need care some 20 to 30 years from now made contacting an agent and signing up for a policy a priority. “I wanted to set things up where I could be independent as I got older,” he says. “My kids are starting up families, and I figure everyone has to pull their own weight. I don’t want to be a burden later.”
Not qualifying for long-term healthcare coverage can be a major setback, especially if you think you’ll be able to use Medicare and Medicaid as a substitute. Both government programs have strict guidelines that limit the type of care you can receive and the expenses they will cover. Medicare, for instance, pays for doctors, hospitals, and medications — “skilled care” as it is called in the industry. But it generally does not cover nursing home facilities or the type of custodial care most elderly need. Medicare will only pay for home care or long-term care in limited instances and therefore isn’t a very reliable solution if you or a loved one need someone to look after you.
Medicaid, which is intended to provide for the medical needs of people with limited income and assets, has a different set of restrictions. To qualify, you have to spend down your own assets on long-term care — including money you intended to leave to your heirs. Medicaid payments only cover costs in approved elderly care facilities and in limited home care options.
Understanding the limitations of Medicare and Medicaid has prompted a growing number of people to consider long-term health insurance now. According to America’s Health Insurance Plans (AHIP), a group that represents the interests of health insurers, only 815 long-term health insurance policies were sold in 1987. By 1994, that number had increased to 3,837, before rising to 9,162 in 2002. Last year, according to Penn Treaty American Corp., a long-term care insurance company based in Pennsylvania, a total of 4 million individual policies with annualized premiums of more than $6.5 billion were in fo
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Higher demand for coverage and the reality of rising healthcare costs have created unfortunate growing pains for the long-term healthcare insurance segment of the industry. Since seniors are living longer, some insurance providers have found that payments far exceeded the premiums they collected, and the costs have been passed on to consumers. In some cases, premiums have risen 20% to 40%.
“This area is evolving,” says S&P credit analyst Neal Freedman. “Auto, life, and health insurance have been around long enough for actuarial models to be well-established and for policies to have gone back and forth to court to get things hammered out. Long-term care insurance hasn’t.” While most companies haven’t had to take such measures, you should be aware that smaller, less-established outfits might have to revert to hikes in the near future.
FINDING THE RIGHT CARE
Setting up a policy for long-term care insurance can safeguard the wealth you build and intend to pass on to your family. But with costs rising, you have to take an active role in putting together