It’s a frightening prospect. You fall and break a hip and need several months of nursing home care. Or you’re recovering from a stroke and need help bathing and getting dressed each morning. Or your husband is slipping into dementia and requires assistance with daily activities.
Those scenarios are the type of care covered under long-term care insurance, known as LTC insurance.
As of 2012, an estimated 8.1 million Americans have bought such policies, which can cover anywhere from $160 to $250 a day for care at home, in assisted living or a nursing home. Although fewer people today spend lengthy time in a nursing home, the costs are daunting: a one-year stay in a California nursing home in 2014 cost an average of $94,400, according to the California Partnership for Long-Term Care.
But the policies can be pricey, and they’re not for everyone. Here are some questions to consider if you’re contemplating whether to buy an LTC policy.
A lot has changed, said Bonnie Burns, a long-term care insurance expert with California Health Advocates, a nonprofit that promotes education and counseling for Medicare and LTC coverage. Today, more people receive long-term care at home, from family, friends or paid caretakers, than move into assisted living. “That’s a big change from 20 to 25 years ago,” when most people went to nursing homes, she said. “Many of those older (LTC) policies don’t pay for the kinds of things people use today, like home care or even assisted living.” Some older policies also had specific requirements before they’d make claims payments, such as requiring that in-home care be provided by skilled nurses.
Today, LTC policies offer lots of choices, including how many years you want to collect benefits, how much per day, where you want to receive care and if you want inflation protection. Also, as people are living longer and dealing with dementia and other aging issues, a number of companies have dropped out of the LTC market altogether because it was no longer as profitable. Large group plans, like that offered by CalPERS, have struggled recently with higher-than-expected claims and rate increases of as much as 85 percent. Many companies have had to initiate rate increases of 40 percent or more to cover unexpected expenses due to a high number of claims.
In other states, some insurers are charging higher premiums for women because they live longer and require more years of long-term care. In California, there’s a bill (AB1553 by Assemblywoman Mariko Yamada, D-Davis) that would ban insurance companies from charging higher premiums based on gender.
There’s no easy answer, said Burns. Somebody who has $30,000 in income can’t afford the same premiums as someone with $250,000 in income. “If you’re a renter with $20,000 in savings, long-term care coverage is not for you. You’ll qualify for MediCal coverage in a heartbeat,” she said.
Some choose to self-insure, feeling confident they can pay out-of-pocket should the need arise. Others prefer to buy a policy so they don’t drain money from funds or assets they want to pass on to their children.
“There’s no rule of thumb. There are no guidelines,” said Burns. “Everyone’s financial situation is different. These products should be tailored to the individual’s economic circumstances, similar to life insurance.”
“It’s an expensive product,” said Margaret Reilly, program manager for the Health Insurance Counseling & Advocacy Program (HICAP) office in West Sacramento, which covers nine Northern California counties. The average annual premium for a U.S. long-term care policy is about $2,283.
“If you buy it young, you might get a decent rate,” she said. “If you try to buy it later, you can be denied,” either for age or health reasons. “If you have any medical conditions, like cancer or high blood pressure, you can be denied coverage or charged exorbitant rates for premiums.”
Generally, it doesn’t make too much sense to buy a policy before your mid-50s, Reilly said. “It’s just years of additional premiums and most of us would not need long-term care in those younger years.” But, she said, you want to consider your family’s medical history, as well as your own health issues, and obtain a policy before you get a diagnosis that could eliminate you from consideration. “The older you get, the harder and more expensive it is to buy a policy.”
And be prepared to be quizzed before you buy a policy. Many insurers are more closely scrutinizing your medical history, even asking for cognitive tests, before agreeing to issue a policy.
Talk to a licensed insurance agent who’s been certified to sell LTC policies. You want a company with a good track record and minimal number of rate increases. (To check on insurance agents or LTC company rate histories, go to the state Department of Insurance website, www.insurance.ca.gov.)
Or contact your county’s HICAP office, which has counselors who specialize in long-term care policies. “We will happily review a policy with anyone who’s considering buying a policy,” said Reilly, who works in HICAP’s West Sacramento office, which serves nine counties. HICAP counselors will also meet with those who bought a policy years ago but don’t know how to access it or what it covers. “You’d be surprised how often that happens. A husband or wife buys the policy but when it comes to using it, their spouse doesn’t know what it covers.”
“In California, because we’ve passed so many consumer protection laws, we have some of the highest standards in the nation for these (long-term care) products and for the agents who sell them,” said Burns.
Licensed insurance agents must have 16 hours of specialized training in the first two years of selling LTC policies. Consumers have 30 days after receiving a policy to review it; if they change their mind, they can return the policy and receive a full refund of any payments, with no questions asked.
If you get a letter about a rate increase, carefully review it, said Reilly. Some companies raise premiums at certain ages, like 65 or 70. Other companies re-evaluate their policies and raise premiums based on unexpected levels of claims.
When premiums hikes are significant, some insurers offer a one-time chance to convert to a “paid-up” policy, said Reilly. “Every dollar you’ve already paid in will be held in reserve until needed. You’re giving up the policy, but not losing the money, if you need the care,” she said.
But it’s not automatic. The offer comes in a letter, asking you to accept or decline. If you do nothing, the company presumes you’ve accepted the rate increase, she said.
“It’s hard because these policies are expensive,” said Burns. “There’s no easy way to make an apples-to-apples comparison, so people tend to buy based on price. But if you buy a lower-priced policy, you might very well buy something that’s going to have a rate increase down the road.”
Although the state Department of Insurance and others offer online rate comparisons that will give you an approximate price for premiums, based on your age and type of coverage, exact policies vary from company to company. The older you are, the higher the premium.
Involve your family members in what you decide to do, said Burns. “When you need the care, you won’t be the person dealing with the insurance company.” Several years ago, she had a case where a parent died and the estate went through probate. When the safe deposit box was finally opened, the family found a long-term care policy that no one had known about. The premiums hadn’t been paid so it had lapsed.
She recommends that consumers sign up for a “third-party notice,” so that if the premium lapses, you’ve named someone to be notified. It could be a relative, an adult child, an attorney or someone who could step in to be sure you don’t lose the coverage you may need.
Do a lot of research. Get second and third opinions about what a policy will cover should you need care. “Nobody needs 100 percent coverage for their long-term care costs,” said Burns. It should be a combination of what you can afford to pay in premiums and what you might need in coverage.
Before you buy a policy, sit down with a HICAP counselor who can give you an independent assessment of whether the coverage works for your needs.