They’re not like many thirty-somethings, but Vickie Seabon-Moore and her husband, Kenneth, saw the light three years ago when they decided to sign up for long-term care insurance. They signed up shortly after Seabon-Moore’s mother died, after seeing her illness drain her resources and then pose a problem for her children.
In 1999, Seabon-Moore’s mother developed acute leukemia at age 69 and was bedridden. She needed help at home, but the family had no insurance to cover the costs of a home attendant or a nursing home, services that would have totaled $40,000 a year or more. “There were six of us, but I was the only one who could really devote time,” Seabon-Moore says. “It was a strain. I essentially sat out a year of work until she passed in 2000, so I saw firsthand how costly care could be.”
During that experience, Seabon-Moore, 35, realized that she needed backup in case she was also stricken with the disease. Now a financial consultant for a bank in Rochester, New York, she wanted to protect Kenneth, 41, and their three children, Eric, 8, Katie, 4, and Brennen, 1. “I want my kids to be free to start their own families and live their lives,” she says. “And at this age, coverage comes to about $75 a month.” Seabon-Moore settled on coverage that provides $300 a day for a home attendant or nursing home stay. She also opted to have her payout keep up with inflation.
Concerns like Seabon-Moore’s affect millions of families every day. According to the 2000 U.S. Census, the number of people 65 and older is expected to mushroom from 35 million in 2002 to 70 million by 2030. This growing population is also expected to live longer, making it more likely that, at some point after age 65, they will require some form of additional healthcare assistance. That’s where long-term health insurance can help.
SURVIVING WITHOUT COVERAGE
Without insurance, trying to pay the cost of a home attendant or nursing facility — whether for a parent, older relative, or yourself — can wipe out your savings and any money you plan to leave your heirs. That’s why long-term health insurance should be a major consideration when crafting your overall financial plan. According to AARP, a consumer group that represents the interests of senior citizens, the national average cost of a nursing home is $4,654 a month, or about $56,000 a year — expenditures that could be saved with long-term care coverage. “In a state such as New York, that number can easily go over $100,000 a year,” says Enid Kassner, senior policy adviser for AARP. The average outlays for home care services are equally steep, averaging $37 an hour for a licensed nurse and $18 an hour for a home health aide.
While there may be some confusion over exactly what is covered by long-term health insurance policies, the need for them is undeniable as we approach old age. Consumers should understand that policies don’t pay the costs of medical treatments or medications. Long-term coverage pays for the help some senior citizens need to perform the basic functions of day-to-day living, Kassner explains. This can include the cost of a home attendant to monitor daily activities or assist with cooking, eating, dressing, bathing, or getting around the house. It might also provide for the cost of an assisted living center or a nursing home.
Experts say the forces of supply and demand will likely make the limited number of home attendants, nurses aides, and space in nursing homes much more expensive in the near future. The Department of Labor, for instance, estimates that the cost of a semiprivate room in a nursing home is projected to increase to $190,600 annually by 2030, up from $52,000 currently.
With escalating financial realities like that looming, it makes sense to consider coverage sooner rather than later. AHIP reports that the average premium for a good policy with inflation protection at age 50 costs $1,134 a year, compared with $2,346 a year at 65, and $7,572 a year at 79. MetLife, one of the largest insurers of such policies, breaks down annual rates this way: a five year benefit period, 5% compound inflation, home care plus rider, and return of premium rider will cost approximately $607 a year for a 30-year-old, approximately $742 for a 40-year-old, and approximately $881 for a 50-year-old.
“Most people in their 40s and 50s aren’t ready to start thinking about this sort of purchase,” says Kassner. “But the shame is to wait until your 60s, when the cost is higher, or come across a health condition that will disqualify you from coverage.” Still, MetLife financial adviser Lloyd Bowen says he sees people understanding the importance of coverage at an earlier age. “I’ve recently been working a lot with three groups: baby boomer parents who realize they are living long and want to maintain their independence, 30-year-olds who are taking out policies for their parents, and finally small business owners who can write premiums off.”
MEDICARE VS. LONG-TERM CARE
For many years, long-term coverage was not a concern for Joe Evering. He focused his attentions on career and family, working his way up to chief executive of the Harvard Street Neighborhood Health Center in Dorchester, Massachusetts, a health clinic not far from Boston. He watched his five kids grow up, move out, and establish families of their own. But three years ago at age 58, Evering had a revelation. Working at the clinic, he saw firsthand how older patients often found that Medicare wouldn’t cover the costs of nurse’s aides or in-home care. With his mother, Gladys, well into her 80s and diabetic, Evering began thinking about what might happen in the future. “I have three sisters [along with] myself who can pitch in should she need help, but if she needs long-term care, we wonder if it is going to have to come out of pocket,” he says.
