It could be one of baby boomers’ biggest fears in retirement: getting stuck in a nursing home and racking up thousands of dollars in bills. As retirees get closer to life’s finish line, that unsettling prospect raises the question: Do I need long-term care insurance?
To get some answers, we spoke with Bonnie Burns, a policy specialist with the nonprofit California Health Advocates, who’s had 30 years experience with the state’s long-term care – or LTC – insurance market. Here’s an excerpt:
Why is long-term care such a daunting topic?
It’s such a complicated area that most people don’t understand the complexity of long-term care. There are so many options: Home care, assisted living, nursing care, Medi-Cal. ... There’s no easy way to compare these policies because every single policy is different. These are not standardized policies ... so they’re organized differently from one company to another. You need to know whether you want comprehensive benefits (that include home care) or only benefits for institutional care, how large a daily benefit, what kind of inflation protection you want, how long you want the benefits to last.
What’s new with LTC coverage?
A lot has changed. Today, more and more people are staying home and receiving their care at home, then they move into assisted living. That’s a big change from 20-25 years ago. Many of those older policies don’t pay for the kinds of things people use today, like home care or even assisted living. Or some older policies had specific requirements to receive payments for home care, like requiring that it be skilled nursing.
Also, as people are living longer and dealing with dementia and other issues, a number of companies have dropped out of the LTC market. Many have had large rate increases. In other states, some charge higher premiums for women because they live longer and require more years of long-term care. There’s currently a bill (AB1553 by state Assemblywoman Mariko Yamada, D-Woodland) that would ban insurance companies from charging higher premiums based on gender.
Who needs an LTC policy?
That’s a hard question. All of this is economic, based on an individual’s needs and financial situation. There’s no easy answer. These policies are expensive, typically a couple of thousand dollars a year. Somebody who has $30,000 in income can’t afford the same thing as someone with higher income. ... People who are going to be on Medi-Cal (based on a low income) don’t need long-term care coverage. If you’re a renter with $20,000 in savings, long-term care coverage is not for you.
I’ve talked to people who are very wealthy but want to buy a policy and shift responsibility to an insurance company. Others say, “Why would I need this? I can pay for it myself.”
There’s no rule of thumb. There are no guidelines. Everyone’s financial situation is different. These products should be tailored to the individual’s economic circumstances, similar to life insurance.
At what age should people buy these policies?
Most people don’t need long-term care until their late 70s or early 80s, so if you buy a policy at a younger age you could be paying premiums for 30 years. You also could face a greater number of increases in premiums.
But, if you wait too long, you could be denied coverage, either for age or medical reasons. As a general rule, most companies do not take anyone over age 80.
Isn’t California stricter than most states about consumer protections regarding long-term care policies?
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. Insurance agents must have eight hours of training before they can sell LTC policies. The training must be repeated every two years when they renew their license.
Also, consumers have 30 days to review a policy once they receive it. If you change your mind, you can request a complete refund, with no explanations needed.
The average U.S. annual premium for an LTC policy was $2,283 in 2010. How cost-conscious should people be when buying these policies?
It’s hard because these policies are expensive. 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 approximate price for premiums, based on your age and type of coverage, the policies vary from company to company. And the older you are, the higher the premium.
How does your health history and age affect your ability to get an LTC policy?
This is heavily underwritten industry. The insurance companies are doing cognitive tests and lab tests that they didn’t do even two years ago. They’ve gotten much more aggressive with the underwriting, based on the number of claims they’ve had.
As a general rule, by time you’re nearing your late 70s, it’s less likely you will be able to obtain coverage.
What’s a “Partnership” LTC policy?
These are a California project started in 1994 to see if having long-term care insurance could save the state money. If you buy one of these Partnership products, use up your LTC benefits and then need to go on Medi-Cal, a Partnership policy lets you keep certain amounts of money that would otherwise have made you ineligible for Medi-Cal: the value of your house, your savings, etc. The policies have some added protections for consumers. The policies also require inflation protection of 5 percent. Insurance agents who sell them must take an additional eighthours of training.
What about those with existing policies who get hit with big premium increases?
When the market crashed, it wasn’t uncommon for us to see widows, living on Social Security and investment income, having problems paying their premiums. Once people have paid these premiums for several years, we don’t want them to abandon the policies. They should be able to keep some portion of that benefit.
