with basic protections. For example, a state may require coverage for Alzheimer's disease or require that individual policies be guaranteed renewable (which means as long as the premium is paid on time, the company cannot change or discontinue the coverage). Also, these regulatory departments may have a list of companies that are approved (but not necessarily recommended) by the state to offer long-term care policies.
The best thing to do is to find an expert knowledgeable in long-term care financing and insurance matters. Find someone who does not have a financial stake in selling the insurance to help you sort through your options. But once you understand your options you must engage an insurance agent to purchase the insurance, so remember the problems with agents discussed above.
Free or very low-cost assistance can be found through your state agency on aging. All states have insurance counseling programs which are partially funded by the federal government.
These programs are known by different names in different states but can be found by calling your state or regional agency on aging, or contacting a local senior center, hospital social service department, or calling the Eldercare Locator toll-free at 1-800-677-1116.
If you have
the time and ability, you can work on your long-term care decision with
the aid of "worksheets" that have been developed to guide you through the
decision making steps. Such worksheets are included in the publication
"A Shoppers Guide To Long-Term Care Insurance" available from the National
Association of Insurance Commissioners. The "Shoppers Guide" is available
at many libraries, area agencies on aging, and from insurance agents. This
worksheet walks you through the questions you should ask before buying
a policy. It is designed so that you can enter information about two or
more policies on the same worksheet, making comparison between policies
easier.
Consumer Friendly "Partnerships"
The states of California, Connecticut, New York , Indiana, Illinois and Washington have special long-term care "partnerships," formally known as, Partnership for Long-Term Care.
These partnership programs have addressed the daunting task of trying to find the right policy by inviting companies to meet strict consumer standards in order to use the state's partnership seal of approval. Each state will provide free written material or answer questions over the phone. Some even have trained volunteers to meet with you and your family to discuss your options and answer your questions. However, neither the volunteers nor the state can recommend which plan you should buy. That is the role of your financial advisor -- insurance agent or financial planner.
The purpose of these partnership programs is to provide high-quality, affordable long-term care insurance to help people plan ahead to meet their long-term care needs without having to impoverish themselves. Each state is also looking to reduce its future Medicaid costs by having more of the cost paid for by private insurers rather than the tax payer.
Long-Term Care Insurance Benefit Features
The following
is a list of desirable features that should be contained in a good long-term
care policy:
Long-Term Care Insurance and Your Taxes
The federal Health Insurance Portability and Accountability Act (Act) became effective on January 1, 1997. This Act has for the first time established federal guidelines for long-term care insurance by offering limited tax incentives to policy holders that purchase "qualified plans." Plans are considered to be "qualified" if they meet specific consumer standards when purchased after January 1, 1997. Policies purchased before January 1, 1997 are grandfathered and are also considered to be "qualified."
This Act provides three limited tax incentives for individuals.
An extensive discussion of the choices confronting consumers as a result of this legislation can be found in the October 1997 issue of Consumer Reports magazine.
Remember that long-term care insurance is sold to healthy individuals and is one reason to buy this insurance at a younger age.
John and Isabel, both age 77, live in New England. Last year they decided to take out long-term care insurance. Isabel has emphysema and heart problems; John had polio as a youth and walks with a cane.
"We didn't want to be a burden to our children and wanted to make sure some money remained for them," said Isabel. So John, a former university economics professor, decided to apply for long-term care insurance. He found out that long-term care insurance would not come cheap -- $6,000 a year for the two of them.
Over the next few weeks, Isabel and John went through the process of filling out applications, getting their doctor to provide required health information, and being tested for mobility and mental functioning by a company representative.
Several months later, the notification letters arrived. Isabel was accepted, but John was turned down. John's letter indicated that he was turned down because of his post-polio "multiple medical conditions." These conditions evidently placed him at high risk for needing long-term care in the future, a risk that the company was unwilling to assume.
John was flabbergasted. He is currently able to climb stairs and is completely mobile, except for a pronounced limp. He swims three days a week for a quarter mile, sails, does home repair, and works in the yard. In fact, he has lived perfectly normally with his handicap for most of his life. Now he was told that because of his "multiple medical conditions," he was not insurable.
"I called the company and tried to explain to them why I was as healthy or healthier than my wife. They listened politely, explained their position further, and finally said, 'We're sorry. The decision is made. There's nothing you can do.'"