Evering also began thinking about his children and how his own advancing age could affect them. The fact that he might 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
rce.
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 coverage that best suits your needs. We’ve listed several steps below to help you establish coverage on your own or through your employer.
Be frank, be thorough. MetLife agent Lloyd Bowen recommends that you make a frank assessment of what financial resources your family would be able to provide in a situation where long-term care was needed. Conduct the same assessment if you are taking out a policy for a parent or grandparent. Bowen says it is important to be honest and list all limitations.
Next, consider where you would like to recover from your disability. Your preference might be to stay at home and be as independent as possible. Or you might choose an assisted living community, where you can remain on your own but still be under the care of a professional staff. AARP’s Kassner suggests including a number of contingencies in your plan in case you need more monitoring or care than you originally planned.
Consider a policy sooner rather than later. The sooner you sign up, the smaller the amount you’ll have to pay each month. Insurers have age limits for these types of policies. For example, you can open up a long-term care insurance policy with MetLife until the age of 84. And while some policy makers will allow you in later, many limit the benefits they pay out and take a smaller percentage of applicants after age 79.
Research the company and the agent. Bonnie Burns, a training and policy specialist with California Health Advocates in Santa Cruz, California, says the company issuing/selling the policy is as important as the policy you finally sign. Given the financial troubles some carriers have had, she suggests sticking to firms with a solid track record in the business. According to AHIP, some of the larger insurance companies that issue long-term care insurance policies include Northwestern Mutual, New York Life, Prudential, MassMutual, State Farm, and MetLife. In 2004, 104 companies sold long-term care insurance, down from 120 companies in 2001. But just 13 of those companies sold 80% of all individual policies.
Burns says that consulting ratings agencies such as Standard & Poor’s, Moody’s, and Fitch are a good way to determine the financial health of your insurer. Opt for a carrier with the highest grade.
Your state’s departments of insurance and aging can also shed light on the reasons behind any rate hikes an insurer has implemented in the past few years.
Don’t short-change your coverage. Before you rush out to get a policy, AARP’s Kassner says you need to establish a basic financial safety net. “If you’re in your 50s and you haven’t started saving for retirement first, you should,” she says. “You need to have health, disability, and finally life insurance in place before you establish long-term care insurance, particularly if you have dependents.” MetLife’s Bowen also cautions, “People need to realize that taking out a policy should be more need-driven and less cost-driven; you don’t want to [not get enough coverage], but at the same time you shouldn’t end up paying for coverage that you don’t need.”
As a rule of thumb, Kassner says a good policy will contain a $150 a day benefit, an amount roughly equal to the average national cost of a nursing home. She recommends that you opt to include compound inflation protection in your policy. “If you are under the age of 70 and you don’t pick up inflation protection, you are essentially guaranteeing that your policy will not be adequate,” she stresses. “You may be tempted to opt for a policy paying $70 a day, but remember that you are leaving an $80 a day deficit, or a $2,400 a month shortfall, something most people cannot afford to bridge.”
Read up. Learn about long-term care insurance and assess your needs. Start with the Websites for AARP (www.aarp.org) and AHIP (www.ahip.org), which provide a wealth of information. Your state insurance agency can be found through the National Association of Insurance Commissioners (www.naic.org), an organization that represents local regulators. Staying informed is important whether you make a decision today or in the near future.
LONG-TERM CARE ASSISTANCE
Resources are available on the Internet to help you decide on the best policy for you and your family and to help you investigate companies before you buy coverage.
The Basics
Read AARP’s guide to long-term care insurance (www .aarp.org/financial-insurance/Articles/a2002-08-13-Insurance LongTermCare.html). The link presents readers with explanations of coverage and a step-by-step guide to finding insurers and judging their financial wherewithal. AARP also publishes a pamphlet with MetLife that contains useful information and serves as a guide to long-term healthcare with aging parents. Both publications are available by calling 203-221-6580, or you can e-mail maturemarketinstitute@metlife.com with a request. The AHIP Website (www.ahip.org) has helpful information as well.
The National Association of Insurance Commissioners publishes a pamphlet titled A Shopper’s Guide to Long-Term Care Insurance that is available online for sixty cents. Visit the site at www.naic .org/insprod/catalog_pub_consumer.htm. You can also get information about state insurance regulators through the NAIC site. California’s state site provides a list of long-term care rate hikes you may want to examine (www.insurance.ca.gov). Once you arrive at the site, click on the button marked “Consumers.” Your state’s insurance commissioner’s office will have a file on rate increases as well.
To find out how insurance agencies rate, visit Moody’s (www.moodys .com) or call 212-553-0377; Standard & Poor’s (www.standardand poors.com) or call 212-438-2400; or Fitch Inc. (www.fitchibca.com) or call 212-908-0800. — J.A.A.