To lower their premiums, they can change their benefits, such as reducing the coverage to five years instead of lifetime. Or they can reduce their inflation protection. (That might make sense for someone in their 80s, but not someone in their 50s.) In some cases, they may have the option of a “paid-up” benefit, where they keep benefits equal to what they’ve already paid in, but no longer have to pay monthly premiums.
How should families be involved?
“Involve your family members in what you decide to do,” Burns said. “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.
Burns recommends that consumers sign up for a “third-party notice,” so that if the premium lapses, you’ve named someone – an attorney or an adult child – to be notified who could step in to be sure you don’t lose the coverage you may need.
What’s the best advice for someone contemplating buying an LTC policy?
Do a lot of research. Get second opinions about what part a policy will cover should you need care. “Nobody needs 100 percent coverage for their long-term care costs,” said Burns. It should be based on a combination of what you foresee you might need in coverage, what care can be provided by friends, family and your own resources and what you can afford to pay in premiums.
Every county has a Health Insurance Counseling & Advocacy Program (HICAP). Before buying a policy, check with a HICAP counselor who can give an independent assessment of whether the coverage works for you.
Call The Bee’s Claudia Buck, (916) 321-1968. Read her Personal Finance columns at sacbee.com/claudiabuck.
Long-Term Care: What it is
Long-Term Care (LTC) insurance is designed to cover assistance with daily living activities, such as bathing, dressing, eating, toileting and moving from bed to chair. Generally, LTC policies kick in when a person needs help with at least two of those categories, either short-term or longer. The cause can be due to illness, injury or onset of dementia and Alzheimer’s disease.
Where: The care can be provided at home or in adult day care, a nursing home, assisted living or residential care facilities
Cost: Premiums varies greatly, based on your age, health condition and type of coverage. Coverage factors that can affect premiums: Amount of daily payments (typically $160-$220 per day), the waiting period before benefits start (also called “elimination period”), whether inflation protection is purchased and what long-term care facilities are covered (home care, residential facility, etc.)
How purchased: LTC policies are sold individually by licensed insurance agents, but also offered by some private employers, group plans or federal/state employers, such as CalPERS.
LTC: By the numbers
59: Average age of a U.S. consumer buying an LTC policy in 2010.
$2,283: Average annual LTC premium in 2010
8.1 million: Estimated number of Americans who have LTC policies, as of 2012
322,000: No. of Americans who took out new LTC policies in 2012
1.5 million: No. of Californians who used long-term care services in 2005
$94,900: Average cost of a one-year stay in a California nursing home in 2014
Sources: America’s Health Insurance Plans; American Association for Long-Term Care Insurance; California Partnership for Long-Term Care
Long-Term Care Insurance: Where to Get Answers
HICAP: With local offices in every county statewide, the Health Insurance Counseling & Advocacy Program (HICAP) offers free counseling on long-term care insurance policies, as well as on Medicare coverage. HICAP is sponsored by the state Department of Aging and California Healthcare Advocates. To make an LTC appointment or find your county’s local HICAP office, call (800) 434-0222 or check the website.
California Health Advocates: The nonprofit education and policy center, which coordinates with California’s HICAP offices, has extensive information, fact sheets and resources on long-term care insurance.
RUReadyCa.org: The website, sponsored by the California Department of Health Care Services, walks you through various scenarios in tackling long-term care, from “Do Nothing” to “Self-Insure” to “Buy Insurance.” It has easy-to-use cost calculators to estimate what you might pay in monthly/yearly premiums, based on your age and type of coverage desired, or how much you should set aside to self-insure. Also shows county-by-county costs of nursing care.
California Department of Aging: Its free buyer’s guide, “Taking Care of Tomorrow: A Consumer’s Guide to Long-Term Care,” walks you through long-term care and how to make choices. It’s available at local HICAP offices or by download. Also, anyone selling LTC insurance in California must provide potential clients with a copy of “Taking Care of Tomorrow.”
California Department of Insurance: The CDI website has detailed information on long-term care policies: what they cover, what to look for, how to choose an agent, etc. Its rate guide lets you do approximate comparisons of premium costs for LTC policies. It has a list of companies currently writing LTC policies in California and their history of rate increases. Its “Check License Status” tool lets you look up insurance brokers to check for any complaint/disciplinary history. Call (800) 927-4357.
NAIC: The National Association of Insurance Commissioners publishes a free booklet, “A Shopper’s Guide to Long-Term Care Insurance,” that can be found online or by calling your state insurance department’s consumer line: California is (800) 927-HELP. The guide has detailed worksheets to help consumers choose the coverage they need.