While this is a true story, there is something John could have done. First was to request that his doctor be sent a detailed description of why he was denied. Then John and his doctor could review the material for accuracy and decide if his doctor could rectify any misinterpretations and/or provide written accounts of John's active lifestyle. If so, John could then re-apply to the company with the additional health information developed by his doctor. Failing that, John could also have applied to another insurance company, because different insurance companies use different health standards when accepting applicants.
Research conducted on persons being initially denied long-term care insurance under the Connecticut Partnership for Long-Term Care project, showed that over 50% of those who re-applied with additional information from their doctor, or applied to another company were later accepted.
Is Long-Term Care Insurance for Me?
Here is a brief overview of the questions you should consider before looking at specific long-term care insurance policies:
Long-term
care insurance is not for everyone. Do you have a modest income and limited
assets? If so, long-term care insurance may not be a wise investment for
you.
In general you should not have to change your lifestyle in order to pay long-term care insurance premiums. One good rule of thumb is to make sure that the premiums are less than 20% of your disposable income (the amount of income left after all essential bills are paid).
Long-term care insurance should be treated as an investment. Like all good investments the sooner you start the better. Premiums for long-term care insurance are based upon your age at the time of purchase and amount of coverage. It is possible to purchase a policy that would cover two years of care in a nursing home or at home for less than $450 per year at age 40. But the same coverage would cost over $3,100 per year at age 70. When inflation protection is included, as is the case in the examples above, not only is the annual premium significantly lower when purchased at a younger age, the benefits will also grow from the initial $110,000 to almost $1,000,000 by age 85, the time many people need care. Both of these premiums are level, meaning that they will not increase as a result of the benefits increasing. So investing in a long-term care insurance policy makes sense at younger ages because, the premium is lower, you are most likely healthier and, therefore, more likely to be accepted for coverage. Moreover, when inflation protection is purchased, the benefits can increase significantly.
Until recently, insurance companies only sold these policies to persons between ages 50 - 79. However, today most companies will typically sell to individuals as young as 40, and some as young as 18. Also, most companies will sell up to age 84, but they may not offer all their benefit options to those over age 79.
When deciding
what is an affordable premium, you will most likely discuss with your agent
different deductible amounts. Similar to auto or home insurance, the larger
the deductible, the lower the premium. If, for example, you chose a long
deductible of 100 days, then your premium would be lower than a policy
with a shorter deductible, and you would be responsible for paying the
cost of care for the first 100 days. Note, many people plan to use Medicare
to help pay that deductible. While this makes sense, please remember that
currently when Medicare pays, it only pays for 20 to 30 days, if any. There
is no guarantee that Medicare will cover any amount of care.
It makes sense for women to think seriously about insurance before they become old. In many cases the best time to start such insurance is in middle age, when you are apt to be least interested in the issue. That's also when eligibility is most likely, and costs are lowest.
Realistically, however, people are more likely to think about the issue when the retirement years first roll around. For some, this will be their last chance to get insurance at a cost they can afford. Moreover, at this point people may know better how geographically distant their children are likely to be and how likely it is that they can help out. But don't rely too much on where you plan to retire vs. where your family may reside, because plans change, and many people who have retired for 20+ years return to where family is when they need care.
Later in life
(the 70s and 80s) your health may begin to fail and more chronic conditions
may arise. It is then that people's attention to long-term care risk becomes
much more sharply focused. Many people begin to worry, and some become
scared. But at this point, buying long-term care insurance becomes much
less feasible, because of the high cost of premium and/or not being insurable
due to these chronic conditions.
It is important to realize that there are other things people in later life can do to meet the long-term care challenge. The American health care system is currently undergoing rapid change. You need to become a good health care consumer shopper. Some health care options take better account of long-term care needs than others. For example, some Health Maintenance Organizations (HMOs) provide for older persons certain supportive services as part of the health care package.
Explore the long-term care options in your community. Find out what home care services are available and at what cost. Find out what types of residential care facilities are available. Visit them and compare what you can get and what it will cost.
Also, some states allow reverse annuity mortgages where homeowners can receive a monthly payment from a bank to be used to pay for their care. In return the bank gets back the amount it paid plus interest when the person dies or the house is sold, depending on the type of plan. A recent Letter discusses this topic (Volume 2, Number 4: Reverse Mortages: A Solution to the "House Rich-Cash Poor" Problem?" November 1997).
Do not hesitate to talk to your children and to other relatives and friends about what they think. And be sure appropriate relatives know your concerns and preferences regarding care, and have copies of your living will or health care proxy.
Watch for seminars and talks being offered in your community on the topic. Last but not least, read.
Many people hope that the major costs of long-term care will eventually be covered by a national insurance program. |